Your humble Spy had his first Zoom conference with a particularly eccentric gold portfolio manager this week. Usually said manager would be sharing a generous lashing of Chianti with Spy, but alas, it was coffee only (for the record, plain coffee and, sadly, not Irish). The PM told Spy that extraordinary moves are taking place in the gold market as it buckles under the strain of rampant demand. With global shutdowns and limited transport, gold is battling to move around the world and as people don’t trust the gold paper market quite like a bar of the real thing, pricing is going haywire. For this manager, gold remains the canary in the, eh, coal mine. Only when that market settles down, will he truly believe this crisis is reaching its nadir. Spy will watch with interest.
Spy’s spies, sifting through the few people moves this week in Hong Kong and Singapore’s asset management wholesale market, have prompted Spy to sum it up in one word: slow. Spy did note that both Amundi and Blackrock have global hiring freezes. No doubt there are soft or hard freezes at many other firms, too. Bank of Singapore is hiring though. OCBC’s private bank put out a job description for a new discretionary portfolio manager to join their team in Singapore. It does not surprise that discretionary continues to be an area of growth.
For those readers with long memories, they might recall the Iraqi Minister of Information, Muhammed Saeed al-Sahaf, known to many by the end of the Iraq War as Comical Ali. He was famous for refuting (or disputing) on air, in the most colourful of language, the reality that Allied forces were bearing down on Baghdad. Ali popped into Spy’s mind this week when Jerome Powell, US Fed Chairman, gave an interview saying, “There is nothing fundamentally wrong with our economy.” This was before US jobless claims jumped above 3 million in a single week. This was the largest increase of jobless claims in US history by a significant magnitude. Between Kudlow, Powell and Mnuchin, the American cheerleading squad will really have us all believe that things are simply hunky dory in the US right now.
It is no surprise to Spy that M&G’s Bond Vigilantes continue to do some stellar analysis of market volatility and liquidity in debt markets. In a really good blog post this week by Gareth Jandrell, he points out that, “…market participants have been uprooted from their normal trading floor environments. Many have been moved to disaster recovery sites, split up into multiple sub-teams or isolated at home. This naturally slows down communication and the market making process.” What is true for markets is, in fact, true everywhere – working from home slows everything down. That is a much bigger problem than investors are acknowledging, in Spy’s opinion. People simply don’t get as much done with dog barking, cat scratching and children playing.
Spy knows things are tough. Looking at Standard Chartered’s focus funds, it illustrates just how tough. Out of 143 funds on the focus list, only 7 are positive over the last year. And in reality, those are only 3 different funds, as the positive performers are different currency classes of the same fund. And this is after we have had a rally off the lows in equity and credit markets. Unsurprisingly, the best performer is the UBS China Opportunity Fund, which remains up a remarkable 17.32%.
With events cancelled or postponed, communications with the market are just as important as ever. Spy has been enjoying a world of podcasts in the last few weeks. If you have not got into the podcast habit yet, Spy can recommend a few to start with. Federated Hermes is doing a good job with its Amplified Channel. BNP Paribas Asset Management has its investment insights on the Listen Notes site and Neuberger Berman has its Disruptive Forces podcast. Do let Spy know if you have a favourite.
Does anyone truly believe we have exited the bear market triggered by the coronoavirus? It is true the Dow, Nasdaq and S&P (and a few other global indices, too) have had monster rallies in the last few days, bouncing more than 20% in the Dow’s case. Yesterday’s gap higher in equity markets on the back of terrible jobs numbers will have had more than a few investors scratching their heads in bemusement. Spy, for one, seriously doubts that some great rally has now begun. The trillions and trillions of dollars of stimulus being provided around the world may indeed save companies from bankruptcy by shoring up their debt and providing salary support but that does not bring new earnings growth, or, indeed, any earnings at all. Last time Spy checked, the market really loves healthy earnings, not stock market announcements that a company “managed to pay our quarterly debts”. We have much public debate about the recovery path: V, U or L. After this week’s rally, one wit described it as “Bungee jump recovery”. Perhaps.
Spy feels like he is living in a giant game of funfair favourite, Whack-a-Mole. Every time Covid gets contained in one place, it pops up in another. Countries race across the world to contain the spread by locking everyone down hoping that after a few weeks it will all return to normal. The problem is simple: how do you ensure it does not come back again and open your borders to global travel once the quarantine ends. As China discovered this week, people returning from virus-hit regions can easily bring the bug with them and the spread starts again. Whack, whack, whack.
Did you hear about Steven Spielberg’s new movie? It is called Saving Private Equity Ryan. This gripping thriller involves seven senior citizens who set out on a suicidal mission to save one hedge fund manager who is facing massive margin calls. Now showing at a Central Bank near you.
Until next week…
