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Had Dinner With A Private Banker ......

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Had dinner with a friend of a friend over the weekend who is a private banker. She works for a Swiss bank. And no, I am not a client.

One theme that emerged is that many of her non-leveraged clients have seen their net worth drop by around 30%. Many of her leveraged clients have seen their net worth drop by 60% to 75%.

The observation that I found illuminating was that many of her clients have increased their risk profiles in an attempt to recoup the losses that they have taken. Property is the favourite vehicle of choice. The "buy the dips" mentality has paid off for the last few decades. I am not sure that it will continue to do so.

This strategy runs counter to the advice that Dennis Gartman always gives (which I try to stick to whenever possible) : Do more of what is working and less of what isn't working. Risk taking should be reduced when losses are being taken.

To my mind, the number of cash buyers out there is a signal that people are willing to roll the dice once more to try to get back to where they started as quickly as possible.

When they find that this gamble hasn't paid off and there is further pressure from an erosion in the price of other assets, there will be no more cash buyers and possibly more sellers who are able to sell at fair market value as they don't have a negative equity millstone around their necks.

The number of cash buyers out there could actually be a sign of deperation rather than a sign of confidence or the "store of value" / inflation hedge theme that has emerged in some places.

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One theme that emerged is that many of her non-leveraged clients have seen their net worth drop by around 30%. Many of her leveraged clients have seen their net worth drop by 60% to 75%.

Unless all of her clients are non-discretionary, she's not going to be in the job for long with that type of performance :P

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Had dinner with a friend of a friend over the weekend who is a private banker. She works for a Swiss bank. And no, I am not a client.

One theme that emerged is that many of her non-leveraged clients have seen their net worth drop by around 30%. Many of her leveraged clients have seen their net worth drop by 60% to 75%.

The observation that I found illuminating was that many of her clients have increased their risk profiles in an attempt to recoup the losses that they have taken. Property is the favourite vehicle of choice. The "buy the dips" mentality has paid off for the last few decades.

People are very strongly hardwired to do what rewarded them previously.

The bust is going to cause some serious psychological problems, because those that are currently piling in will also fell shame and embarassment at having lost the lot, despite the warnings.

I am amazed how hard it is to dissuade people from buying.

Nick

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Had dinner with a friend of a friend over the weekend who is a private banker. She works for a Swiss bank. And no, I am not a client.

One theme that emerged is that many of her non-leveraged clients have seen their net worth drop by around 30%. Many of her leveraged clients have seen their net worth drop by 60% to 75%.

The observation that I found illuminating was that many of her clients have increased their risk profiles in an attempt to recoup the losses that they have taken. Property is the favourite vehicle of choice. The "buy the dips" mentality has paid off for the last few decades. I am not sure that it will continue to do so.

This strategy runs counter to the advice that Dennis Gartman always gives (which I try to stick to whenever possible) : Do more of what is working and less of what isn't working. Risk taking should be reduced when losses are being taken.

To my mind, the number of cash buyers out there is a signal that people are willing to roll the dice once more to try to get back to where they started as quickly as possible.

When they find that this gamble hasn't paid off and there is further pressure from an erosion in the price of other assets, there will be no more cash buyers and possibly more sellers who are able to sell at fair market value as they don't have a negative equity millstone around their necks.

The number of cash buyers out there could actually be a sign of deperation rather than a sign of confidence or the "store of value" / inflation hedge theme that has emerged in some places.

Excellent post ;)

Makes me minded to wait some more

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Unless all of her clients are non-discretionary, she's not going to be in the job for long with that type of performance :P

About 50/50. Even her discretionary clients drove much of the asset allocation.

Many of the typical private banking clients (net worth of $500k to $5m) have seen drops in net worth in this order of magnitude. They (and their advisors) did not understand just how highly correlated a lot of their fixed income and equity assets actually were which resulted in very unbalanced portfolios.

I have always maintained that alpha doesn't exist and that advisors are a waste of money when their median performance after fees can be beaten by ETFs.

Fortunately for the bankers of the world, there are still people with money but without the confidence to manage it themselves. I have often wondered how people can be smart enough to acquire substantial assets but stupid enough to hand them over to bankers to manage.

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i hope you are right. because i fell the same. i think there a lot of cash buyers out there who are fed up with 2 pct from the bank and are buying in the hope to make some more money.

there is a general fear out there of massive inflation coming. partly because thats what has happened over the last few decades.

trouble is that real cash as opposed to borrowed money is a fraction of what is need in any long term revival.

when it runs out, and it will. then what?

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This strategy runs counter to the advice that Dennis Gartman always gives (which I try to stick to whenever possible) : Do more of what is working and less of what isn't working. Risk taking should be reduced when losses are being taken.

I'm assuming he would've been happy trading CDOs back in '07 then?

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I have always maintained that alpha doesn't exist and that advisors are a waste of money when their median performance after fees can be beaten by ETFs.

Fortunately for the bankers of the world, there are still people with money but without the confidence to manage it themselves. I have often wondered how people can be smart enough to acquire substantial assets but stupid enough to hand them over to bankers to manage.

:lol: +1

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From the thread title I thought your were going to say how she stuffed the bread rolls under her jumper and did a runner out of the bog window when the bill came.

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About 50/50. Even her discretionary clients drove much of the asset allocation.

Many of the typical private banking clients (net worth of $500k to $5m) have seen drops in net worth in this order of magnitude. They (and their advisors) did not understand just how highly correlated a lot of their fixed income and equity assets actually were which resulted in very unbalanced portfolios.

I have always maintained that alpha doesn't exist and that advisors are a waste of money when their median performance after fees can be beaten by ETFs.

Fortunately for the bankers of the world, there are still people with money but without the confidence to manage it themselves. I have often wondered how people can be smart enough to acquire substantial assets but stupid enough to hand them over to bankers to manage.

Well it does sound impressive to be a private banking client.

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i hope you are right. because i fell the same. i think there a lot of cash buyers out there who are fed up with 2 pct from the bank and are buying in the hope to make some more money.

there is a general fear out there of massive inflation coming. partly because thats what has happened over the last few decades.

trouble is that real cash as opposed to borrowed money is a fraction of what is need in any long term revival.

when it runs out, and it will. then what?

Where is out there?

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I'm assuming he would've been happy trading CDOs back in '07 then?

Not his style.

He (like me) seems to prefer trading the underlying constituent parts rather than "engineered" products.

It is hard enough to try to understand markets without also having to try to understand complex instruments and take on a lot of unnecessary liquidity risk for which you aren't being compensated.

If you believe that credit spreads are tightening, there are ways to express that view without having to take on all of the complications of a CDO.

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Where is out there?

near your white paint...waiting for the sun thats supposed to be there....but isnt.

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Had dinner with a friend of a friend over the weekend who is a private banker. She works for a Swiss bank. And no, I am not a client.

That'll be the UBS UK wealth management business then...?

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How does a private banker have non-discretionary clients? I'm intrigued. It's not like they sell food.

Some clients use their private bankers for custodial services, transaction management and debt management but still retain direct control over asset allocation as well as the exact assets purchased within that allocation.

The non-discretionary clients tend to be first generation business owners or people in the financial services industry who have done well (traders, IB types etc).

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Some clients use their private bankers for custodial services, transaction management and debt management but still retain direct control over asset allocation as well as the exact assets purchased within that allocation.

The non-discretionary clients tend to be first generation business owners or people in the financial services industry who have done well (traders, IB types etc).

OIC< a private current account.

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OIC< a private current account.

He's talking about asset management - whole different ballgame to what most people consider as 'banking' - The inflows and outflows usually have quite a few zeros in the figures.

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It is a natural human reaction, to try and "win back" what has been lost.

But the smart thing to do RIGHT NOW is to fight that.

The crap has moved back up, complacency has returned, and I reckon the markets will peak today or tomorrow.

I have been buying puts aggressively, preparing for the next drop. But what do I know, I dont work for a

private bank, doling out advice. I simply make my living by investing my own money.

I agree that we are close to the next leg down. I am not sure whether it is in the next day or two but it is certainly within the next 3 months.

The private banking model is a bit confusing to me. Most people who end up working in a private bank do so because they are good at building relationships and gathering assets and not because they are good at understanding markets. Yet another failure that has been covered up by a long running bull market that is now slowly being exposed.

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Had dinner with a friend of a friend over the weekend who is a private banker. She works for a Swiss bank. And no, I am not a client.

One theme that emerged is that many of her non-leveraged clients have seen their net worth drop by around 30%. Many of her leveraged clients have seen their net worth drop by 60% to 75%.

What is a leveraged client? One who has used their assets as collateral to get loans to buy more assets, inflating/ overstating their actual wealth in the process?

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He's talking about asset management - whole different ballgame to what most people consider as 'banking' - The inflows and outflows usually have quite a few zeros in the figures.

of course, big needs extra care...I was forgetting.

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It is a natural human reaction, to try and "win back" what has been lost.

But the smart thing to do RIGHT NOW is to fight that.

The crap has moved back up, complacency has returned, and I reckon the markets will peak today or tomorrow.

I have been buying puts aggressively, preparing for the next drop. But what do I know, I dont work for a

private bank, doling out advice. I simply make my living by investing my own money.

I think that's the only sensible way to hold onto it.

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People are very strongly hardwired to do what rewarded them previously.

I am amazed how hard it is to dissuade people from buying.

Nick

If you look outside of the main forum on here I think you might find, IMPO, some who are doing that now - the need or impulse to buy shares appears to be overwhelming,

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What is a leveraged client? One who has used their assets as collateral to get loans to buy more assets, inflating/ overstating their actual wealth in the process?

There are two categories : The first is as you described where loans were taken against assets. The second are those who bought structured notes with leverage imbedded in the pay-offs.

In both cases, people felt that they were "rich" because they focused on their gross assets rather than their net worth. While things were going well, leverage worked in their favour. Now that things are going badly, they are getting crushed by their leverage.

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