Luis Stuhlberger Verde FIC FIM management report for the month ended June 30, 2016. From Portuguese using Google Translated.
Verde had gains mostly in their currency positions, both in the short position in the dollar against the Real, as the short position in the Chinese Renminbi (incidentally an unexpected combination for us). The stock portfolio had losses, and fixed income positions were left hand, the result of the high real interest rates in the last days of the month.
The month of June the market was the most volatile in recent years. We had weak numbers of jobs in the United States, which took the dollar strength and made collapse the high expectations of interest by the Fed. And we were already notorious vote Brexit where the UK population voted in favor of leaving the EU . This result was contrary to the prognosis of the vast majority of experts, the urn mouth research, and without doubt, the pricing of the markets. It was an earthquake, whose consequences are still not entirely clear – and potentially only in a few years we will have more certainty about the impacts.
The first major reaction to Brexit was panic, exacerbated by the reversal of market expectations, which precificava’s victory Remain. The first two days after the event saw sales of global actions on a rare scale in the past decade. But once past the initial shock, the great movement was not the stock indexes or even coins (though sterling has lost 13% of its value since the vote, and is at the lowest level of the last thirty years). The largest global movement was in fact in interest rates. rates of ten years of all developed countries had significant declines in the last ten days: -37bps US, -28bps in Germany -12bps in Japan -60bps -24bps in England and Switzerland. The paroxysm of security by search is creating situations such as Switzerland, where the yield curve is negative as far as the eye can see: titles fifty years now negotiate the negative interest rate!
It is this variable that explains, in large part, partial euphoria seen in the Brazilian markets in recent days. If blind land one-eyed man is king, what about a country whose interest rates remain in the double digits, while the world slaps by some slim basis points here and there? So Real turned to appreciate at an accelerated pace, and in fact the value of 11% in June was the highest since April 2003. Part explained by the global context of weak dollar and falling global interest, but partly explained by changing economic team , notably the Central Bank, where the new team decided to adopt, even temporarily, a position of non-intervention in the market. This echoes precisely that attitude adopted way back in 2003 and 2004: extremely high real interest rates and exchange rate appreciation as a tool to bring down the current inflation and expectations in order to further make room for cutting interest rates. We believe that many of the factors that allowed the success back there is not present now (in a word: China) and consider a danger that the real return to an exaggerated level of overvaluation. The fund has zeroed its short position in the dollar against the Real.
The Brazilian real interest amid the general collapse of global rates, remains absolutely exceptional levels. The market to price the target (to 4.5%) has a good chance of being fulfilled forever, in part by the hawkish stance of the new Central Bank staff. We continue to believe that real interest of 6.30% for five years is incompatible with an economy with low growth potential, and we took advantage of the recent high to again increase the position.
Verde FIC FIM – Summary Management
Multi-market strategy flagship launched in 1997, is one of the largest and oldest Brazilian hedge funds. It operates in the Brazilian and international stock market, fixed income and currencies under the management of Luis Stuhlberger.
Fund for the general public, subject to the minimum values of initial application, permanence and constant movement in the prospectus.