First a reprise of December 2020's "Izabella Kaminska: "2020: The year bitcoin went institutional"":
Bitcoin is on a tear. And this time, the hyper valuations might stick.
On December 11, a prominent but very private financial newsletter author noted to clients that while he had never previously written about bitcoin, it was correct to say that institutional capital had now started to arrive in scale and that it would be churlish to pick a fight with it. Demand for bitcoin would now outstrip supply.
Bitcoin, he observed, would become an excellent metaphor for risk appetite in 2021 as a result.
Less than a week later, Coindesk confirmed that UK-based asset manager Ruffer had accumulated some £550m of bitcoin since November, representing some 2.7 per cent of the firm’s AUM. Ruffer’s move is now being widely interpreted as the beginning of a major portfolio diversification trend into bitcoin. It seems institutional money can no longer afford to ignore it. And bitcoiners are understandably overjoyed....
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(it had begun the month of November 2020 at $13,803.69)
And our outro from her piece:
Jonathan Ruffer is justifiably famous for some high kurtosis (fat tail/black swan) VIX trades that ZeroHedge was tracking.
I like Ruffer's quarterly Investment Review but I have a serious problem when I read it.
I start to sing. This song:
"I like… fat… tails and I cannot lie, You vol sellers can’t deny..."
From Jonathan Ruffer, October 8:
In the 26 years that Ruffer LLP has been in existence, a clear pattern has emerged. When the market mood is either complacent or ebullient, equity indices tend to rise strongly, and we lag behind them. An ‘unexpected’ crisis then hits, and Ruffer quickly recovers lost ground.
This pattern is entirely consistent with our stated raison d’être – Ruffer is preoccupied with keeping our clients safe. To do that, we need to look towards and beyond the horizon, anticipating the next pivotal moment in markets, while being indifferent to how long it takes for this moment to come about.
Much depends, of course, on how one defines the phrase ‘pivotal moment’. But these moments are easy to predict, because they are so obvious. Today is no exception. If this appears to be a claim to genius, the fly in the ointment is that, while there might be some certainty as to what will happen, there is no certainty as to when it will happen. Indeed, to make money from these insights, one may have to wait a very long time – longer than either a client or professional fund manager finds comfortable.
This is no game for the risk-averse. Success can only be achieved by investing a portfolio to take risk, and by so arranging it that, while each element often has substantial risk, the make up of the whole has a robustness of balance such that the uncertainties that unfold allow the portfolio to make a positive return. This return needs to be sufficient, throughout the market cycle, to justify the whole exercise. And this we have done since we began in 1994.
Astonishingly, we haven’t had a secular bear market for nearly 40 years – the last one ended in August 1982. Since then, markets have done nothing except go up, punctuated by crises which bring market levels sharply down in a short period. This is best demonstrated by an examination of the last 150 quarters of the US equity market (S&P 500): 71% of them are up-periods, only 29% of them down.1 For Ruffer, our contrarian approach has been to capture as much of the sunlight as we dare, while holding tungsten-tipped instruments for extreme danger – danger which usually manifests from a cloudless sky.
That sky is about to change. The central message for investors is that we are going into an invert of the last period – markets will grind lower and lower, punctuated by rallies of prodigious strength. If these rallies are missed, the holding of almost-all assets for long term growth will be a miserable experience. Consider the 1970s. The sharp fall in markets between September 1972 and January 1975 ended when the market nearly doubled in two months. From that level the market traded, in real terms, pretty much sideways until the summer of 1982. From there, it rallied by a further third in two months.
Final point on the investment style – Ruffer’s approach has nothing to do with being bullish or bearish; it is a continuation of what it is to be contrarian. We will continue to build portfolios designed to make as much money as is consistent with full protection against the dangers we see. These dangers will no longer be acute and unusual: they will be chronic.
The long period now ending has helped us understand survival in conditions which common sense suggests will reverse – but which, in essence, seem to continue indefinitely. In this next period, the menacing tactic will be buying for the bounce which never comes when it should – that fall from 1972 to 1975 (which had followed a benign period from Dunkirk onwards) saw no less than five major attempts at a rally before the real thing. For this next phase, we make no prediction on longevity, only on challenges – we expect it to be like sitting on an open AGA with bare buttocks: time will indeed pass slowly.....
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