Monthly Letter January 2015

Last summer we were a bit worried about the lack of vola lity. Not the case anymore. The vola lity has increased across asset classes since then. As a hedge fund concentra ng on equi es it would be great to be able to disregard the other asset classes, but of course that has never been the case. Even less so today. Central banks and poli cians are trying their best to stave o de a onary forces and help the economy on to the path to recovery (how long have we not been talking about recovery!) So far their e orts have successfully postponed a recession, but we believe that there is a price to be paid for this in the next couple of years. We are, however, convinced that this will not be a 2015 theme, but every investment manager should keep this in the back of his mind.

The fall in the price of oil and other commodi es coupled with the zero interest rate policies seem to in- dicate that the economy is heading into recession or de a on. We are not of that opinion, but we are sure that the readers of this monthly le er will be hearing those arguments from other parts of the asset management community. Anyway, the policy induced recovery is s ll on the way. Nega- ve interest rates, central bank bond purchases and scal s mulus have compressed returns eve- rywhere and the hunt for yield and growth con nues. In rela ve terms the a rac on of the equity markets has become even greater lately in spite of the posi ve start to the year. Rela ve pricing is the name of the game. “We’re gonna party like it’s 1999” as Prince put it. Be there, but beware.

The US economic recovery has led the Fed to exit the monetary s mulus at the same me as Eu- rope nally is on its way in to it. The strength of the USD is logical even if it took longer to material- ize than we at Madrague had expected. Once it nally happened the apprecia on was faster than we had an cipated. This is not unusual, but we s ll get surprised when these moves are ercer and longer.

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