STIRLING RESERVE FUND INCstirling-funds.co.uk/uploads/3/5/9/2/35927947/2014... · DIUTINUS VIRES QUOD PENDO The Business Centre STIRLING RESERVE FUND INC. Upton, St. Michael Tel:

DIUTINUS VIRES QUOD PENDO

The Business Centre STIRLING RESERVE FUND INC. Upton, St. Michael www.stirling-funds.co.uk Tel: (246) 434-2040

Barbados, West Indies BB11103 純品基金 Fax: (246) 429-5153

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The Stirling Reserve Fund

Remarkable Claims Require

Remarkable Proof

1th Quarter 2014 Commentary

June 10 , 2014 Upton, in the parish of St. Michael

Barbados, West Indies

http://www.stirling-funds.co.uk/




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Quarterly Commentaries

Disclaimer:

Management of The Stirling Funds periodically prepare commentaries on global economic and market issues and may provide investment analysis on portfolio holdings, industries and individual companies. The views expressed in these commentaries are for general interest only and often are the management team’s personal observations and opinions. Other members of The Stirling Fund’s management team may hold opposing views, opinions, and or investment perspectives. Although care and high standards have been applied in the preparation of this material, no responsibility or liability will be accepted by The Stirling Funds for the contents herein. The Stirling Funds does not accept responsibilities for errors, inaccuracies or omissions, nor for the loss or damage that may result directly or indirectly from reliance on the report’s contents. Opinions expressed are subject to change without notice and in certain cases opinions change regularly. Nothing contained herein should be construed as investment advice and readers should not take or omit to take any action as a result of information in this report. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is not predictive of future results. Quarterly commentaries are approved by the Board of Directors prior to, or contemporaneously with, distribution, but no implied formal acceptance of the contents of the report by the Board of Directors of The Stirling Funds should be construed by readers. The Stirling Reserve Fund is regulated under the Companies Act pursuant to the laws of the country of Barbados. No Barbadian government ministry or official has reviewed this report and the government of Barbados assumes no responsibility whatsoever for the contents herein. The Stirling Reserve Fund operates exclusively from Upton, in the parish of St. Michael, in the country of Barbados, West Indies. The Stirling Reserve Fund is currently closed to new investors. The Fund is not eligible for sale or distribution to United States citizens, nor to Canadian or U.K. residents and this commentary is not for distribution or dissemination in the U.S., Canada, or the U.K. The Stirling Reserve Fund están cerrados a nuevos inversores y no son elegibles para la venta o distribución a ciudadanos de Estados Unidos, ni a los residents de Canadá o el Reino Unido. Este comentario trimestral no es para distribución o diffusión en los EE.UU., Canadá o el Reino Unido. Reproduction, quotations from, or distribution in written or electronic form of this commentary or any part herein without the express written permission of The Stirling Funds is prohibited. If you have received a copy of this report in error please destroy it.

Printed in Upton, in the parish of St. Michael, Barbados, West Indies on recycled post-consumer paper





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Publishing & Editorial Team

Publisher & Editor-in-Chief – David Csumrik, Chairman

Senior Managing Editor – Susan-Dawn Flatt

Executive Director & Deputy Managing Editor – Sherene Blackett, FCCA

Contributing Editor & Chief Content Officer – Gordon Flatt

Design and Graphic Art Editor – Johanne Nicholls

© 2014: All rights reserved






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Remarkable Proof1

1th Quarter 2014 Commentary

June 10, 2014 Upton, in the parish of St. Michael


1 Dr. Carl Sagan, PhD (1934 – 1996); astronomer, astrophysics, author.





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Once


Remarkable Proof

Remarkable claims, be they scientific claims (example: the universe is seemingly expanding … at an ever increasing rate!2); be they legal claims (say an extortionist’s lawsuit with fabricated claims) or be it investment claims (with seemingly strong underlying fundamental analysis) … require basis, require justification, and require substantive proof. In the real world, where science and the rule of law prevail, eventually the truthful claim, (remarkable or otherwise) supported by remarkable (or otherwise) proofs, will set you free. And yet, in the investment world, while many claims exist (and we make them daily, if not by pronouncements, by our overt actions), few absolute remarkable proofs exist. And worse, unlike the judicial system, where time favours the innocent; where lies will be exposed with the preponderance of light; where truth is absolute and where it will eventually be surfaced and exonerated … in the investment world it is a little murkier. And often times, “time” is a hindrance to profitable outcomes. And remarkable proofs are both illusionary and evasive. Two famous quotes help frame the dichotomy that exists in the investment world:

“the market can remain irrational longer than you can remain solvent”

“you can be right but early … and you are wrong” And so we start from the premise that we can offer few if any remarkable claims, and fewer examples of underlying remarkable proofs. Witness but two3 of our historic remarkable claims (seemingly with the overtly intended, yet obviously, with the absence of remarkable proof):

2 Question: does that impact the definition of infinity? Or said differently, what is infinity plus 1? More puzzling …

what is the universe expanding into? Nothing? Something? Just asking. Remarkable claims require remarkable proof. 3 We will avoid highlighting our historic views on treasuries … circa 2000 … “we should short endless quantum of

10 year treasuries … there is no way it should trade sub 6%” … it is now sub 2.5% … remarkable claims require remarkable proof (or result in bankruptcy!!).





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The Euro

Our remarkable claim (that we have exposed religiously, repeatedly, recurringly since the creation of the euro and, more particularly, and more emphatically, since the financial crisis of 2008) of the shockingly over-valuation of the euro (relative to the greenback) … only to see the euro rise to the high 1.30’s (recently 1.38!!). We remain convinced – famous last words – that the euro is grossly overvalued. At best, the euro should trade in the mid-1.20 range against the US$ … in actual fact, its fair value is somewhere between 1.15 and 1.20. And at these normalized levels (should it trade down to there) the euro-zone can recover, rebuild, re-educate its peoples, and re-emerge to regain its rightful place in the global economy. Artificially high currency exchange rates create artificially high barriers, impeding economic growth and local employment, constricting investment. This is not a remarkable claim and the remarkable proof is demonstrated in widespread euro unemployment, chronic poverty and an increasing economic wasteland. In a race to the currency “bottom”, the euro needs to win … and this is not a remarkable claim.

But let’s examine recent events:

At the latest International Monetary Fund meeting in Washington, Mario Draghi, president of the ECB, stated that the euro's strength was one of the main factors leading to the euro-zone’s disinflationary trends. Draghi believes the euro's strength knocked off 0.50 percentage points of inflation over the past 18 months, stating:

“The strengthening of the exchange rate requires further monetary stimulus. That is an important dimension for us”.





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But Draghi isn't the only leader of a European central bank concerned with the strength of the euro. The head of the Swiss Central Bank, Thomas Jordan (one of the most respected countries espousing bedrock, fundamental currency security), tied his country’s fate to the euro following the financial crisis, when global monies flowed to Switzerland, causing the Swiss franc to show incredible strength as a safe-haven currency but leading to deflationary trends and putting recessionary pressure on Switzerland. The Swiss National Bank took a bold, unprecedented (and seemingly largely unrecognized) step of capping the Swiss franc at 1.20 per euro in September 2011. Now Jordan also thinks the euro is overvalued, again putting pressure on Switzerland's economy, stating:

“The Swiss franc remains highly valued, and in order to maintain adequate monetary conditions in Switzerland so that we can maintain price stability,

and in order to not fall back into negative inflation, we have to maintain the minimum exchange rate.

We have a strong euro against the dollar, and we have an even stronger Swiss franc against the dollar,

so what we need is probably both a weakening of the Swiss franc and a weakening of the euro against the dollar.”

Never fight the Fed4 … nor other governmental authorities with printing presses (seemingly not a remarkable claims, and historically a remarkably profitable trade). While the ECB (to date) has shown a reluctance to engage in pure quantitative easing (QE) programs (aka the US model – modeled after the Japanese mode; more on this later) or expand its balance sheets aggressively by buying assets such as government bonds as the political situation in Europe is remarkably complicated, in that, achieving a consensus among central bank governors spread across Europe is challenging and is remarkably challengingly, the mood is (remarkably) changing. Recent supportive comments from the Bundesbank

4 JIF, and many others





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head, Jens Weidmann, mark a "radical remarkably softening" of the German Central Bank's stance with respect to QE. Supportively, the remarkably well-respected Austria's Central Bank head, Ewald Nowotny, has also recently suggested that “QE should not be off the table”. These are historic changes; positive for the euro zone countries … ultimately resulting in a weaker euro.

While these, individually, may not be a remarkable claims … and maybe this isn’t remarkable proof … but when all the monetary authorities are signaling a consistent message … we intend to invest alongside them. The euro is over-valued and will decline. The euro will trade at par to the US dollar. This is not a remarkable claim and yet the proof is seemingly remarkable.

But the focus of this quarterly report will be on the Japanese yen, a currency which we have studying for remarkably more than a quarter century5. And while we often make remarkable claims … seemingly these claims are now supported by (un) remarkable proofs. And yet carry on, we must.

まだ、我々は必要に上のキャリー

So we start by asking a simple question, with an embedded answer:

5 See Appendix 1 for extracts from our 1999 paper on the yen.





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Japan6

And The Yen

6 Illusionary and paradoxically, Japan is referred to as the land of the rising sun





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We have, (a detailed commentary on our views of the Japanese yen was published in 1999 – see Appendix 1) expounded on the remarkable claim that the Japanese yen is over-valued, which we have explained, expanded on, and excitedly exposed … only to witness the yen (massively) appreciating to almost 80 against the dollar, and more recently falling to around 100. As an investor you can be right yet early … and wrong. But we still believe our remarkable claim is right, and in the analysis below we present our remarkable proof (at least in our minds). As our Chairman often states:

I'm right,

and you're smart,

and sooner or later

because you’re smart,

you'll realize

I'm right.





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Sometimes charts, graphs, and even pictures (and no, Ms Sherene, FCCA I am not referring to those pictures) assist in explaining remarkable claims. And so we attach many in support of our thesis.

We start our analysis of the Japanese yen by examining Japan’s evolving demographic footprint (we are highly influenced in this analysis by the scholarly work of Dr. Foot7, an economist who has focused on the economic impacts of demographic shifts).

And to get the point quickly (and succinctly) …

Japan is fucked.

You can view this as a remarkable claim (or not) … so let’s examine the remarkable evidence.

The demographics of Japan virtually assure it of cultural, financial and economic ruin. Witness:

7 David K. Foot, PhD is a Harvard educated economist who is currently a tenured professor in the department of

economics at the University of Toronto. His research focuses on the impact of demographics on economics, especially as pertaining to the aging of the baby boomers. He argues that demographic shifts tend to have important social and economic consequences that are often neglected by policy makers, including aspects such as the changing patterns in crime, leisure activities, investment strategies and school enrollment. In his own words, demographics explains "two-thirds of everything". A non-technical summary of his research on demographics was presented in his bestseller 1996 book “Boom Bust & Echo: How to Profit from the Coming Demographic Shift”.





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Japan’s population is actually declining — fast8. And under the crush of that breaking statistical wave, everything gets harder for Japan. There are already more over-65s than under-24s; but it is estimated that by 2060 Japan’s population will have fallen from 128 million to 87 million, and roughly half of those remaining will be over 65. This is self-imposed cultural genocide – Japan, as a people, as a culture, as an economic powerbase … is dying.

6 UK Telegraph, March 2014: An Incredible Shrinking Country: A quick but constant ticking can be heard from the demographic time bomb that sits beneath the world’s third-largest economy. This week it made a louder tick than usual: official statistics show that the population declined last year by a record 244,000 people—roughly the population of the London borough of Hackney.

Japan's population began falling in 2004 and is now ageing faster than any other on the planet. More than 22% of Japanese are already 65 or older. A report compiled with the government’s co-operation two years ago warned that by 2060 the number of Japanese will have fallen from 127m to about 87m, of whom almost 40% will be 65 or older.

The government is pointedly not denying reports that ran earlier this month, claiming that it is considering a solution it has so far shunned: mass immigration. The reports say the figure being mooted is 200,000 foreigners a year. An advisory body to Shinzo Abe, the prime minister, said opening the immigration drawbridge to that number would help stabilise Japan’s population—at around 100m (from its current 126.7m).

But even then there’s a big catch. To hit that target the government would also have to raise the fertility rate from its current 1.39, one of the lowest in the world, up to 2.07. Experts say that a change on that scale would require major surgery to the country’s entire social architecture. One of the first things Japan would need to do, says Kathy Matsui, chief Japan equity strategist at Goldman Sachs in Tokyo, is make it easier for mothers to work. “Evidence shows that work-forces with a higher female participation rate also have higher birth rates.”

Mr Abe has invoked Ms Matsui in his quest to boost the birth rate. Progress towards bringing women into the labour force is far from assured however. The latest Gender Gap Report, compiled annually by the Davos-based World Economic Forum, ranked Japan 105 out of 136 countries, down 25 places from 2006. (South Korea—another country with a fertility crisis—does even worse, coming in at 111th place.)

The looming crisis has so alarmed the Japan’s government that in 2005 it created a ministerial post to raise fertility. Last year a 20-member panel produced a wish list to reduce what it calls “deterrents” to marriage and child rearing. It included a proposal to assign gynecologists to patients on a lifelong basis and to provide financial support for unmarried Japanese who undertake "spouse-hunting" projects.

Immigration is being approached as a last resort. Even so the prime minister faces tough choices. The United Nations estimates that without raising its fertility rate, Japan would need to attract about 650,000 immigrants a year. There is no precedent for that level of immigration in this country, which is still a largely homogenous society. Roughly 2% of Japan’s population is foreign. And even this figure includes large numbers of permanent residents—mostly Chinese and Koreans—who have been here for generations. Unfortunately, the Japanese are unlikely to embrace the idea of a Chinese family living on every Japanese street.

Japan’s demographic dilemma grows more urgent by the year. Last week the government passed the nation’s largest-ever budget—a mammoth $937-billion package swelled by welfare and pension spending. Japan is already weighed down by one of the world’s largest public debt burdens. With its inverted population pyramid, where will it find the tax base to repay this debt, and to care for its growing population of elderly?

The 2012 government report said that without policy change, by 2110 the number of Japanese could fall to 42.9m, ie just a third of its current population. It is plausible to think that the country could learn to live with its shrinking population. But that might mean also embracing a much diminished economic and political role in the world. Mr Abe would seem to be the last leader to accept that. And maybe its last chance.





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Note: There is no recovery for Japan if these population trends play out (and they will). Old people don’t work and they don’t make babies. Demographics is destiny.


http://www.google.ca/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=wfj8lwBVdbxJhM&tbnid=a4Mf9qgVfFKhMM:&ved=0CAUQjRw&url=http%3A%2F%2Fforeignpolicyblogs.com%2F2011%2F05%2F16%2Fjapans-demographic-crisis%2F&ei=fr50U_PdG4OfqAaDzIHwDQ&bvm=bv.66699033,d.aWw&psig=AFQjCNGr8RlQFv2TdQ4Yjilw8RAkW7DAAw&ust=1400246267038658

http://www.google.ca/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=wfj8lwBVdbxJhM&tbnid=a4Mf9qgVfFKhMM:&ved=0CAUQjRw&url=http%3A%2F%2Fforeignpolicyblogs.com%2F2011%2F05%2F16%2Fjapans-demographic-crisis%2F&ei=fr50U_PdG4OfqAaDzIHwDQ&bvm=bv.66699033,d.aWw&psig=AFQjCNGr8RlQFv2TdQ4Yjilw8RAkW7DAAw&ust=1400246267038658




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The logical answer for Japan is immigration — lots of it — but that, culturally, historically, and actually is a traditionally a non-starter for the insular Japanese. In 2003, it was estimated by the UN that Japan would need 17 million new immigrants by 2050. Those immigrants would amount to 18% of the population in a country where immigrants currently amount to...wait for it... less than 1%. And it gets worse. Of that 1%, most are second- or third-generation Koreans and Chinese, descendants of people brought to Japan from former colonies. As of October 1, 2013, there were all of 1.6 million foreigners in Japan, and that is after net immigration increased for the first time in 5 years, with 37,000 new immigrants!! taking a bit of the sting out of the 253,000 decrease in Japanese citizens in 2013.

Seemingly ... Japan’s fate is set re demographics. So let’s examine what that means:





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And examine this alarming chart predicting the mix between “productive” (working) and “non-productive” Japanese (and note these figures and charts are from Japanese government sources):


http://www.google.ca/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=wfj8lwBVdbxJhM&tbnid=a4Mf9qgVfFKhMM:&ved=0CAUQjRw&url=http%3A%2F%2Fwww.businessinsider.com%2Fchart-of-the-day-japan-gdp-population-2010-10&ei=oL50U-7IO9KBqgbYz4CYBw&bvm=bv.66699033,d.aWw&psig=AFQjCNGr8RlQFv2TdQ4Yjilw8RAkW7DAAw&ust=1400246267038658

http://www.google.ca/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=wfj8lwBVdbxJhM&tbnid=a4Mf9qgVfFKhMM:&ved=0CAUQjRw&url=http%3A%2F%2Fwww.businessinsider.com%2Fchart-of-the-day-japan-gdp-population-2010-10&ei=oL50U-7IO9KBqgbYz4CYBw&bvm=bv.66699033,d.aWw&psig=AFQjCNGr8RlQFv2TdQ4Yjilw8RAkW7DAAw&ust=1400246267038658

http://www.google.ca/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=5Ct2_k0Y58g5BM&tbnid=jRc5sFRvwLwhdM:&ved=0CAUQjRw&url=http%3A%2F%2Fsocioecohistory.wordpress.com%2F2010%2F05%2F18%2Fjapan-the-sleeping-sovereign-debt-crisis-giant%2F&ei=FcB0U-LBIpSaqAa094HgCg&bvm=bv.66699033,d.aWw&psig=AFQjCNGr8RlQFv2TdQ4Yjilw8RAkW7DAAw&ust=1400246267038658

http://www.google.ca/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=5Ct2_k0Y58g5BM&tbnid=jRc5sFRvwLwhdM:&ved=0CAUQjRw&url=http%3A%2F%2Fsocioecohistory.wordpress.com%2F2010%2F05%2F18%2Fjapan-the-sleeping-sovereign-debt-crisis-giant%2F&ei=FcB0U-LBIpSaqAa094HgCg&bvm=bv.66699033,d.aWw&psig=AFQjCNGr8RlQFv2TdQ4Yjilw8RAkW7DAAw&ust=1400246267038658




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In coming years the ageing population of Japan will be drawing down its pension funds at an ever-increasing pace. But, … don’t the Japanese save a lot of their funds locally? … and isn’t it’s the state pension fund the largest in the world? … mandated to hold local governmental bonds? All correct … but let’s consider these statements.

The GPIF (Government Pension Investment Fund), Japan’s public pension fund, is in fact the world’s largest pool of government-controlled investment capital — outstripping even the infamous Arab sovereign wealth funds. The GPIF controls ¥128.6 trillion, or $1.25 trillion, which it has, historically, invested it in a (seemingly) risk-averse manner. The GPIF holds almost 70% of its assets in bonds — and the vast majority of them are of the local Japanese variety. Which has largely supported the bond issuances from the government … which has “propped” up the value of the yen … and the daisy chain continues …

Source: GPIF





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So let’s examine the fund’s 2013 returns:

Q1 2013 Q2 2013 Q3 2013 Q4 2013 Total 2013

Domestic Bonds -1.48 1.18 0.18 - -0.14

Domestic Stocks 9.70 6.07 9.19 - 27.05

Int’l Bonds 4.01 1.64 8.16 - 14.34

Int’l Stocks 6.14 7.13 16.23 - 32.17

Source: GPIF

Fortunately, (or under an illusionary fog, for them) over the last twelve years the GPIF has managed to meet its target returns — by growing at an annualized rate of 1.54% (nice target?? – I assure you our targets are substantially higher than that).

Thankfully for the GPIF, despite their largest allocation throwing off negative returns (negative!!), the BoJ’s actions in weakening the yen boosted the Nikkei, and the central-bank-inspired (tepid?) strength in equities and bonds elsewhere helped GPIF’s performance eke out a margin positive gain for 2013.

But let’s fast forward to the future … and examine the roadmaps that they have laid out.

In November 2013, a seven-member panel led by a Tokyo University professor Takatoshi Ito and convened by PM Shinzo Abe published its final recommendations for the future of the GPIF, and those findings set the behemoth on a course into far more turbulent waters (underline and bold added):

(Pensions & Investments): The panel’s Nov. 20 final report said the GPIF’s 60% allocation to ultra-low-yielding Japanese government bonds — defensible in the deflationary environment of the past decade — should not be maintained in the inflationary one Mr. Abe has promised as a centerpiece of his quest to revive Japan’s economy. The panel ... urged the GPIF and other big public funds in Japan to diversify into real estate investment trusts, real estate, infrastructure, venture capital, private equity and commodities, while shifting more assets to active strategies from passive and adopting a more dynamic approach to asset allocation. Governance of those public funds, should be strengthened by making them more independent of the ministries that oversee them.

Now, it’s extremely hard to fault the logic underpinning the recommendations made by Ito’s panel — though naturally, with this being Japan...





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Some observers — noting that previous calls for reform had come to naught — urged caution.

The recommendations make sense, but the challenges of revamping investments at a fund controlling such a large chunk of Japanese retirement savings will be considerable, warned Alex Sato, president and CEO of Tokyo-based Invesco (IVZ) Asset Management (Japan) Ltd.

To put the size of the GPIF into perspective, should the decision be made to allocate a mere 5% of its assets to a particular asset class, that would require the deployment of +$50 billion.

The redeployment of those holdings of JGBs is likely to cause future problems, but that didn’t concern one of the GPIF panel members, Masaaki Kanno, an economist at JP Morgan in Tokyo, who, after the findings were published, made a couple of predictions:

(P&I): In a Nov. 20 research note, Mr. Kanno predicted the GPIF would be permitted enough flexibility to allow allocations to yen bonds to drop to 50% by the summer of 2014.

The Bank of Japan’s recent policy initiative to flood the market with liquidity, meanwhile, could set the stage for a seamless transfer of that huge amount of Japanese government bonds.

Eventually, Japanese government bonds should drop to between 30% and 40% of the GPIF’s portfolio — higher than the 20% to 30% range typical of leading public pension funds abroad to account for Japan’s rapidly aging demographic profile, Mr. Kanno said. Meanwhile, another ¥30 trillion ($300 billion), or a quarter of the fund’s assets, should eventually shift into “risk assets,” according to the J.P. Morgan report.

The BoJ certainly does have a policy initiative to “flood the market with liquidity,” but that policy initiative is the continuation and expansion of a policy that has been in operation for 20+ years — namely, the purchasing of the government’s own debt with freshly printed yen.

In 2001 the Japanese termed it ryōteki kin’yū kanwa, but today everybody knows it as quantitative easing (QE).

In a paper which analyzed Japan’s initial experimentation with QE, published in February 2001, Hiroshi Fujiki, Kunio Okina, and Shigenori Shiratsuka (all three senior BoJ economists) suggested that once a zero interest rate had been reached, if the situation still appeared dire, an alternate solution might not be the greatest idea in the world:

(Monetary Policy under Zero Interest Rate: Viewpoints of Central Bank Economists): [F]urther monetary easing beyond the zero interest rate policy, most typified by the outright purchase of long-term government bonds, should be viewed as a bet which we would only be forced to explore in the event the Japanese economy stands on the brink of serious deflation. Considering the uncertainty and risks surrounding these unconventional measures, it is quite inappropriate to introduce them merely on an experimental basis. Of course, this does not mean that further


http://www.imes.boj.or.jp/english/publication/mes/2001/me19-1-4.pdf




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monetary easing may not be warranted in any circumstances, nor that other easing measures not covered in this paper are infeasible ...

As if looking into some sort of crystal ball, Messrs. Fujiki, Okina, and Shiratsuka continued:

With regard to monetary policy in Japan, there seems to be some oversimplified idea that the adoption of inflation targeting would be a panacea for current economic difficulties. This should remind central bankers, who must make policy decisions on a real-time basis amid drastic structural transformation, of the unfruitful traditional “rule versus discretion” debate in terms of monetary policy implementation.

But look how the BoJ has responded:

This chart highlights beautifully the problem with heading down the treacherous QE trail: ever-increasing amounts of money must be printed to keep the wheels turning.

Once started, to stop is not a decision that is made by you, but rather it eventually gets made for you (cautionary note to the Fed!).

In the meantime, the balance sheet just swells and swells. The BoJ’s has increased almost five-fold since 1997 and is up 80% since the beginning of 2012:





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... and, the Japanese monetary base tracks in line:





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So ... we know Japan’s fate is set. In the coming years the ageing population will be drawing down its pension funds at an ever-increasing pace, even as the largest pension fund in the world is being forced by the government into allocating more of those funds to riskier assets in order to try to stimulate growth in the moribund economy. Meanwhile, the Bank of Japan is embarking on an experiment in monetary prestidigitation the likes of which has never before been seen; and in order for it to be successful they will need the GPIF to not only not SELL JGBs but to BUY MORE of them. Compounding matters, Shinzo Abe is promising the Japanese (and every holder of JGBs, which are yielding a paltry handful of basis points) that he will generate 2% inflation, thus sterilizing their JGB bond returns completely.

Already the BoJ is buying up to 85% of the JGB issuances, and an estimated 90% of Japanese bonds are held domestically. Who are the buyers when the GPIF starts selling … or more likely cuts back on its purchases?

Here is what Kyle Bass9, founder of Hayman Capital recently stated: (underline added)

That plan, one of the three arrows10 in Abe’s growth strategy (called ‘Abenomics’), has the BOJ buying just over ¥60 trillion of new bonds each year for the next two years. It effectively doubles Japan’s monetary base. Considering the likely fiscal deficit for this year and next is running about ¥50 trillion each year, or close to 11% of GDP, I think the BOJ can only buy another 10 or ¥12 trillion of JGBs. I don’t think that cushion is going to be enough to monetize the entire fiscal deficit if they are going to be the buyer of last resort. The key question is, will the BOJ be able to hang on to rates? I think they can in the near-term and I think they can’t in the medium to long-term. If investors holding JGBs actually believe that ‘Abenomics’ will work, then it creates a problem — the ‘Rational Investor Paradox’ — where investors rationally sell some of their JGBs because they are being told to expect negative real rates of return if the administration achieves its 2% CPI target.

Whether that means they sell some or all of them is up to the individual sellers. One bank sold more than 20% of its JGB ownership in the first quarter. If 5% of owners sell, that’s another ¥50 trillion. The reason you’re seeing so much bond market volatility, even though the BOJ is actively trying to keep a lid on rates, is that the BOJ is being overwhelmed by selling despite its large purchase program.

9 Kyle Bass has written extensively on Japan, amongst other macro trends. His long-term performance as a fund

manager is top quartile.

10 In 16th-century Japan, according to legend, a daimyo (feudal lord) named Motonari Mōri told each of his three

sons to break an arrow in half. Each of them duly did as their father bade them. Mōri then told his sons to tie three arrows together in a bundle and try to break all three at once. None of them were successful. And thus enfolds Abe’s three arrow strategy.





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Abenomic11s involves three arrows: the first arrow, massive monetary easing, has been launched; and, depending on how you measure these things, it has either been a magnificent success or has put the final nail in Japan’s coffin. Optically, it has done what was intended (weakened the yen, inflated the Nikkei, and has pulled JGB yields even lower). Time will tell if this is sustainable (we are betting not).

The second arrow is the targeted ¥10.3 trillion ($116 billion) of fiscal support that includes investment in ageing infrastructure and tax breaks to encourage R&D, the hiring of new employees, the raising of wages, and the buying of capital equipment. That arrow too has been fired, and the jury is once again decidedly out on whether any long-term success will result.

11

"Take It to the Limit" is a song by the Eagles released in 1975. I recommend this as the Abenomic’s theme song

(bold emphasis added).

"Take It To The Limit"

All alone at the end of the of the evening And the bright lights have faded to blue

I was thinking 'bout a woman who might have Loved me and I never knew

You know I've always been a dreamer (spent my life running 'round)

And it's so hard to change (Can't seem to settle down)

But the dreams I've seen lately Keep on turning out and burning out

And turning out the same

So put me on a highway And show me a sign

And take it to the limit one more time

You can spend all your time making money You can spend all your love making time

If it all fell to pieces tomorrow Would you still be mine?

And when you're looking for your freedom

(Nobody seems to care) And you can't find the door

(Can't find it anywhere) When there's nothing to believe in

Still you're coming back, you're running back You're coming back for more

So put me on a highway

And show me a sign And take it to the limit one more time

Take it to the limit Take it to the limit

Take it to the limit one more time





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That leaves Abe’s third arrow involving real structural change and it is here where the results are likely to fail. Historically and culturally the Japanese country is slow to change, rule and tradition-bound, and insular – the Japanese do not “do” structural change.

And seemingly even PM Abe understands this: In an interview with CNN’s Fareed Zakaria earlier this year, he explained the true significance of the third arrow:

“What is important about the third arrow, structural reform, is to convince those who resist the steps I am taking and to make them realize that what I have been doing is correct, and by so doing, to engage in structural reform.”

Seemingly the important part of structural reform in Abe’s Japan is to convince people that Abe is correct. If he can convince them he is right, they will have engaged in structural reform. This is how Japan works — or doesn’t. Bet on the “under” – this cannot end well for the Japanese economy.

Let’s examine recent Japanese trends - monthly wages have (in fact) declined:

So let’s try and summarize the Japanese conundrum in one chart:





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http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2012/09/japan-infographic.jpg

http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2012/09/japan-infographic.jpg




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But now to our remarkable claim … The yen will trade north of 200 to the US dollar. Take this prediction to the bank (as will we). Remarkable claims require remarkable proofs. Witness:

40 years ago the yen was north of 350 … the land of the rising (now depreciating) yen is rising (now falling) again.

So let’s examine the state of government finances:

With a debt-to-GDP ratio of > 220%, Japan has one of the highest in the industrialized world:


http://www.google.ca/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=sse6uq0O6YpN-M&tbnid=bw7STZwEQ5dj0M:&ved=0CAUQjRw&url=http%3A%2F%2Fwww.bottomeuro.com%2F2013_06_01_archive.html&ei=zcB0U7_4O4uAqgbi8YD4DA&bvm=bv.66699033,d.aWw&psig=AFQjCNGr8RlQFv2TdQ4Yjilw8RAkW7DAAw&ust=1400246267038658

http://www.google.ca/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=sse6uq0O6YpN-M&tbnid=bw7STZwEQ5dj0M:&ved=0CAUQjRw&url=http%3A%2F%2Fwww.bottomeuro.com%2F2013_06_01_archive.html&ei=zcB0U7_4O4uAqgbi8YD4DA&bvm=bv.66699033,d.aWw&psig=AFQjCNGr8RlQFv2TdQ4Yjilw8RAkW7DAAw&ust=1400246267038658




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Economic growth has stagnated.

The interest rates on the Japanese 10-year bond is at 0.6%, yet interest-rate expenses consume >20% of total government revenue. (Debt service accounts for almost 50% of government tax revenue.)

Deflation, and all its attendant toxic issues, remains an omnipresent concern:


http://www.google.ca/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=ogaSP3NEUDwSQM&tbnid=8hv04NSLdVimKM:&ved=0CAUQjRw&url=http%3A%2F%2Fwww.marketoracle.co.uk%2FArticle39051.html&ei=oGlyU_-UJYTroASWo4H4DA&bvm=bv.66330100,d.aWw&psig=AFQjCNHXMNGBRIYWKHJrYgELdYPhV6hgVw&ust=1400093139887085




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If interest rates were to rise to average OECD levels, (say another 2%), interest-rate expense would absorb almost 80% of government revenue.

Added together, Japanese debt service and social security (nondiscretionary spending) exceed government tax revenue and have done so for each of the last five years.


http://www.google.ca/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=ogaSP3NEUDwSQM&tbnid=8hv04NSLdVimKM:&ved=0CAUQjRw&url=http%3A%2F%2Fj-cul.com%2Fternyata-perekonomian-jepang-kini-sedang-melambat%2F&ei=R2lyU_YXwerwBcf7gYgN&bvm=bv.66330100,d.aWw&psig=AFQjCNHXMNGBRIYWKHJrYgELdYPhV6hgVw&ust=1400093139887085

http://www.google.ca/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=ogaSP3NEUDwSQM&tbnid=8hv04NSLdVimKM:&ved=0CAUQjRw&url=http%3A%2F%2Fj-cul.com%2Fternyata-perekonomian-jepang-kini-sedang-melambat%2F&ei=R2lyU_YXwerwBcf7gYgN&bvm=bv.66330100,d.aWw&psig=AFQjCNHXMNGBRIYWKHJrYgELdYPhV6hgVw&ust=1400093139887085

http://www.google.ca/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=ys9D4dahnyfBqM&tbnid=ANJWteIcpJwR5M:&ved=0CAUQjRw&url=http%3A%2F%2Fftalphaville.ft.com%2F2013%2F04%2F09%2F1453262%2Fguest-post-qe-on-steroids-in-japan%2F&ei=KmxyU4XFB4v0oATLw4GQAw&bvm=bv.66330100,d.aWw&psig=AFQjCNHXMNGBRIYWKHJrYgELdYPhV6hgVw&ust=1400093139887085

http://www.google.ca/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=ys9D4dahnyfBqM&tbnid=ANJWteIcpJwR5M:&ved=0CAUQjRw&url=http%3A%2F%2Fftalphaville.ft.com%2F2013%2F04%2F09%2F1453262%2Fguest-post-qe-on-steroids-in-japan%2F&ei=KmxyU4XFB4v0oATLw4GQAw&bvm=bv.66330100,d.aWw&psig=AFQjCNHXMNGBRIYWKHJrYgELdYPhV6hgVw&ust=1400093139887085




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The fiscal deficit has been greater than 10% of nominal GDP in each of the last five years. Japan has ~¥1.1 quadrillion of total government debt (~¥1,100 trillion) compared to nominal GDP of~¥481 trillion (a 221% ratio).

And Japan’s trade balance and foreign investment has declined sharply:

And yet the yen stays strong and rises …


http://www.google.ca/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=ogaSP3NEUDwSQM&tbnid=8hv04NSLdVimKM:&ved=0CAUQjRw&url=http%3A%2F%2Fjapanjapan.blogspot.com%2F&ei=DmlyU7jvEIym8AXu-oHwBg&bvm=bv.66330100,d.aWw&psig=AFQjCNHXMNGBRIYWKHJrYgELdYPhV6hgVw&ust=1400093139887085

http://www.google.ca/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=ogaSP3NEUDwSQM&tbnid=8hv04NSLdVimKM:&ved=0CAUQjRw&url=http%3A%2F%2Fjapanjapan.blogspot.com%2F&ei=DmlyU7jvEIym8AXu-oHwBg&bvm=bv.66330100,d.aWw&psig=AFQjCNHXMNGBRIYWKHJrYgELdYPhV6hgVw&ust=1400093139887085

http://www.google.ca/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=VwJRGdykyNITbM&tbnid=fmZ1KWiwL-hNFM:&ved=0CAUQjRw&url=http%3A%2F%2Fftalphaville.ft.com%2F2013%2F03%2F14%2F1422972%2Funlike-the-rest-of-the-worlds-central-bankers-athletics-arent-kurodas-forte%2F&ei=cGpyU6P3MYr-oQSVmYFg&bvm=bv.66330100,d.aWw&psig=AFQjCNHXMNGBRIYWKHJrYgELdYPhV6hgVw&ust=1400093139887085




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This is not a workable long term business model. And this is not a remarkable claim.

Japan has consumed the savings of multiple generations through the sale of government bonds. Japan now has less than 5% of its government debt sourced outside Japan. But the country does not “owe it to itself.” It owes it to the millions of savers and retirees who have played the game correctly, worked hard and saved, and now want to use those savings in retirement. And the system will fail them.

The largest Japanese pension funds are no longer net buyers of Japanese bonds (JGBs). They are now selling, and that tide will swell with a vengeance, since Japan is rapidly aging. Furthermore, the pension funds are starting to roll out of JGBs and into equities. Which makes sense, as who wants to own a 10-year JGB at 0.6% if inflation rises to 2%? What rational investor would choose to do that?

Japan cannot afford interest rates to rise all that much. But they will.

The following three charts summarize the Japanese problems … remarkable claims require remarkable proofs.


http://www.google.ca/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=VwJRGdykyNITbM&tbnid=fmZ1KWiwL-hNFM:&ved=0CAUQjRw&url=http%3A%2F%2Fwww.ibtimes.com%2Fjapanese-foreign-direct-investment-fdi-japan-inc-seeking-growth-abroad-1318357&ei=BWpyU_LYDsHYoAS4kIGQDA&bvm=bv.66330100,d.aWw&psig=AFQjCNHXMNGBRIYWKHJrYgELdYPhV6hgVw&ust=1400093139887085




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http://www.google.ca/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=sse6uq0O6YpN-M&tbnid=bw7STZwEQ5dj0M:&ved=0CAUQjRw&url=http%3A%2F%2Fwww.breakingviews.com%2Fabenomics-can-clear-japan%25E2%2580%2599s-demographic-hurdle%2F21073274.article&ei=lcB0U8CHA5KIqgas7YHwCw&bvm=bv.66699033,d.aWw&psig=AFQjCNGr8RlQFv2TdQ4Yjilw8RAkW7DAAw&ust=1400246267038658




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Note the comment on the yen …

And in more detail:


http://www.google.ca/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=sse6uq0O6YpN-M&tbnid=bw7STZwEQ5dj0M:&ved=0CAUQjRw&url=http%3A%2F%2Fseekingalpha.com%2Farticle%2F1229401-trade-on-abenomics&ei=98B0U63WCpCVqAb_oIK4BA&bvm=bv.66699033,d.aWw&psig=AFQjCNGr8RlQFv2TdQ4Yjilw8RAkW7DAAw&ust=1400246267038658




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The yen will decline in value. This is neither a remarkable claim … and it is presented, we believe, with remarkable proof.





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Are Stock Market Valuations Too High?12

While we are value-focused security analysts investing in individual companies, it is sometimes instructive to examine the larger macro environment – as our Chairman states: it is easier to paddle a canoe with the current.

So, let’s examine three ways to look at current stock market valuations for the S&P 500.

The first is the Shiller P/E ratio, which is a ten-year smoothed curve that in theory takes away some of the volatility caused by recessions, a calculated ratio that we think is helpful. Based on this analysis, the stock market is expensive and getting close to the danger zone, if not already in it. Only by the standards of the 2000 tech bubble and the year 1929 do you find higher normalized P/E ratios.

But if we use 12-month trailing P/E ratio, we could easily conclude that stocks are moderately expensive but not yet in bubble territory.

12

We recognize that we are prone to what behavioral psychologists call confirmation bias: we tend to look for (and thus to see, and to ask about) things that confirm our current thinking.





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And finally, if we examine the 12-month forward P/E ratio, we might conclude that stocks are fairly priced.

Forward Projections

But stock markets are generally forward looking, basing valuations off of future projected earnings. And forecasts are generally upbeat, implying the markets are at least, fairly valued.





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But a significant portion of recent equity returns have arisen from multiple expansion rather than earnings growth, clearly an unsustainable trend.





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The Future of Earnings

What kind of returns can we expect from today’s valuations? One way is by looking at expected returns from current valuations, which is how Jeremy Grantham of GMO regularly does it. The following chart shows his projections for the average annual real return over the next seven years.





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If you go back to the first chart, which showed the Shiller P/E ratio for the S&P 500, you can see that it is quite high. If you break returns down to 10-year periods for the last 86 years and rank those returns from the highest to the lowest in 10 groups, you find out that, reasonably enough, if you start out at a low price-to-earnings ratio, your returns for the next 10 years are likely to be quite high. If you start from where we are today, though, the same methodology suggests that your returns might be anywhere from -4.4% to +8.3%, or less than 1% on average, not exactly a glowing endorsement.

From Fall 2008 to Today - How Did We Get Here?

We believe quantitative easing on the scale that it has been practiced by the Federal Reserve for the past few years has had a great deal to do with the rise in the prices of stocks. (Surprisingly?) we’re not seeing the massive inflation that was predicted (including by us) with the swelling of the money supply, except in asset prices, as the chart shows.





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The tapering by the Fed is well underway and will be completed soon.





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Remarkable claims require remarkable proof …


http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=fZpZiXZl61C4JM&tbnid=HlN_yCT11LOQ3M:&ved=0CAUQjRw&url=http%3A%2F%2Fwww.keepcalm-o-matic.co.uk%2Fp%2Fkeep-calm-and-be-remarkable-4%2F&ei=Crh4U_PUOabB0QXqm4D4Dg&bvm=bv.66917471,d.d2k&psig=AFQjCNFqqImTUXB-iSaE8ZHnv6HMOQccdA&ust=1400506740007909




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Corporate Matters

On behalf of the entire management team and our employees, we wish to express our appreciation to the Board of Directors, and to the Executive Committee, the Investment Advisory Committee, and Audit and Corporate Governance Committee for their oversight of, active involvement in, and management and supervision of the business affairs, investment policy and day-to-day execution of the Fund. It is our distinct privilege to work for, and to report to, them.

At the upcoming meeting, the Fund’s audited 2013 financial statements will be presented, and discussed, led by Madam Chairman Sherene, FCCA, who this year has teasingly promised to wear her ‘crop over’ feathers outfit (please refer back to a previous quarter report which included a picture … and as you can see, you will not be disappointed13). And as has been Sue’s signature style, Banks – the beer of Barbados – will be served ice cold, as usual. Come early; stay late. Welcome to life on our island. The Fund’s overall objective is long-term capital appreciation attained through relatively risk averse, prudent investment selections. We continue to objectively and systematically analyze both current and new opportunities with the intent to create sustainable, long-term value. As reported, due to unsettled and irregular market conditions, we have wound down and liquidated the Fund. Cash is king (or queen as Ms Sue says); long live cash. If you have any questions please contact us directly by telephone (246-434-2040), fax (246-429-5153 – does anyone use fax anymore?), via email ([email protected], [email protected], or [email protected]) or visit us in our office (The Business Center, Ground Floor, in Upton, in the parish of St. Michael) during regular Bajan14 working hours.

13

If you have misplaced previous pictures of Madam Chairman … check my screen saver which flips between an

endless number of erotic (sorry exotic) photos of her (damn, girl … you look great on a Bajan beach wearing next to

nothing - ok, feathers and a “dental-floss” bikini) – and this isn’t a remarkable claim … and the visual image is

remarkable proof.)

14

Call before visiting – it is now summer, and Madam Chairman Sherene is back tanning on the beach … and I have

an open offer to apply sunscreen should she need assistance … and no, she hasn’t taken me up on that offer, yet …





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Thank you for your ongoing support.


David Csumrik Susan-Dawn Flatt Sherene Blackett, FCCA Managing Director Senior Portfolio Manager Chairman, Audit Committee

Gordon Flatt Chief Investment Officer

June 10, 2014 Upton, in the parish of St. Michael







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Profile The Stirling Reserve Fund invests in a reasonably concentrated portfolio of generally large-cap global companies (“Global Titans Core Portfolio”©) and holds currency positions with the objective to preserve and increase the long-term purchasing power of the Fund's assets. The Fund invests opportunistically, is value-oriented and risk-adverse. It is unrestricted in investment style, asset class allocation, geographic focus or currency strategy and adjusts investment strategies and exposures based on underlying market dynamics, geopolitical trends, and other factors in order to avoid undue risk and to take advantage of industries, companies or currencies that appear poised to outperform. Investments may be allocated between equities, bonds, money market instruments or other alternative investment classes. The Fund may also hedge equity, fixed income or currency exposure through short-selling or derivative strategies when market vulnerabilities appear to exist. The principle objective of the Fund is long-term capital appreciation attained through prudent investment selections. The Stirling Funds were formed in 2009. The Stirling Reserve Fund commenced operations in January 2010, reports in Barbados dollars and is managed from and operates exclusively from Upton, in the parish of St. Michael, Barbados, West Indies. At December 31, 2013 the managers believed the global equity markets were fully-valued and The Stirling Reserve Fund monetized its equity holdings and wound-down the fund. The Fund operated as Coastal Value Fund (www.sedar.com) a publicly-listed investment fund from 2003 to 2006, returning +15% p.a., net of fees. In late 2007, the fund believed the equity markets were over-valued and Coastal voluntarily wound-down its investments and returned capital to its partners.






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Legal Disclaimer

The views expressed within this report are the views and opinions of The Stirling Reserve Fund (“the Fund”), or the views or opinions of one of the members of the management team (whose views or opinions may differ from the other members of the management team), and are subject to change at any time based on market, macro events, or other conditions. The opinions or views expressed are based on information from public and private sources and are believed to be reliable but the Fund cannot guarantee the accuracy or completeness of this information. Forecasts, estimates, and certain information or opinions may be based upon proprietary research and modeling that may not be suitable for all investors – nothing herein shall be considered or construed as investment advice or investment recommendations. The information has not been independently verified or audited and may include estimates that may not represent actual results. Readers are also cautioned that other organizations may hold views or opinions that differ materially. This is not an offer or solicitation for the purchase or sale of any security, and nothing should be construed as such. References to specific securities, companies or currencies are for illustrative purposes only and are not intended to be, and should not be interpreted as recommendations to purchase or sell such securities, companies, or currencies. No part of this document constitutes any recommendation of any particular investment or investment strategy. Further, the Fund may not continuously follow any investment strategy, and it may hold investment positions that are counter to the ideas presented. This article is distributed for informational purposes only. Past performance is not a guarantee or a reliable indicator of future results. An investment in the Fund may be considered speculative, may be volatile and involves risk. There is no guarantee that the Fund’s investment strategies will prosper under all market conditions, especially under sustained periods of extreme volatility in the Barbados market or in the global economy. Investing is subject to certain risks including market, interest-rate, credit, and inflation risk, amongst others. Securities may decline in both mark-to-mark valuation, and potentially incur permanent value decline due to both real and perceived general market, economic, industry or company conditions. Investments in securities involve the risk the market’s value assessment may differ from the manager and the performance of the securities may decline. Investing in distressed companies (both debt and equity) is speculative and may be subject to greater levels of credit, issuer and liquidity risks, and the repayment of default obligations contains significant and material uncertainties; such companies may be engaged in restructurings or bankruptcy proceedings. Investing in non-Barbadian (foreign) denominated or domiciled securities may involve heightened risks including currency fluctuations, market and economic risks, political interference and regulatory or country risks, amongst other risk factors. Investments in companies engaged in mergers, reorganizations or liquidations may involve special risks as pending deals may not be completed on time or on favourable terms. Derivatives, options, and futures may involve certain costs and risks such as liquidity, interest rate, market, credit, and the risk that a position might not be closed out when most advantageous. The Fund may use leverage which may amplify losses. Investors are cautioned they could lose all or a substantial portion of their investment. There is no secondary market for investors to sell their ownership interests and none is expected to develop. There may also be restrictions on transferring interests, subject to Barbadian laws. The Fund is closed to new investors and it is not eligible for sale or distribution to United States citizens, nor to Canadian or U.K. residents. This document is for distribution only where permitted, and is subject to the following caveats:

US Investors: Transactions with US investors must be executed with a US broker-dealer or US authorized entities. The Fund is not authorized to transact in the United States of America.

Canadian Residents: No Canadian provincial security commission has reviewed this and the Fund is not authorized to operate in Canada.

U.K. Residents: This report has not been authorized and has not been regulated by the Financial Services Authority (“FSA”). It has not been prepared in accordance with the FSA requirements designed to promote the independence of investment research.

The Fund may collect non-public information from investors and maintains physical, electronic and procedural safeguards over this information. The Fund will not disclose any non-public information, except as required by Barbadian laws. The Fund operates exclusively from Upton, in the parish of St. Michael, Barbados and is regulated as a “Domestic Company” under the laws of the country of Barbados, West Indies. All of the Fund’s officers, directors and senior management team are Barbados citizens or have been issued Work Permits by the Barbados Minister for Immigration to reside in, operate from, and work in the country of Barbados, West Indies.

© 2014: All rights reserved Reproduction, quotations or distribution in written or electronic form of this commentary or any part herein without the express written permission of the Fund is prohibited. If you have received a copy of this report in error, please destroy it. 该电子邮件可能含有机密和保密资料. 如果你不打算接受,请删除该电子邮件和摧毁任何副本. 任何传播或使用这些资料的人以外的收件人是非法的.






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