"Clowns"


I wish there was a book telling me the role of clowns in history — especially the court ones. This letter is about separating the noise from the signal. In the past, clowns were the only ones allowed making noise in the kings' room.

I guess clowns' role in society has barely changed over the centuries. It's a fundamental role, played by individuals with specific talent and personality. I assume they have been studied in depth by expert minds. Here I only try to summarise the first traits that come to my mind:


- The Power Clown: hidden in plain sight, has a profound power in steering the decision process of the governing body. He or she has a sort of "rasputian" power.

- The Slimy Clown: has a weak personality and culture but has a significant clownesque presence. The court often pilots/use them with the purpose of distracting an old king/queen from the important matters. As a result, the decision-making process ends up at the hands of an unclear undergrowth rather than the responsible visible power.

- The Courting Clown: is so fully aligned with the official power that he starts thinking of being part of it, incensed by some kind of knighthood until reality takes over and realises to be a subject like all others and therefore expendable.


Their power arise from a really complex mix.


All of these fellows share a common characteristic. The clown's role is temporary and fungible. Its role distracts from important matters that would either kill the informational asynchronicity some have (and take advantage from) or, is functional to passing governance decisions that would raise more than an eyebrow among the most. It is of outmost importance of not being distracted by them when assessing reality. On the other side we can follow their show when are keen of being entertained.


Let's try to take a picture of what is going from the king's throne point of view. Can we filter the noise (of the clowns) from (the reality) the signal? Are we 100% hypnotized by clowns or are we conscious of this phenomenon and therefore we aim straight to the target?

Where are we concentrating now?


For what concern investments, here is a concentrated juice of the recent analysis:


1) Italy's PMI (economy). It is the only one in contraction mode (below 50) other than Brazil and Turkey. So, let's face it, there are innumerable good companies in Italy (a lot of which good exporters) but Italy is off limits as an investment. Most Italian companies will have their valuations depressed by the contraction of the domestic economy. The absence of a proper catalyst able to attract big money from abroad is postponing for now the day we will invest again there. (Note: I laugh myself to death thinking about Italian debt re-denominated in Lira and foreign investors buying it at reasonable rates but I leave this discussion for another day). Let's wait a few months, and we will have a once in a lifetime opportunity to buy this equity at a discount. We will keep some dry powder for that.


2) Brexit aga. Predicting the next twist of this British quagmire is not easy. I'm convinced (after being sceptical for months and short GBP) that PM May will survive any threat to her leadership, present the Brexit deal to the parliament and eventually secure ratification.

I'm slowly by slowly becoming more bullish on GBP, especially against USD. Once the market will have clarity will be time to enter this position.


3) Stay away from regulated/politically influenced situations. I think mainly to the US/China (pre G20) situation. It is so unpredictable that, even though the US economy is moving full steam and China looks like its bottoming out, much noise can be done by Twitter and therefore it is difficult to have a clear view.


4) Special situations are our favorite. We are studying what happened to Renault and suspect that exiting from the mammoth alliance with Nissan would free up more cash that exploiting the supposed to be industrial synergies. (Synergy is a beautiful concept but a dreadful practice to apply). For now we favour Peugeot that, within a difficult sector is delivering.


Finally, let me give you, for once, also the flavor of what's cooking in Simplify Partners. Volatile times are also a source of opportunities. We are not staying with our arms folded. So:


1) We recently expanded our senior presence with two new experienced relationship managers to present our strategies appropriately to family office and new investors.

2) We see Brexit uncertainty as an opportunity for increasing our presence in Luxembourg and Sweden other than London and Italy. Given the unpredictability of the regulations, we are considering shifting the core of the decision-making process away from the UK.

3) Finally, and this is linked to the previous market comments, as we are convinced that many occasions will arise on the markets, we are thoroughly focused on raising new asset and profit from the relaxing of the the markets (in the second half 2019?).


As usual, I'm pleased to entertain you in more details about our actions. Please contact anyone at our desk for further reasoning.


Best regards


Federico Polese


Appendix


Main PMI indexes

(source:www.markiteconomics.com)

Please note how Italy is the only, or the first, country to re-enter the contraction zone (value below 50) spsrt from Brazial and Turkey.





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Simplify is an AIF umbrella fund, is authorised by CSSF in Luxembourg and passported in Italy and Sweden. The fund is managed in London.