For those who follow my blog, you know that I enjoy following the sharpest minds in the investment business. One of my favourites is Peter Tasker who toils for Arcus Investment Management in Tokyo. Arcus is one a handful of long/short Japanese equity fund managers that has survived what could be only described as a horrific period for Japanese stocks these past 20 odd years (Arrow was an investor). Peter is an extraordinary writer (he has written several spy novels that were part of our due diligence) – and a keen observer of economic, cultural and political affairs. In his latest blog posting he speaks about stereotypes and he defines an economic version of national stereotypes as follows1
Economic Heaven = Chinese GDP growth, Japanese currency, British safety net and American Central Bank.
Economic Hell = British GDP growth, American currency, Chinese Social safety net, and Japanese Central Bank.
Our summary of the Big 4 worries we discussed in our year-end letter could be substituted for Economic Hell described above. But as Tasker notes, one of the “jobs” of the post 2008 financial crisis is to unwind these “stereotypes”.
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Outlook for 2012
We stated in our last quarterly letter that we thought this should turn out to be a better year for most strategies and so far that has been the case. The economic data continues to suggest that the U.S. is slowly starting to recover and valuations on equities still look reasonable. Even though the revenue line is still challenging for a lot of companies, they still seem to be hitting their earnings projections. Geographically, China is slowing and that is continuing to have an effect on commodities and resource equities. Low interest rates, reasonable valuations and record amounts of cash on corporate balance sheets is starting to show through as M&A is picking up, which continues to be favorable for the event driven crowd. The disappointing thing so far is that the trading environment is still very difficult as the markets are still very macro driven.