Telltale Numbers Gave Madoff Away

This is the conclusion of the preliminary investigation by two professors at Edhec business school into the warning signs that investors in Bernard Madoff's alleged Ponzi scheme missed. "The reality is that the warning signals were there and the salient operational features common to best-of-breed hedge funds were missing".

The most interesting part of the study is the analysis of the results that one of the feeder funds which channelled into Madoff's investment strategy reported to its investors. Over the seventeen years of this fund's operation, it delivered an impressive track total return of 557%, with not one single down year and fewer than 5% negative months.

Anyone with a simple spreadsheet could have worked out that the volatility of these returns was absurdly low, 2.5% p.a compared with the S&P 100 index's 14.8% p.a over the same period. The maximum drawdown was 0.6% p.a for the Madoff fund and 49.1% for the stock market index. The S&P 100m index was the one that Madoff claimed to be adopting his split-strike conversion strategy over.

As always, the wonder in such cases is that so-called professionals can be so easily confounded by the lack of even the simplest statistical analysis. If press reports are to be believed, the evidence emerging from the investigations into Madoff's operation suggests that he made no investments at all in securities for at least 13 years (and it may turn to have been even longer).

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A Long Term Perspective (FT Column)

This is the original text of my latest FT column which appeared today. Because of space constraints, sometimes the column has to be cut to fit the available space, so I offer here the full version as originally written. (No newspaper is going to turn away an advertisement in the current environment, so writers have to accept the demands of their medium!).

"The official guardians of the truth about historic returns from equities and bonds have delivered their verdict on current market conditions. “While investors should keep faith with stocks” say Elroy Dimson, Paul Marsh and Mike Staunton, authors of the annual London Business School/Credit Suisse Global Investment Returns Yearbook, “they should not harbour fantasies of an immediate return to either previous (and with hindsight unrealistic) market levels, or to previous high rates of return”.

“Markets” the three academics go on “are likely to take a long time to recover from the battering they have received during the credit and banking crisis”. They estimate that the odds on the FTSE 100 index regaining its previous high before 2013 as no better than 50-50, and the probability that it does not do so within 10 years as a far from insignificant 25%.

In other words, investors who rely on history as a guide to future returns should allow for disappointment. Although mean reversion is a staple feature of stockbroker economics, it is far from infallible. “Our evidence” say the LBS trio “is consistent with the view that it is hard to improve on extrapolation from the longest history that is available at the time forecast is being made”. On their analysis, this points to a forward looking equity risk premium of around 3.0%-3.5% per annum.

In the context of predicting future market returns, the academics are on solid ground in rooting their projections of market returns on long run historic probabilities, rather than on the more simplistic heuristics, typically based on much more recent data, favoured by the broking community. The truth is that at any point in time the market’s future behaviour encompasses a range of outcomes that no single point estimate (let alone any salesman’s pitch) can adequately capture.

The dispersions around any single point estimate can be extremely wide. History in due course provides a verdict on what happens, but the direct causal link between starting point and later outcome is tenuous. The best investors can hope for in practice is that market valuations become so extreme that the ex ante odds on a favourable outcome move from being evenly balanced to strongly positive.

This is what happens at tops and bottoms in the market cycle, with the caveat that there is no guarantee even then that any trend must eventually reverse. The Russian stock market, to take one extreme example, simply went to zero following the 1917 revolution. There never can be any certainty that the assumptions on which investors have based their decisions for many years will continue. The history of the equity risk premium itself (rarely observed in the first half of the twentieth century, rarely out of evidence in the second) is testimony to that.

Such uncertain dynamics make the current markets particularly interesting. No practitioner needs an academic to tell them that the 2008 market meltdown was a near unprecedented event in terms of its depth, its global nature and the extraordinary correlations of returns across most markets and asset classes. The range between the best and worst performing stock market last year, for example, was narrower than in any previous severe market crash, making nonsense of many diversification strategies.

Making forward projections in these conditions is more than usually unreliable. The rules of the game are changing, with increased government intervention, higher taxation and unprecedented State and central bank intervention in the financial system all likely to have an impact on market performance over the next few years. The risk of policy errors remains high.

While a perspective based solely on historical data would suggest that equities are now at or just below fair value, that government bonds at today’s prices are only for the brave and that all fiat currencies must be a sell against gold, only the last view is wholly persuasive. Even Jeremy Grantham of GMO, as passionate an advocate of mean reversion as you will find, acknowledges in his latest quarterly letter that while the barometer for equities has swung from stormy to fair, that may not be reflected in market performance any time soon.

The current market crisis would be a historical oddity if it ended here, given the propensity of markets to overshoot on the other side of fair value. That could make equities fall further and bonds generate decent returns even from their current negligible starting yields. After last week’s market action, which saw the Dow Jones Industrial Average flirt with an important technical floor, its November lows, some would argue that the process has already begun.

As a dyed-in-the-wool contrarian, Mr Grantham bemoans the fact that the odds on further falls in sterling, the US housing market and risk aversion (to name but three of his “sure things” a year ago) are no longer sufficiently good to justify a big bet. A market environment in which the odds are evenly balanced is an uncomfortable one for anyone whose livelihood depends on holding – and acting on - a bold and unambiguous market view. But that is where we seem to be today, as the worried tone of many of my professional friends attests. There is a case for buying equities today, but the evidence is not yet clear-cut.
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An Important Technical Signal

You may not have read much about it so far, but last week saw an important technical signal in the behaviour of Wall Street which has led the doyen of market-watchers in the United States, Richard Russell, to declare that we are now formally in a new bear market. This is what he had to say after the Dow Jones Industrual Average breached its November lows on Thursday last week, thereby confirming the earlier similar move by the Dow Jones Transportation index.

"I just went through 12 newspapers this morning. Not one mentioned the fact that under Dow Theory, the primary bear market was re-confirmed yesterday. I find that very ominous. In a multi-trillion dollar business, nobody knows how to read the market. Let's see whether Barron's says anything tomorrow. News travels across Wall Street in an instant".

"Did the recent great bull market start at Dow 776.92 in 1982 or Dow 759.13 in 1980? I picked 776.92 in 1982 as the start of the bull market. The bull market ended in October 2007 at Dow 14164.53. Turning to the 50% Principle, the halfway level of the entire bull market of 1982 to 2007 is 7470. Yesterday the Dow closed at 7466, 4 points below the halfway level".

"On this basis, the 50% Principle has turned bearish. According to the 50% Principle, if the Dow closes below the halfway level of the preceding major advance, the Dow can decline towards and even test the level from which the advance started. To do that, the Dow would ultimately have to test the area from which the bull market started -- that area was 776.92".

"Could that happen? I have no idea, but I'm merely relating the possibilities under the 50% Principle -- a study I learned from the great Dow Theorist, E. George Schaefer. But wouldn't a return to the Dow 776 area be catastrophic? I'm sure it would be, but a year ago who would have thought the Dow in February 2009 would be at 7468? The market is a law unto itself, and the market doesn't care about human triumphs or human misery. I'm merely repeating stock market mechanics as I know them".

"One of the mechanics is the 50% Principle. The monthly chart follows the Dow from it's bull market beginning in 1982 to the present. The horizontal red line identified the halfway level of the great bull market. As I write, the Dow is below the 7470, the 50% level. Not a pretty picture, but it's reality.The Dow is now fluctuating around the 50% level. This is a level so critical that it would not surprise me to see the Dow hesitate and flounder around in the 7470 area. This will serve to confuse and even encourage investors ("maybe we really are at a bottom")".

"My advice, don't let the market fool you. The path of least resistance continues to be down. Banks -- I find it hard to imagine the market turning bullish while the banks remain in trouble. I've been watching BKX, the banking ETF, which continues to slump to new lows. Worse, MACD is about to give us a new bear signal as the histograms sink into negative territory".

Whether or not you believe in technical analysis, or indeed in Dow Theory, you will get the drift. It is clear that the breach of the November lows on Wall Street is an important psychological milestone in market evolution. Nobody should underestimate how widely read the 84-year-old Richard Russell is among investors, and if he has turned negative, you can be sure that there will be many more who will take his views on board and adopt a similar attitude.

He is also surely right that as long as bank stocks stay so weak, it is unlikely that a new bull market can begin, and all the more likely that the bear market has another downward leg to absorb. Like Mr Russell, my view is that gold is the only certain antidote to the renewed wave of negative investor sentiment that is likely to follow this cathartic moment. Despite the hopes of many, it looks like we could be in for a long, hard year.

When I asked the well-known money manager Ken Fisher recently for the results of his annual survey of market forecasters' opinion, he told me that pretty much the entire sample was concentrated between a range of minus 6% to plus 21%. In other words, no forecaster was predicting was either a big negative or a big positive year on Wall Street.

Yet in most years the one certainty you can put money on is that the actual outcome in any given year will not fall within the range suggested by consensus opinion. It would be no surprise therefore if we experienced a big move in world markets this year - and the way things are going, it seems as if that move is more likely to be a large negative move than a large positive one. Disappointing if true.
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More Thoughts from Crispin Odey

This is an extract from Crispin Odey's 2008 Annual Report. The hedge fund manager had an excellent year and is of the school that inflation is now the coming enemy - the only question being when and how long we take to get there. (It is my view too, for what it is worth).

"Keynes believed that economics was a polemical science. He made economics popular
and powerful because he abstracted ideas that in the workaday world looked sensible
and showed them to be dangerous if followed by everyone. Thus he changed the way
that policy makers and people thought. Has there been a better time to renew the
challenge?"

"Given that all of this is a long way away from being accepted we must reluctantly
conclude that the world economy is not yet in a recovery position. The recession only
started to get into its stride in September of last year. Most companies will have been
guilty of over-trading as they have sought to cover falls in orders by accepting any
orders. They will be finding themselves with customers going bust and inventory still
rising. Profit numbers will be dire. The only good news is that at some point the
survivors will be able to charge more for less, and margins will be higher on the other
side of this hill".

"Current investments come about from the outstanding opportunities being opened up by
the pain from the falls in share prices that we have seen over the last year. This anguish
is sorely felt by us all but it is also the time to be investing. We have become big buyers
of the UK clearing banks. This reflects quite how cheap they are. The shares are trading
like options. After Northern Rock and Lehman Brothers, many are now convinced that
they will be nationalised. However, the government has realised that nothing is solved
by nationalising them, and in the UK’s case, that there is everything to be gained from
letting them live. In an election year who else has Brown got to blame?"


"Given that on
the other side of this disaster these banks can earn multiples of their current share price,
the risk/return is wrong. In many ways these purchases remind me of Marconi, when the
share price fell to 10p but the lack of covenants on the £4 billion bank loan meant that it
could not be bankrupted for four years. We made 450% on that trade. Hopefully these
banks will fare better and for longer. Given time and distance they will be fine".

"This is because the markets have been giving misleading signals for some time. Wheat
is a typical example. There is barely any surplus supply over demand in wheat. Yet last
year farmers found themselves with rising input costs, thanks to the oil and fertilizer
price hikes, and then falling incomes with wheat prices that were some 60% off their
highs. They had one of their worst years ever. As a result this year plantings are way
down, farmers are distressed and in Brazil and Argentina facing droughts. The wheat
price is likely to soar".

"All in all I expect that within 12 months government bond markets will go into a bear
market which may be long and protracted. The stockmarkets remain good value and
would prosper after some worries if inflation came back and my portfolio should do
quite well in that environment. However it remains hard work in the main".
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Andrew Smithers: Equities are Good Value!

Those of us who have been following the work of the independent market analyst Andrew Smithers for many years (and my experience goes back more than a decade) never thought we might live to see this day. But here it is - an unambiguous statement that the world's equity markets may now be the right side of fair value. This is the first time such a view has emerged from Andrew's one-man think tank since I cannot remember when, although he still qualifies it by saying he thinks the likely trend in 2009 is still down (value in stock markets being no guide to short term price movements).


The great thing about all Andrew's work is that while he has firm opinions, he has no obvious axe or vested interest to grind. Having made enough money form his years in fund management at Mercury Asset Management (in its glory days), his consultancy work today is driven as much by intellectual curiosity as by the tiresome business of giving fee-paying clients what they want to hear.


Here is an extract from his latest report, which assesses how markets stand today on the basis of what he likes to call "hindisght value", the methodology he and the Cambridge economist Stephen Wright in their pioneering book Valuing Wall Street, published just as the Internet bubble was peaking.

• We have just published a report on world market values.1 We conclude: (i) that the world market in aggregate, at the end of January, was around 38% below fair value, (ii) that the US is relatively expensive, being around fair value and (iii) that Japan is the cheapest market.

• While value is of little use in forecasting short-term market movements, our conclusions are encouraging, because in bad times, and these are bad times, markets usually become decidedly cheap.

• We remain bearish about the outlook for equities for 2009, mainly because we see the demand for shares by companies falling and their supply rising as both financial and non-financial companies change from buying shares to issuing them.

• Government bonds are expensive, though likely to remain so for a while as the world economy continues to weaken. But the short-term outlook for corporate bonds seems quite good. Their yields are determined by three main factors: (i) Government bond yields, which we expect to be flat short-term and to rise in the medium-term, (ii) the compensation for buying illiquid assets, which we expect to fall as governments and central banks push liquidity into markets and (iii) default risks, including downgrades and recovery rates, which are unknown but, we fear, still underestimated in many instances. We are optimistic that the good point (ii) will dominate over the next few months

• The refinancing of the banks, which is a necessary condition for economic recovery, is meeting opposition from voters, who think it gives unfair help to bankers and from bankers, who strive to avoid asset write-offs.

• Fiscal stimulus is another necessary condition for economic recovery, and this is meeting opposition from various sources, including those who reject or don’t understand Keynes’s theories. These groups tend to think that fiscal deficits increase total debt, rather than shift it from the private to the public sector. We expect both banks and fiscal problems to be overcome in time, but in neither case, on a worldwide basis, are sufficient steps likely to be taken quickly.

My only comment on this is that a big bounce in the stock market during 2009 is not incompatible with this view. Smithers' research centres on the long term relationship between value and price, which can be empirically assessed, rather than on short term market dynamics, which by and large can not.

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Vanguard Heads for the UK (FT Column)

The following is an extract from my latest FT column, which appeared on February 9th. It comments on the announcement by Vanguard, the US fund management company owned (unusually) by its investors, that it is planning to target the retail market in the UK for the first time. The published version of the column can be read on the FT website.

"About a decade ago, on my way back from a holiday in the United States, I took a thousand mile detour by Amtrak and hire car to Valley Forge, Pennsylvania, so as to visit the head office of an investment firm that all the big beasts in the finance and economics departments at MIT, from Paul Samuelson down, had raved about during my year's fellowship programme there. At the time I had never met anybody in the UK who had heard of Vanguard, let alone found someone who knew anything about them or had visited their operations".

"The two day visit turned out to be a real eye-opener, offering as it did a glimpse into a novel way of running an investment business that few on this side of the Atlantic would then have recognised. The purpose built office complex was in the middle of nowhere. It was clean and frighteningly efficient, in a buttoned down, earnest sort of way. All the employees were known as "crew". They ate in the same canteen. In the best American tradition, the whole place gave off a tangible aura of hard work and intensity – not the sort of place, on first encounter anyway, where you immediately felt moved to make a flippant remark".

"More impressive than the company's cohesive culture however was its evident devotion to customer service and imaginative use of information technology. Vanguard was one of the first fund management firms to invest heavily in computerising its customer service operations. In those days it ran a total of four call centres, at different sites, each one of whose function was not just to take, but to deal with, calls from its 12 million mutual fund investors. Its target was to answer every call within a minute, and its strike rate was impressively high".

"Vanguard, in other words, was a strikingly different business to anything I had ever come across in the UK financial services industry. It actually seemed to do what most firms only purported to do in their advertising materials. It had customer service as a priority; a well trained and highly motivated workforce; a mutual ownership structure that encouraged the firm to sell what was good for its customers, not merely what made the most money; stunningly low fees, based in part on a refusal to pay commission; and most strikingly of all, a range of product that it passionately – and with good reason – believed to be superior to that of most of its competitors".

"The company is adamant that it will not pay commission, but rely instead on fee-based advisers to shift its fund range. It has however opted against direct marketing to the UK retail market at this stage. Of course it is true that in hindsight the golden age for index funds was in the 1990s, when a roaring bull market, coupled with the rise of the 401K retirement plan, for which index funds were particularly suited, allowed Vanguard to carry all before it in the marketplace".

"Market conditions have clearly not been so helpful since 2000 and the company, some observers feel, may have lost a little of its competitive bite as it has matured. I do not have enough direct recent experience to answer decisively how well the mature Vanguard of today compares with the still developing company of ten or twenty years ago, or indeed with more established competitors over here such as as BGI. But the fact that the board of Vanguard has finally decided that it is time to enter the UK retail market is still a symbolically important and encouraging omen".

"While market conditions are less favourable to index funds than in the golden age of the 1990s, its judgment however is that the trend away from commission and towards plain vanilla low cost solutions is now – finally - sufficiently well advanced to justify the cost and effort of setting up shop over here. The recent Retail Distribution Review is clearly not an unhelpful development in that respect. If Vanguard's judgment is right, it is surely a portent for the future of competitors and intermediaries alike, and a sign that the use of the cheap, diversified and tax-efficient passive fund has at last completed the long journey from novelty item to mainstream fund design, something from which investors in aggregate can only benefit".
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John Kay: Why The Customers Have No Yachts

Having dissected the way that markets work, and before that how companies should, in his latest book the economist John Kay has turned his laser-like attention to the subject of personal investing. One of his themes, the need for investors to minimise the take (in fees and charges) that providers and advisers slice off their returns, was summarised in an article in the Financial Times yesterday.

The book itself, entitled The Long and The Short of It, can be thoroughly recommended to anyone who wants to look after their own money in an intelligent way (although as someone who read the book in draft, and has worked with John Kay in the past, I must declare a personal interest). He puts the Efficient Markets Hypothesis, rational excpectations and all the other influential outpourings of academia firmly in their place - "illuminating but not true", in his words.

Here is an extract from the article:

"Over the 42 years that Warren Buffett has been in charge of Berkshire Hathaway, the company has earned an average compound rate of return of 20 per cent per year. For himself. But also for his investors. The lucky people who have been his fellow shareholders through all that time have enjoyed just the same rate of return as he has. The fortune he has accumulated is the result of the rise in the value of his share of the collective fund".

"But suppose that Buffett had deducted from the returns on his own investment – his own, not that of his fellow shareholders – a notional investment management fee, based on the standard 2 per cent annual charge and 20 per cent of gains formula of the hedge fund and private equity business. There would then be two pots: one created by reinvestment of the fees Buffett was charging himself; and one created by the growth in the value of Buffett’s own original investment. Call the first pot the wealth of Buffett Investment Management, the second pot the wealth of the Buffett Foundation".

"How much of Buffett’s $62bn would be the property of Buffett Investment Management and how much the property of the Buffett Foundation? The – completely astonishing – answer is that Buffett Investment Management would have $57bn and the Buffett Foundation $5bn. The cumulative effect of “two and twenty” over 42 years is so large that the earnings of the investment manager completely overshadow the earnings of the investor. That sum tells you why it was the giants of the financial services industry, not the customers, who owned the yachts".

"So the least risky way to increase returns from investments is to minimise agency costs – to ensure that the return on the underlying investments goes into your pocket rather than someone else’s". The message is the same one that Jack Bogle, the founder of Vanguard, has done more than anyone else to promote over the years. There is lots more in the same challenging vein. Anyone who has enjoyed John Kay's weekly FT column will know what to expect.
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Sandy Nairn's case for buying equities

Sandy Nairn, the CEO of Edinburgh Partners, is a value investor who spent 10 years learning his craft working for Sir John Templeton. When I interviewed him recently, he explains why in the last few weeks he has turned from being very bearish to moderately optimistic. He shares the view that equities have gone from being overvalued to somewhere around fair value.

While that means they could easily fall further in the short term, a good stockpicker should be confident that good returns will be there for those who buy now. Here are a couple of extracts from his answers. The full interview can be downloaded from the Edinburgh Partners website.

Why investors are still cautious:

"This worry is based on the concern that we face a return to the 1930s. For a time that was a disturbingly plausible outcome. So long as the talk was of moral hazard, there was a danger that the entire financial system would implode. The US authorities were the first to realize the gravity of the situation and whilst history may criticise the techniques that have been used, I think the outcome is that the sanctity of the banking system has been preserved".

"As I have mentioned, the 1930s was not a unique event. It was merely the latest in a series of financial meltdowns which morphed into disastrous declines in the real economy. The lessons learned from that experience have underpinned recent actions and are the reason why we have not had a repeat since that time. The problem then was that liquidity was withdrawn from the banking system rather than pumped in".

"There was no co-ordinated central banking system, and on top of that, you had the Smoot-Hawley trade legislation, which brought in a whole series of trade barriers and tariffs that decimated the global economy. Whilst there remain many who hark back to the supposed golden days of the gold standard, there is no question that it too was a contributory factor to the economic declines which followed. We don’t have these things now".

On the impact of the credit crunch:

"I expect the outcome will be at least two years of seriously sub-trend economic growth, with a particularly virulent impact on white collar service employment. I don’t think this view is any longer different from the consensus. Indeed I think one of the things that is happening at the moment is that markets are becoming fixated with that two year period, and whether or not it turns out to be an over or under estimate of what we eventually experience".

"If you do not believe that the risk of deflation has been averted, or if you believe that a depression is nigh, then clearly you want to hold the safest bonds you can find and nothing else. If you believe that the fork in the road leads in a different direction, then these are the last assets you would wish to own. It seems to me that Government bonds are currently attractive only if you believe in some form of prolonged deflation".

"All this focus on doom and gloom is meanwhile also creating opportunities for investors with a medium/long-term horizon. Excessively short time horizons are the fundamental and repeating imperfection in modern financial markets. Some describe it in terms of ‘fear and greed’, but the root cause is that we tend to extrapolate whatever we are experiencing now into the future. For example, 12-18 months ago economic conditions looked relatively benign but it was really difficult to find stocks that were cheap on a meaningful long-term view. It only made sense if you adopted the view that the cycle had been abolished".

"Since few such bargains were available, all you could do was seek to identify stocks that were reasonable value but low risk. Everything is ultimately a risk/reward issue, and if you chase alleged cheapness at the tail end of a bull market, typically what you end up doing is simply pushing up the risk profile of the portfolio at just the wrong time. Emerging markets was the obvious example of this. The risk profile looked way, way too high, with the principal justification being all the nonsense about decoupling".

"This has now reversed. Economic conditions are far from benign and deteriorating, but it is difficult to find stocks that are expensive on a long-term view, unless you still feel that the cycle has been abolished! For example, we are finding companies in emerging markets whose share prices are down 80%. Their risk profile has improved substantially simply because the valuation is down so much. In recent weeks and months we have purchased share ranging from China Mobile to Baidu to Samsung Electronics, all of them at prices which we feel more than discount the near-term risks".

"Today everyone is understandably focussing on short-term risk, and on what will happen during 2009 during the recessionary period. Few are focussing on the longer-term. Risk is still important, but if solvency is solid and long-term returns are potentially high, then the opportunities need to be grasped, and grasped now. This is where I think we are now".

"There comes a point when share prices fall enough that you have a sufficient margin of error to be very confident about long-term returns. In other words, even in the worst plausible case you are unlikely to lose money. Right now, there are an increasing number of companies that, in this terminology, I view as relatively low risk".

"It doesn’t mean that their share prices may not fall in the short run – no-one can predict those movements with confidence – but in the long run, you can have a high degree of confidence about the earnings profile and hence the valuation. Cisco would be a prime example of such a company. The long-term earnings profile is one of reasonable growth, the balance sheet is rock solid and the company is well managed. Recent months have added the final, and most important, ingredient of a low share price".

"In the long-run, by which I mean five year periods, rather than an indefinite ‘in the long-run we are all dead’ time horizon, the evidence is compelling that share price returns mirror valuations. We have studied the relationship between low starting p/es and five year returns across all markets and all time periods, and the correlation is both universal and unambiguous. It is the simple fact that share prices are periodically hit so hard that creates these opportunities. It is also why I now have a much more optimistic view".

Where are you finding the opportunities?

"Technology, primarily in the US, is certainly one. It’s beginning to spread to the rest of the world. Capital expenditure related companies are going to have an awful couple of years, because I guess the one thing companies can do is defer capital. We’re seeing Japanese robotics and machine tool companies which are world leaders in process technology terms but whose share prices are down 60-70%".

"Sure, they were overvalued to begin with, but you can be pretty certain that on a five year view you’re going to make good money from them. You have to be careful about the losses which those companies will sustain in the next couple of years if cap ex gets suspended. With one company we invested in, Fanuc, the share price went from 7,000 to 5,000 in the space of a week! That was an opportunity to pick up more shares and there are many more of them appearing".

"China is the other major area where we have gone from almost zero exposure to north of 6% in a very short space of time. Having believed the ‘decoupling’ story to a ridiculous extrapolation of the economic importance of China, we have seen a complete turnaround in sentiment to the extent that some share prices are down 70-80%. That is creating an opportunity for us to invest with what we regard as some of the best risk reward propositions".
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