“No Fed no party” (English version)

(As things are developing very quickly, we add to this English version few comments that are missing from the previous Italian version and will be included in a future comment)

ADDENDA: on Friday evening markets experienced a "nowhere to hide sell-off". All asset classes were sold without distinction. All correlations ceased to exist. Sale included both risk asset and safe heavens. The week can be compared to that of the bankruptcy of the bank Lehman Brothers. In these situations, the most precious asset is cash, those who have it are in the position of minimise losses close to zero and will have the opportunity to buy cheap assets in the future.

Simplify 02 has more than 50% cash. (please contact us directly should you be interested in more details of our portfolio)

The stock market in the last few days has found the right catalyst to take a bath of humbleness and point to levels more aligned with company fundamentals. Fate then, wanted the start of the correction to take place in the same period of the year as the one that started the bursting of the internet bubble in 2000 (to be honest, the transfer started on March 24 and not the February 24). Several times we have made comparisons between the situation in those years and today. Then began a prolonged decline which led to a decline in the markets for two successive years. Today the situation could be different, better.

Given the size of the movement, let's see what the developments could be. Simplify has been waiting for this moment for some time and has prepared the portfolios defensively well (perhaps too much) in advance. (The catalyst or black swan, by definition, does not show up as it arrives. In these cases, prevention is better than cure).

We also pointed out how the absence of a strong contribution of liquidity from central banks and in particular from the Fed, left the markets very vulnerable to greater volatility and a significant reversal. We believe that this is, behind the scenes, an important contributing factor to the correction, the loss of an important monetary stimulus.

This end of February is proving to be a perfect storm for the markets due to the combination of the loss of monetary support (known but neglected factor), a "parabolic" growth of the major indices, difficult to justify indefinitely, and a totally exogenous factor that changes the prevailing narrative and gives the shock.

In practical terms, the exogenous factor (the spread of the virus) is probably being contained in China and sooner or later it will also be globally. At the same time, the world of geopolitics is progressing positively (close US agreements with Iran, Afghanistan etc), laying the foundations for new certainties that markets like so much to grow.

The amount of the reversal of the indexes will be a function of:

1) Change in expected growth

2) Quality of the recovery policies implemented (monetary and / or fiscal)

3) Absence of harmful chain effects (such as bankruptcy of some banks, industrial suppliers etc)

ADDENDA: China just published a Manufacturing PMI of 37. The lowest on records. As this on one side might determine very nasty openings on Sunday. It might also be short-lived as it perfectly reflects the stop of the last few weeks. We are convinced the Chinese economy will bounce back way quicker than the European. It is now time to have a longer perspective. Under this view, we are mounting market neutral positions, Long Asia ex-Japan and short Europe.

To evaluate the first point it will be necessary to wait to understand if the growth crisis will have the shape of a V or a U (slower to recover). This notwithstanding, we think China will recover faster and before Europe

The discussion of the second point has implications for investments in safe-haven assets. Monetary policies are positive for gold and, within certain limits, for government bonds. Tax incentives, more likely in China, penalize public debt and are not supportive of gold. Finally, the bankruptcy of a large company or a large fund could "infect" customers and suppliers, making the situation more difficult and making recovery slower.

Among the individual names, we had invested in Moderna Inc. the company that found the SARS vaccine and thought it might be among the first to develop a coronavirus vaccine.

The sprouts of a re-acceleration of the economy had already been recorded, however, it is a matter of looking after them carefully and nourishing them with adequate policies. Many infrastructure projects are already on the table, the good old Keynes has been joined by "modern" monetary policies. There is no shortage of arrows at the bow of governments and central banks to do weight lifting again.


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