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John Butler Managing Partner of Amphora Ltd

 #soundmoneyconf. John Butler Managing Partner of Amphora Ltd. CONFESSIONS... ...OF A FORMER “BOND BUG”. John Butler Managing Partner Amphora Capital. AMPHORA CAPITAL LLP PROTECTING WEALTH | ENSURING LIQUIDITY. The tech bubble: 1996-99.

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John Butler Managing Partner of Amphora Ltd

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  1. #soundmoneyconf John ButlerManaging Partner of Amphora Ltd

  2. CONFESSIONS......OF A FORMER “BOND BUG” John Butler Managing Partner Amphora Capital AMPHORA CAPITAL LLP PROTECTING WEALTH | ENSURING LIQUIDITY

  3. The tech bubble: 1996-99 Once upon a time, bonds were OUT: And equities, especially growth and tech, were IN. But the “Bond Bugs” were sceptical S&P total return index JPM Agg Source: Bloomberg LP AMPHORA CAPITAL LLP PROTECTING WEALTH | ENSURING LIQUIDITY

  4. The tech meltdown: 2000-03 Then came the meltdown: And bonds had one of their greatest bull markets in history, bringing many “Bond Bugs” out of hiding JPM Agg S&P total return index Source: Bloomberg LP AMPHORA CAPITAL LLP PROTECTING WEALTH | ENSURING LIQUIDITY

  5. The dollar meltdown: 2000-04 Once USD rates fell to 2%, global investors determined that rates were undesirably low and sought yield elsewhere DXY dollar index USD 6M LIBOR Source: Bloomberg LP AMPHORA CAPITAL LLP PROTECTING WEALTH | ENSURING LIQUIDITY

  6. The “Duration Paradox” As US rates plummeted, investors began to consider that the US might get stuck, like Japan, in a “liquidity trap”. Yield curves can do strange things as interest rates approach zero! (1) Yield (2) Bears position here Bulls here Bears position here (3) Bulls here The zero bound Maturity AMPHORA CAPITAL LLP PROTECTING WEALTH | ENSURING LIQUIDITY

  7. But rates were low everywhere The ECB, BoE and BoJ were all slashing rates: And no one wanted a strong currency. Was there no place left to hide? Interest rates, June 2003 6M 10Y USD 1.0% 3.4% EUR 2.1% 3.7% GBP 3.5% 4.1% JPY 0.1% 0.8% Source: Bloomberg LP AMPHORA CAPITAL LLP PROTECTING WEALTH | ENSURING LIQUIDITY

  8. There was! When central banks seek to reflate, risk-averse investors can respond by hedging against inflation. As interest rates approach zero, so does the opportunity cost of holding real assets as a hedge When insurance is cheap, you buy more: As global interest rates declined, so did the opportunity cost of holding real assets Real assets are relatively fixed in supply: If fiat currencies offer little or no interest rate compensation for the actual or perceived risk of rising supply, investors will naturally turn to alternative stores of wealth In an extreme case, investors could force the world onto a de facto gold standard: They need only value currencies as theoretical claims on official gold reserves! AMPHORA CAPITAL LLP PROTECTING WEALTH | ENSURING LIQUIDITY

  9. A de facto gold standard? Simply divide the monetary base by the official gold reserves: And then exchange currencies based on these values Equilibrium gold prices and implied FX rates under a de facto gold standard (as per August 2003) Gold Equilibrium Implied M0 reserve (troy oz, mn) gold price USD rate USD 710bn 261 2,716 1.00 EUR 529bn 396 1,335 2.03 GBP 39bn 10.1 3,878 0.70 JPY 104tn 24.6 4,212,857 1,551 CHF 41bn 57.3 717 0.26 Source: Official central bank statistics; DrKW Debt research estimates AMPHORA CAPITAL LLP PROTECTING WEALTH | ENSURING LIQUIDITY

  10. All that glitters... The FX implications of competitive devaluation Published September 2003 AMPHORA CAPITAL LLP PROTECTING WEALTH | ENSURING LIQUIDITY

  11. But I confess... Clearly I missed the boat: I was hardly the first to figure this out. The great gold bull market began in 2001, when I was still touting bonds as the superior store of value! JPM Agg GOLD Source: Bloomberg LP AMPHORA CAPITAL LLP PROTECTING WEALTH | ENSURING LIQUIDITY

  12. Disclaimer The information, tools and material presented herein are provided for informational purposes only and are not to be used or considered as an offer or a solicitation to sell or an offer or solicitation to buy or subscribe for securities, investment products or other financial instruments. All express or implied warranties or representations are excluded to the fullest extent permissible by law. Nothing in this presentation shall be deemed to constitute financial or other professional advice in any way, and under no circumstances shall we be liable for any direct or indirect losses, costs or expenses nor for any loss of profit that results from the content of this report or any material in it or website links or references embedded within it. This presentation was produced by us in the United Kingdom and we make no representation that any material contained in this report is appropriate for any other jurisdiction. These terms are governed by the laws of England and Wales and you agree that the English courts shall have exclusive jurisdiction in any dispute. AMPHORA CAPITAL LLP PROTECTING WEALTH | ENSURING LIQUIDITY

  13. #soundmoneyconf John ButlerManaging Partner of Amphora Ltd

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