February 2016

[admin]

We have to say, things are looking very bleak:

• Debt levels are too high almost everywhere.
• This matters especially where (public or private) debt isn't denominated in the home currency, like much private debt in emerging markets or public debt in the eurozone.
• China is slowing down busting up commodity and oil exporting emerging markets
• China itself is plagued by unsustainable capital outflows and will be forced to devalue if this continues, throwing another round of deflation into the world economy.
• The oil crash hasn't turned out to be a boon for the world economy as the negative effects have such dire consequences on many producers that it looks likely this is overwhelming the positives
• The eurozone is under enormous strains, the euro is already rising again as the outlook for US rate rises softens, and stress is emerging in banks and public debt levels are unsustainable under the present low inflation/ low growth scenario, let alone if that worsens.
• The eurozone is already cracking up under the political strain caused by the refugee crisis and there is a wild card in the form of the UK referendum on Brexit.
• It is almost generally perceived as the world's authorities are basically left with little or no policy instruments to fight all this if it gets worse.

Which is why we're mostly in cash still here and closed two of our four VIX futures (luckily with a nice profit, although the remaining two are not faring so well and might very well have to be rolled over).