Monthly Letter January 2016

The first month of 2016 con nued where 2015 le o ; very weak environment for risky assets. The pull back in the EuroSTOXX50 is c13% from the start of December un l the end of January. As we write this le er you can add another 5% to that pullback. Close to one h of equity values have been erased in 2.5 months. Not insigni cant. Weakness is centered towards the commodity space, combined with worries about credit quality in the banking sector. Anything that would poten ally destabilise the banks, makes us worried. The banks are the engine in the nancial system, so if they experience credit losses and start to ghten lending standards, we might be at risk for a mul plier e ect of the problems at hand.

The problems are di erent this me compared to the nancial crisis in 2008 and the Euro-crisis in 2012. During those crises we had a very clear opinion on what the problem was and what ac ons that were required from governments, central banks and companies to nd the path out of the dire situa on. This me is di erent. We can appreciate that the market is pu ng a higher probability for a tail event materialising. However, the looming fear is that we are coming to a point where the market and ordinary ci zens are star ng to distrust the e ec veness of the central bankstimulus (both zero rates and quan ta ve easing).

Since the nancial crisis, there is remarkably weak evidence of growth. Global growth has been trending down in spite of the men oned s mu- lus e orts and the help of a lower oil price. We are seeing lowered es mates for poten al growth in the US and con nuous worry about Chinese growth and currency policy. The main concern, we would say, is the lack of global non-s mulated growth, i.e. what we all have been looking for the last seven years. It seems to us that the markets are running out of pa ence. Pippi Longstocking used to say that if you are very strong you need to be very kind. We agree with that statement, but we really hope that the opposite is not true for the economy. The economy feels both weak and cruel to market par cipants.

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