Eurofin Capital: Outrageous Predictions – An Investor's Diary

Dec 23 2010 | 10:22am ET

James M. Edwards, Chief Investment Officer, Eurofin Group -- As I write these words, snow flakes are quietly covering London as far as the eye can see. The sight is conducive to reminisce of times gone by, but looking back on 2010 would take too much of the limited space made available to me in this monthly diary. So I prefer to look forward and, still under the spell of these magic snowflakes, make some outrageous predictions about what might happen in 2011.

This being December, we have just completed our Quarterly Top-Down Investment Committee. As is now our custom, we are happy to share with you our updated themes and, more importantly, the adjustments in our Tactical Asset Allocation. The major change this quarter is our decision to slash our bond allocation as we see little value in holding government bonds at current yields. Since the risk of holding bonds has been skewed in favour of price declines, we prefer to re-allocate to both equities and alternatives, as we make an explicit 5 % allocation to gold, in addition to hedge funds and commodities. We are positioning for a rise in inflation.

And now for something completely different: outrageous predictions. My intention here is not to infer that what follows will occur, but rather to highlight how the unexpected could occur, with surprising results for world markets.

Outrageous prediction No 1: North and South Korea are reunited as China and the U.S. agree to work together. In addition, China offers to pay at least 50 % of the reunification cost.

Outrageous prediction No 2: German voters tire of the relentless EU pressure to help bailout smaller Euro zone countries and force Chancellor Merkel to announce that Germany is returning to the Deutsche Mark.

Outrageous prediction No 3: France follows suit and immediately devalues the franc by 25% against its major trading partners, putting up barriers against foreign capital buying French “strategic assets.” To celebrate, French workers go on strike.

Outrageous prediction No 4: Huge public demonstrations in the U.S. against the loss of jobs, outsourced by “big business”, encourage President Obama to put up tariffs against non U.S. goods and increase taxes for those U.S. firms that cannot demonstrate that at least 75% of their production is U.S.-based. Sarah Palin is speechless.

Outrageous prediction No 5: President Obama, angry at the size of bonus pools paid out by banks, puts a proposal before Congress to nationalize the U.S. banking system. Republicans inevitably reject the suggestion but it plays on the growing public disillusionment with the finance industry.

Outrageous prediction No 6: Prime Minister Putin of Russia announces that he will not be standing for the 2012 presidential elections.

James Edwards has been Lausanne-based Eurofin Group’s company’s Chief Investment Officer since 2008 and a Managing Director of London-based Eurofin Capital Ltd. since the company’s creation in 2009. He brings over 20 years of investment experience at the highest level, as a direct investment manager and as an asset allocator in both the traditional and the alternative investment worlds. Prior to joining the Eurofin Group, Mr. Edwards was Executive Director of UBS Wealth Management Hedge Fund Advisory business and Member of the firm's UK Investment Committee. Prior to that, James was CIO of Mizuho Investment Management in London, a leveraged loan investment company and CIO of BAREP Asset Management, Société Générale Paris-based alternative investment subsidiary. Whilst at BAREP, Mr. Edwards launched and managed a number of credit and emerging market hedge funds, as well as an emerging market CDO. James began his investment career as a fixed income Portfolio Manager at Rupert Loewenstein, a high net worth specialist manager. Earlier, he was Portfolio Manager at Crédit Suisse Asset Management within the multi-currency fixed income team and at F&C Emerging Markets, where he ran fixed income portfolios.


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