Bob C is correct.
From MFLDX's new letter:
"As orthodox policy continues to migrate toward the once unimaginable goal of inducing sustained inflation and weakening currencies,
more of the world’s central bankers are being drawn into the melee. Monetary ease has become the cure-all for structural and political
infirmities that are best addressed by real reform.
The appeal of using the magic monetary elixir is clear. There are no hard political decisions to take, and,thus far,the effects look perfectly
benign if one ignores the relentless asset inflation that allowed unthinkable portions of the trillions made available by monetary authorities
to accumulate in a small proportion of society. Otherwise,the U.S. economy appears to be the poster child for quantitative ease,
combining a reasonably strong expansion with negligible interest rates and benign readings in official measures of inflation.""We have spent the past year waging a losing battle in markets, based on the notion that the consequences of unlimited monetary largess
would begin to appear. Our belief was that symptoms of economic overstimulation would prompt a movement away from defensive
asset classes and equity groups toward those that would benefit from growing demand, utilization, and pricing power.
Unfortunately, although there has been a substantial body of evidence suggesting that economic activity (particularly within labor
markets) has strengthened considerably, this has not provoked the market response that we envisioned.
Instead, through the first three
quarters, the results in markets have suggested the opposite macroeconomic environment in which activity was diminishing and
defensive investment policies were appropriate.
Developed world banking systems have been force-fed reserves like geese for foie gras. In spite of this, the responses in traditional
economic activity have been modest, particularly on a global scale. "
"
Also, we have significantly reduced our exposure to the reflation theme by trimming
our materials’ positions.The aspect of our portfolio that has been most damaging in terms of our participating in a rising domestic market has been the nearly
complete absence of defensive- and yield-oriented sectors among our long holdings. These have, for the most part, constituted the
leadership of the main indices in the U.S.
Our current holdings continue to emphasize cyclicality and global top-line expansion, with less of an exposure to very late-cycle
companies in materials and inflation-sensitive sectors. Our net equity position remains around
50%, and the short side of the book has
greater emphasis on index-level instruments in both the U.S. and Europe."
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I have to say, whatever one thinks about MFLDX and the alternatives space (some degree of dislike, from many on the board), I always find the letters interesting.
Also, re MFLDX, the shorts against various fixed income probably not helping.
