THE ECLECTICA FUND - MAY 2004
Investment Manager’s Report: Dulce Et Decorum Est
We are beginning to sense that our doggedly bearish stance is beginning to grate, especially in light of the ongoing profit bonanza and the synchronized global economic recovery. I’m sure that many of you are sympathetic with the views articulated by one bullish US manager, “The powerful profit picture will propel the prices of properly priced equities higher.” Wilfred Owen aside, why should we persist with our current line? Indeed, what do we think is going on?
Quite frankly, we think it’s all macro and that equity managers are getting lathered-up over the residual. Let me explain. This bull market cycle probably ended in 1998 when some of the chickens of the Fed’s easy money policy came home to roost (viz. the Asian crisis, Russian default and the LTCM debacle). That was 6 years ago and most major stock prices are down, from Nokia to Microsoft to the venerable UK banking sector. Government bonds are also down at the long end and the once mighty dollar has slipped. Clearly something profound occurred in 1998.