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Thunderroad-Report-Q4 Here we go again, creating another asset bubble for the third time in a decade and a half,

Thunderroad-Report-Q4 Here we go again, creating another asset bubble for the third time in a decade and a half,

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Published by Claude
“Have we really got to the point where it’s just about more and more QE, corralling more and more flow into the equity market until it becomes (unsustainably) ‘top-heavy’?“
“Have we really got to the point where it’s just about more and more QE, corralling more and more flow into the equity market until it becomes (unsustainably) ‘top-heavy’?“

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Categories:Types, Business/Law
Published by: Claude on Nov 14, 2013
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12/29/2013

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If many long duration fnancial assets are, indeed, moving into bubble territory, it’s been crossing our minds

to ask whether assets at the short end of the duration spectrum are becoming structurally undervalued?

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Barclays US Inflation linked 7-10 years real yield (%)

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October 2013

It’s amusing to turn over in your mind the idea that a 3-month German Treasury Bill, on a yield of 3 basis
points, could be “cheap”. The answer is obviously “yes” in an unfolding crisis (contraction in time horizon) and
these Bills traded on -20.5 basis points before Draghi threatened to do “whatever it takes” to save the Euro

(just as Spanish 10-year yields were spiking to 7.62%).

What about commodities which are both staples and perishable. Like the raw material for bread, for example?

Aside from “assets”, what about the idea of goods in terms of short “duration”?

This is Wikipedia on fast moving consumer goods (FMCG)...

“The term FMCGs refers to those retail goods that are generally replaced or fully used up over a

short period of days, weeks, or months, and within one year. Examples include non-durable goods
such as soft drinks, toiletries, etc, and grocery items...Fast-moving consumer electronics are a

type of FMCG and are typically low priced, generic or easily substitutable consumer electronics,
including mobile phones, MP3 players, game players, and digital cameras...Global leaders in the

FMCG segment include Johnson & Johnson, Colgate-Palmolive, Anheuser-Busch InBev, Henkel,

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Germany: 3-month Treasury Bill

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Wheat (Active contract)

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October 2013

Kellogg’s, S.C. Johnson, Beiersdorf, Mars Inc., Heinz, Nestle, Reckitt Benckiser, Unilever, Procter
& Gamble, L’Oreal, Coca-Cola, General Mills Inc., PepsiCo, Mondelez and Kraft Foods.”

In the “Infationary Defation” report referred to earlier, we set out our long-term investment strategy. We
argued that as pressure on consumers intensifes, equity portfolios should be progressively aligned towards
stocks which are relative benefciaries of the shifts in real disposable income. In general, we favour companies

supplying ESSENTIAL ITEMS AND SERVICES as we expect that these expenditures will account for a growing
share of the “economic pie” in future.

In thematic terms, many of the sectors we highlighted:

• Food/agriculture;

• Energy;

• Personal & household care;

• Healthcare;

• Mobile telephony & networking; and

• Defence (for governments).

Are, in fact, skewed towards faster moving consumer goods.

Some analysts seem to be thinking along similar lines. We were interested to read Sandeep Jaitly’s (of Fekete
Research and portfolio manager at First International) latest “Course of the Exchange” report in which he
argued in typically forceful fashion.

“When it comes to the picking of stocks going forward to capture this expected nominal rally
in the global equity exchanges – the concept of marketability must always be borne in mind.
Companies that produce the most marketable goods – such as Procter & Gamble, or Unilever –
will always have a ready market for their equity. However, it’s a question of the denomination of
this ready market as fat squeezes such stocks into being hoarded just like gold. Some companies
which are just capitalised claims to fat – such as banking or insurance shares – will lose all
relative exchange value at some point compared to the companies that produce marketable goods

of various shades.”

By “marketable”, he means acceptable. This brings gold to mind as a universally accepted currency and
store of wealth. Professor Fekete argues that the marginal utility of gold declines more slowly than any other
substance. I think this is relevant to the discussion about time horizons/duration but I need to think more
about it.

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