Quote of the Month
“We have tried spending money. We are spending more than we have ever spent before and it does not work… We have never made good on our promises…. I say after 8 years of the Administration we have just as much unemployment as when we started, and an enormous debt to boot!”
– Henry Morgenthau, Secretary of the Treasury (during the New Deal, May 1939)
Update on Themes & Positioning
Following on May’s decline, the S&P fell another 5.2% in June, bringing the index’s peak-to-trough decline to nearly 15% from April’s highs and likely reaching temporary oversold levels. Outside the US, declines were more modest with Europe essentially flat and Asia ex-Japan posting a 0.7% gain for June.
As discussed previously, the Bienville team believes we have entered a new volatility regime resulting in significant oscillations between complacency and distress, preventing prudent and value-minded investors from making material directional investments (the manner in which wealth has been traditionally accumulated). Generating attractive returns will require patience, the avoidance of material draw-downs and the ability to move aggressively when valuations turn favorable. Asset allocation will need to be dynamic, which is a positive backdrop for our strategy.
Scanning across the various Bienville portfolios, clients will hopefully take solace in the minimal damage for the month (with most portfolios flat to positive), as well as the quarter. The Russell 2000 short was a positive contributor (as it fell considerably more than our high-quality long-only managers), as was our allocation to gold. The addition of some gold-related equities also contributed positively.
During the month, we harvested some gains in our long dollar (and largely short euro) position. Having reached an oversold level, we feared a temporary euro rally, which did subsequently occur, allowing us to re-establish most of our position.
Finally, much attention has recently been given to one of our primary themes—the intensifying deflationary pressures within the economy—which resulted in falling bond yields that benefitted our fixed income and credit position.