Like a microcosm of the last decade – in November we went nowhere, but in a very interesting way. Kelpie returned 0.6% for the month whilst the FTSE All Share and HFRX Hedge Fund Index were down 0.9% and 1.2% respectively.

Entering the month I was increasingly very cautious.  The reasons for my pessimism I detailed in my 3 Macro posts, on bank earnings and on my belief that the coming quarters are likely to be recessionary in the UK, Europe, and probably the US too. In an attempt to weather the storm cash balances floated up to around 20% as a result of the sales below – I cut a bunch of smaller positions that were not for stock specific reasons. I may revisit some or all of these names in time.

My macro hedges were increased, adding a short position on the S&P 500 and a short on the Aussie against the US Dollar. The focus of so many aspirational, post University Anglo-Saxon emigration fantasies/realities, I have been somewhat sceptical of the Antipodean dream. Anecdotal and personal experience of wage & housing inflation along with the cost of living tells me we are in a commodity dependent bubble. Would people really be so keen to move Down Under were it to officially rename itself as the effective Chinese Colony it has become?

These hedges served their purpose contributing over 1% of performance as the market fell mid month, at this point they were trimmed but, alas, not taken off completely before the month end mega rally. Much ado about nothing.


I have a watchlist, and a portfolio full of, stocks which I believe are either optically cheap, driven by extremely favourable fundamentals, dominant in their respective niches and for the most part, earnestly motivated to get the market to appreciate their intrinsic value. I would highlight Energold Drilling, Gravity, Dell and Yukon Nevada Gold in particular as stocks I view as extremely undervalued and most importantly, in control of their own destiny.

So why am I not buying with both hands? The answer is two-fold. The Shiller P/E index remains substantially over-valued for all but European indexes, indicating we will get better opportunities to buy ahead. More worryingly, the fact that I believe the range of macro possibilities is much wider than most managers are willing to admit makes me want to ensure I live to fight another day.

To quote Seth Klarman, “Why should the immediate opportunity set be the only one considered, when tomorrow’s may well be considerably more fertile than today’s?”


For the first time in decades investors truly have “nowhere to hide”. Cash and bonds earn near zero and are like dry tinder awaiting the (much anticipated) first sign of an inflationary match; meanwhile, equities are struggling through an ongoing, but occasionally stimulated, deflationary depression for the tapped out consumer which still represents 60-70% of First World GDP. In a volatile world, I don’t think it will pay to be fully invested.






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