This article is Hugh Hendry's letter to Eclectica Fund investors for May 2010.
THE ECLECTICA FUND
Manager Commentary, May 2010
'People are not able to take the consequences of their own curiosity'
-Anonymous California theatre owner
Andy Warhol's five hour movie, Sleep, attracted several hundred fervent cinephiles to one of its first Californian screenings in 1964. Only fifty stayed to the very end. At best, Warhol's soporific cinema verité of his close friend John Giorno can be thought of as an examination of the German philosopher Heidegger's concept of time, that it is simply a medium in which events take place, boring or otherwise.
Investment letters typically run roughshod over this principle, substituting dramatic time for real time. They compress and sometimes even replace time's ponderous qualities with great drama, jumping relentlessly back and forth from the excitement of rare moments in the capital market's past to projections of a climactic and spectacular resolution; stuff happens. Reality, of course, is more prosaic. For despite the many months that have passed since I last wrote to you in any great length, back in October of the previous year, I am somewhat relieved to report that very little of real substance has changed. Accordingly, and much to the hedge fund's advantage, short term interest rate expectations are unaltered. For instance, since last September the British one-year swap rate has continued to bob around 90 basis points.
Having deliberately positioned your cautious Fund to exclude the potentially damaging arena of equity and commodity shorts, we find ourselves somewhat at ease with the credit market's slumber at a time of ebullience elsewhere. Like our German philosopher friend, we continue to argue that the future is perhaps not yet now. The past is certainly no longer now and the present is simply the now that flows from the past to the future. Put differently, we believe that central banks in the UK and Europe are likely to keep their monetary tightening powder dry for some time yet. Accordingly, it seems likely that conjecture will remain our preoccupation at least until we receive some resolution to the great speculation of this year. By this we mean an answer to the question of whether we are in the midst of a vigorous yet typical economic recovery, or near the end of an inventory-led and rather short business cycle bearing testimony to an ongoing debt deflation.
