*gasp* Justin is posting on the blog? *gasp*
Yes, yes I am, and this time my appearance doesn't have to do with me making fun of an investment bank.
So, more to the point, Ecletica Asset Management is a London based fund that is up over 35% this year. Yes, that's right, I said up... double digits. Not to be confused with Citadel's October performance. So what are these guys doing to make money is such a terrible investing environment you ask? Weeeeeell, recently these guys picked up a large number of British WWI perpetual bonds with 3.5% coupons. They did this betting that the global recession will have a very negative impact on the UK's inflation rate (which currently stands around 4.5% mind you). So, now you're thinking to yourself, why are they buying WWI bonds? Well the reason for that is simple. Being perpetual securities, these things have reeeeeeally long duration, which is a fancy way to say they're way more responsive to interest rates than normal bonds are. So, if and when the inflation rate falls in the UK, the yields on these should decrease causing prices to rally substantially due to the high duration of these bonds. Hugh Hendry, the guy who runs this fund, said, "If you have a deflationary shock, the only instrument that will perform will be government debt. Inflation is going to be back some day. But forget the next 12 years; it’s the next 12 months that matter." So? Get short some long term fixed income securities anyone?
Monday, December 1, 2008
Subscribe to:
Post Comments (Atom)
Posts
1 comment:
I completely agree with that deflationary call (at least in the short run), though its very doubtful that only the UK will experience it. About a week and a half ago I posted about buying long-dated US treasuries on the same line of thinking, but perpetuals seem to be an even better bet. I have been using TLT for US treasuries (average maturity ~26 years) but haven't been able to find any way for a retail investor to get UK long-dated treasuries. Do you know of any way to get such exposure?
Also, the Fed announced today that it might actively commit to lowering the long-term rate by buying up treasuries as has long been speculated.
Post a Comment