Returns of Investment of Passion

There has been an interesting article about investments of "Ultra High Net Worth Individuals" (i.e. the super rich  in the weekend edition of the FT. The graph below contrasts the returns of collectibles versus gold and  real estate.

Following trends are interesting to note:

• On the collection side, classic cars did much better than fine arts, although fine arts remains of course the most popular "investment of passion". Overall, collectibles enjoyed an outstanding performance over the last 10 years.
• Within each collectible segment there can be strong price swings, which can be caused by following development:
  Inexperienced investor tend to to inest in secure big names, but as they grow more confident they expand beyond the security of big names.
  At first, this leads to a strong increase in big names and then to a strong drop of those big names. 
• A big shift of wealth is occurring from the old world (Europe and the US) to the new world (Asia, BRIC) 
• Property prices exhibit this shift.
  While property prices in New York only increased 72% over the last 10 years, prices in Hong Kong tripled. 

An important detail to keep in mind is the fact, that collectibles make up only 4% of the super rich's asset.

Also, Bob Shiller stated that a home is not a good investment in general, since the value of a building is depreciating over time:

BCA Webcast: Geopolicy and asset allocation

This is a rather technical piece about geopolitics and asset allocation.
On February 19th, 2013, BCA has held a webcast about "Global Asset Allocation/Geopolitical Strategy Forecast":
USA
Less policy risk due to bipartisan collaboration (although politician still make a lot of noise with extreme positions, behind the scene they are compromising). Normalization of interest rates (i.e. rising interest rates from today's super low levels) is not anticipated by markets today, and could cause problems in the future. Rising yields are bad for bonds, equities and gold.
Europe
France's problem (low productivity) is hiding bhind Italy and Spain. The implementation of structural reforms in Italy in Spain is unsure as their governments are very weak (Monti is gone and Rajoy is weakened by accusation of corruption). But GDP  could grow as austerity policies cease and as exports to growing China and USA rise.

Asset Allocation
We are in a liquidity driven bull market, so don't be underweight equities, especially cyclical stocks (keep your beta high). But liquidity rallies tend to turn around quickly. Hedging with puts on equity indices is prudent. Moreover, we are priced for perfection.
Currencies: Every country is trying to strengthen economic growth by weaken their currency (beggar thy neighbour policy). EPS growth will be influenced as well as the value of respective bond positions.

Central banks are no longer independent

In an interview the  former chief economist of the ECB and monetary hawk, Jürgen Stark made some interesting remarks about global central bank policy:

Central banks (in the US, Europe, Switzerland and Japan) are flooding the financial system not to avert deflation but to support economic growth and decrease interest rates of over indebted government. Hence, there policy is no longer independent. The chart below show the explosion of money supply. Only the central bank of  Japan did not increase its balance sheet (yet), but this might happen soon, as the new PM Abe is demanding a weaker currency.

Today, central bankers are trouble shooters for non-monetary problems like weak economic growth, high unemployment and the burden of interest payments for over indebted governments, which is increasing the bankers power enormously.

The result of the monetary flood is financial repression (i.e. savers lose out due to interest rate not covering inflation anymore) and bubbles in various asset classes (e.g. bonds, swiss real estate etc.).

At the moment the increased money supply is not inflating consumer prices because the liquidity is not fueling the real economy (the liquidity is contained in the financial system fueling asset bubbles). But once the transmission works again and prices increase, it is doubtful whether central banks are willing and able to reduce this monetary sea in due time. In that case we will face substantial inflation!

To protect your investments you have to find real assets which are not yet in bubble theory. As indicated, real estate could be the wrong place to be!