Tuesday, July 12, 2011

Bhuyan, The Esoteric Investor

If you’re bored with the standard investing vehicles and want to cast a wider net (pun intended), Vishaal B. Bhuyan’s The Esoteric Investor: Alternative Investments for Global Macro Investors (FT Press, 2011) has three suggestions: demographics, fish, and water.

The author’s specialty is longevity and mortality risk instruments such as life settlements, reverse mortgages, and longevity reinsurance. He edited Reverse Mortgages and Linked Securities, which I reviewed earlier. In The Esoteric Investor he writes about the so-called life markets in the context of the looming demographic crises, with Japan being the poster child for potential demographic disaster.

I was most intrigued, however, with the second part of the book on tuna. I remember being stunned when I read a while back that a 754-pound bluefin tuna had fetched a record $396,000 at the world’s largest wholesale fish market in Tokyo. That’s a whopping $525 a pound! Talk about tunamania!

I didn’t know how these bluefish tuna went from being mere glints in their mother’s eye (actually, a mature female lays millions of eggs over a period of months—and a good thing because it has been estimated that fewer than one in a million survives) to a very high-priced course at a top Tokyo or New York restaurant. Here’s how tuna fishing and fattening goes in Australia, the prime supplier of high-end tuna to Japan.

Southern bluefin tuna are born in Indonesian waters. “For the next eight years, they leisurely work their way around the west coast of Australia, crossing the Great Australian Bight en route to the east coast.” The best-case scenario is that they will circumnavigate Australia and return to their birthplace to spawn and begin the cycle anew. “But many will not make it that far. They will pass unscathed through Western Australian waters and the Great Australian Bight, but then they will find that their migration route has brought them into the perilous seas off South Australia, where boatloads of fishermen with nets are dedicated to keeping them from completing their instinct-inspired journey.” (p. 88)

After spotter pilots locate schools of tuna and radio their location to the waiting “chum boats,” the fishermen on these boats throw baitfish into the school, “causing the tuna to become excited and follow the boat.” Then “a net is shot around the school of fish and the chum boat. The spotter pilot overhead directs the boat out of the net just before it closes, leaving nothing but fish behind. The net is pursed around the school, perhaps thousands strong.” The trapped tuna are then transferred to a net cage, similar to a floating corral, which tows the fish to one or more of 150 pens off Port Lincoln. Each pen contains from 20 to 50 tons of fish.

“These tuna are a precious commodity—which is exactly the right term—and they are pampered and coddled to an extent that would embarrass a purebred Pekingese. Every day of the year, the bait boats make the 5-mile journey to the pens around 6 a.m. and then return to the Port Lincoln marina to pick up another consignment of baitfish to feed the penned tuna. At 2 in the afternoon, they do it again. Stehr Group feeds 60 tons of pilchards a day to their tuna; over the season that adds up to 5,500 tons.” (p. 86)

The tuna are kept in these fattening pens for several months until they are big enough to be slaughtered. No need to go into the gory details here. And then off to the Tsukiji tuna auctions.

Well, I obviously got hung up on tuna—and I didn’t even write anything about the problems of overfishing and other ecological concerns—and have neither time nor space to do justice to the book as a whole. Perhaps at a later date I’ll do another post on it because it is an intriguing book. Most of the investing opportunities are not for the retail investor (water being the exception), but they’re interesting to read about nonetheless. Maybe someday we’ll get a fish ETF or futures contract in the U.S.; Norway’s fish exchange (FISH Pool ASA) launched a salmon futures contract back in 2007 and traded over 100,000 tons in 2010. The ticker FISH isn’t taken yet.

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