CB ACTIVE FUND IS UP 8.18 % (GROSS) OVER 16 MONTHS SINCE INCEPTION IN DECEMBER 2014, RUNNING A PORTFOLIO OF LONG ONLY AAA AND AA+ RATED GOVERNMENT BONDS.

CENTRAL BLACK MAGIC, POLICY DRIVEN MARKETS DON’T CARE ABOUT FUNDAMENTALS, BAD AND DOUBTFUL DEBTS

A few waves of the dovish wand from Ms Yellen and some increasingly negative interest rates in Europe and just like that markets are saved again. It is hard to deny the power of Central Bankers acting collectively. We are without doubt in a POLICY driven environment that can trump fundamentals in the short term.

Over much of 2015 we wrote about the need for a weaker USD and why Yellen would ultimately roll over and be supportive of markets, both fixed income bonds and equities. (Available on JCB website under ‘’Historical monthly markets and fund updates’’) The March FOMC press conference was extremely dovish, well beyond market expectations. Concerns over emerging markets and Chinese growth dominated and have global central bankers remaining on high alert.

As much as these favourable policy developments are healthy for risk markets, they are unhealthy for Australia via the immense pressure they place on the AUD currency. A weakening USD via Ms Yellen only adds more fuel to the currency fire. We believe the AUD will continue to rally until the RBA resume cutting interest rates (as early as May – although this may not halt its ascent much but will help slow things down). Structural demand for AUD assets remains from international investors who remains buyers of AUD to settle Australian bond purchases. Think about these global interest rate levels. Switzerland -0.75%, Sweden -0.50%, Europe -0.40%, Japan -0.10%, USA 0.375%, Canada 0.50%, UK 0.50% and Australia 2.00%. These rate differentials were the topic of last month’s update and outlook and until the RBA significantly cut rates this will continue.

Increased provisioning of Bad and Doubtful Debts in March saw much of the euphoric rally in Australian Bank equities powerfully reverse. One sell side analyst noted that bad and doubtful debt provisioning is like cockroaches, they are rarely found in isolation. Credit cycles are slow moving beasts and a turn negative in Australia is cause for real concern, given the heavily indebted nature of Australian consumers and bank loan book exposures. If we follow the international playbook here we would expect significant interest rate cuts which would be highly supportive for bond markets.

We are saddened to write about terror this month after events in Brussels after forecasting it in these pages last month. This will keep happening, the European migration crisis can still become the theme of the year as associated terrorist actions polarises opinion around the morality of accepting despite people in need. The flow of human traffic out of Syria via Turkey and into Greece comes at a time when Greece is again running out of money and incapable of processing them in a secure manner. We will have more flash points in coming months and it will dominate the European left and right and strain the Eurozone project considerably. It will also have a large impact on the BREXIT referendum of June 23rd and the US presidential election.