Comments from Wall Street – Dielli

By Nick Markola, CIMA^®/

Last year was a very good one for investors in developed market equities but not so good for emerging market investors. Typically markets that do well one year, could be expected to do less well in the coming years. Or, for a market that does poorly one year, the question is asked whether it will do better in the coming years. The question that some may ask is what to expect from emerging markets this year and what implications could this have for Albanians or Albania. In short, markets always provide opportunities and risks, one just has to be diligent and focused in finding opportunities while aiming to minimize risks.

Developed markets, as measured by the performance of the Standard & Poor’s 500 Index, were up over 30% last year. Or, as measured by the MSCI EAFE Index, developed markets were up over 23% for 2013. Emerging markets on the other hand did not perform well, and, as measured by the MSCI Emerging Market Index, lost 2.27% last year. Statistics on how well Albania or Kosova did last year are still unclear but it is reasonable to assume, their economies did not do as well as the equity markets of the developed countries. It is very important to also note that performances of economies are not directly correlated with market performances, meaning there may be instances where an economy does well but the market does poorly or the other way around. The answer to the question on how well did the Albanian investors do depends on their exposure to the markets. Investors that were fortunate enough to be exposed during 2013 to developed markets probably did quite well. Folks that were not exposed to developed markets or the ones that were simply on the sidelines, they probably missed an opportunity.

Emerging markets are going through challenging times which is not a secret. That in itself presents opportunities for those willing to be diligent and do the hard work. That presents a great opportunity for Albanians. It is worth noting that part of the reason for the decline in the emerging markets is derived from the fact that the US Federal Reserve announced last year it will wind down its quantitative easing program. This in return slowed down the capital flows into emerging markets. One needs to dig a little in the past history to understand the current issues with emerging markets. Some good stops in that history quest should be the 1980s Latin American debt crisis, the 1994-95 Mexican Peso Crisis and the 1997-98 Asian financial crisis. Every crisis is naturally different from past ones, but a good analysis of the past ones does not hurt, it just helps Albanians in potentially figuring out opportunities.

Today, the crisis in emerging markets seems very deep. There are massive demonstrations in Singapore and Venezuela, where some high profile citizens have been the casualties. There are ongoing protests in Turkey and the unrest in Ukraine has turned bloody, with a large number of fatal casualties in the ongoing clashes between the government and the opposition. Ukraine is facing a large deficit and in the quest of resolving it, the Government has decided to align itself with Russia. This is not sitting well with part of the population and peaceful protests in Kiev have turned deadly. According to media reports, government forces have fired live ammunition into the demonstrators and there are reports that demonstrators are firing back. It is a scene that nobody likes to see anywhere in the world, regardless of how far or how close it is.

Demonstrations and clashes on the streets of emerging market countries have a spillover effect into capital markets, hence a potential reason why the markets are down. There are some fears that clashes in Ukraine will result in the devaluation of their currency and a contagion effect into the rest of Eastern Europe. The effect on the Russian Ruble, Hungarian Forint and Romanian Leu remains to be seen. While waiting to see the impact of the crisis, Albanians can consider being proactive in their own countries of Albania or Kosova. People are quick to criticize the government and the institutions for not doing enough. And yes, governments have a lot more to do. Well, while there is turmoil in the emerging markets and there are issues in Eastern Europe, this may be the time for some Albanians to roll up their sleeves and get to work. Criticizing the government and institutions may or may not generate any results; however, investments in Albanian lands may be a lot more beneficial and promising for several reasons.

Such investments could help fill the potential void from disruptions in Eastern Europe or other parts of emerging markets. It also provides with the opportunity to shape the outcome on the ground in Albania or Kosova. While governments may or may not respond to criticism or demands for a different course, a direct investment in companies and the businesses on the ground is more efficient as Albanians can themselves lead such entities in the direction they want and effect the change they desire. Investors and doers are different from others because they simply do what others don’t. Instead of waiting for the government, or for others to do things, by investing in companies and businesses on the ground, Albanians simply have the ability to get it done themselves. They will also learn firsthand about issues and challenges which they can bring to the governments attention to be resolved. They can also show others how things need to be done. This could benefit them as investors and operators, as Albanian and equally important provide much needed employment for other Albanians. At that point, their voice could also carry more weight.

In conclusion, crisis in the emerging markets are unfortunate. Loss of life anywhere in the world is unacceptable and condemned in the strongest fashion. However, crisis could also provide some opportunities for those that are willing to work diligently or have a vision. Emerging markets are currently experiencing turbulent times. Albanians should not shy away from working hard and smart to explore investment opportunities. Looking for companies and businesses on the ground to invest may not be a bad start. It could turn into a rewarding journey, in addition to providing a moral satisfaction or a greater good for the unemployed or underemployed folks at home who eagerly look west for their sunrise.

* The writer is the President of the Vatra Westchester NY Branch and the Co-Founder of APEN

By Nick Markola, CIMA^®/

For centuries, long before the beginning of the recorded history, gold has been a sought-after precious metal for coinage, jewelry, and other arts. According to the Wikipedia definition, gold is a dense, soft, shiny, malleable, and ductile metal. It is a chemical element with the symbol Au and atomic number 79. In Latin Aurum means glow of sunrise. Others believe that it means shining dawn or glowing dawn. While true origin of the name or its factual meaning can be debated, the fact that gold has made a permanent place in some investor portfolios, or holdings of Central Banks globally isn’t for much debate. Some investors have had gold in the portfolios for a long time but it appears as if the media coverage of gold has increased since the Great Recession of 2008 and early 2009. More recently, in the past few weeks, after years of steady positive returns, gold experienced a price decline not seen in the past 30 years. The double digit price decline left investors asking, is this a time to totally get out of gold, stay on the sidelines or buy.

Over the centuries, gold has been used for monetary exchange. Entries in Wikipedia explain that this was done either by issuance and recognition of gold coins or through gold convertible paper instruments by establishing gold standards in which the total value of issued money is represented in a store of gold reserves. The first gold coins of the Grecian age were struck around 700 BC. European economies re-established the minting of gold as coinage during the thirteenth and fourteenth centuries. In fact, at the beginning of World War I, the warring nations, in order to inflate their currencies and finance the war, moved to a fractional gold standard. It was not until after World War II that gold was replaced by a system of convertible currency. This was done after the Bretton Woods Conference at Bretton Woods in New Hampshire in July of 1944.

For a long time, gold has been used as an investment, however storing it for investment purposes is a challenge. Many holders of gold store it in the form of a bullion (the word bullion originates from Frecnh which meant “boiling” or melting house) coins or bars. Typically, investors hold gold as a hedge against inflation or other market declines and economic disruptions. Gold is also widely used in jewelry. This is the part that many Albanians know well, especially the young brides. As we know, in some parts, the family’s worth or status is measured by how much gold jewelry they lavish on a bride. For all the young grooms and their families, there was some good news around the 15th of this month. After rising six fold in the past 12 years, (yes, that is correct, gold rose six fold in the past 12 years) gold prices plunged 9.1% on April 15, 2013. This was the largest the largest drop in gold prices since 1983. Now the grooms and their families can save some money, with lower gold prices, in their quest to impress the bride, her family and all onlookers. Gold prices peaked and reached the all time high of $1,921.15 an ounce in September 2011. Last week, the yellow metal tumbled to its 26-month low price of $1,347.95. This is an approximately 30% drop in the price of gold from its peak, thus making it all more affordable for the young Albanian grooms to lavish and shower their brides with gold jewelry.

Many investors are scrambling how to interpret the recent decline in gold prices and are asking whether this is a good entry point or should they wait longer. Others that had not ventured in the yellow metal may have more questions about the recent price decline. One of the questions that may be on many investors and potential investors’ minds is what triggered the decline in gold prices recently. We all know that gold is a precious metal with a limited supply. According to GFMS Ltd. an independent precious metals consultant specializing in gold and based in London, only a 171,300 tons of gold have been mined in the entire human history. Gold supplies furthermore are limited and finite. The answer to the above question appears to be Cyprus. Cyprus was in the news in the past few months after they needed a financial bailout and depositors in their largest bank sustained large losses. There were subsequent reports The Central Bank of Cyprus may have to sell its gold reserves as part of the conditions to Europe’s bailout of the island. It appears that some investors may have been nervous that such a move would push the gold prices down and they did not want to take a possible hit. Some believe that this led to a rush for the exit and a chain reaction that followed probably lead to the biggest drop in gold prices in 30 years. The end result was an approximately 30% price decline in gold from its peak in September 2011. Many Central Banks took a hit as the value of their gold reserves declined significantly. For example the Reserve Bank of India saw the value of its gold reserves drop from $34 billion in September 2011 to $24 billion last week.

It remains to be seen where gold prices go from current levels. Baron’s reported that last week, hedge funds reduced by 8.2% their bets on lower gold prices, while they left the same their bets on a rally in gold prices. Some Central Banks have been vocal to argue that the drop in gold prices is a buying opportunity. However, it remains to be seen if they are putting their money where their mouth is, or whether they are just looking to support an increase in price of gold via their comments so the value of their gold reserves increases too. In any event, gold could be a diversifier in some investment portfolios. Doing your homework is key and the most important step. It is more important than playing the dangerous game of trying to predict prices. Before deciding whether you are a long term investor in gold, or just a speculator, take the time to do exhaustive homework. Who knows, the result may just surprise you.

* The writer is the Co-Founder of APEN and the President of Vatra Westchester Branch

Comments from Wall Street – Albanians and Emerging Market Investments

Comments from Wall Street – Gold Standard