Our sole concern is the Preservation of Capital.  Always.

When markets rise, everyone’s wealth increases. The upside will always take care of itself. We concern ourselves with preserving capital on the downside, when markets fall. The investment community often uses phrases such as “risk management” and “potential upside”. In reality, many investors’ portfolios will benefit from neither of these.

Whilst financial jargon always sounds impressive, the implementation of a multitude of strategies that desire to both manage risk and create performance returns is, of course, difficult for even seasoned investment professionals to implement in practice across varied market conditions and time horizons. They are often hampered by conflicts of interest, a sales-push mentality and the lure of performance fees.

Einstein is rumoured to have once said that “the greatest invention of the 19th century was compound interest”. In casual passing, many investment professionals will say that 10% per annum is “easily achievable”. Perhaps – for any one given year – but ask them to return 10% per annum, every year, year in, year out and their response will be that it is “highly unlikely in practice because markets always correct” or that “it is nearly unachievable”. You can then worry about inflation (and tax) eroding your capital base further each year. Making a “mere” 10% every year will double your capital base every 7 years (every 7.27 years to be precise). Generating returns annually whilst not eroding your capital base is not as simple as merely diversifying a portfolio. It requires both tactical and strategic asset allocation across every asset class.

It requires downside protection. Without downside protection, the ability to stop the capital base being eroded away (at worst, a return of zero for the year) or the ability to generate positive returns in a falling market, is an intensely daunting proposition. Yet, Yale can do it. Harvard does it. The Ontario Teachers Pension Plan has been doing it for 24 years. All these globally invested, multiple asset class endowment funds have averaged more than 10% per annum across 20 years. But it is not a domain exclusive to the likes of $100 Billion+ endowment funds. It is “simply” a matter of a global portfolio construction and strategic asset allocation. Global asset allocation will result in smoother positive returns, lower risk and lower volatility.

Arminius Capital Advisory provides investment solutions to generate portfolio performance across a range of asset classes whilst providing downside protection to the seemingly increasing frequency of inevitable market corrections.

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Australian-based “Arminius Capital ALPS Fund” ranked 10th place internationally in the BarclayHedge ranking for Global Macro hedge funds in March 2020, with a performance of +2.76%.

1Q2020 ALPS returned +5.33% vs:

ASX200 -24.05%

STOXX600 -23.03%

S&P500 -20.00%

NIKKEI225 -20.04%

GSCI -41.76%.

The BarclayHedge Global Macro Index was comprised of 126 international funds as reported in March 2020.

Arminius Capital ALPS Fund 2020 USD$ return was +9.19% vs Credit Suisse Global Macro Index 2020 YTD return of -7.55%.

 

 

Marcel von Pfyffer
Marcel von PfyfferManaging Director
“the greatest invention of the 19th century was compound interest. 10% per annum will double your capital base every 7 years”

Geldzug: SITTING ON THE MOUNTAIN, WATCHING THE TIGERS FIGHT

January 12th, 2022|Comments Off on Geldzug: SITTING ON THE MOUNTAIN, WATCHING THE TIGERS FIGHT

11 January 2022 According to the Chinese zodiac, 2022 is the Year of the Tiger. Tigers are bold, powerful and dangerous, but in Chinese astrology they are also impulsive, short-tempered, and have difficulty getting on [...]

 

We have been beating the "this inflation will NEVER be transitory" drum since the fiscal & monetary madness started in March 2020. As Aswath (guru!!) shows, the old "volatility of volatility" applies to inflationary expectations as well. Strap in, kiddies!

In January we advised our investors to “sit on the mountain & watch the tigers fight”: stay out of a dangerous market. We were right, global mrks are DOWN 20%+. We haven’t changed our view: don’t buy the dips! US bear markets since 1870 suggest that this one has further to fall.

As Australia enacts wage increases to "offset" inflation, we forget the world has same probs. This inflation is supply driven: rising prices for commods & food. China the world’s factory is also facing inflation, so imports from China are no longer pushing consumer prices down.

The best cure for high prices is high prices. When the price of a good goes up, people reduce their usage. Not many alternatives to petrol, so people drive less, demand falls, prices drop. This is why long-term oil price charts look like a series of spikes followed by collapses.

China bulls are in retreat. Iron ore prices stayed up despite property crisis: optimists believed China would unleash massive spending programs. Wrong! Chinese housing mrk frozen, 3 weeks ago China’s PM told a webinar of 100k officials that the central govt had run out of money!

The bear market which began 5 months ago could run for another year. This bear is mostly a US phenomenon: Tech sector is the biggest cause of the 20%+ fall in the S&P500. In the Dotcom bust, GFC, the 500 fell by 47% & 55% respectively. Buy now if you like catching falling knives.

The cryptocurrency tulip fad is over. The price of bitcoin is 67% below its peak, and still falling. The crypto universe is also collapsing. As interest rates rise, the value of all cryptos are heading back to pre-COVID insignificance. This is how speculative booms always end.

2

With interest rates rising, you know Aussie households carry huge levels of debt? Almost 2x their annual disposable income = more mortgage defaults in '23 & '24. The only competitor is Canada, another resource exporter. Hope & pray for another resources boom to avoid predicament!

Errrrrr ok, shares are “cheap” relative to specific levels of interest rates, inflation & profits. So, magicians, you can buy now IF you KNOW:
1. How high interest rates will go
2. When inflation will peak
3. If there will be a recession.
It’s still too soon for bottom fishing.

Buying the dip? Most bear markets last for YEARS. The GFC bear market ran for 17 months, DOTCOM bear lasted 2 yrs. The bounce after the Feb '20 COVID collapse was due to central banks CUTTING interest rates. This time round, central banks are RAISING rates. Hold on to your cash!

Uber trips will soon get more expensive. Not just because of soaring petrol prices & rising labour costs. Uber loses money on every trip: investors used to put up cash to help Uber gain market share. Uber started talking "profitability targets" & its share price has halved!

2/3 of economists in FT survey expect recession to start in '23. We agree – this is what interest rate rises do! Rising petrol, food & energy prices are frightening consumers. Higher petrol & diesel prices will lift companies’ costs. Housing & warehouse mrks have already turned⤵️

INFLATION is the #1 biggest issue facing the US, according to a sample of 2,006 voters - way ahead of everything else for Democrats & Republicans. Voters also think US petrol price is among highest in the world (try lowest!). Will the Democrats lose the House/Senate in November?

When the President of the European Central Bank warned of 0.75% in rate rises by Sep '22, fixed interest markets reacted unhappily. Interest rate forecasts went ⬆️ so bond prices went ⬇️. Interest rates are going ⬆️all over the world, and no one knows where they will stop.

ACHTUNG BABY! Consumer prices = what people pay in shops. Producer prices = what companies pay for their materials. This year German companies are facing a 30%+ rise in their input prices; biggest increase since the '70s. Prepare to pay a lot more for your next Mercedes, Audi, VW

The average person sees headlines of US$120 oil but really notices the price at the petrol pump. Oil prices are still below the US$149 peak reached in the GFC, but refinery problems mean that US petrol prices have just hit new highs of US$5 per gallon.
Biden * (Powell + Yellen)

When the AUD⤵️to $0.68 in May it wasn’t the A$ going DOWN, it was the US$ going UP; the end result of investors rushing to put their money in US$ safe havens from Ukraine invasion. At day 100 of the war, nerves have calmed. Arminius still expects the A$ to pass US$0.90 by 2024.

We keep warning that Fed interest rate rises will trigger corporate collapses, as we have seen in corporate collapses in EVERY cycle for 50 years. Ian Harnett of Absolute Strategy Research shows how regular they are. Collapses = a certainty. The only uncertainty is who bites it.

Builder collapses in Australia = rising building materials prices colliding with fixed-price contracts. As global interest rates rise, more companies WILL follow. Investors have realised this, and are dumping low-grade "junk" bonds as fast as they can! Never be last to the exits!

Gold bugs never die. But the inflation-adjusted price is still BELOW its 1980 level. Full disclosure: I was in London in 1980 watching the mania – gold hit US$800 then crashed to US$300. Gold soared in '70s as Nixon took US$ off gold standard. Look to other metals for
⬆️returns.

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