The Valor Blog.
Investment News and Views, Direct from Our Team.

Lazard Asset Management Spin

Lazard Asset management have a big write up in the The Australian today about the banks and the Australian property market risks.

I completely agree with what they say, however they don’t agree with themselves.

Their Australian Equity fund is still 30% financials???

Their other fund is 8% QBE, which is the subprime of the Australian property market through their LMI subsidiary???

As Charlie Munger Said: “To the man with a hammer, everything looks like a nail”. I feel sorry for those bound to only investing in Australia at present when the great majority of investments are tied back to irrational moves in Chinese debt based growth, leveraged residential property and leveraged banks.

When the tide turns, Lazard, who are well aware of the issues are unlikely to protect capital in the way that they should.

The secret to creating wealth is to avoid losing money. As Buffett Says:

Rule Number 1: Don’t lose money.

Rule Number 2: Don’t forget rule number 1.

With the growing leverage in housing and financials, there is an increasing risk of losing significant amounts of money over the coming years.

Australia is not an exception to global markets. We will have a recession again one day. When our guaranteed recession eventually comes, there is no floor on the prices of most financials. When financials are close to 50% of the share market, there could be much more pain than needed to be if there were appropriate controls on housing and bank leverage, combined with appropriate and enforced controls on foreign investors. The lack of supervision and terrible incentives mean owning financials tied this extreme leverage is not rational at present.

Whilst no one has any idea of the exact trajectory of markets, the sentiment of the property and financial markets is that they will continue their increasingly risky ascent. The further it goes up, the larger and more painful the correction will be.

If the leverage continues to grow from here, then the eventual downfall could mean that Australia becomes a much less desirable place to live. With youth unemployment already at alarming levels, any significant increase from here could cause noticeable increase in crime rates. Would a leader in Australian politics please stand up and get real about the problems that Australia faces, before it gets worse.