Spy is feeling like a man paroled from prison. Free from the privations of the Malaysian health-island, he has been released to indulge in the joys of Hong Kong life once again. Top of the list: a good bottle of ice-chilled Montrachet and a dozen oysters from Marennes-Oléron in the Bay of Biscay off Western France. Certainly the mood in Hong Kong is more champagne than two-euro vin de table. The good times are rolling as the Hang Seng rockets and it chimes with global growth. Every apartment owner in town is an illiquid millionaire allowing bankers to offer cheap leverage on their illusory housing profits. Central banks seem in no hurry to take away the punch bowl. Never have the infamous words of former Citibank CEO, Chuck Prince felt more apt, “As long as the music is playing, you've got to get up and dance.” Indeed.
It is not often that Jamie Dimon, leonine CEO of JP Morgan, has egg on his face but his comments on cryptocurrencies may be coming back to haunt him already. As bitcoin rockets through $5,200 and Goldman Sachs considers a trading unit, Mr Dimon’s comments from last month seem strangely out of touch. For an industry that craves volatility, Spy suspects that JP Morgan’s traders, whom he claimed should be ‘fired for stupidity’ should they indulge in crypto, will be jealously watching violent price swings with drooling enthusiasm. But what’s this, an about turn perhaps? On an earnings call this week the bank hinted that “regulated” cryptocurrencies may well be worth trading after all. What a difference a month, and an 80% return, makes.
Markets love a ‘wall of worry’. Catalonian separatists, Brexit shenanigans, bankrupt Italian banks, reduced Angela Merkel majority – does the German Dax care? Not a bit of it. The Dax went through 13,000 on Thursday, its all-time highest value as Europe turns from sick man to marathon man. So, which European funds have been benefiting? Fidelity Euro Stoxx is up a healthy 32.4% over the last year, while BlackRock GF Continental European Flexible is up 35.1%. However, the champion is Baring European Growth, which is living up to its name, up 36% over the last year. It would seem to Spy that flirting with Europe at these levels might just be a (say it in your best French accent) ‘Liaison Dangereuse’ Pretty, alluring, but fraught with peril.
When Donald Trump is not melting down on Twitter accusing every news source, Democrat, Republican and other straw man of fake news, he tends to make a few extraordinary claims himself. Thanks to Bloomberg, his latest whopper, where he claims “a virtually unprecedented” first-11-months-stock-market-rally-of-any-US-presidency, is proven ridiculously false. He is in fact seventh; Roosevelt, takes the lead with a stunning 41% return as the markets roared back from the Great Depression. Still, never let the truth get in the way of a good story, Donald.
The anarchist and libertine in Spy has a soft spot for gold. The oldest money, without a penny of liability, referred to ‘as a barbarous relic’ by John Maynard Keynes, refuses to die, despite Western central banks’ best propaganda efforts. Old Mutual Global Investors, made the interesting point this week that China is refusing to play to the script. In a good blog post by Ned Naylor-Leyland, he notes, “Authorities in China have long been uneasy about relying on the dollar for the majority of their international trade, not to mention the declining value of their estimated $1trn holding of US Treasuries. The Shanghai Gold Exchange, founded in 2002, is the largest physical bullion market in the world, and is thriving in its role as a major facilitator of trading gold futures outside of the US dollar.” China appears to be playing the long game as the US gorges on debt and devalues its currency with abandon, thinks Spy.
What’s in a name? Bulletshares, the ETF brand name of Guggenheim Partners, seems particularly unfortunate in the wake of the Las Vegas massacre, thinks Spy. Especially as the firm has just introduced two new funds: BulletShares 2027 Corporate Bond ETF and the Guggenheim BulletShares 2025 High Yield Corporate Bond ETF. Spy has no concerns with the quality of the funds which seem to live up to the ‘smart’ moniker, so liberally sprinkled around that industry, often with dubious credentials. However, Spy, with humblest respect, suggests something less violently named may well suit people investing for the longer term…
Spy has often accused the asset and wealth management industry of hiring similar people, with similar degrees, from similar schools, who all think in a fairly similar way. It was a therefore a pleasure to discover that Gerald Koh, in charge of retail sales at T Rowe Price in Singapore, has a CV entry that is less usual, to say the least. Whilst the modest Mr. Koh may not admit it often, he was an Olympian swimmer for Singapore in his youth. With the frequency with which asset managers use sport as a metaphor, perhaps Spy’s surprise is overdone. Still, for a person such as Spy whose only relationship with water is a shower or as ice in malt whisky, he feels more than a touch of admiration for that level of competitive spirit.
China’s credit problem has some US analysts very worried about a slew of bankruptcies as companies fail to make corporate loan payments. The state has been allocating defaults to certain over-levered companies in order to manage the situation -- and Spy notes that authorities are now turning to consumer loans. The South China Morning Post reports that as national policy, deadbeats will be publicised. “Those who fail to repay a bank loan will be blacklisted, and they will have their name, ID number, photograph, home address and the amount they owe published or announced through various channels – including in newspapers, online, on radio and television, and on screens in buses and public lifts. Local governments have been told to set up name-and-shame databases – which will be searchable by anyone – by the end of the year.”
More than a decade ago a woman named Melanie Phillips wrote a book titled, All Must Have Prizes. In it, she lamented the tendency, in British schooling, to give every little Jane and Johnny a prize no matter their ineptitude. Spy wholeheartedly agrees with the insightful Ms Philips that lazy little blighters should learn both the lessons and the reality of failure. What would that fine woman think of central banks who seem to be following the mantra that “All Debt and Equity Issuers Must Have Buyers”? A dose of failure in the bond and equity markets might just make issuers and buyers, of all varieties, a little more choosey, thinks Spy.
Have you heard of AIERA? No? Well it is early days. This is the artificially intelligent equity analyst developed by Wells Fargo. It was introduced last month without much fanfare. Nobody can accuse AIERA of running with the crowd. Some of its first calls were distinctly contrarian – sell Facebook and Google, something Wells Fargo’s own analysts vehemently disagree with. Perhaps AIERA will be proven right and get one over the notoriously bullish human analysts. Either way, Spy is watching this one closely. As MifiD II makes equity analysis more expensive for asset managers, they will no doubt be looking for a way to cut costs. WF may just be showing the cheaper, artificial, if contrarian, way.
AllianceBernstein, or is it AB, Spy is not 100% sure, is promoting in Hong Kong their low volatility equity portfolio, recruiting a Roman soldier to defend volatility and seize the chance for a return. That is not the only thing being promoted by AB this week: Spy received an office notification move as the French owned, American firm abandons Central for One Island East. Brave new world.
Until next week…