Indeed, as the Financial Times pointed out on Friday, almost 900 professional investors squashed into the Grosvenor Square Ballroom this week to hear Societe Generale permabear, Albert Edwards explain his view that the world is heading into a new economic ice age.
True, many were quick to point to the fact that Edwards’ view hasn’t really changed much in the past 20 years, but his warnings and those of the likes RBS and Bank of America Merrill Lynch to, respectively, sell (mostly) everything or go long cash and volatility feel a lot more apposite than they would have last year.
Part symptom, part cause of the gloom has been the sharp decline in asset prices seen so far this year. As Bank of America Merrill Lynch pointed out in its Flow Show note on Friday, $5.7trn was lopped off the market cap of global equities in the first nine trading days of the year, which is roughly the equivalent to the combined GDP of the UK and France.
Oil’s continued failure to find even the semblance of a floor has not helped matters, nor have the ongoing worries about a hard landing in China. But, perhaps most sobering was the letter that was sent to investors in the Nevsky long/short global equity hedge fund at the end of last year, explaining why it is closing its doors.
According to the fund, its investment process has required a number of specific criteria to be met:
- Access to transparent and truthfully compiled data both at a macro and a company specific level on a timely basis
- Logical decision making by macro economic policy makers
- An ability to achieve a clear understanding of the positioning of other investors
- A reasonable level of divergence in equity prices between different geographies and sectors and the existence of constantly evolving, but logical, inter-relationships between these different asset classes
- Manageable fat tail risk
- A reasonable spread of uncorrelated potential investments across time zones
However, the firm said, global trends, including: the ever-increasing importance of India and China, the replacement of logic with nationalism at a political level, and the growing importance of high frequency and algorithmic trading has meant that many of these preconditions can no longer be satisfactorily met.
