Submitted by Keith Decker of IceCap Asset Management
Similar to volcanic lava flows, financial contagions start slowly at first and then end by destroying many things in its path. Inbetween the beginning and the ending, is a baffling experience that can only be understood from afar. Once the eruption begins, people everywhere want to look, see and feel this infrequent experience.
Yet by the end, few actually recognise how the crisis spreads before subtly engulfing everything in its path and ending in a full-on, blow-out contagion. The financial lava flow has started.
Emerging market bonds and currencies are already experiencing the scorching effect of a capital outflows. Next up will be the European experience.
The culmination of the end of ECB money printing, the end of Angela Merkel's grip on power, and the end of strict German austerity policies will see the financial lava flow first through Italy, then Spain and then before you realise it - France too. From there, the contagion spreads far and wide. Few bond markets will be spared and few interest rate sensitive equities will be safe.
All investors, including pension funds, bank owned mutual funds and individual investors have a tremendous opportunity - anticipate and proactively embrace the financial lava, or do nothing and claim ignorance.
We know which action we are taking.
Well, it has happened. IceCap made a significant strategy change to our portfolios – we INCREASED our allocation to equities. Those that know us well, are fully aware of our cautious, meticulous, and OBJECTIVE approach to managing clients’ hard earned wealth.
Those that are just getting to know us, will come to understand, embrace and look forward to hearing, and reading our rationale for our long-term view, and how it reconciles with short-term market fluctuations. Whereas descriptions and announcements of strategy changes will be included in our IceCap Global Outlook, clients benefit from these changes immediately in their portfolios.
When we make a strategy change it is always based upon objective decisions driven by data dependent analysis – we check subjectivity at the door.
One thing we are very proud of here at IceCap is that we have unequivocally demonstrated an ability to change our mind, change our view and most importantly, change our portfolio strategies. In other words – we do not stick our heads in the sand. We never dig in our heels, and it would be absolutely shocking if we ever refused to entertain the thought that maybe our strategy, outlook and perspective is wrong.
Back in 2011, our portfolios held a 20% allocation to gold bullion. The reasons for holding gold were astonishingly clear, and when prices tipped $2000/oz, these reasons seemed even more clear. For those that remember, gold hit the $2000 ceiling and started a sharp, excruciating and painful decline to $1280 levels.
Recognizing trend and technical support levels were broken we quickly sold all...