Wow – what a few months.
The American election, followed by a surging stock market, surging US Dollar and a miserable bond market can only mean one thing – investors everywhere have started to morph into ostriches.
These are serious days which therefore requires a serious perspective. In this IceCap Global Outlook we offer suggestions on how to identify whether you are an objective and dynamic thinker, or instead an investor who is repeatedy slamming their head against the market, or worse still – sticking their head in the sand when things are not going as expected.
Yarra Square Partners returned 19.5% net in 2020, outperforming its benchmark, the S&P 500, which returned 18.4% throughout the year. According to a copy of the firm's fourth-quarter and full-year letter to investors, which ValueWalk has been able to review, 2020 was a year of two halves for the investment manager. Q1 2021 hedge fund Read More
Awesome or Odd
The ostrich is an awesome bird.
It has awesome legs, awesome eggs and an even more awesome history.
5,000 years ago, the Mesopotamians featured the giant bird on cups, shirts, and walls; and even used its eggs as currency in trade.
2,000 years later, the ostrich continued to be revered and this time in Egypt. On special occasions, pharaohs received ostrich eggs, ostrich feathers, and even ostrich hats as gifts of honor and respect.
Yet, despite all of these accolades, the ostrich is also incredibly odd.
During heated moments of battle, the giant bird chooses not to use its powerful legs as weapons, but instead uses its head to slam it repeatedly against its opponent.
As well, the ostrich loves a good bath. Sight of the slightest pool of water is enough to make the ostrich circle about in delight.
But when it comes to oddities, nothing is more odd than the ostrich and the most famous coping mechanism of all – sticking its head in the sand.
Today, the ostrich population is in decline but not its relevance. With the financial and political world in chaos, investors everywhere are suddenly imitating this legendary bird.
Some investors recognise global financial risks are accelerating, yet they remain stubborn, refusing to acknowledge where the risk runs deepest and are repeatedly slamming their heads against the wall in frustration.
Others meanwhile, refuse to believe that any risk exists at all, continue to wear their favourite market hat and shirt, while sticking their heads in the sand at the next sight of trouble.
So, for everyone with a bruised and sandy head, we suggest you alter your perspective, shed any biases and embrace the opportunity to run around in delight in our rapidly changing world.
The IceCap View
All investment managers need a clear and easy to understand view.
Next, they must articulate this view in a clear and easy to follow manner.
Finally, investment managers need to structure portfolio strategies to correctly reflect their view.
It’s all easy enough, except that for many money managers it is so incredibly difficult to be clear, articulate and reflective.
Instead, investors must suffer reading, hearing and watching the standard industry jargon, gibberish and confusion that normally swamps the airwaves.
In fairness, being an investment manager isn’t easy. No financial market ever moves in a straight line. And of course, there will always be times when there is seemingly a complete disconnect between a manager’s view and market movements.
Naturally, and most important of all, investment managers absolutely must be able to change their view when the evidence has proven that their view and strategy is in fact wrong.
Here at IceCap, we’ve written, spoken, and presented countless times how we start every day with the objective of finding reason to change our view.
Yes, we may occasionally bang our head against something, but we absolutely refuse to stick our head in the sand.
We do this as it reminds us not to develop tunnel vision and ignorance.
Investing can be a humbling experience, and we always maintain that the sooner you recognize and accept that your market view is wrong, the sooner you can exit your strategy to avoid or limit losses.
After all – a 50% loss in anything requires a subsequent 100% recovery return just to breakeven.
Yes, avoiding significant losses is that important, and it should always be on the minds of every investor.
Which brings us to the IceCap View, and we objectively report that while a lot has happened since our last writings, nothing has occurred to give us reason to change our market view and overall strategy. In fact, it’s been the exact opposite – the world continues to trend along the path as we expect.
As you know, our research firmly reasons that the world is in the late stages of an enormous bubble in the bond market, and as it turns over it will affect all markets and strategies – regardless of where you sit in the world.
This convergence of political, social, economic, monetary and fiscal factors is developing, that while may seem chaotic to many – appears quite plain and simple to those who are able to see straight.
Our view has remained very consistent and has been stated through various media outlets and in private presentations – which results in our view as being “made public” with a “time stamp”. This means we cannot suddenly twist any of our past words to reconcile with current markets.
Considering all of the recent chaos in the world, it’s important for us to revisit our success in forecasting many of these seemingly low probability events.
Of course, we share these experiences not because we want to tout our success in forecasting these events, but rather because it helps investors understand our perspective, why it has been correct, and most importantly – why we continue to maintain our view.
The Common Man
Our April 2016 IceCap Global Outlook “Revenge of the Risotto” discussed why the Brexit Vote would likely produce a victory for the Leave campaign. At the time, the mere thought of Britain voting to leave the European Union (EU) was seen as lunacy at best.
Yet, we understood that the majority of people, companies and media who benefitted from the European Union were located in London. And that this group carried a very loud voice that was echoed by the political establishment and media around the world.
Seemingly every main stream media news outlet slanted all stories to support Britain staying in the EU, and that those who supported the Leave Campaign were therefore eejits.
In effect, the voice of the common man was very easy to miss. Yet in the end, the common man flipped the bird to the main man, and the only eejits turned out to be those in London and Brussels.
Next up was the American Election, and in our September 2016 IceCap Global Outlook “Fright Night” we spelled out very clearly why we expected Trump to win.
It is irrelevant whether you supported or didn’t support Trump, instead – our success in expecting this event was due to our ability and objectiveness to understand that many Americans have lost confidence in the political establishment and were not participating in any of its claimed economic successes.
Like the Brexit Leave victory, the Trump victory was once again, very much the common man, rising up against the main man.
It really is as simple as that.
Next, was Italy. For months prior to the referendum, we strongly suggested that investors should keep a very watchful eye, ear and nose to the situation in Italy.
For those who are not familiar with the event, just know that in an attempt to unclog the Italian political system and make it more efficient, Prime Minister Matteo Renzi launched a referendum to enact change.
However, although the vote was specifically about changing the political structure, it instead turned into a vote of support for or against the political establishment and the EU.
Again, from this perspective it was rather easy to see and understand why the referendum would fail with over 60% voting against the EU.
The “No” vote not only shot a Roman arrow across the EU’s head, but it also resulted in Prime Minister Renzi resigning.
Moving along, our July 2016 IceCap Global Outlook “Chaos vs Harmony” plainly stated not only our affection for the British rock band “Oasis”, but also why we saw enormous risk in the bond market.
See the full PDF below.