market folly

In an effort to provide readers with more global macro coverage here at Market Folly, today we present you the latest investor letter from John Brynjolfsson's new hedge fund Armored Wolf. They employ a macro strategy fixated on asset classes most influenced by inflationary/deflationary pressures. Their fund focuses on real return strategies and dabbles in the following asset classes: commodities, inflation linked bonds, liquid emerging market bonds, equities, and currencies. While the primary focus of this site is long/short equity funds, we do love us some global macro insight. Those of you looking to learn from top global macro hedge fund managers will benefit from reading Steven Drobny's new book, The Invisible Hands. If that does not satiate your global macro thirst, we don't know what will.

Since we've never covered Armored Wolf before, we'll first start with some background. Hedge fund Armored Wolf was founded back in the fourth quarter of 2008 by John Brynjolfsson. (Talk about a historic time to launch a fund!) Prior to founding his firm, Brynjolfsson worked at PIMCO and grew their Real Return platform to $80 billion. During his time there, he gained experience managing the world's largest inflation linked bond and commodity funds. And, an interesting fact about Brynjolfsson: in 1996 he helped the US Treasury design the TIPS market. Needless to say, he has a solid background.

Armored Wolf's first quarter global macro commentary centers on imbalances. They believe that Ben Bernanke's reappointment means an easy monetary policy well into 2011. They also pay close attention to the tug-of-war between the deflationary forces at roost in the US and UK and the policy makers' desire to reflate. They've identified a link between inflation, policy, growth and imbalances. They write, "a deleveraging in the developed world would correct global imbalances in a deflationary way. However, we see how attempts to reflate will lead to further imbalances and inflationary tendencies in some, if not all parts of the globe."

Armored Wolf's letter is divided up into four sections examining potential investment themes for the future including:

I. Imbalances, Exit Strategies & Growth
II. Sovereign Risk
III. The Commodity Price Boom
IV. Geo-political risk

Overall, Armored Wolf feels that the world is seeing a shift from the developed world to the developing world and the economic crisis has only accentuated and accelerated this fact. They believe that emerging markets are moving "from periphery to core on the global stage." This is similar to what we saw recently out of fellow macro fund Woodbine Capital as they are focused on the dispersion between industrialized and developed worlds.

Embedded below is the first quarter 2010 investor letter from John Brynjolfsson's hedge fund Armored Wolf which we highly recommend reading:



You can download a .pdf here.

While our global macro fund coverage is scarce compared to our long/short equity focus, we have in the past covered how global macro funds have struggled this year. Additionally, we've also previously covered thoughts from Woodbine Capital who believe that global rebalancing is the most pressing macro issue at hand. For more in-depth insight from global macro managers, we defer to Steven Drobny's new book The Invisible Hands: Hedge Funds Off the Record.