STREET DOGS

FROM a contribution to Sovereign Man by Tim Price, Director of Investment at PFP Wealth Management:

Fund manager Hugh Hendry’s recent volte-face on markets garnered some attention. In his December letter to investors, he wrote: “This is what I fear most today: being bearish and so continuing to not make any money even as the monetary authorities shower us with the ill-thought-out generosity of their stance and markets melt up. Our resistance of Fed generosity has been costly for all of us so far. To keep resisting could end up being unforgivably costly.”

Hendry sums up his new acceptance of risk in six words: “Just be long. Pretty much anything.”

Call us old-fashioned, but rather than buying “pretty much anything”, we, in Buffett’s words, spend a lot of time second-guessing what we hope is a sound intellectual framework. Some examples:

In a world drowning in debt, if you must own bonds, own ones by entities that can pay you back;

In a deleveraging world, favour the currencies of creditor countries over debtors;

In a world beset by quantitative easing, if you must own equities, own equities supported by vast secular tailwinds and compelling valuations;

Given the enormous macro uncertainties and entirely justifiable concerns about potential bubbles, diversify more broadly at an asset class level than simply across equity and bond investments;

Given the danger of central bank money-printing seemingly without limit, currency/inflation insurance should be a component of any balanced portfolio;

So, be long “pretty much everything”, or be long carefully assessed and diverse instruments of value. It’s a fairly straightforward choice.

Michel Pireu — e-mail: pireum@streetdogs.co.za