The Investment Partners Fund

Don’t confuse a Bear Market with brains: The 1970′s analogy

We have probably been in a secular bear market since the tech sector imploded in 2000 and there may still be 10 years to go.

Along the way, we have experienced Greenspan’s mortgage stimulus and the subsequent crash in U.S. real estate and then in stocks in 2008.

Bernanke and other central bankers’ solution was to add ‘Vodka to the punch bowl’ with QE I & II.  This has resulted in tepid growth, no material improvement in U.S. employment, but has inspired asset inflation and a competitive devaluation environment. You can’t print money on this scale without devaluation and accompanying inflation kicking-in. This is being exacerbated by 2 billion emerging global consumers. Technology is facilitating revolution across North Africa and the Middle East. Food inflation is dangerously out of control. China is banker to the U.S. and they are raising interest rates to quell domestic inflation and speculation. Meanwhile, the U.S. is living in a dream world of artificially low interest rates (0 to .25%) and buying their own paper.
It just doesn’t add up and something has got to give.

Unfortunately, there isn’t a Paul Volcker on the horizon.

Investors are back in the markets, frustrated by low (or no) fixed income interest rates. They are now riding the momentum of the devaluation and inflation inspired bear market rally; remarkably complacent about risk. How quickly they have forgotten the reality of 2008.

The challenge for all of us is to produce reasonable risk adjusted returns from the equity portion of our portfolios, while eliminating the type of currency risk that Robert Lendvai wrote about the other day.