Monthly Letter October 2016

October feels distant now as we ponder the implica ons of a new president in the United States of America. In our last monthly le er we wrote that we have downside protec on, as always, in case there would be another “Brexit”. When it was clear that Trump is the new president elect, quite a few comments touched on just that phrase. We were in for another Brexit just four months a er the original event. As the world gets more focused on near term (recent) events, the unlikelihood of events tends to get vastly exaggerated. The David Viniar com- ment in 2007 about 25 sigma events comes to mind (the phrase he used to describe how unlikely the losses at Goldman Sachs had been). However, the equity market quickly refocused from being aghast to being ablaze. Focus shi ed from foreign policy uncertainty, to trying to es mate the e ects of infrastructure spending, lower taxes and poten al repatria on of capital locked outside the US.

The resul ng investment theme is a re a onary environment in the US with expecta on of higher growth and higher in a on. If this proves to be correct then we have a very posi ve mix for equi es in the OECD. We are s ll very early in this phase though, and we would not rule out the risks of renego ated trade agreements with corresponding fric on between trade partners. If the economy is as fragile as we have previously thought then we might be in for a period of stag a on instead. Not good for neither equites nor bonds. Either way we would welcome a return to more normal central bank policies. A recession would of course be painful, but trying to avoid economic cycles through monetary s mulus is faulty, we believe. We will comment on the November performance in our next monthly le er, but as an indica on we are up c1% mid-month in November.

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