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 [...]

 

NY Fed survey: "US consumers believe high inflation will go away; 6% inflation 1 yr out, then <4% in 3 yrs: inflation is temporary, things will go back to normal".

Please. Most US consumers have NO EXPERIENCE of high inflation. We have, & we think inflation is back in a big way.

We are watching another tech crash. Year to date, 8 stocks account for half the S&P500 TR's fall: ALL tech giants. The other 492 mostly fell, but not very far. After the 2000 dotcom boom, the tech-heavy NASDAQ index fell 78% over 4 years, PLENTY of room for further falls!!!

The last 2 years can be summed up in the prices of 2 stocks. Zoom roared ahead in 2020 as online meetings boomed. Vax arrived in Nov '19, Zoom falls. Oil giant Exxon was ignored due to new age of renewables – until world growth returned. This is why it’s called “régime change”.

Ken Griffin @Citadel weighs in on @LME_news nickel debacle that led to cancelation of $4bn in trades https://www.fnlondon.com/articles/citadel-hedge-fund-boss-ken-griffin-says-lme-incomprehensibly-wrong-to-wipe-4bn-in-nickel-trades-20220525 @FinancialNews @CliffordAsness

“Sell in May and go away”. The old rule to avoid the share market’s usual mid-year dip. Global markets got in early - falling since Feb. Survey of 288 fund managers running US$833B reports most bearish views since GFC. Keep sitting on the mountain while the tigers are fighting!

A good year for farmers, a bad year for poor people. Agricultural commodities will keep rising in price well into 2023 til higher production fills the supply gap. This will provoke economic crises in many poor countries which depend on imported food; more signs the '70s are back!

We keep emphasizing how bad the current downturn in China is. Latest evidence is -29% year-on-year drop in smartphone shipments in March qtr. Source is a govt thinktank so -29% might be an understatement. Things must be really tough if people can’t afford to upgrade their phones!

Cracks are showing in cryptomania with collapses of 2 stablecoins. More will follow. But these assets are unworthy of another GFC & our banks are now unquestionably strong. The big risk is the insolvency of a major commodity trader, which could blow up multiple markets.

It’s not a correction, it’s definitely a bear market. After a 1 day rebound, US markets fell sharply overnight as retailers reported worse profits than expected. Inflation + raising costs were blamed for reducing consumer demand. Soon we’ll see the same things in Australia!

Lockdowns are killing China’s GDP. Industrial output in March FELL for the first time in 2 years. If lockdowns ended tomorrow, the economy would not be back to normal before August. Bad news for Australia’s exports, bad news for world growth!

How the mighty have fallen! The US tech giants outperformed the market for a decade, but this year their shares are well down. Not yet time for bargain hunting – after the last tech wreck began in Apr 2000, the NASDAQ fell -78% over the next 4 years.

Arminius owns Graincorp in our portfolios (open $5.19). The chart of wheat prices in the last 2 years shows why.
Due to the Ukraine invasion and various droughts, world wheat production is forecast to fall in 2022-23. Wheat prices will come down eventually, but not this year!

US investors seeking protection against an increase in inflation have voted with their $s. Compare yield differences between ordinary US govt bonds & inflation-protected ones. Inflation expectations crashed during COVID & GFC because of recession fears – lately they have leapt!

Recent experiences in the US demonstrate that rising employees' hourly earnings are a leading indicator of higher and higher inflation.

US inflation released this week was +8.3% for the last 12 months.

Goldman Sachs tracks a basket of tech companies which are not profitable. NOT tech giants like Apple, Microsoft or Amazon; rather, highly speculative ones. Their prices rose 400% in 20-21, now they're almost back to 2019. Like 2000, a tech wreck teaches traders a hard lesson!

Why is the A$ falling below $0.70? Because of lockdowns in China. Slower Chinese GDP growth = lower commodity prices & less demand for Oz exports. The falling A$ will raise the price of imported goods & fuel inflation. Winning this Federal election may actually be a hospital pass

World's largest fertilizer companies are warning disruptions to production may continue well past 2022. Fertilizer = natural gas + potash. Potash prices still aren't at 2009 prev peak (when the Ukraine was still online). Natural gas prices are... only... up +162% since last year.

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US tech been falling since Nov '21 peak. Interest rate rises & Ukraine only accelerated the de-rating process. Dotcom boom of late '90s ended similarly: wild enthusiasm until Mar 2000, then 3 yrs of bear market. Each generation of investors must learn same lesson the hard way!

Almost back to normal! EXECPT for China. The red line in the chart shows the queue of container ships off LA in '22. It’s almost back to '21 levels (blue line). But ships are queueing off China because of draconian lockdowns in Shanghai. So supply shortages will go into late '22.

US labour costs are rising = fastest rate in 40 years. This fuels inflation. Will it trigger a wage-price spiral? For those who weren’t here in the 1970s, higher wages increase companies’ costs, so co.'s raise their products' prices, workers demand higher wages. Rinse repeat.

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