April 2016 Commentary

The saying goes, “actions speak louder than words”, and despite the denials at the time, it now appears obvious that G20 Finance Ministers and Central Bank Governors did in fact strike a deal during their late February 2016 meetings in Shanghai to weaken the USD. The funny thing is that the only action the FOMC took to cause the USD to recently hit 18 month lows was to state its expectation that 2016 would feature only two rate hikes versus the previously telegraphed four. In addition, the Bank of Japan and Europe’s ECB proceeded to push deposit rates into negative territory, but counterintuitively, speculators played along, taking their late 2015 ~$45B net long position in the USD to a net short position by mid-April. Take two hikes in minimum margin requirements by the Commodity Mercantile Exchange (CME), return to heightened speculative commodity trading in China, and initiate a tsunami of trend-following capital into “value-type” assets and you had the recipe for an acceleration of the reflation trade during April. Fortunately our funds were not short these reflation assets but neither were they long. Regardless, both of our funds made money during April...

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