From IceCap Asset Management's most recent monthly letter:
October 2011 - The Tip Of The Iceberg
It’s certainly not lost on us that IceCap’s corporate logo is an iceberg. Besides being a cool logo we do feel the iceberg is a perfect mirror of global investment markets. On the surface, attractive opportunities will always exist and appear achievable for everyone. However the real risks within the market are normally underneath the surface and should they tilt the market in one direction or another, financial markets, just like the iceberg can be turned upside down.
How exactly is the global iceberg looking today? Are the risks above water as many of the big bank investment advisors proclaim or are they below the surface? At IceCap we are confident that one day soon, we will wake up to see the most spectacular investment opportunities of our lifetime, until that day however we must remain very mindful of the risks below the surface.
We have to say, the continuous unbridled enthusiastic cheerleading for the stock market to go higher has us puzzled. Yet, many of investment leaders from the big box banks and mainstream media continue to shout about buying the dip, proclaiming stocks are cheap as well as touting the merits of the one-size-fits-all balanced fund for every investor for every occasion. While we genuinely believe that today this view will lead many to financial despair, it’s important to recognise why this view is shared by the hands that hold the savings for many people in the World. For starters, many of the industry’s largest players simply do not have the product available nor the expertise available to properly guide the average person during these dramatic economic times. Either the cognizance to understand the realities of 0% interest rates, money printing, and a risk free investing game for banks is missing, or they firmly believe actions by central banks and governments will save us all.
On the other hand, considering that in 2008 all major countries showed no hesitation whatsoever with pushing the average investor and tax payer under the bus, in return for saving their beloved banks – expecting a similar response this time around, maybe isn’t that crazy after all.
If this is the view and reason for the super-enthusiastic bulls, then we see your point. The slightest potential for a solution to Europe will certainly provide markets with joy for a few minutes. Then, once this joy wears off you can prepare for America’s venture into LSAP (which we discuss on page 8), which is certain to launch stocks into outer space.
Should neither of these developments occur, then we’ll need to see dramatic improvements in the global economy and funding markets for banks before the next bull market resumes.
The question we do ask however, is how long, economically, and politically can the bailouts continue? From a pure mathematical perspective, the exact point in time when there really is too much debt has already passed for some and is on the horizon for others. Meanwhile, from a pure social perspective the exact point in time when people finally shout “we can’t take this anymore” has certainly arrived in Athens and Rome. And unless the perceived inequalities improve, suspect social unrest will likely grow further – maybe even onto Wall Street.
Much more inside the full letter (pdf)