A UK-based asset manager, Ruffer LLP, which has $27.6 billion in assets, is making a rather huge bet, likely its biggest one ever, on cash money as liquidity in the United States continues to shrink faster than Wayne Szalinski’s children, which provides a boost to the possibility of their being a rather violent — think Michael Meyers in “Halloween Kills” kind of violent, only financially speaking — market reversal.
According to Yahoo, “Two-thirds of the money it oversees now sits in cash, a record allocation, according to fund manager Matt Smith. The income from that stash is being funneled into insurance policies in the form of credit default swaps and US stock options that will profit in the event of a big decline for Wall Street.”
“It could be within the next three months, which is a time when Fed liquidity is going to be coming out,” Smith went on to say. “This huge volatility-selling ecosystem could go reflexively in the other direction.”
Ruffer’s discretionary operation means it can lump all its money into one or two concentrated bets, rather than simply hugging industry benchmarks. While that included a successful wager on bitcoin in 2020, Ruffer will be keen to avoid a repeat of the more than 6% loss for its Total Return Fund in 2023 as global stocks soared and bond markets rallied.
Excessive optimism over US interest-rate cuts has left markets priced close to perfection, fueling Black Monday-style liquidity risks as the US central bank continues to wind down its bond-buying program, Smith said. Even as the latest hot US inflation print dims the outlook for US easing, Ruffer’s view is still among the most bearish in the market.
What? Never heard of Black Monday? Psshh. Get a load of this guy, he — or she — has never heard of Black Monday. Nah, just kidding.
Black Monday is a reference to the sudden and very severe stock market crash that occurred in October 19, 1987, which is still, to this very day, the worst daily percentage loss the S&P 500 and the Dow Jones Industrial Average has seen on record. What caused this mayhem? Well, no one is absolutely for sure, though there are a lot of reasons bandied about. One scary observation, however, is that the lead-up to the horror show was characterized by what Yahoo news called a “frothy bull market in risk assets,” which, Smith says, looks a whole lot like what we’re seeing today.
“The time is right for the kind of caution that helped Ruffer return 16% to investors at the height of the global financial crisis in 2008, according to Smith,” the report stated.
“We have two investment objectives: One is capital preservation, and the second is to deliver a better return than cash, but it is a secondary objective,” he went on to say during an interview. “We’re at a point in time where we think focusing on the former is the most important.”
It’s all about timing, the report noted. The longer the markets stay afloat, the more Ruffer could potentially miss out. The firm’s portfolio has managed to pull in 8.1 percent a year ever since its inception, while Ruffer’s cash rate has pulled an average of about 5 percent over thirty years.
Ruffer’s largest investments also include long-dated UK inflation-linked bonds and gold miners.
“We’ve had a regime change from a ceiling of 2% to a floor of 2% inflation,” Smith said. “That means structurally interest rates and inflation are headed higher.”
"*" indicates required fields