Is it Worth Rolling the Dice?
“Green light, STOP – if you want to see where you are taking the most risk, look where you are making the most money.” – Paul Gibbons.
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Curiouser and Curiouser
“Alice laughed: “There’s no use trying,” she said; “one can’t believe impossible things.” “I daresay you haven’t had much practice,” said the Queen. “When I was younger, I always did it for half an hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.” – Alice in Wonderland.
There’s Risk in Credit Risk
“Risk comes from not knowing what you’re doing” – Warren Buffett A week ago, a bond mysteriously disappeared from the list of ECB assets being held under the Corporate Sector Purchase Programme (CSPP). The Steinhoff 1.875% bond due for 2025 had gone – the bond had neither been redeemed nor defaulted, so it would seem that it had been liquidated (i.e. sold).
Is Progress Assured?
“And a step backward, after making a wrong turn, is a step in the right direction.” ― Kurt Vonnegut Jr.
A Bit(coin) of a Bubble?
“A bubble is a bull market in which you don’t have a position.” – Eddy Elfenbein, (via Twitter). “The trouble with quotes on the internet is that it’s difficult to determine whether or not they are genuine” -Abraham Lincoln
The Trial of the Century
It is the year 2030; Brexit negotiations have made a breakthrough, after a last-minute concession that allows for both English AND French cheese to be served in the sandwiches being eaten at the next Summit. Prime Minister Alan Sugar calls it a victory for the cheese makers, but in all the excitement, one is tempted to think he has been misunderstood.Meanwhile, as a result of a Global Decree by newly-elected US President Bruce Willis, Active Management is now illegal (so it’s not just their charges that are criminal). We join the trial as the Defence Counsel cross-examines one of the accused, in an attempt to tease out the justification for their strategies. Active Manager Finder-General Burgess is acting for the Prosecution. Judge Jeremy Paxman presides, with able assistance from Tess Daley QC. Defence: Could outline your investment philosophy?
Credit where it’s Due?
“We have low levels of arrears, strong credit risk management and a low risk balance sheet”- Adam Applegarth, Chairman of Northern Rock (2006). Since the Financial crisis of 2007-09, High Yield bonds (previously known as Junk, but that name reduces their sale ability), have become as popular as a foreign exchange client at Wells Fargo. Credit risk has become less “risky” as Investors have piled into some bonds of dubious quality allowing company’s, who would otherwise struggle to refinance to do so on extremely generous terms. Prices have duly responded, with returns over five times that of Investment Grade and Government equivalents (see below).
Seeing the Future
“If you can look into the seeds of time, and say which grain will grow and which will not, speak then unto me. ” –William Shakespeare. Suppose you knew of events in advance of their occurrence. You could make money on this knowledge. Seems obviously true, but it isn’t; even perfect foresight doesn’t necessarily ensure a profitable investment- in many cases one would have lost money.
The Nature of Risk
Records galore in Equities as Bloomberg reports, prices melt up, whilst volatility collapses. We are now in the second longest period without a 3% peak-to-trough draw-down, as (some) investors continue to take positives from almost all news. As we spoke about last week however, not all are feeling the love, as Professionals continue to look to sell/short markets, warning investors of crisis to come. They will be right eventually of course (as is a broken clock), so it may be time to examine risk tolerances in preparation for a correction (that may not occur, if at all, for a while). After all, forewarned is forearmed…
Dealing with a Vertical Market
“Dear Optimist, Pessimist, and Realist. While you guys were busy arguing over the glass of water, I drank it. Sincerely, the Opportunist.”- Unknown