Despite February being a very volatile month, the Tiburon Terra Fund posted a gain of 0.32% following an unstable month that impacted financial markets across the board. In the face of a very weak environment for the renewable sector, we have continued to managed the portfolio in a defensive manner with net exposure a short 13% at the end of the month.

Sovereign credit issues continued to weigh on global financial markets during February with the debt crisis in Greece overwhelming market sentiment. Much has been written about the debt issues that are confronting Greece and how it must address the level of public spending to reign in its fiscal deficit. However, the greater issue at stake is how the EU deals with the crisis in Greece (and elsewhere) when as an economic bloc it can control monetary but not the fiscal policy of its members. Spain, Portugal, Italy and Ireland also have pressing fiscal deficits. Of the four, only Ireland has been proactive in addressing its fiscal position by increasing taxes and cutting public sector spending; lack of action will contribute to the instability in the Euro Zone. This has lead to the Euro weakening against the US Dollar, in turn increasing volatility in the natural resources markets.

To date France and Germany have presented a somewhat united face to the global financial markets but » Read more: John Payne & Steven Miller – February 2010

European sovereign debt issues, emerging signs of tighter monetary policy in China and mixed US economic data conspired to leave global equity markets under pressure as questions over the durability of the global economy resurfaced. Japan suffered also as the yen regained some momentum as risk appetite receded. Japanese equity prices were further undermined by the fact that earlier in the year foreign investors had been significant buyers but this trend was halted and hence the only natural buyer of equities moved to the sidelines. However economic data continued to suggest the first signs of some recovery in the domestic economy and this was reflected within the stockmarket as buying interest was redirected towards the domestic areas as opposed to the global cyclicals and manufacturing stocks which had been so evident especially in early January.

From a micro perspective the most heartening aspect was confirmation that the ongoing restructuring combined with the economic recovery globally had allowed many Japanese manufacturers to swing significantly back into profitability. This is critical for the market as our analysis continues to reveal that the depth of this restructuring is deeper than the more cynical commentators are prepared to concede. The important point here is that » Read more: Rupert Kimber – February 2010

If you want China to fail, that’s fine. We’re not going to try to persuade you otherwise. In fact, we will happily bet alongside über-bears, when either structural cracks expand of their own will, or the government seems determined to grind things to a halt. Since mid-2009 we have been more risk-averse than profit seeking in part because the Asian Asset Bubble story that so many believed in seemed to invite both a policy response as well as an unwinding of sloppy long risk exposures. Since then, both have happened.

In the meantime, a very popular theme among pundits and media monkeys has been China’s imminent collapse or, since this is easily proven wrong, headlines like “China to have big recession in the next 10 years”. But ten years is a long time even to a seasoned China investor and even two or three recessions in that span of time are not too difficult to envisage. So not only is this an easy prediction to make, but a useless one. Oddly enough, this is viewed as big news and media coverage has been extensive.

Things are never certain, but most of the evidence that we see now and that we expect to see for the rest of the year is consistent with a “not too hot and not too cold” view of China’s economy. Two successive hikes in reserve requirements have so far only » Read more: Jeff Coggshall – February 2010

Who would be a Central Banker these days? Besieged by economists offering contradictory and highly public advice on a daily basis and with fiscal policy hostage to the electoral cycle, these guardians of the public punch bowl have an unenviable task. The slightest tweak to an irrelevant liquidity measure or interest rate, be it the Chinese Reserve Requirement or the US Discount Rate, is pored over by the World’s markets as a possible precursor to a major tightening cycle, while even more immaterial changes of adjectives in a monthly commentary are accorded an import out of all proportion to the likely reason for their usage. Yet there is good reason for the market’s current level of hyper-sensitivity. It has been a recent article of faith that we could count on both low interest rates and a respectable economic recovery throughout 2010. A rebuilding of inventory and a resumption of private sector hiring would spur demand while the output gap would ensure that we would not have to worry about any pesky inflation for the foreseeable future. Unfortunately, this economic Nirvana will have to wait.

The reality is that the choice facing policy makers is stark indeed. Tighten now, either fiscally or monetarily, and precipitate a double dip recession – OR – retain the ultra-accommodative and fiscally lax status quo and wait for the markets to assume that you are the next Greece or Dubai, in which case the markets do the tightening for you and precipitate the double dip. (To be fair to the UK, we think a double dip is less likely than elsewhere in the OECD, but only because » Read more: Mark Fleming – February 2010