For so many people, the world seems to be ending. Europe will collapse when Greece, Spain, Portugal or all three default and Germany will exit the Euro leading to tremendous global financial instability. Other dominoes will fall. Then, later on the US current account deficit will widen as a result, leading to a further, unsustainable global imbalances. As the Eurozone problems have no obvious solutions and markets are now forcing the issue, it is assumed that significant cyclical damage is yet to come.

At the same time, in China, the leadership appears to be mainly preoccupied with domestic issues, such as cracking down on perceived property market speculation. The measures have been forceful and frequent and there is no reason to think they will stop before » Read more: Jeff Coggshall – May 2010

Global equity markets recorded one of their worst months of performance since the 1970s. Alternative energy and natural resources were not immune. The MSCI Global Materials and Energy Index fell 12.1% while the S&P Global Clean Energy Index fell 18.4% while Tiburon Terra posted negative performance for May, down some 9.4%.

Although the portfolio had a low net long exposure in alternative energy coming into the month the weak economic outlook in the EU and concerns over sovereign debt in Greece, Spain, Portugal and Italy contributed to that sub-sector falling heavily. Elsewhere the portfolio’s holdings in Australian resource companies were hurt by the Australian Government’s decision to implement a Resource Super Tax on mining companies. The mining sector also suffered as a result of the Chinese government moving to slow the luxury residential property market in tier one cities. With transaction volumes taking a nose dive, we believe that Beijing has now achieved its objective of slowing the market in this sector and will probably relax its policies in the coming months. The portfolio had in place short exposure to international » Read more: John Payne & Steven Miller – May 2010

A cautious approach to the month proved correct but the rapid decline in equity markets resulted in there being almost no places to hide. Our more defensive positions and small/medium cap stocks were treated as harshly as the more overvalued cyclical ones. Equity markets continue to struggle with the issue of global growth where concerns about a deceleration in China now accompany the more obvious European issues and the potential for a spillover to the US. One or two slightly disappointing pieces of US economic data have frightened investors and in such an uncertain environment conditions in equity markets will remain highly volatile as authorities and central banks struggle to retain the correct fiscal and monetary policies. There is no doubt that the European governments and the ECB could have handled the situation significantly better and we sense that at least » Read more: Rupert Kimber – May 2010

This month the MAS in Singapore announced a re-centring of their FX basket and a bias towards a strong currency to counter inflationary pressure. Brazil has a CPI running over 5%, while India’s WPI is near 10%, as is Russia’s. Meat prices are rocketing due to diminished herds. The CEO of Australia’s largest utility expects electricity prices to triple over the next decade. Steel prices will rise sharply due to the 100% increase in coal and iron ore costs, with obvious implications for the prices of manufactured goods. Thermal coal, copper and nickel are soaring, as are Platinum Group Metals. Some independent analysts calculate US CPI at 4% already if the farcical Owner Equivalent Rent is excised from the calculation. So why are forecasters extrapolating low short rates for the foreseeable future? No one apart from Goldman Sachs can borrow at them anyway (ask the average small businessman or the Greek Government) and yield curves are rapidly starting to resemble the north face of the Eiger. Welcome to the new ‘normal’, where Central Banks remain the only believers in output gap analysis and where the Bond Market vigilantes are back to the accompaniment of Roger Daltrey screaming ‘Won’t get fooled again’. You can see inflation everywhere apart from in the official data. Stay long inflation hedges such as Gold, utilities with index-linked asset bases and businesses with monopoly-like » Read more: Mark Fleming – May 2010