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True Partner article: 2017. And Now for Something Completely Different

Page 1: True Partner Fund - Volatility update 01-2017

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Written by Mr. Tobias Hekster and Mr. Govert Heijboer, Hong Kong and Chicago.

To declare that 2016 has provided some pivotal surprises would be to state the obvious. While antipathy against the political configuration across the Western world has been rising ever since the Great Financial Crisis of 2008, it has come to full fruition this year.



No longer do politicians seem to represent their constituents, no longer is the knowledge of experts deemed relevant and no longer is international trade perceived to be an engine of global growth. The voices of 2016 eerily resemble those of a distant past, where isolationism and ‘law and order’ were solutions to economic ails.



The change in the political climate is widely discussed globally. In our opinion just as interesting are the repercussions of the shock events we have witnessed, (Brexit and Trump), as well as the potential shocks in the coming year on global markets with Europe taking central stage. After all, the wave of discontent does relate to the (perceived) effects of massive monetary stimuli across the globe.

For us, the two main areas of impact would be monetary policy and global asset inflation.

  1. The global, concerted suppression of volatility, especially in equity and bond markets, by central banks is bound to end
  2. While contagion between asset classes will remain, general movement will decouple

Brexit was partly about the self-proclaimed ‘99%’ not benefitting from monetary stimuli and the resulting rise in financial assets. Real-estate rose, wages and purchasing power did not. In his campaign, Trump continuously attacked loose Federal Reserve policy as ‘politically driven’. We expect sentiment to further curtail central bank mandates (especially in Europe). In addition, the toolkit for the Bank of Japan appears to be virtually empty now. As a result, we would expect not just an occasional spike in volatility as we have seen in 2016. But unlike this year where market calm rapidly returned after events, the ‘all-clear sign’ and the resulting decline in volatilities might prove elusive in 2017.

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