Spy had a drink earlier this week in one of his favourite little bars (technically, it was a restaurant that was not “exclusively or mainly used for the sale or supply of intoxicating liquors” — in line with the government decree) on Hollywood Road that has mercifully survived the shutdown. “Don’t put ice in my scotch,” Spy told the bartender, “It takes up too much room.” Rather than meeting a PM, Spy had a drink with one of the most senior officers of a global plane manufacturer. Spy won’t mention which one, as the officer is a touch media shy, especially under the current circumstances. Spy, of course, only had one question, “When will we be able to fly freely again?” The delightful fellow, over his 12-year old Yamazki, said, “Of course, that is up to governments, but what I can tell you, is we now don’t expect global air travel to reach 2019 volumes for another five years”. Ouch. Even Spy’s most pessimistic moments were not that gloomy.
Has it been easier to be a CEO or an active portfolio manager in the last decade, wonders Spy? The question may seem an odd one, but bear with me. Take a look at the chart below. Don’t allow it to make your head swirl too much. It basically says that most S&P 500 companies have beaten their quarterly forecast most of the time for the last decade. It is like a kind of magic. The CEO hints, winks, nods in the general direction of the analysts with a lowball earnings figure and then, presto, as earnings season comes around manages to outperform by a few cents per share and everybody is ecstatic. It is a wonderful stitch up. The media play their part, of course, because it is always more exciting to report a beat than a miss.
Now consider the active PM. She can’t tell clients she will return x and then beat by half a percent, or something similar to make her look fabulous, like the CEOs mentioned above. She is a slave to the passive machine and the tyranny of the benchmark. The ETF she is competing against simply delivers no more, no less than the benchmark and nobody cares too much. In order to outperform she has to take concentrated risk that may only show its outperformance in a year or eighteen months’ time. By then, of course, all those CEOs will have “beaten their estimates” four or six times and the ETF will have drudgingly matched the benchmark, and all that time investors will be wondering what on earth she is up to. In our impatient world, being an active PM is a tough gig indeed, reckons Spy.
Have you got the latest corporate accessory, asks Spy? A WCNO. A what? A WCNO – a What Comes Now Officer? Every single wealth and asset manager Spy has spoken to in Singapore and Hong Kong over the last two weeks has been pondering aloud, What Comes Now? How do we move from WFH back to a full office. What happens to our economy? When can we have a conference again? Am I ever going to be allowed to shake hands again? It is surely the hottest ticket in town, to become a WCNO! The only problem is, nobody has the faintest clue what comes now. It seems most of the governments around the world that put everybody in “Lockdown”, haven’t the foggiest idea how to get them out. Everybody knows life is going to be different post-Covid – they are just not sure how different. An unwanted word of advice to those thinking they would like a crack at the new role. Spy is old enough to remember the GFC and how every company suddenly needed a chief risk officer because investments had blown up left, right and centre. CROs were hired faster than Bak Kwa sells out at Chinese New Year. The only problem was, for the next decade, it was the dullest job on earth.
One person who has given an idea of what comes next is Anne Richards, the CEO of Fidelity International. She is quoted this week by FNLondon as saying she does not expect her team to be entirely back working at their office desks until the end of 2021. If she is right, don’t expect life to be the same any time soon.
Here in Hong Kong bars can re-open today and Spy will certainly go on the hunt for discounted Yoichi single malt. Life is returning to normal. Well, sort of. People are wandering around, looking like they are busy. They even have a meeting or two. But is anything really going on? Is anyone actually making any money? Not much, is the honest truth. Most wealth managers Spy has spoken to say clients’ confidence is so fragile they are not exactly rushing to deploy any new money. Spy did have a delightful press release this week from the Michelin-star chef run restaurant, Ying Jee Club in Hong Kong that seems to have forgotten we are in the middle of a new depression. The press release positively oozes wealth and excess, “The new tasting menu features Chef Siu’s handpicked selections of some of his favourite Cantonese dishes with highlights such as chilled sliced sea whelk with jellyfish and caviar and pan-fried kagoshima A4 wagyu beef in premium soy sauce where he employs both Western and Chinese cooking techniques to ensure mouth-wateringly tender beef cubes that contrast with chilled delicacies such as jellyfish, sea whelk and Osetra caviar from France.” Does that sound like a recession-orientated, austerity meal to you?
There was a time when conservative (small c) minded politicians would harbour a few doubts about how much debt their government had or how much money their central bank printed from thin air. Spy has been reminded this week that the aphorism, “When you have them by the wallet, their hearts and minds will follow”. It is perhaps the truest of all financial witticisms. In this global shutdown, prudence has gone out the window as central banks have printed with glee and finance ministers have borrowed like a first jobber with a credit card. No doubt, fearful of their own investments, the politicians have been positive cheerleaders for the Great Global Bailout (GGB). Spy would whisper, if he could, into the ears of all those politicians cheering the printing press, remember one of the other great witticisms on finance: “Never lend people money, it gives them amnesia.”
Until next week…