Good Reading -- May 2013
"A decade ago, nine out of 10 companies would tell you they were thinking about building their next plant in China. Today it's more like three out of 10, and maybe five out of that 10 say they want to build in the U.S." -- Antoine van Agtamel (see article below)
"While the wounds of the financial crisis are healing and too many Americans are still struggling, the country actually may be in a better position tooday than it has ever been in. In fact, Americans born today hold a far better hand than Americans who were born 50 or 100 years ago." -- Jamie Dimon, letter to JPM shareholders, April 10, 2013 (emphasis original; the full letter is recommended)
Facts and Figures
Junk bond yields at record low, now trading >60 bps tight to senior loans (i.e., you're paying a 0.6% premium to own a junior security): "The yield-to-worst on the Barclays US Corporate High Yield Index closed [May 8th] at 4.97 percent, breaking below the 5 percent barrier for the first time in the index's 30-year history." (Reuters)
Investors on March 31 had $379.5 billion of margin debt at NYSE member firms, slightly below the record of $381.4 in July 2007 (Source: NYSE)
"The Hunt for Steve Cohen" -- Bethany McLean and Bryan Burrough wrote an excellent feature-length article about the insider trading case against the "Gatsby" of our time.
Mavericks Lecture 2012: John Malone -- This is obviously a little dated, but John Malone speaking about business and his career for over 90 minutes is rare treat. (I can't remember where I found this, so I apologize for the missing attribution.)
"Seth Klarman's Baupost May Return Some Capital to Investors" -- Institutional Investor article about the likelihood that Baupost will return its Lehman liquidation proceeds later this year due a lack of current investment opportunities. There is also excerpted commentary about a range of other topics.
Lessons and Ideas from Benjamin Graham -- This is a reprise of Jason Zweig's work on the revised edition of "The Intelligent Investor" that came out almost 10 years ago. It is a concise and worthwhile summary of Graham and his work. I hadn't seen it before and the author just recirculated it, so I thought I'd send it around.
"What If We Never Run Out of Oil?" -- A good history of the energy industry and a look (if not an entirely balanced one) at the tradeoffs between fossil fuels, including the implications of the revolution in fracking and natural gas and the potential of methane hydrate.
Mastery -- I love biographies, and this book combines several short ones with a look into how each of the subjects achieved greatness. Highly recommended.
And this interview with the author is so good that it stands on its own. (This was another great find by Joe Koster.)
Tales of National Indemnity Company and Its Founder -- I was recently rereading some of the old Berkshire shareholder letters in conjunction with the annual meeting, and I realized that I really didn't know much about National Indemnity, the insurance company that really started it all at insurance-wise at Berkshire. I remembered a reference to this book in Roger Lowenstein's bibliography, but I couldn't find a copy of it on Amazon or in any libraries. The company, though, in true Berkshire style, was gracious enough to send me a free copy. It's basically a rambling collection of amazing, somewhat crazy anecdotes relating to Jack Ringwalt's experiences over the years. I'm happy to loan my copy if anyone else wants to read it.
Best Investment Books -- A long list of recommended investment books, including my own recommendation of "Thinking, Fast and Slow."
Fiduciary Duty to Cheat? -- Jim Chanos in a wide-ranging and excellent interview.
Here Comes the Next Hot Emerging Market: the U.S. -- Jason Zweig's columns are always excellent, but I think one is especially noteworthy.
Fiduciary Duty to Cheat? Stock Market Super-Star Jim Chanos Reveals the Perverse New Mindset of Financial Fraudsters
April 1, 2013 |
Editor's note: This article is the first in a new AlterNet series, "The Age of Fraud."
Hustlers. Cheaters. Crooks. American business has always had them, and sometimes they’ve been punished. But today, those who cheat and put the rest of us at risk are often getting off scot-free. The recent admission of Attorney General Eric Holder that systemically dangerous megabanks may escape prosecution because of their size has opened a new chapter in fraud history. If you know your company won’t be prosecuted, a perverse logic says that you shouldcheat and make as much money for shareholders as you can.
Jim Chanos is one of America’s best-known short-sellers, famed for his early detection  of Enron’s fraudulent practices. In deciding which companies to short (short-sellers make their money when the price of a stock or security goes down), Chanos acts as a kind of financial detective, scrutinizing companies for signs of overvaluation and shady practices that fool outsiders into tlhinking that they are prospering when they may be on shaky financial footing. Chanos teaches a class at Yale on the history of financial fraud, instructing students in how to look for signs of cheating and criminal activity. I caught up with Chanos in his New York office to ask what’s driving the current era of rampant fraud, who is to blame, what can be done, and the ways in which fraud costs us financially and socially.
Lynn Parramore: You’re often characterized as a short-seller. How does fraud become a concern in that context?
Jim Chanos: One of things we like to say is that in virtually all cases of major financial market fraud over the past 20 years, the only people who really brought forth the fraud into the light were either internal whistleblowers, the press, and/or short-sellers. It was not the normal guardians of the marketplace – regulators, law enforcement, external auditors or people like that -- that did it. It was people who had an incentive to come forward either for personal reasons or for profit to point out what was going on at the Enrons and the Sunbeams and Worldcoms. Short-sellers played an important role in the marketplace not only in terms of capping, sometimes, irrational exuberance in terms of prices, but also in ferreting out wrongdoing.
LP: Researchers have created all kinds of tools, like software to detect speech patterns associated with lying, to try to detect fraud. What are some of the best tools for catching financial fraudsters?
JC: There’s no single tool that works all the time, and some of them are kind of interesting, like the voice detection, or Bedford’s law, which looks at numbers and repetition patterns in accounting. But we have seen some models that we work with and I teach in my class-- frameworks of fraud and fraud analysis – that have been helpful in looking down through the years where we’ve seen patterns continue. One is a wonderful checklist, the Seven Signs of Ethical Collapse in an organization. Some are clearly intuitive, such as a board full of one’s cronies or an obsession with making earnings forecasts. But some are not so obvious, for example, doing good to mask doing bad.
LP: Good deeds can be a sign of fraud?
JC: One of the more interesting observations in the world of fraud is that some of the most egregious frauds were some of the most philanthropic companies in their communities. In some ways, if you look at Bill Black’s  theory of the corporation as both a weapon and shield (we teach a lot of Bill Black’s things in my class), you can begin to see that that would be one way in which the bad guys in corporate suites would basically use the corporation as a shield. They’d say, well, look at all the wonderful things we do in the community, how many people we employ. We give to hospitals, we give to the Little League team, and so on. Not all these things would be immediately obvious to the casual observer.
LP: You’re known for your early detection of Enron’s problems. How does a company like Enron stay in business for years? How is the fraud sustained over time?
JC: It’s one of the great questions, Lynn, and I think that in the case of Enron, there were a lot of people getting rich aiding and abetting what turned out to be to be a fraud. They may not have known it was go-to-jail fraud, as it turned out to be (and most fraud certainly does not end up in jail sentences for the perpetrators, as we know).
But if you look, for example, at the investment banks that were in on structuring the offshore vehicles that Andy Fastow used to offload bad investments from Enron the parent to these vehicles without telling Enron shareholders that he’d also given them a secret agreement that they would made good any losses by issuing Enron stock (that, by the way, was the crux of the fraud of the firm), when you see just how much in fees a lot of the banks and brokers made in these things, there’s an awfully strong incentive to look the other way and not ask the tough questions. That’s really one of the big flaws, I think, in our current market structure.
LP: What do we know about the timing of frauds? When are they most likely to happen?
JC: One of our models is the Kindleberger-Minsky model, named after Hyman Minsky and Charles Kindleberger. It’s a macro model, and basically it takes a look at various market cycles. What we find is that the greatest clustering of fraud in the financial markets occurs, as you might imagine, during and immediately after the biggest bull markets. As I like to tell my students, it’s basically a period in which people suspend their disbelief. Everybody’s getting rich and it becomes increasingly easy to sell more questionable schemes and investments to investors. Typically the major frauds are uncovered or unmasked after the markets decline, for example, Bernie Madoff or Enron, when investors need money from other losses (and often these things have a Ponzi-like nature and can’t finance themselves from a self-sustaining basis) or people simply begin to build back their sense of disbelief and begin to ask tough questions that they didn’t ask during the bull market. So we do see that the fraud cycle generally does track the broader financial market cycles we see with a little bit of a lag.
LP: One look at your Yale syllabus shows that fraud has been rife through business history. Yet for the last 20 years, many people have insisted with near-religious conviction that markets are efficient and therefore resistant to fraud. Where is this belief coming from, and why is it a problem?
JC: It rests upon an assumption that is deeply flawed, and that is that the people who are stewarding your capital in the marketplace -- the boards of directors and the people that the boards hire – management -- are acting not only in your best interest, but are playing by the rules all the time, so that, for example, the accounts that the company puts together for the accountants (and keep in mind, management prepares financial statement, not accountants, not the auditors) are accurate. The auditors simply review them, and that’s an important point I always stress to my class. If there are games being played, and if you read the boilerplate of any auditor’s opinion, it says “we rely on the statements of management” – and so if, again, the people in the corporate suite have ethical flaws, we have a system based on truth-telling that may not be exactly always accurate.
I point out to my class that in 1998 there was a survey-- Business Week (which is owned by McGraw-Hill) and McGraw-Hill (which also owns Standard and Poor’s) had a conference for the S&P’s 500 chief financial officers. They asked these chief financial officers if they’ve ever been asked to falsify their financial statements by their superior. Now, the chief financial officer’s superior is the chief executive officer, or the chief operating officer—basically the boss. It was a stunning—of course anonymous – survey. 55 percent of the CFOs indicated they’d been asked, but did not do so. 12 percent admitted that they’d been asked and did so. And then 33 percent said they’d never been pressured to do that. In effect, only one third of the companies in the S&P’s 500 at that time did not have a CEO or COO try to pressure their financial officer to falsify financial results.
So this is agency risk writ large. Investors need to know that. They need to know that an awful lot of games are being played with the numbers and with disclosure and they’ve got to be on their guard. As Tony Soprano once said, as he exhorted his minions to redouble their efforts in the rackets, “We don’t got one of these Enron things going.”
LP: How much of the American economy do you think is built on fraudulent business models? How do we compare with other countries?
JC: Surveys have been very consistent –anonymous surveys of CFOs -- and we’ve seen it in some other data we present in our class from various global entities. It appears that incidents of fraud in publicly traded corporations (globally) is somewhere in the order of 10-15 percent of the companies.
Now, that does not mean they’re all Enrons. An awful lot of fraud is, well, I didn’t reserve for bad debts and my earnings were overstated for a few quarters but then we reversed it later, and it’s probably not go-to-jail-type fraud. But it is misrepresenting numbers to the marketplace and to investors. And I think that you can still lose money if it gets revealed when you own the securities. So investors do have to have a healthy skepticism even when it comes to reasonably well-regulated markets like the U.S. and the U.K., because there are incentives, given the stock option-type compensation or the bonuses based on profitability. It gives management an awful lot of latitude to play games with accounting.
LP: Let’s talk about bubbles. Being mistaken or overly excited isn’t fraud. How do you distinguish investor euphoria from fraud? What’s the role of fraud in creating and sustaining bubbles?
JC: If we look at the recent global financial crisis, a lot of people say: why were there no prosecutions? One of the first sort of default defenses you heard over and over again is well, stupidity is not a crime, and making bad decisions is not a crime. It may certainly lead to grievous losses, but that’s the marketplace. And I agree with that 100 percent. The problem is that financial crimes, unlike crimes of passion and crimes of opportunity, come with their alibis already built in. You build a veneer of legitimacy about what you’re doing. You get accountants to sign off on what you’ve done. You don’t look at any emails or get sent any emails –- at Enron Jeff Skilling never saw any emails (so how do you run a global trading powerhouse and never use email, right?). We teach this legal concept called “willful blindness,” and that is, in some cases senior executives are cut out intentionally from controversial things because they don’t want to be able to say, well, I approved that or I saw that. Someone below them is compensated quite handsomely for taking the fall, if you will.
So we have to understand that the classic definition of fraud is intent to deceive. I am intentionally trying to tell you something that is not true, that I know is not true or I have reason to believe is a reckless disregard of the truth. That is still very difficult to prove legally. But sometimes the market renders its own judgment if the preponderance of evidence in the case of a Lehman Brothers or a Countrywide is such that the executives are not exactly being guardians of the truth.
It is difficult to prosecute these cases. We’ve had the stunning admission by the Justice Department in the past month that they put into their calculus as to whether or not to prosecute crimes in the financial arena as to the systemic effect of that. My head is still reeling from that admission. Most people would agree that that’s not the Justice Department’s role. And I think it’s caused a really reasonable, serious, continued undermining of trust in our markets.
While we may have benefitted from not revealing additional fraud during the dark days of ‘08 and ’09 by indictments and so forth, I still think you have the exogenous cost effect of a lack of trust by our public and by other investors. In effect, it raises the cost of capital. It depresses valuations. If people think that the game is rigged and they’re not in on it, they’re going to put their money somewhere else. And that’s almost impossible to quantify. But you know there’s an effect.
LP: If fraud is widespread, that means the government has failed as a regulator. What are the roots of that failure? Are the tricks too hard to understand? Is it is the prosecutors? Money in politics? What’s going on?
JC: Well, there are some obvious answers to this. Let me say that one of the things I teach in my class, which is technically a history class, is that this goes in waves. As Bill Black points out, the big financial crisis – the banking crisis – prior to the last one, in the early '90s, saw a rash of prosecutions, as did the 1930s after the Pecora Commission, where there was really a public drive to clean up the markets. But if you go back to the 1870s, and the Crédit Mobilier , which was the Enron of its day, scores of lawmakers and the standing vice president were caught with their hand in public till – being paid off by Union Pacific Railroad through their fraudulent Crédit Mobilier construction company. But there were just reprimands. No indictments. The public was outraged; similarly to today, but law enforcement and Congress at the time did not police themselves.
So we do see different public responses and legal responses to different waves of fraud. Having said all that, I think that certainly some observations would be that the concept of regulatory capture and the revolving door is a big one. I mean, how tough are you going to be on industry that you oversee if you’re going to go back into that industry every four or eight years. I think that really muddies the water in terms of getting people who really feel, like, say, a Stanley Sporkin did in the '70s at the SEC, that wrong is wrong and we’re going to go after it.
In some ways, as much as I consider myself a Democrat, I would say that the most prompt and vigorous response to fraud we’ve seen in the last 20 years has been the Bush administration’s crackdown on Enron, Tyco and Worldcom following the revelations of these massive frauds earlier in the millennium. Despite campaign contributions, John Ashcroft’s Justice Department went after these people and put the resources and set up the task forces and brought them to justice, which is what we’ve not seen in the last five years.
So you never know. A lot depends on the mood, and really, leadership at the top to say, this is wrong and we’re going to bring these people to justice.
LP: Journalists have played a key role in exposing fraud, but they have often been complicit, too. Are the media doing their job covering fraud?
JC: It’s funny because I remember when I spoke to Bethany McClean in early 2001 about Enron, I sort of scoffed at the idea that her magazine – Fortune, at the time – would do anything because Fortune kept putting Enron at the top of its most-admired-companies list. Sometimes it just takes the journalist to actually do the work and get the story and convince a good editor that, well, no matter what we said about it in the past, this is an important story that we need to tell the public. And there are still journalists, like Bethany, out there. Jesse Eisinger is another one who does just amazing work. Jon Weil at Bloomberg --I’m happy to give these people a shout-out because I think they played an important role, and they’re read avidly, so there is a market demand for this kind of journalism—to really call it like they see it.
But journalists are human beings and organizations are filled with human beings and when the bull market gets going, you know, no one wants to be the one who says the emperor has no clothes, unless you can actually point to a smoking gun and say, well, look at this.
LP: Right now, the news is filled of reports of fraud, from companies lying to regulators to money laundering and so on. Yet the GOP is trying to abolish Dodd-Frank, which addresses fraud by providing greater protection for whistleblowers, for example. Why would they be doing this?
JC: Well, I think the best comment was from a senior Democratic senator a number of years ago, who simply and bluntly said, “The banks own this place.” I always tell the story that right after the Bear Stearns collapse in March of ’08, the heads of all the big banks and brokers, they headed down to Washington immediately in April of ’08 to talk to senators and other lawmakers and regulators.
As we now know, what they didn’t ask for was forgiveness for their misdeeds or perhaps forbearance on capital until they could get their house in order or to work with the regulators on what was obviously a massive credit crunch coming. No, what they asked for was two things. They asked for the accounting rules to be liberalized on their hard-to-value assets and for short-sellers to be cracked down on. That was their focus, and, by the way, both happened. There were short-selling bans shortly thereafter and the accounting profession, at the urging of Washington, changed, liberalized, the rules on hard-to-value assets in March of ’09. They got what they wanted, and this tells you something.
It really is amazing to the extent that lawmakers, despite all the evidence that major legislative initiatives that banks have asked for in the last 50 years have generally been harmful to the public purse, they’ve generally gotten what they’ve asked for. You can’t be too cynical.
LP: Will Dodd-Frank really have an impact?
JC: Well, again, banks have gotten into all kinds of trouble throughout their history—with rigorous regulation and not-so-rigorous regulation. It’s the nature of the beast. But things like the Volcker Rule make common sense – that we should not put taxpayers at risk for trading activities, for example. But the banks have made a very strong case that most of what they’re doing can be seen as a hedge in one way or another, and some other part of their business, so therefore it’s not trading. I think all of those activities should be done at the holding company and not at the deposit-taking institutions. That’s a simple way to handle this.
I know banking is complex, but so are $700 billion bailouts. And I think there needs to be a sense by depositors and taxpayers who want a safe place to put their money that the deposit-taking institution is regulated tightly and insured properly, and that if banks want to do venture capital lending, private equity investments, hedge fund investments, or derivatives contracts, they can do so in an investment arm that is not as regulated or protected by insurance schemes. It’s seems to me to be common sense, but yet you have armies of lobbyists who will argue vociferously the opposite.
LP: What’s the role of the SEC in preventing and detecting fraud?
JC: The SEC has long held, for example, that short-selling plays an important role because of not only price discovery but also the fraud detection aspect, and they’ve always been pretty vocal about that. But the SEC is outgunned. The markets have grown much, much greater than their budget’s ability to police the markets. They also, you have to remember, have no criminal prosecution powers. That’s the Justice Department, and fraud, by definition is a crime. So you have the 10b-5 rules under the SEC, which are civil, but in fact, in much of this I lay much of the problems about fraud that we have at the feet of the Justice Department, not the SEC, because again, you need to prosecute, and that’s just not happening.
The SEC answers to Congress budget-wise, and this raises certain issues. I think generally when the SEC has gotten involved, they do a good job. But it’s tough, and they’re behind the curve. I think that’s more due to issues of budget and others than to lack of willingness to take on things. I think that they’re doing the best they can but they don’t have the resources.
LP: What are the economic and social impacts of fraud that worry you the most?
JC: The few things that jump out are obviously fraud at institutions that are backed by the taxpayer. Because there you’ve brought someone to the table that doesn’t know they’re at the table – in effect, the public or a small depositor. When the U.S. has to come to the rescue of these big institutions where clearly games were being played, we all lose. If I’m a hedge fund manager or investor, or if I’m a day trader, I understand the risks I’m taking. I’m a big boy, ok? And if I don’t do my work and someone pulls the wool over my eyes, well, shame on me.
But if my aunt in Okauchee Lake ends up having to foot the bill for Countrywide or Lehman Brothers or AIG, that’s not fair. And again, we get to a basic level of fairness. Is that eroded? Is trust in our market eroded because people think the game is rigged? Quite frankly, despite the recovery in the stock market, I think there is still an ongoing perception by the public that the game is rigged, and that my restaurant went out of business, and I didn’t get bailed out, but the guys on Wall Street did and they’re making bigger bonuses than ever. They got to start over with my money, but my restaurant didn’t. And that’s really a sense of fairness, I think, that continues to erode in this country. That’s number one.
Number two, I think that the costs for fraud tend to also disproportionately positively affect the wealthiest people in the country. So it also, in a weird way, increases the income inequality issue, and I think that’s something that’s beyond the purview of me in this interview, but it’s something I think that policy makers should keep in mind, because again, the people taking the biggest risks and taking the biggest paychecks and bonuses -- if they had been hedge fund mangers, they would have been wiped out, and that’s that. End of game. But because they were doing it in too-big-to-fail institutions, they got to keep playing. In a weird way it is the antithesis of the free market. The free market would have taken these people out a long time ago. But, in fact, the subsidized market that we have, where the taxpayer stands behind all these bad decisions and the bad accounting, continues to exacerbate the income inequality issues.
LP: How does too-big-to-fail create fraud, and would breaking up the big banks be helpful in addressing it?
JC: Well, as we now know from Lanny Breuer and Eric Holder, too-big-to-fail is also too-big-to-jail. We now have admissions by the federal government that, in fact, this behavior was not extensively examined or investigated because of systemic issues.
It raises an interesting point, doesn’t it? Because if now, as the senior member of a bank, or the board of a bank, I know that there are no criminal penalities for breaking the rules, don’t I have a fiduciary responsibility to my shareholders to actually play fast and loose? Because if I get caught, that’s just the cost of doing business? I know it’s a frightening thought, but if carried to its logical extreme—if truly people believe that because of their size, they can’t be prosecuted, it actually brings forth a new issue of moral hazard extreme: illegal behavior.
That’s why equality under the law is an important concept – one that is being violated now.
Here Comes the Next Hot Emerging Market: the U.S.
By JASON ZWEIG
The investment visionary who coined the term "emerging markets" and helped launch the first funds to invest in developing countries thinks he has spotted what you might call the next great emerging market.
It is called "the United States."
Antoine van Agtmael is arguably the founding father of emerging-markets investing. He still is an evangelist for investing in parts of Africa, Asia, Latin America and other less-developed regions, where he thinks the future remains bright. But he believes the U.S. is at the beginning of an industrial revitalization that most analysts only have begun to recognize.
Over the past year, investors have pulled $22 billion from U.S. stock funds and added $339 billion to bond funds, according toMorningstar . If Mr. van Agtmael is right, that exodus is premature.
Mr. van Agtmael, now 68 years old, has been analyzing emerging markets since 1971. In the late 1970s he ran an investment bank in Bangkok as the local stock market boomed and then fizzled. That taught him the enormous potential—and explosive risk—of stocks in developing countries, highlighting the urgent need for diversification.
Later, at the International Finance Corp., an affiliate of the World Bank, Mr. van Agtmael helped create the first database of stock returns and pushed to launch a diversified fund to invest in what was then called the Third World.
After he came up with the catchier term "emerging markets," the first such portfolio was launched by Capital International in 1986 with $50 million. Today U.S. fund investors alone have more than $420 billion in emerging markets.
Mr. van Agtmael founded an investment firm, Emerging Markets Management, in 1987. It peaked at more than $20 billion in assets before he and his partners sold a 63% stake to Ashmore Group in 2011 for more than $126 million.
So when Mr. van Agtmael says he sees an underappreciated investment opportunity, he is worth listening to. When he visited China last year, one manufacturing executive after another complained to him about American competition, "something I had never heard in 40 years in Asia," he says.
Mr. van Agtmael points out that labor costs in China have been rising roughly 15% annually while stagnating in the U.S. Meanwhile, oceans of cheap oil and natural gas are flowing from American shale.
The U.S. is well ahead of China in cellphone infrastructure, he says; it also is advancing faster in three-dimensional printing and the use of robots in factories. At least 200 companies have relocated plants from offshore to U.S. locations, estimates Mr. van Agtmael.
"A decade ago, nine out of 10 companies would tell you they were thinking about building their next plant in China," he says. "Today it's more like three out of 10, and maybe five out of that 10, say they want to build in the U.S."
Some of these emerging advantages haven't shown up in higher profits for American companies—yet. "U.S. manufacturing is becoming more competitive than you would think, and China's less," Mr. van Agtmael says. "And the idea that manufacturing is old-fashioned is itself old-fashioned."
These ideas aren't a secret, of course. Stock-market bulls have been snorting over shale gas and 3-D printing for a couple of years now. Mr. van Agtmael outlined his message in Foreign Policy magazine last year and has recently been presenting it to sovereign-wealth funds, family offices and other investment audiences. Nonetheless, he thinks investors have underestimated the rate and importance of these changes.
"When I first started talking about emerging markets 30 years ago, people knew it made sense but they didn't quite believe it," he says. "This is the same kind of thing: They get the message on one level, but they haven't yet rationally absorbed it, and it hasn't changed their behavior yet."
Mr. van Agtmael, now a senior adviser at the consulting firm Garten Rothkopf in Washington, is writing a book about the resurgence of manufacturing in the U.S. and Northern Europe. But he still is bullish on many emerging markets, including Mexico, Peru and Colombia; Indonesia and South Korea; Turkey; and much of sub-Saharan Africa.
He thinks Americans should have up to 25% of their equity exposure in emerging-market stocks, well above the 6% average among fund investors.
Still, his most surprising message is that the U.S. is back.
"My belief is that markets are not efficient, but they are emotional," Mr. van Agtmael says. "They are driven by raw feelings. Why has everybody been surprised by how well the U.S. stock market has done lately? Because they're only beginning to realize the glass is half-full again instead of half-empty."
—Email email@example.com; twitter.com/jasonzweigwsj