Spy was privileged this week to be invited along to the brand new private dining room on the 102nd storey of the Ritz Carlton at the ICC in Kowloon. The Chef’s Table is a bull market venue providing the bored palates of bored bankers a tingle of excitement in the most intimate and rarefied of settings. Spy and seven other attendees drank far too many bottles of 2002 Ruchottes-Chambertin Clos de Ruchottes debating Brexit, China, the upcoming rugby sevens and the occasional fund house. Do drunken conclusions count? For what they are worth: London is going to be fine after Brexit. China is doing better than people think. Fiji is going to surprise everyone and win the Hong Kong sevens. Multi-asset is losing its lustre and alternatives are going to have a resurgence as rates rise… By the way, at a minimum of HK$2,000 per head at the Chef’s Table, make sure your attendees are worth it.
It did not take long for Spy to discover where Charmayne Neo, formerly of BNY Mellon IM, is moving to. BlackRock has snapped her up as their local marketing person in Singapore. The investment giant has been without a dedicated Singapore marketing resource since Wendy Loke moved to Pimco in the middle of last year.
Is there an asset manager on the street that is feeling a bit Austin Powers? Spy reckons it could be Franklin Templeton that has got its mojo back again. After a few dismal years in 2014 and 2015, FT seems to have made a lot of good calls across the board. For example, the Total Return Fund did 12% over the last year and has already come out of the blocks in 2017 with a 3.43% return year to date. If it was only the bond funds that were doing well, one might say “meh”. But looking at alts and equities they all seem to be bubbling away too. Groovy Baby!
On the private banking side, it seems Citi Private Bank is also feeling a bit groovy. If Spy’s source is correct, the PB has had the best start to a year in a very long time. After last year’s rumoured weak performance, it must come as a bit of a relief. Great choices or simply mean reversion?
Spy’s drunken debaters may think that the multi-asset party may be ending, but what a party it is has been. Some Morgan Stanley research published by Bloomberg this week shows the staggering growth in M-A assets over the last decade. Still, Spy can’t help but notice that plateau over the last few years…
A $100bn here and a $100bn there and pretty soon we are talking about real money, right? What about $500bn? Yes, ladies and gentlemen, margin on the New York Stock Exchange has exceeded $500bn and is back to record highs. What could possibly go wrong? Spy may be an old fashioned fellow but he recalls that margin is just another word for debt, and debt has interest, and interest gets excited about rising rates… Oh, whatever. You old curmudgeon go ahead and lever up 10 times, go all in, and have another drink at the bar.
Spy caught a comment this week from Schroders’s portfolio manager, Simon Adler, which should, perhaps, win the ‘Understatement of Year Award’. He writes: “One common technique we noted, to which companies – aided by their auditors – are increasingly resorting is the deliberate obfuscation of accounts.” Spy would argue that companies have always been obfuscating their accounts. From the South Sea Company to Enron to Sino-Forest Corp to China Huishan Dairy and countless others, public companies have been finding ways to juice non-existent profits and hide the real state of affairs. Remember the investor’s maxim: Dividends are real; accounts are just words and numbers on paper.
Spy is all for driverless cars for the simple reason that he never would have to risk drinking and driving. But what about driverless cars as a source of ‘hidden deflation’? In a thought provoking video put out this week by Principal Global Investors’ Jim McCaughan, the Scottish CEO of the multi-boutique makes the following point: Driverless cars will lead to fewer accidents, leading to less work for car repair shops but greater profits for the health insurance industry. Connecting those kind of dots is what makes investing so fascinating and exciting.
First we had the value vs momentum debate. Then we had the active vs passive debate. And now, reckons Spy, we are having a debate over human vs machine or possibly man vs robot. Take this quote from Mark Wiseman, who was hired by BlackRock’s Larry Fink: “The old way of people sitting in a room picking stocks, thinking they are smarter than the next guy — that does not work anymore.” The thinking seems to be, even if you are going to stay “active” you don’t trust anything so prosaic as a human to make those dynamic choices; you simply write an algorithm to do your dirty work. Algos are obedient, unpolitical and don’t take holidays.
In light of this possible trend, Spy has been imagining a world where asset management is automated and how this story would be told by the filmmakers. In the first of a special series, running for the next month, Spy presents: Film Classics as Asset Management Drama.
If you are too young to remember the “The Last Starfighter”, find it on Netflix and have a nostalgic trip to the 80s with this cult classic.
So apparently Donald Trump is forecasting “a very difficult meeting” with Xi Jinping next week at his garish resort of Mar-a-Lago. The Donald may want to remember that China remains America’s biggest creditor and that in just a few weeks, he needs to persuade Congress to raise the debt ceiling, again. If Spy was looking to borrow another trillion dollars or so, he might be telling his banker, “What a fine jacket you have on, sir. It really suits you. May I polish your shoes, sir? And how about a glass of wine, sir.” But then again, Trump is no ordinary debtor and no ordinary president either. I foresee dollar volatility ahead.
Until next week…
