Tuesday, August 24, 2010
China's Sovereign-Wealth Fund Is in Talks to Invest in Universa's Bearish Wagers
By JENNY STRASBURG, Wall Street Journal
Prof. Nassim Nicholas Taleb was in his native northern Lebanon last week, thinking about instability in the pricing of goods and services. He also was shopping for olive orchards.The mathematical finance scholar who lectures at New York University and wrote the 2007 book "The Black Swan" said he is as pessimistic as ever about the prospects for sustained global economic recovery. He suggests that investors around the world strap in for a wild ride of deflation and inflation. And, therefore, he said, it makes sense for him to pour money into farming, especially olives, which are indispensable to the Mediterranean world.
"Healthy investments are those that produce goods that humans need to consume, not flat-screen TVs," said Mr. Taleb by phone from near his family's ancestral home in Amioun. "Stocks are not a robust investment. Make sure you have a garden that bears fruits."
Some of the world's biggest investors are planting the same seeds. The Santa Monica, Calif., investment firm Mr. Taleb helped start and still advises, Universa Investments LP, is in talks with China's $300 billion sovereign-wealth fund, China Investment Corp., and Middle East government funds about investing in Universa, according to a person familiar with the matter. Specifically, sovereign-wealth funds are willing to pay the firm in the hopes that if the market dives, at least some part of their portfolio will profit.
Panic is a profit-driver for Mr. Taleb, who has gained renown for his pessimism, a viewpoint that proved prescient in the market collapse of 2008. The interest from the likes of the Chinese and Middle East funds, which control some of the world's biggest pools of money, suggests more mainstream adoption of Universa's bearish conviction. Some of the world's biggest investors are planting the same seeds. The Santa Monica, Calif., investment firm Mr. Taleb helped start and still advises, Universa Investments LP, is in talks with China's $300 billion sovereign-wealth fund, China Investment Corp., and Middle East government funds about investing in Universa, according to a person familiar with the matter. Specifically, sovereign-wealth funds are willing to pay the firm in the hopes that if the market dives, at least some part of their portfolio will profit.
The outcome of the talks isn't certain, according to a person familiar with the matter. But if the investments materialize, they likely would boost the Universa fund's client assets from $6 billion to about $10 billion, two people familiar with the matter said.
CIC didn't respond to a request for comment. Mr. Taleb said he couldn't discuss Universa client talks. But he has consulted with several sovereign-wealth funds about his "black swan" philosophy in recent years.
Such an approach represents an extreme downside hedge for China, whose export-heavy economy depends on global growth.
For investors wanting to guard against such events, Universa started the Black Swan Protection Protocol, a vehicle different from a typical hedge fund in that clients don't hand over their entire account for the firm directly to manage. Instead, clients designate a certain pool of assets, a notional value, that they seek to hedge, or protect against extreme losses.The term "black swan" refers to a long-held belief that all swans were white. Explorers then discovered black swans in Australia. The image came to reflect the occurrence of something highly unexpected, including events that could make markets nose-dive.
For example, a client with a $100 million account with Universa would pay the firm a flat annual fee of 1.5% on that amount, or $1.5 million. The client would transfer to Universa typically less than 10% to fund its account in the strategy.
Universa is run by 39-year-old Mark Spitznagel, a former Chicago Board of Trade pit trader and longtime collaborator with Mr. Taleb. His five traders buy put options on specific stocks and stock indexes.
The goal is for the value of the puts to pay off 60% if the market drops by 20% or more in a month. A put conveys the right to sell a security at a specified price.
This year, Universa clients on average have lost about 2% of their notional account value, one person familiar with the matter said. This year's volatility hasn't been extreme enough, or its losses steep and sudden enough, for Universa's strategy to pay off.
Universa's clients also lost money last year, when the Standard & Poor's 500-stock index gained 23%. At year-end, client portfolios were down an average of about 4%, one person close to the matter said.
But 2008 was different. That year, extreme market losses helped many Universa clients profit more than 100%.
Universa's marketing pitch continues to be that something like 2008, or worse, will happen again.
"We break even, or lose tiny amounts or have tiny returns, for a very long time, but we know it's going to come," Mr. Spitznagel said. "I couldn't possibly be more negative on the markets."
Late last year, Mr. Spitznagel also launched a fund betting on a steep rise in inflation. That fund, which has remained flat this year, suffered losses in recent months betting against Treasurys.
Government-bond returns are up about 8% since the start of the year, according to Bank of America Merrill Lynch Indexes.
"The biggest home run would be if we went into '70s-style or worse inflation," Mr. Spitznagel said. "If I had a gun to my head, right now I'd fall on the deflation side, but that's going to flip at some point."
The Black Swan inflation strategy has less than $1 billion in client assets. Clients might have to tolerate steady losses in order to reach a hoped-for bonanza.
If the Black Swan Protection Protocol reaches $10 billion, Universa would make $150 million in management fees alone. The firm also is entitled to 20% of profits, according to fund documents.In 2004, Messrs. Taleb and Spitznagel closed a previous fund, Empirica Capital, after two years of mediocre returns.
Meanwhile, Mr. Spitznagel has jumped into the farming life as well, buying a few hundred acres near Lake Michigan, where he has a vacation home. He is growing cherries and apples, and planning to raise goats.
Mr. Spitznagel calls it self-sustainability, which, he said, is another good hedge.
Write to Jenny Strasburg at email@example.com
Monday, August 23, 2010
Fixing a World That Fosters Fat
By NATASHA SINGER, New York Times
Tuesday, August 17, 2010
Urban farmers see opportunity in Detroit
Thursday, August 12, 2010
Portable Housing, Made in Montana
Published: August 11, 2010
FOR years Eldon and Bruce Leep, father and son contractors, built condominiums at the very high end of the market in the cluster of affluent ski villages near here at the foot of Lone Mountain.
But there were clouds looming in Big Sky country. “They were selling faster than we could build them,” Bruce Leep said. “Then we noticed one day that we were five units ahead, and then eight or nine.” The slowdown worsened, and soon the jobs stopped. The change put 40 employees of the Leeps’ company, Envirocontrol Systems, out of work.
High-end home contractors in southwest Montana, near Yellowstone Park, have been as battered by the recession as those elsewhere in the country. Accustomed to putting up lavish mansions of native stone and logs for wealthy clients, many have folded, moved or gone down-market, remodeling homes or building ones costing $200,000 to $300,000.
For a time, the Leeps did a little of everything. “We were struggling to survive,” Bruce Leep said. “We traveled wherever we had to, concrete work for oil projects in North Dakota and even handyman projects.” When a storm with baseball-size hail walloped the region in June, they and other contractors got some welcome jobs putting in new roofs and siding.
All the while, however, the Leeps were hunting for a permanent line of business, something to sustain their 20-year-old family firm. Their choice was portable housing — still housing, but as far from their old work as could be. Instead of building homes with a labyrinth of rooms that cost $1,500 to $1,800 a square foot, they decided to construct one-room houses priced at about $2 a square foot. Such homes are basically shells to which owners can add baths and kitchens if they wish; some may even have lofts and high ceilings. Typically, the houses can be assembled with little labor in a few hours.
The Leeps and their partners have great hopes for their new work. The potential market, they say, includes the third world, where housing is scarce; disaster areas, where people may be displaced; and the homeless population. The recession and major events like theHaiti earthquake have bumped up interest in economical portable houses, which, they add, can also be used as ice fishing shacks, hunters’ shelters, temporary offices and the like.
“We were excited because it was something different,” Bruce Leep said. “We were burned out on construction, with its big ups and downs, and this would provide some stability, we hope.”
In 2008, while repairing his roof, the Leeps met Bob Sterling, an architect with an idea for a portable house. They also met Ronald Omyonga, a Kenyan engineer on a mission to house the slum dwellers around Nairobi, who live under tarps. That team soon developed a one-room structure that is 118 square feet and shaped like a single cell of a honeycomb. It is made of high-density polypropylene panels that attach to a lightweight, high-density aluminum frame.
“The shape seems simple,” Bruce Leep said. “But very precise dimensioning is required. It was difficult to figure out how all of these angles come together.”
But even with a sound design, the project soon languished. The recession was wearing on, and the Leeps simply ran out of money — to the point where even the heat in their shop was turned off.
Then, six months ago, the Leeps met Michael Weas, another refugee from the high-end home market. Mr. Weas had sold a software company to become a developer in Bozeman, and had built two spec homes at the Yellowstone Club, an affluent ski village, one for $3.5 million and one for $4.5 million. “Then one day I woke up, and the handwriting was on the wall,” Mr. Weas said. “Real estate was over.”
But Mr. Weas is excited now by portable housing. After a single meeting with the Leeps, he and several partners assembled the funds the Leeps needed. Earlier this year, the group founded a company called HabiHut, after the honeycomb home the team had designed.
The HabiHut weighs about 400 pounds, packs down to a 4-foot-by-8-foot crate, and costs $2,500, which includes shipping with bulk orders. It can be assembled in an hour or two with just a screwdriver, will last up to 15 years, and can be combined with other HabiHuts as a family expands or other needs arise.
For a small structure, the HabiHut contains some surprises. It has a roomy 14-foot ceiling, for one, and the white panels are translucent, giving the cozy home a light, airy feel.
For the Leeps and their partners, HabiHut is a strange new world. Money is the major difference — “We used to build houses that would buy a village for 20,000 people,” Mr. Weas said with a laugh — but the marketing is different, too.
“I’m not really selling myself to a customer, which I was doing when I was building their home,” Bruce Leep said. “The product pretty much sells itself.”
Moreover, HabiHut has two dimensions. “It’s a project about providing shelter, but hopefully we can make money and create jobs,” said Mr. Weas, whose son Sean, a recent master’s graduate in architecture, is also involved in the venture. “The best of both worlds. There’s a moral aspect to it that wasn’t there at the Yellowstone Club.”
The first few dozen HabiHuts have been manufactured, with several in use in Kenya, two in Haiti and another 20 en route to Haiti for sale. HabiHuts are also being tested as water kiosks — a place where villagers can fill water jugs with clean water — by Umande, a Kenyan organization that helps the homeless, and one is functioning as a restroom at a trailhead in Montana.
The Leeps’ venture is just one of several developments in the portable-housing industry.
There has been a surge of interest lately, prompted by the earthquake in Haiti and other events, in designing even cheaper and more portable structures. One new model, the elegant Abod house, is being built by BSB Design of West Des Moines for single mothers in the shanties of Soweto, South Africa. The homes employ the strong shape of the inverted catenary arch — the shape of the St. Louis arch — so two children can sleep in a loft while the mother sleeps below. The 120-square-foot homes are made of corrugated metal; the frame stands on concrete or recycled rubber mats.
“It can be erected by one family in one day,” said Douglas Sharp, the designer. “Four women put the first one up in four hours.” The homes cost $4,900 apiece, or $3,500 each for orders of 50 or more.
On another front, California, facing growing homelessness, adopted a law in 2008 requiring cities and towns to make land available for homeless encampments. Since then World Shelters, a nonprofit group in Arcata, has seen demand grow for its U-Dome, a geodesic structure made of polypropylene panels. River Haven, a homeless camp in Ventura County, now has 19 U-Domes in use, including one with communal showers and a toilet.
The U-Dome 200 is 195 square feet, 10 feet tall and configured with a single bed, though two could fit. It costs $2,750 for individuals and $1,825 for humanitarian groups. World Shelters makes other shelters, including the new TranShel, a 192-square-foot rectangular modular home costing $500 that is aimed at the emergency market for displaced people.
Like the Leeps, World Shelters welcomes individual buyers; one is Caren Wise, a psychotherapist from Hoopa, Calif., who lived in a U-Dome 200 while she built her home in Northern California.
“I loved it,” Ms. Wise said. “It was a house in a box. It came and I put it up in four hours. I had a little kitchen, a bed, a wood stove and an old claw-foot bathtub.”
Ms. Wise lived there with her dog, Dexter, but she said, laughing, that two people could live in the U-Dome 200 “if they got along.”
She now uses the dome as a studio and a guesthouse.
Meanwhile, the Leeps are now working on a grand vision — a village of HabiHuts. The company wants to raise $200,000 to build a community for the people of the Vumilia tent camp in Gilgil, Kenya, who have been displaced by violence. The village will have 50 HabiHuts, two water kiosks, three sanitation kiosks, a cellphone charging station and a $15,000, three-kilowatt solar dish. In the United States, that dish would power just one 3,500-square-foot home.
The $200,000 cost even includes shipping. “That’s everything you need,” Sean Weas said. “The solar dish, the water, sanitation and shelter.”
Tuesday, August 10, 2010
TEXT OF STORY
TRACE RAMSEY: Crop Mob is meeting around the corner, there are a couple tables and we'll get started once we have a bunch of people. There's water over there. A little bit of shade.
HILLARY HECKLER: So we got to get under it, get the roots out. Any questions? Alright, one, two, three, dig!
RAMSEY: Crop Mob works on the model of mutual aid. It's not a free-for-all, it's not a charity. It's basically a model of reciprocity.
WILL CRAMER: They helped us build beds and putting down a lot of mulch, which really set us up well for the spring, especially when we started having tractor problems, we already had the beds made.
JEFFREY BAILEY: Our generation, and the generation behind us have this blatant sense of entitlement. I think we're realizing that everything has come a little too easy for us. So putting our hands back and actually sweating a little bit is a lot more fulfilling than just being able to look something up on Google.
RAMSEY: At the end of the day sitting in your cubicle, after you've been done playing Solitaire and hanging out at Facebook all day, what have you really done? So they're looking for an authentic work experience.
HECKLER: Hey you guys a moment of silence. For you guys, we just want to thank you so much for coming out here and sweating with us. Whoo! Yeah!