market folly

Earlier this morning, we posted up five investment themes in Woodbine Capital's portfolio. Next, we're taking a look at this global macro hedge fund's outlook. As the title notes, their portfolio has been focused on the dispersion between the emerging and industrialized worlds.

Macro Takeaways

We wanted to quickly compile some of Woodbine's prudent macro takeaways from their December 2009 investor letter. Woodbine notes that current market sentiment is targeting a US-driven global expansion and they see this as unlikely. They highlight the fact that the discrepancy between developed markets and emerging markets is rising and should not go unnoticed. Woodbine does not think that sovereign credit issues in the developed world will deter further global expansion.

Josh Berkowitz's hedge fund goes on to note that, "The follow-through of an inventory-led upturn to broader activity is far more dependent on healthy balance sheets, which allow accommodative monetary and fiscal policies to influence private activity."

In order to see growth, they shift their focus specifically to the countries of Brazil, China, India, Indonesia, Korea, and Turkey and mention that these countries need to, "embrace their leadership position with a virtuous cycle of stronger exchange rates, lower import prices, lower domestic interest rates, and stronger domestic demand."

In terms of future investment themes, they've identified a candidate in the form of emerging market policy decisions that will be focused on higher exchange rates, trade surpluses of smaller size, and strong domestic demand. In terms of potential risks, they think that deflationary pressure in the US could be more persistent than most fear. In order to guard against this risk, you can look at downside strikes in long duration swap yields. They feel that inflationary fears are overblown as these pressures "will be restrained by the long workout in the major economies, with large relative price shifts in favor of capital goods utilized by the emerging world." Additionally, they admit that sovereign fiscal issues pose a potential risk. In order to help protect from this, they suggest going short the euro against the Swiss franc.

Overall, hedge fund Woodbine Capital's 2010 outlook is focused on the continued global expansion driven by emerging markets as they believe developed countries will lag. Woodbine now has $2.5 billion in assets under management and finished 2009 up 13.15%. Make sure to check out our other piece from this morning detailing their five current investment themes. We've previously covered some past resources from the global macro hedge fund as well, including their thoughts on a possible early cycle slowdown and their piece on Gold: The Anti-Goldilocks.