Eclectica Fund Market Update

Tyler Durden's picture

The long hot summer on the European continent seems to have caused a melt up in the region’s stock prices. In euro terms, prices rose 7pc having posted gains of 10pc in July as the inventory cycle, allied to China’s state imposed growth dictum, suddenly improved sentiment towards beleaguered exporters. However, globally, the World MSCI rose just 1.6pc in August, held back by a 20pc slump in China’s stock market. The still cautiously positioned Fund, seemingly preferring a wet campsite in Wales to the sizzling hot beaches of the Mediterranean, managed to post a gain of 0.9pc in August and so broke a five month losing streak.

As outlined in our recent commentary, we continue to eschew the scintillating returns on offer from the weakest or most cyclical businesses and are disinclined to chase a market which has risen more than 60pc over the last five months on a change in collective social mood. Instead we prefer the rock-steady assuredness of Treasuries and Bunds allied to a belief that short term interest rates will remain unchanged for the foreseeable future.

There have been no substantive changes made to the portfolio. In August, our 30 year government bonds made up the majority of the Fund’s gain, with our Treasuries contributing 43 basis points (bps) and our Bunds 11bps. Further gains, amounting to 20bps, were had from our Altria corporate debt and 10bps were gained from our Short Sterling option packages. However, interest rate expectations in Australia hardened in August and our positions cost the fund 24bps.

Most other investors, of course, remain enthralled at the prospect of a vigorous and sustained economic recovery. But with the follies of the financial sector now transformed into public sector debts, to be paid off by higher taxes and cuts to public expenditure, we fear that animal spirits outside the City are unlikely to prove so exuberant. History still suggests that such counter-trend price movements ultimately fail under the extravagance of their audaciousness. Time will tell.

h/t Mike

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
long-shorty's picture

Where's the snarky comment about poor performance? Oh... wait... this fund shares the party line.

pivot's picture

i believe you're thinking of dealbreaker.  zerohedge has no party line.

Anonymous's picture

This Mike guy is on the ball...keep the info coming!

Anonymous's picture

great tips from Mike....always informative and accurate
thanks!

etrader's picture

Hugh Hendry's deep in the Deflation camp.

Guess he's Looking for the EW P3 melt down in dollar based credit markets.

cougar_w's picture

"[W]e continue to eschew the scintillating returns on offer from ... a market which has risen more than 60pc over the last five months on a change in collective social mood"

Haha. Nicely put. Others will say "what a loser" but that would be the difference between a gambler and in investor, wouldn't it?

I know I know; a faint heart never won the fair lady. But that's an attitude learned over the last 20 years by people who thought they couldn't lose, extending back 100 years as generations of gamblers burned through easy energy, access to raw materials, and several profitable wars. So long as The Fed was willing to print money to backstop the casino, it was all good, right?

And then what happens?

What, indeed.

It is not encouraging to be looking at the end of 100 years of speculation. It's a long ways down from 100 years. That's a lot of momentum to burn off. I don't know how you do it. I don't think you can. I think you carry that momentum right into the ground and finally lose it some distance into a crater of your own creation.

cougar

rigger mortice's picture

 'It's a long ways down from 100 years'................... and 100 years of dollar devaluation

Michael Prospect's picture

Some months ago Hendry mentioned the Chinese allowing the yuan to appreciate against the USD as the one thing that would turn him bullish on risk assets. Any word on whether this still holds? 

bonddude's picture

He also said he wouldn't touch gold or equities at these levels and the real bubble was actually the selloff in US Treasuries, percentage wise based on a $12 trillion hole blown in the US budget.

"I am the flower that blooms in winter."- HH

Now that IS a contrarian view. I like this guy.

Anonymous's picture

Some good Hendry clips on youtube.

We're currently deflating but some can't see it. The fastest decline in U.S. credit/money supply since pre-great depression.

The growth figures, especially China's, are a stimulus-created mirage. Now there's a bubble to pop.

Anonymous's picture

hugh is the best . but howcan he stay out of gold i dont understand

etrader's picture

Last time he was on tv, he said Gold was in a bubble. ( he called a buy around $400)

Gold adds everywhere, you carn't pick up a newspaper with out Gold coverage, Gold

Parties , endless "we buy gold" adds  spamming emails  radio/ TV & even Gold vending machines!

You want to buy something people hate.

 

Gilgamesh's picture

He is hard-wired to be a contrarian.  Hates 'easy money,' 'crowded trades,' and the like.  And, as mentioned, firmly believes that he suffers as an investor over the summer months and starts shining in October (when the men are back from their summer flings and slapped out of bliss!).  The last Ag crash really cemented his anti-herd bubble-watch skepticism.

whopper's picture

Hugh is a smooth operator and orator. 

he is also human and has made some real shitty calls in the past and good ones.

 

Virginian's picture

Hugh's intellect is amazing (great calls on Eastern European carrencies, etc.), but I don't see how he's missing the dollar collapse / stagflation trade that's coming.  Only time will tell....

aus_punter's picture

i agree with Virginian - it would appear he is positioned for outright defltion whereas the real pain trade will be stagflation

Anonymous's picture

much as HH knows his onions he is a classic anti-establishmentarian. a grand intellectual trait found within the British who are unable to deal with the dissonance experienced there. he even exhibits the neotony common amongst the species.

his calls are always intellectually sound and fascinating to listen to. i would read a financial history by him any day.

but like many on this site we are wedded to our contrarian views and miss the most important moves whilst roiling in knowledgeable angst. think of ignorance as a competitive advantage.

Bob the Horse's picture

Hugh is a self-publicist with a very average track record.  Nothing wrong with being in the deflation camp but it would be easier to just buy long duration bonds and not pay fees.