Some things have not changed in the three months since I supposedly retired from the business. In my “final” daily comment of early December, I wrote that I was done with front-line broking but that if anybody cared to sponsor my daily musings, I’d be open to suggestions. Pretty promptly I received a call from Sol Capital Markets, a start-up brokerage based in the sunny Algarve. I had visited one of the principals for a week in May last year and had subsequently written one of my weekly articles for IFR in the vein of “Fun in the Sun” and we had giggled at the thought of my being here too. But a concrete offer to join up as head of strategy came as something of a surprise.
And so it is that on Monday, I started to work with Sol Capital. I will be spending the first two months in the main office here in Vila Sol near Loule and will then, all things being equal, return to my regular Cotswold base in order to carry on the good work. The broking business, along with all other parts of debt market trading, has become pretty precarious so what we are doing here is something of an adventure. Hard work and solid professionalism will remain at the centre of things but we will still continue to rely on the goodwill of those who know us to help to make it work.
Ironing out the numbers
End of the world cancelled or merely postponed? It would have been very easy at the open on Monday to conclude the former as the headline flashed up “Iron ore jumps 19% to $63.74, biggest one-day gain on record”. This really is serious stuff, not least of all because the metal (the CFR Qingdao spot price) was trading at a low of US$38.30 per tonne as recently as December 11.
Happy days? Not quite. In 2011, at the height of the “China will rescue us all” movement, iron ore traded at over US$180/tonne and even at the beginning of 2014 it was still above US$140. Beware of loosely tossed around percentage changes, so beloved by headline writers and equity analysts alike.
Pain in Spain
I was struck yesterday by the announcement of the new syndicated 30-year Kingdom of Spain bond. Leads on the deal will be Barclays, Goldman, JP Morgan, SG and Santander.
Spot what’s wrong? No BBVA. In fact, there is only one single Spanish bank on the ticket and seeing as that most of the buying will be by Spanish domestic investors, this simply does not look right.
It must be the best part of 15 years ago that I had a vicious run-in with the Austrian Federal Funding Agency, then governed by the mercurial Dr Eder, over a syndicated 10-year Republic of Austria with not one single Austrian bank on the trade. Only one Spanish bank is not that great either, or am I missing the point?
Distribution down the line to smaller, yield-hungry local investors, the mainstay of the long end of the curve, will depend on the domestic banking network and these guys will have to lift bonds in the Street and on the offer side before adding their margin and passing them on. What this added layer of bid/ask spreads is supposed to do for the stressed end-investor escapes me. But in a world obsessed with best execution and investor protection, cutting those banks which will be at the forefront of final placement out of the syndicate group makes, to me at least, a mockery of the regulatory authorities’ grand level playing field rhetoric. That said, I don’t know what the thinking of the Spanish debt agency might have been when it assembled its syndicate: there might have been a very sound reason for doing what they did. I’d be delighted if somebody could explain it to me.
Consistently confusing
Meanwhile, economic releases out the US continue to confuse. Just when it seems safe to assume that recession is around the corner we get a stonker like last Friday’s Non-farm Payroll number blowing the experts’ forecasts out of the water. Then yesterday we have the most dismal January Consumer Credit numbers – +US$10.538bn vs US$17bn forecast – and, even more surprisingly, a February Labor Market Conditions Index of -2.4. The recession is surely around the next corner…only we don’t have a clue how far away that corner might be. I might not have been hard-wired to daily markets for the past three months but I have not revised my opinion that the Great American Recession and the Great Stock Market Crash are not only not in the starting blocks, they haven’t even got out of bed yet, let alone entered the stadium.
So there we are, I’m back in the saddle.