THE FOLLOWING ARTICLE DOES NOT CONSTITUTE A SOLICITATION TO INVEST IN ANY PROGRAM OF CERVINO CAPITAL MANAGEMENT LLC. AN INVESTMENT MAY ONLY BE MADE AT THE TIME A QUALIFIED INVESTOR RECEIVES CERVINO CAPITAL'S DISCLOSURE DOCUMENT FOR ITS COMMODITY TRADING ADVISOR PROGRAM OR DISCLOSURE BROCHURE FOR ITS REGISTERED INVESTMENT ADVISER PROGRAMS. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
As we close the curtains on 2010 with positive performances across all of our strategies, we search for new themes and new opportunities to exploit in 2011.
The past two years, in the aftermath of the most devastating financial crisis since the Great Depression, have witnessed a strong politicization of the economic process with encompassing ramifications in most investment models. The liquidity flood of 2009 and collapsed volatility reignited one-directional trades in equities and gold. 2010 presented a continuation of such trends.
Making a call for next year implies, in our view, being able to read the political tea leaves more accurately than ever. We feel most political dynamics will not change dramatically in the next twelve months and we will continue to see easy monetary policy from the US and an ECB put strategy in Europe. However, these themes are eventually unsustainable by themselves and asymmetrical risk is building up into the investment framework.
Assuming most political decisions will mimic the past trend, we expect equities to still be an attractive asset class, especially in sectors characterized by high dividends and CPI protection. Lip service to our energy infrastructure MLP strategy is evident here but honestly disclosed. Inflation, in developed economies and especially in Emerging Markets, is a reality in spite of a system in desperate need to de-leverage some parts of its balance sheet.
In this light, commodities and gold specifically will probably experience volatile moves but within upward trends. Beyond gold, which was our successful 2010 call, we think crude oil will be a natural price leader in this asset class.
Bonds look more risky than most other investment options. US Treasuries suffer from undefined fiscal restraints and debt monetization and therefore only inflation protected securities should be included in portfolios where a risk free instrument is still required. Among other sovereign bonds, we continue to favor Emerging Markets bonds but with a lot less enthusiasm than a year ago. Corporate bonds should also provide lackluster performance if the general level of interest rates continues to move higher.
Potential game changers: Forex dislocations, large sovereign default in Europe, social instability in China due to uncontrollable inflationary pressures. It should be interesting…
--Davide Accomazzo, Managing Director
(Written January 7, 2011)
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