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We remain negative but ready with plenty of cash for excellent opportunities


In recent weeks, stock markets have rebounded euphorically from the lows of August. The "animal spirit" was triggered by the expectations of a first solution for the so-called "trade war" opened by American duties on China. Once the most threatening growth problem has been resolved - buyers think - the global economic cycle will start to astonish positively, moving away from the prospect of a recession.


In the short term, it is difficult to resist the temptation to pursue the new trend. We ourselves have temporarily derogated from our prudence, dictated by the awareness that the general analytical context remains hostile to the stock market. In fact, purely quantitative models predict the worst downturn since 2008. The three-year horizon is also negative, although it forecasts the worst in the next 12 months.


It must be remembered here that quantitative models fail to capture relatively new phenomena such as the monetary policies of the last ten years, but they must undoubtedly be considered in the construction of the scenario especially if the signals are particularly different from the consensus.


We are therefore convinced of our market neutral approach, that is long single names / short main index and cash. In fact, we continue to believe that the economic cycle has had its day and is supported by excessive expectations (the year of the US elections, historically positive) and by monetary policies (de facto new QEs).


The ten-year model is rather positive. We reiterate that these are purely quantitative analyses that are based on long historical series of the past (50 years), and that this type of analysis does not capture the innovative monetary policies of the post-financial crisis or the optimism linked to the year of the American elections. Let's take them as a wake-up call to avoid uncritically riding the remarkable optimism of these days. That of the markets is a rally to be ridden in the short term, but not to be trusted because it is not supported by substantial accelerations either of economic growth nor of corporate profits.


We, therefore, maintain our strategic approach with a temporary tactical exception. Main points: 1) cash is the best hedge; 2) sooner or later a context similar to 2009 will allow us to be very aggressive and get returns above the average. Our buy list of both shares and corporate bonds is ready. Tactically instead, our "long" favourites are on specific cases: a) economies whose manufacturing PMIs are again expanding like France; b) companies with solid business models able to successfully compete in the changing world.


As always we are available to illustrate the strategy in all its details.

The management team of Simplify Partners



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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.