The Big Picture for the Week of February 19, 2012

Fitch Ratings upgraded Iceland’s sovereign debt to investment grade which serves as a milestone in the country’s journey back from the abyss. The short version of the story is fishing wealth funneled into creating a booming financial industry with a sizable global footprint that then went on to be mismanaged and over-levered with far too much risk, to financial Armageddon and now a recovery. Somewhere in there probably needs to have a mention of as yet unfulfilled potential of geothermal power. I clued into to Iceland as a possible investment destination a couple of years before it exploded, had some luck trading Kaupthing Bank before it went bust and although the last trade in it was a loss we were out long before zero. Iceland took a different path, it did not bail out the banks it let them fail and, depending on how you look at it, stiffed foreign depositors in the Icesave program from Landsbanki which you may recall was very controversial. Whether saying no to Icesave participants was right or not, the thought process behind it was a tearing off of the band aid that would enable a faster recovery. I don’t recall where I first read the idea of letting banks fail, allowing the share holders and bond holders eat it while protecting the depositors but it resonated with me as being a better path than what was done here. There would have been consequences of course but I believe we would be able at this point to see when we get out of the wake of the crisis. But with the path taken here...

The Big Picture for the Week of February 19, 2012

Fitch Ratings upgraded Iceland’s sovereign debt to investment grade which serves as a milestone in the country’s journey back from the abyss. The short version of the story is fishing wealth funneled into creating a booming financial industry with a sizable global footprint that then went on to be mismanaged and over-levered with far too much risk, to financial Armageddon and now a recovery. Somewhere in there probably needs to have a mention of as yet unfulfilled potential of geothermal power. I clued into to Iceland as a possible investment destination a couple of years before it exploded, had some luck trading Kaupthing Bank before it went bust and although the last trade in it was a loss we were out long before zero. Iceland took a different path, it did not bail out the banks it let them fail and, depending on how you look at it, stiffed foreign depositors in the Icesave program from Landsbanki which you may recall was very controversial. Whether saying no to Icesave participants was right or not, the thought process behind it was a tearing off of the band aid that would enable a faster recovery. I don’t recall where I first read the idea of letting banks fail, allowing the share holders and bond holders eat it while protecting the depositors but it resonated with me as being a better path than what was done here. There would have been consequences of course but I believe we would be able at this point to see when we get out of the wake of the crisis. But with the path taken here...

Sunday Morning Coffee

The New York Times Magazine posted an update on Iceland that had some great quotes and thinking (as opposed to talking) points. First up was this comment from an Icelander who did not get caught up in the excess; “I thought there was something wrong with me because I wasn’t taking millions in loans,” he admitted. “Everyone had brand-new cars and built big summer homes and boats. You felt like a loser or something if you didn’t have it. This is the feeling that many regular people felt if they weren’t making trillions, but maybe we weren’t so stupid.” When Joellyn and I went in 2006 I noted how many young people there were driving very expensive cars. As seen in real time this was either evidence of success or excess and given all the cranes we saw on the way in from the airport it certainly seemed like prosperity and one way to look at it was that this was somewhere on the spectrum of success building to excess. The Icelander quoted above managed to not get caught up in what was going on, was content with what he had and so survived it better than most. People in the US with enough common sense to not buy a house by borrowing 120% of the price going in or take on four flips at once also fared better than most (one would hope anyway). A number of people suggested to me (the author of the article) that the nation, as a whole, was going through a period of intense introspection and that the consensus seemed to be that...

Sunday Morning Coffee

The New York Times Magazine posted an update on Iceland that had some great quotes and thinking (as opposed to talking) points. First up was this comment from an Icelander who did not get caught up in the excess; “I thought there was something wrong with me because I wasn’t taking millions in loans,” he admitted. “Everyone had brand-new cars and built big summer homes and boats. You felt like a loser or something if you didn’t have it. This is the feeling that many regular people felt if they weren’t making trillions, but maybe we weren’t so stupid.” When Joellyn and I went in 2006 I noted how many young people there were driving very expensive cars. As seen in real time this was either evidence of success or excess and given all the cranes we saw on the way in from the airport it certainly seemed like prosperity and one way to look at it was that this was somewhere on the spectrum of success building to excess. The Icelander quoted above managed to not get caught up in what was going on, was content with what he had and so survived it better than most. People in the US with enough common sense to not buy a house by borrowing 120% of the price going in or take on four flips at once also fared better than most (one would hope anyway). A number of people suggested to me (the author of the article) that the nation, as a whole, was going through a period of intense introspection and that the consensus seemed to be that...

The Big Picture for the Week of April 3, 2011

The other day a reader left a comment about my investing foray into Iceland a few years ago which triggered some other comments including one where the reader asked how I knew to get out before the banks literally went to zero. My starting point for Iceland was this post six years ago. The story was simple, I thought, in that the country had transformed itself into a relevant financial hub, relevant to Europe to a great extent less so globally. This started in the fishing industry as capital was taken and invested in a multitude of ways. The Icelandic people are very well educated and inserted themselves into world commerce, they created a very sophisticated banking system that created enormous wealth and all the while there remained the promise of geothermal to create even more wealth and prosperity for the country. Iceland was not really available as an investment destination via US brokerages but there were no restrictions for US residents opening accounts in Iceland to buy stocks, the one ETF or fixed income. The largest bank, Kaupthing, had a dual listing in Stockholm that could be accessed on the US pink sheets. I owned Kaupthing personally and for a client or two off and on. There was one great trade in there along with a loss but I exited a long way before zero so while not the ideal outcome, the net result isn’t even memorable which is a good thing given that it ultimately went to zero. There was also a stock called Decode Genetics that traded on the Nasdaq. I never really checked it out,...

The Big Picture for the Week of April 3, 2011

The other day a reader left a comment about my investing foray into Iceland a few years ago which triggered some other comments including one where the reader asked how I knew to get out before the banks literally went to zero. My starting point for Iceland was this post six years ago. The story was simple, I thought, in that the country had transformed itself into a relevant financial hub, relevant to Europe to a great extent less so globally. This started in the fishing industry as capital was taken and invested in a multitude of ways. The Icelandic people are very well educated and inserted themselves into world commerce, they created a very sophisticated banking system that created enormous wealth and all the while there remained the promise of geothermal to create even more wealth and prosperity for the country. Iceland was not really available as an investment destination via US brokerages but there were no restrictions for US residents opening accounts in Iceland to buy stocks, the one ETF or fixed income. The largest bank, Kaupthing, had a dual listing in Stockholm that could be accessed on the US pink sheets. I owned Kaupthing personally and for a client or two off and on. There was one great trade in there along with a loss but I exited a long way before zero so while not the ideal outcome, the net result isn’t even memorable which is a good thing given that it ultimately went to zero. There was also a stock called Decode Genetics that traded on the Nasdaq. I never really checked it out,...