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Inflation is taking off!
Noah denkt™ looks back on its performance in 2015, drafted on Jan. 6, published on Jan. 7, 2016

We must warn our readers: This year’s review of our annual performance will be just as much about the year
that lies ahead of us as it is about the year that has just ended. The reason for this is that,
some occasional
rays of hope notwithstanding, we are quite worried at this time that central bankers are fundamentally
misreading our economic reality and that consequently considerable pain will lie ahead for all of us. The
political class and that includes by definition also those who run monetary policy continues to operate under the
notion that mature economies which are
protected by massive Kenyesian counter-interventions can still
achieve full or next to full employment despite the mind-boggling technological advances which our age is
producing.  We believe that this assumption is a serious mistake. And in our current situation that mistake will
lead to a prolonged period of cheap money which in turn will lead to a frightening rise of inflation the beginning
of which we are witnessing already. The sad truth simply is that in the present circumstances people are by and
large saturated, exhausted and worn-out by the reality of their daily lives. Hence, there is no room whatsoever
for sustained hope, confidence and enthusiasm to develop in their hearts. And consequently all monetary
policy that aims at instilling such hope and confidence will fail.

Noah denkt™ has pointed many times in the past t
o the analytical failure that money market technocrats tend
to make when talking about stimulating the economy. There is no way to stimulate the economy if people are
tired of being stimulated. And that is the situation we are living in now. Clearly, this project is well aware of the
dilemma that central bankers find themselves in at this point. Well justified humanitarian considerations
undoubtedly make it impossible for anyone who holds office in a modern democratic society not to intervene
when the economy is on the brink of disaster as it was in 2007/08. And yet that disaster would have been
necessary to reset morale in the wider public and to reconstruct the social fabric on the basis of which real
hope and confidence in the future could truly develop.  Alas, we are as afraid now as we were back then of the
pain that such resetting would inevitably produce. And hence, it is no surprise that we will now get a good share
of the same unease entering through the inflation back-door which we were so desperately trying to avoid when
it presented itself as a head-on opportunity in 2007. The only fundamental difference this time being that the
new pain won’t bring about the resetting of morale which a non-Keynesian recession would most likely have

In other words, Noah denkt™ enters 2016 in a state of serious pessimism about the economic future that awaits
us in the medium term. Of course, we are quite aware of the fact that it usually takes inexplicably long for a fatal
mistake to be uncovered as such by the market reality. The survival against all odds of North Corea’s corrupt
and famine generating regime is a case in point to that weird phenomenon of a delayed reality-check. Michael
Burry’s nail-baiting wait for his bet against the sub-prime bubble to prosper is another (see: The Big Short by
Michael Lewis). So in view of that we need to caution our readers and tell them that it may still be a good couple
of quarters until the real pain kicks in. That it will come however is in no doubt to us.

So much for the year ahead. But what about our forecasting accuracy in 2015? Shouldn’t that be the credibility
base from which all our pronouncements about the future gain their merit? Of course! So let us look back on
the year that has just ended. And thank God, we can with some justification claim that it wasn’t all that bad for

The national election results in the UK, Portugal and even Spain
vindicated our support for austerity politics. In
all three countries the pro-austerity parties won despite a lot of clamoring against them the majority of votes.
the UK, the Conservatives were returned to power, in Portugal it took a frenzied effort by a ramshackle coalition
of opposition parties to stop the Conservatives from continuing their otherwise successful reign.
And in Spain,
Mariano Rajoy’s PP is still in a position to negotiate the composition of the future government.

As far as Greece is concerned we have never minced our words about
the need for a Grexit. But we also
anticipated correctly
that none of the other Euro member countries would have the courage to force such a
Grexit at this point in time. Granted it wasn’t terribly difficult to correctly predict that development. But during the
heydays of the Tsipras-EU standoff everything did in deed seem possible. So it is well worth to mention this fruit-
bearing aspect of our work.

In another arena it wasn’t so clear to begin with that our earlier stance would eventually be confirmed by reality.
Throughout the entire Ukraine crisis, we have argued that i
t is a mistake of the West to unduly antagonize
Russia in matters of foreign relations. Unfortunately it has taken the terror attacks in Paris to albeit slightly
change that Western approach towards Moscow which was instituted after the seizure of the Crimea.
Nowadays, the Russian and French military command coordinate in a much more amicable fashion their joint
operations in the Syrian airspace. Our kudos therefore go to French President Hollande for spearheading that
rapprochement in the West-Russia-relationship.

Now, clearly, not everything we do in this project can be painted in rosy colors. We failed to predict the refugee
crisis that struck Central Europe in almost biblical proportions last year. We did not warn our readers ahead of
time about Mr. Draghi’s pending extension of his quantitative easing program. And we were one quarter early in
predicting the Federal Reserve’s homeopathic rate hike in December. But if we go to the numbers our overall
record appears to be acceptable.

In 2015, our usually bullish market sentiment slowly turned negative. On August 21, 2015, we published the
following comment that defined our attitude from the on up until this point:

“But the markets will continue to go through a period of correction and adjustment. Our sentiment is more
neutral than bullish at this point of time.
” (see: Armageddon in China?)

Now, obviously, "neutral" is not the same as "bearish". But our reference to “
correction” and “adjustment
sounds certainly more negative than positive. So if we then measure our pessimistic sentiment against the
major indexes that we are most familiar with our record reads as follows:
  Bullish sentiment
Neutral with a tendency to bearish
  Jan 2, 2015 /
Jan. 5 for the
Aug 20, 2015
% of our added
Aug 21, 2015
Jan 4, 2016
% of our added
Dow Jones
S&P 500
EuroStoxx 50
+ 2,607
Total added value in absolute % numbers
11,126 - 5,032
Average added value - subtotal
+ 2,7815
Total average value added in 2015
(+2,7815-1,256) : 2
To put that result in perspective, we should probably compare ourselves to the performance of Exchange-traded
funds. However, we are somewhat infatuated with the hedge fund industry, so please bear with us if we prefer to
measure ourselves against the high risk segment of the market as opposed to those who are a little less
existentialist in their approach. And in that high risk department the picture is not so brilliant.
While 6 or so hedge funds organizations including such giants as Blackstone, Citadel and Millenium Partners
achieved double digit growth figures in 2015, the industry in general had a miserable year.
summarizes the hedge fund industry performance like this:

“Overall, hedge funds have barely made money this year [2015] through November, and are heading for their worst performance
since 2011, when they lost 5.2 percent. By comparison, the Standard & Poor’s 500 Index returned 3 percent through November,
intermediate U.S. Treasuries gained 2 percent and commodities, as measured by a Bloomberg index, have slumped 22 percent.
Some of the best known hedge fund managers have posted losses as bad or even worse than in 2008. David Einhorn’s Greenlight
Capital is poised for its second losing year in almost two decades after dropping about 21 percent through November. Bill Ackman
told investors that 2015 is on track to be the worst year ever for his Pershing Square Capital Management, with a loss similar to
Greenlight’s. Some high-profile funds have closed this year as well, primarily from wrong-way currency bets, including macro funds
run by Fortress Investment Group, Bain Capital and BlackRock Inc. Michael Platt’s Bluecrest Capital Management, once one of
Europe’s biggest hedge funds, told clients this year it would return money and focus on managing Platt’s wealth and that of his
(see: Blackstone, Citadel Landsdowne gain as Rivals falter in 2015, by Katherine Burton, Saijel Kishan, adn Nishant
Kumar, Dec. 23, 2015)

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