Current Affairs
(Bloomberg) — At the heart of the largest money fight that London’s divorce courts have ever known sits the Luna — a 115-meter (380-foot), nine-deck luxury motor yacht holed up at a berth in a dusty marina in Dubai.
The Luna is the largest and most expensive single asset held by companies linked to oil and gas tycoon Farkhad Akhmedov, who bought the vessel from his fellow billionaire Roman Abramovich. It is also the prized target for Tatiana Akhmedova, Farkhad’s former wife of 21 years. Worth about 250 million pounds ($353 million), seizing control of the yacht would go a long way toward satisfying a London court’s 450-million-pound divorce award in her favor.
But that, Tatiana is finding out, won’t be easy. With settlement talks with her former husband going nowhere, she has taken to fighting her battle in multiple jurisdictions, from Dubai and Liechtenstein to the Marshall Islands. What the money chase shows is that a ruling from a court in London may not be worth the paper it’s written on when pitted against someone who can move assets across the globe and is determined to frustrate the order.
Farkhad has said he will do everything to ensure that his former wife can’t get her hands on his fortune. The case sheds some light on how the world’s wealthy are able to protect assets through regulation arbitrage, playing one jurisdiction against another, creating opaque trusts and transferring ownership.
After the latest court ruling by a London judge last month — this time involving the couple’s 27-year-old son Temur, to whom Tatiana alleges his father transfered assets — Farkhad said the case “is beneath contempt and changes nothing.” The son was more conciliatory, with his spokesman saying he has never sought to take sides between his two parents.
We live in a time of radical monetary policy and dramatic technological change. Cheap money finances innovation, and innovation helps hide the full effects of cheap money. In the process, everything we know about work, investment, and consumption is being redefined.
To understand what this means in practice, let’s start with a familiar example.
Taken for a Ride
Uber has more than 100 million customers and is synonymous with “getting from A to B.” But this does not mean it has a good business. On average, every time someone takes an Uber, the company loses money. Over the past decade, investors kept Uber from going bankrupt by pouring more money into the company. In essence, these investors are subsidizing Uber’s customers.
Uber and its investors are part of a bigger trend which Derek Thompson first described in 2019. Companies such as Casper, Peloton, Uber, WeWork, DoorDash, Lyft, and Postmates lowered their prices to a loss-leading level in order to maximize their growth. They got more customers but lost money on every sale. By doing so, these companies and their investors helped fund the lifestyle of their customers — mostly young people living in cities. Thompson calls this the “Millennial Lifestyle Sponsorship.”
This strategy offers important hints about the future of other businesses and professions. But before we get to these, we need to understand how technology and monetary policy enable the Millennial Lifestyle Sponsorship and why this strategy is more reasonable than it sounds.
Losing Interest
“Money never sleeps,” Gordon Gecko explains to a young banker in the original Wall Street movie. Gecko is referring to the fact that markets are always open somewhere. But his deeper message is that money cannot rest: it needs to generate more money. Sleeping means missing out on investment opportunities and losing value to inflation.
- Thanks to the market’s recent run-up and increased savings, retirement account balances have now surpassed pre-Covid highs.
- The number of 401(k) and IRA millionaires also hit an all-time record in the first quarter of 2021, according to Fidelity.
Although thepandemic isn’t over, many retirement savings accounts are back to pre-Covid highs.
Retirement account balances, which took a sharp nosedive almost exactly one year ago when the coronavirus outbreak caused economic shock waves, have now bounced back entirely, according to the latest data from Fidelity Investments, the nation’s largest provider of 401(k) savings plans.
And despite three recent days of losses, the market’s run-up has been a boon for savers.
From January 2020 to the beginning of this month, the S&P 500 has had an annual return of more than 20%, according to Morningstar Direct.
That has helped propel average retirement account balances to record levels, surpassing even the previous highs reached right before the pandemic.
CNA Financial Paid $40 Million in Ransom After March Cyberattack
(Bloomberg) — CNA Financial Corp., among the largest insurance companies in the U.S., paid $40 million in late March to regain control of its network after a ransomware attack, according to people with knowledge of the attack.
The Chicago-based company paid the hackers about two weeks after a trove of company data was stolen, and CNA officials were locked out of their network, according to two people familiar with the attack who asked not to be named because they weren’t authorized to discuss the matter publicly.
In a statement, a CNA spokesperson said the company followed the law. She said the company consulted and shared intelligence about the attack and the hacker’s identity with the FBI and the Treasury Department’s Office of Foreign Assets Control, which said last year that facilitating ransom payments to hackers could pose sanctions risks.
“CNA is not commenting on the ransom,” spokeswoman Cara McCall said. “CNA followed all laws, regulations, and published guidance, including OFAC’s 2020 ransomware guidance, in its handling of this matter.”
In a security incident update published on May 12, CNA said it did “not believe that the systems of record, claims systems, or underwriting systems, where the majority of policyholder data – including policy terms and coverage limits – is stored, were impacted.”
Bonds aren’t working as a safe haven like they used to.
On a day when risk aversion swept across everything from stocks and commodities to crypto currencies, Treasuries barely budged. In fact, the S&P 500 and 10-year Treasury futures haven’t been so positively correlated since 1999, with the 60-day metric reaching 0.5 on Wednesday. In contrast, the average correlation over the past two decades was negative 0.3, meaning a decline in stocks was often accompanied by a rally in bonds.
The relationship flip signals that the role of Treasuries as a shock-absorber has been eroded as the fear of inflation becomes a common denominator for both stock and bond investors. If it persists, it would mark a sea change as strategies such as risk-parity and 60/40 are likely to become more volatile.
“Long bonds as your hedge worked in a Goldilocks era” of stable growth and inflation, said Charlie McElligott, a cross-asset strategist at Nomura Securities. “But now, due to the pandemic response, that old dynamic simply no longer applies. Inflation is a volatility catalyst.”
The stock-down-bond-up scenario that investors have grown accustomed to has only been a staple since 2000. Earlier, a positive correlation had been more common as inflation was more volatile.
While the core U.S. consumer price index increased in April at the fastest pace since 1982, the Federal Reserve has insisted the surge is “transitory” and the central bank will be patient in removing monetary stimulus. If the Fed is right, the bond-stock correlation could normalize, said McElligott.
“Only in the case of an extreme inflation overshoot would the Fed’s hands be tied,” forcing it to raise rates more quickly and crash both bonds and stocks, he said.
-
I know Mike is a very solid investor and respect his opinions very much. So if he says pay attention to this or that - I will.
~ Dale G.
-
I've started managing my own investments so view Michael's site as a one-stop shop from which to get information and perspectives.
~ Dave E.
-
Michael offers easy reading, honest, common sense information that anyone can use in a practical manner.
~ der_al.
-
A sane voice in a scrambled investment world.
~ Ed R.
Inside Edge Pro Contributors
Greg Weldon
Josef Schachter
Tyler Bollhorn
Ryan Irvine
Paul Beattie
Martin Straith
Patrick Ceresna
Mark Leibovit
James Thorne
Victor Adair