“The vicissitudes of fortune, which spares neither man nor the proudest of his works, which buries empires and cities in a common grave.”
As a difficult 1st Quarter-End approaches, markets look fraught, but so do the fundamentals of the Western Free Market Economies – Capitalism needs maintenance and repair work on dishonest politics, immoral companies and broken bureaucracies.
An interesting week’s play in prospect here in the global capital markets. Quarter-end coming up and the pain in the bond market will be causing more than a few WTF moments. If you need help shifting the unshiftable illiquid asset you were assured was more liquid than the Nile, then give me a shout. Difficult is what we do! If you’d been reading the Porridge – you would have known what was coming. The mood is turning distinctly bearish.
Excellent. Check your buying boots still fit.. when markets wobble it means the buy moment is coming.
After reading a headline about the end of an 800-year Treasury bull-run (!?!)– trying to source pre-Columbus Fed Data must have been fun – I will be writing about what the current unravelling of the bond markets is really telling us – later this week! But first… I shall rant about the Decline and Fall of Capital this morning – see below.
The world is diverging. It feels like the western economy (note – not necessarily the global one), is caught in an inflationary gyre that is likely to get worse. Rates and inflation mean bonds are going to underperform massively, credit is going to take a pasting, and equities are so inflated by the effects of ultralow interest rates that they will also struggle. Markets are switching from the credulous belief in the “everything” that fuelled the tech bubble, to a much more defensive “show-me-the-money” fundamentals stance.
On the back of such a bearish assessment you will not doubt be expecting words of wisdom on what to buy. Really??? I’m still trying to work that out as the value of real assets in a stagflationary market might be. For instance – how do you recommend residential housing as a value safe when prices have never been so high relative to earnings? Or what about commodities – if only I knew…
These are difficult times… NSS, but all shall no-doubt become clear…I made the schoolboy error of reading the papers over the weekend. Silly. They just depress me.
Fortunately, I am in Cairo, which is rapidly becoming one my favourite places. Its dirty, manic, packed, and very noisy – but the people, and especially my colleagues in the office here, are the best.. Walking into our office in Cairo this morning lifted my spirits – for all the chaos, the impossibly of stepping on pavements (because cars need to park somewhere!), meaning you share the road with the worst driving on the planet means every moment is a blessing. It makes me smile. In a funny sort of way – it works. So will markets..
Consider this morning’s comment a Porridge-Shakshouka!
Anyway… enough travelogue.. what is peeving me this morning?
Every morning I awake from blissful dreams about the success of capitalism and how fortunate I am to live in our wonderful market driven economy.. Sarcasm alert! Reality bites. Our World has become a very imperfect place.
As a result, I might just upset and annoy readers this morning by demanding the Investment and Financing industry enforces even greater adherence to ESG (Environment, Social and Governance) standards across government, business and commerce! Money and Capital is the lifeblood of an economy – and our industry are the all-important arteries. Most days I write how destructive and distorting ESG wokery is for markets. It is! But, sometimes you need to trick the Devil to get him/her on side!
My call this morning is to de-emphasise the over-focus on the environment (which I wrote about last week), and spend more time focused on the Social aspects of what market capitalism in the liberal west is not delivering. We also need greater punishment of badly Governed firms.
To paraphrase someone much smarter than I; we need to understand why Capitalism, Democracy and Bureaucracy have become absolutely the worst, least effective method of making the world work – with the exception of absolutely anything else.
Our Capitalist Free Market economies sort-of-work because the forces within them balance each other. Properly balanced greed and self-interest versus equality and our desire to help makes the world a better place. Think of it as a see-saw. When its balanced, everyone is better off. It takes care to avoid it becoming hopelessly unbalanced in favour of one or the other.
It works despite the West’s market driven economy being a complex machine needing constant work, checks, balances, plus regular maintenance. If Politics, Markets, Sentiment and Commerce are not carefully balanced by markets, public opinion and the judiciary – at some point it will all go to wracksh*t in a heartbeat. Most great empires decay and tumble as corruption and bureaucratic torpor sink and demotivate them.
The past is a different country. When I was young the summers were brighter, the air was clearer, corrupt businessmen went to jail, dishonest politicians resigned in shame and rededicated their lives to charity, policemen were honest, judges were allowed to use their common sense, and the civil service was an honourable career for those determined to better the nation. Beacons of hope like the NHS and social security lit our paths. We were even given grants to go educate ourselves.
We achieved our balanced society following decades of gender and class social struggles to achieve mass enfranchisement, fighting two world wars in support of freedom, acknowledging everyone has worth and value, and building something we believed we were proud of. It wasn’t perfect – nothing ever is.
I admit my perspective of might be a tad-rose tinted, but… hey-ho… In my perfect world investors sought to maximise returns by putting cash to work in firms likely to deliver the best social returns on the basis these would also be the highest real returns… which is why tobacco firms were such large index components?? As I said, the past is dimly remembered.
I was a trendy-lefty in my student-days, but have since mellowed into centrist bean-bag social-smugism. What would my grandfather make of the headlines today? Multiple shocking stories about business and political corruption, excess, entitlement, hypocrisy and dishonesty leap out from every media outlet. He would be screaming blue murder at how the “high-heided-ones” behave and get away with it. (Sunday lunchtimes were unforgettable – he would rant brilliantly about business and politics – especially corrupt local councillors.)
Just look through the stories over the past weekend:
If we rewrote these headlines into the Middle Ages – they would make a perfect script for a Robin Hood film. It’s high time some heads roll…
I have a little list who never shall be missed: it’s got Politicians, CEOs, Union Leaders, Civil Servants, Planning Officers, and many deserving others who never will be missed. I’ve got a little list… I am sure you can guess at the politicians, and I am definitely sharpening a spike for P&O’s CEO Peter Hebblethwaites’ noggin to be perched upon.
Who, When, Where, and What are we going to do about the growing imbalance?
We can sort out the Tories at the next election. They have made me so angry I am serious considering the ultimate pointless guesture – joining the Liberals just to get them out. (I still consider myself unclean after voting for Boris.) I was a soft Brexiteer, but after listening and watching the trade numbers… I’m thinking… mistake. Politics… bloody politics.
What about commerce? That’s where markets come in. Companies that do bad things should be punished. Banks that aid tax avoidance should be closed. Airplane makers that kill passengers should be axed from portfolios. Manufacturers that kill and poison the environment should be on the sell lists. Ferry companies that treat staff like feudal serfs should be nationalised. Firms that don’t pay staff, deny them rights and abuse them should be marked out. These are fair and obvious observations – so why does the market not act? Because it’s easy to turn a blind eye and pretend it’s not happening in order the returns keep pouring in. We can do better… if everyone did, then bad companies would generate unattractive returns… (What then defines a bad company – we have to agree some rules.)
Investment bankers are easy targets for the hatred that builds from these abuses. Take a look at what the Japanese regulatory/justiciary is doing to Nikko SMBC. It’s easy to paint us as minions of the Lizardmen / Rothchilds / Davos child-stealers who seek to enslave and eat the working classes. However outlandish the conspiracy theories are, its equally true bought lawyers and financiers that have enabled the accelerating degradation of the capitalist dream as distrust builds within it. To matter we need to make our profession respectable again.
I’ve written so many times about income inequality, fake austerity (where the poorest get less, but the entitled rich get richer), and how the failure of the regulatory and legal system to address it will ultimately collapse capitalism in just the same way corruption, greed and failure collapsed the Soviet Union and has brought down countless nations in the past.
Think cakes and Marie Antoinette. I found a cartoon of the proverbial angry mob with the courtier commenting “The trick, my liege, is to persuade those carrying the pitchforks that the torchbearers want to take away their pitchforks.”
Every so often we need some form of revolution to remind our market driven economy just how damn lucky we are.
Meanwhile…. Some extras this morning:
The dollar will not be replaced any time soon as the world’s defacto currency. So I am giving a NSS award to rating agency KBRA for confirming the US rating at AAA Stable. They say:
“The affirmation of the U.S. ratings is based on our expectations for the continued primacy of the U.S. dollar (USD) as the key global reserve currency and the abundant access to liquidity this affords. Pandemic related fiscal deterioration and the present slowdown in economic growth partly related to deteriorating international conditions will delay the achievement of healthy government debt ratios. However, the importance of the USD and strong demand for Treasuries insulates the U.S. from credit risk due to flight to quality dynamics, notwithstanding burgeoning pressures.”
Kleptocrats, autocrats, EV CEOs around the globe – take note…