Monthly Letter May 2014

First: it is not a sign of complacency. Complacency is just another way of saying that you think the markets have failed to understand the magnitude of your own bearishness. To say that the market is complacent is a sure way of not considering all op ons as to why the market is behaving in a certain way.

Many investors use the VIX (the US vola lity index) as one indicator when they want to understand whether the equity markets are a sell or a buy. Like all of these types of indicators they can look obvious in hindsight. Calling the top or the bo om in RSI, VIX, risk premia etc. is very much like trying to call the bo om or the top in the equity markets. S ck to what you understand (and don’t understand for that ma er as well, maybe just as important). S ck to valua on, s ck to changes in the corporate environment, s ck to understand- ing the macro environment. Uns ck to technical indicators. So if we don’t pay too much a en on to the vola lity index why do we spend a big chunk of a monthly le er talking about it? Well, the markets are actually moving very li le and that in itself is quite interes ng we think. The 5 day vola lity in the EuroSTOXX50 was just above 1 a few weeks ago.

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