In January the average prudential balanced portfolio returned 1.69% (Dec: 0.94%). Top performer is Investec (2.75%); while Stanlib (0.41%) takes the bottom spot. For the 3 month period Investec takes top spot, outperforming the ‘average’ by roughly 2.5%. On the other end of the scale Allan Gray underperformed the ‘average’, for the third consecutive month, by 4.7%.

In our previous newsletter we expressed our opinion that the dramatic decline in the oil prices from its peak of close to US$ 140 in June 2008, to currently around US$ 60, is unlikely to have been the result of a decline in demand and a simultaneous increase in production primarily through fracking in the US. We further pointed out that from a starting point of US$ 16 at the beginning of 1987, inflation adjusted the oil price should now be in the region of US$ 35. At its current level, the oil price is realistic in the context of production cost and, probably provides for some premium for the steady increase in demand and production costs over this period. We therefore believe that without a renewed speculative bubble being blown up we should see current oil prices representing the new normal.

We have concluded that the rapid swings we have seen are the result of speculative trading on a massive scale. In this context it is interesting that the value of derivative financial instruments represent approximately the 10 fold of global GDP at over US$ 700 trillion at the end of 2013, certainly large enough to make an impact on the price of any commodity or exchange rate. In contrast the total value of these financial instruments only amounted to US$ 95 trillion at the end of 2000.

The question is what could be the purpose of such large scale market intervention? James Rickards an American lawyer,  regular commentator on finance, and  the author of The New York Times bestseller Currency Wars first acquainted the editor of this newsletter to the concept of financial war games, defined by James as a branch of 'asymmetric or unrestricted warfare'. Are these seemingly inexplicable developments perhaps part of this ‘asymmetric warfare’ rather than random market events?

Is there indeed a close linkage between politics and economic interests that one must be cognisant of when trying to interpret and understand economic events?

Read our full commentary in part 6 of the Benchtest 01.2015 newsletter, and find out how these and other developments impact on our investment views.