Markets continue to leap around in their schizophrenic macrosphere caught between the excitement of cheap money and the fear that there is so little oxygen left at these lofty heights that the only way is down. But how can I be underweight assets and long cash if I actually get charged for holding the stuff?
The good news at least is that 10-year Bund yields doubled in yesterday’s trading – from 0.01% to 0.02% - but apart from that Monday was another day where there was little to celebrate. Central focus is now on sterling, both in cable and euro-cross format, as it seems to be the only way in which the rest of the world can protest against a possible vote by the British people to leave the EU.
I keep reading of how foreign capital is fleeing the London market but as of this morning, the FTSE 100 is down 3.16% year-to-date as opposed to the CAC down 8.84% and the DAX off by 10.1%. “Ah!” I hear you cry, “the FTSE is made up of foreign stocks and the rebound in oil prices is behind the performance”. First true but second not. The FTSE 250 has lost “only” 4.91% and the FTSE 350 is down 3.47%.
The first rule of the City, whether as a trader, a salesman, an economist, a strategist or merely as a humble part-time scribe, is to know the reason for a market movement and if there isn’t one immediately identifiable, best think up something pretty darned quickly. Currently Brexit is the catch-all reason for the random volatility although in some respects the lousy US employment figures of a week ago last Friday are just as much to blame.
You might recall the sharp rally in risk assets that followed the release which, from where I’m sitting looked a bit like poor old Wile E. Coyote overtaking the Road Runner and then noticing that he’s missed the corner and has run out of road.
Windows dressing
There’s an air of desperation out there that finds itself perfectly reflected in the news that the once mighty Microsoft has reached out and bought LinkedIn for US$26.2bn. That’s about US$4 for every member of the human race. Even I’m on LinkedIn and I have been from its early days. I’m not a social media fanatic and although I fiddle around in them, I do somewhat agree with the wag who once suggested that LinkedIn is no more than Facebook for the employed.
That said, given the current noise around Goldman Sachs and the Libyan sovereign wealth fund, it might not be long before regulators ban us from ever meeting or speaking to in person any of the folks we do business with, in which case one’s digital address book becomes one’s contact list. I recall interviewing a candidate for a sales position on my desk at BNP in the 1990s. He presented, as his client list, a neatly typed “who’s who” of German insurance, mutual fund and bank sectors and declared this to be his calling card. I’m afraid he got short shrift. In my thinking, anybody who purported to have more than 20 significant clients was smoking dope. Within 5 years, the “pot deal” had been introduced and firms found themselves taking new issue orders from investors whose names the sales team didn’t even know.
I recently cleared up and threw out about 3,000 business cards, mostly from people I’d forgotten who worked for banks and investment companies which no longer exist. Maybe Microsoft can see value in the equivalent virtual Rolodex which, at the very least, updates itself. I’m not sure I can but maybe, if I could, I’d have bought LinkedIn at US$45 at the IPO in order to sell it to Microsoft five years later at US$196 per share. That’s still a lot less than the all time high of over US$258 as recently as last November but a darned sight better than the US$100 it was trading at in February.
The Sun is out
I note that according to Daniele Nouy, French chair of the supervisory board of the ECB, the revamp of Basel III rules is “unlikely to result in a significant increase in most banks’ capital requirement”. Give us lots of free money to lend, then constrain our balance sheets to an extent that we can’t afford to lend it to anybody other than… the ECB, which charges us for the pleasure and then uses it to buy corporate credit until the spreads become so skinny that we can’t compete any longer…
Finally, The Sun newspaper (paper, for sure; news, debatable) has declared itself on the Brexit side. The air is getting very thin for Dave “You may now call me David again” Cameron. I wonder if the editor is planning a headline for June 24 along the lines of “Gotcha!”
Incidentally, while I’ve been writing, the yield on the 10-year Bund has finally gone negative for the first time. Stone the crows!