Forget the multiple perils of markets – go buy a ticket to Guys and Dolls instead!

Blain’s Morning Porridge – 30^th March 2023: Forget the multiple perils of markets – go buy a ticket to Guys and Dolls instead!

“Do not accept this bet, because as sure as you stand there, you’re going to wind up with an ear full of cider.”

This morning: Markets are taking a breather after the recent wobbles, but the threat board has never looked, well, more threatening! Relax. Go see Guys and Dolls instead and treat yourself to a great night out.. tomorrow it will be miserable again!

Relax. There is nothing to worry about. Nothing crashed 5 or 6 standard deviations last night – a once a million-year event now being about par for the day in these markets. Not a single bank went bust y’day, and some research from Goldman Sachs suggests the firms with the weakest balance sheets make the strongest gains in sound markets. Really, I kid you not…

“Move along now, nothing to see here” as they scrape the bodies from the pavement behind the taped off screens..

Of course, market crises never singly but in mighty battalions come. What will be the next shoe to drop? Your guess is as good as mine..

I was wondering about writing this morning’s porridge about the current disconnect between bond and equity expectations:

• Bond markets – ever the pessimists – are fearful on spreads, refinancing risks (yesterday saw the first High Yield new issue bond in over a month), declining credit metrics and rising signs of chronic illiquidity in markets.
• Equities – ever the optimists – are hoping, wishing and praying central banks will act decisively to further stabilise markets by cutting rates to give them lots of cheap money to go buy stuff at inflated valuations. Bring me the next SPAC! Tech looks cheap at PEs of a billion…. apparently. Maybe not. (Have they noticed the falls in big profitable tech giants or how the Metaverse has proved not to be a thing?)

There is a substantial risk Central Banks effectively stabilise markets by sustaining and repeating the very same distortions they caused by the low interest rates, QE and monetary experimentation policies that lie at the root of today’s multiple crises. To err may be human, but we need some backbone from central banks.

Meanwhile, my mind is full of confusion as to inflation. Central banks are still telling us it will fall swiftly – which we should probably not accept with the same alacrity as last year when they said it was “transitory”. I’m kind of thinking “sticky” is probably more likely as inflation is a consequential thing – and so many consequences are only now feeding into markets. Do they pretend that still negative yields don’t matter when they tell us inflation has moderated enough to cut them?

Or should I write about the dismal outlook for consumer discretionary spending, or the declining prospects for struggling firms seeking to refund maturing debt? Or maybe it will be commercial property losses that slays us, or the one thousand other reasons to fear for bank and corporate earnings?

Then there are all the other things to worry about – like geopolitics, Putin putting nukes in Belarus, Xi threatening on Taiwan visiting the US, Trump being, well Trump, and dozens of other minor characters, the spear-carriers of the global scene who could still trigger something messy.

Or maybe I should I scribble about banks? A few weeks ago I warned just how high losses on bank Hold-to-Maturity bond portfolios will be – but now the regulators apparently want to reconsider how to account for them. Advice: don’t go there. If bank’s HtM “losses” were marked-to-market for the purpose of determining bank capital levels, than every bank AT1 will immediately trigger – therefore ending banking in a flash. Advice: say nothing.

To be blunt.. anything held in HTM, HY or private debt… forget about selling it for now. Valuations? Whatever you feel confident to make.

Or I could write about the increasing signs of an almighty  deflationary/stagflationary bust due to hit the market imminently. I ain’t even going to look at yield curves, spreads, CDS blow outs or commodities for fear of what I might conclude…

I could also write a horror story about where dollar expectations are headed, the coming crisis in EM, or I could just go out and buy more gold. Perhaps I should throw in my tuppenceworth on just how disastrous the UBS/CS merger was looking before the chairman ditched the new CEO in favour of his predecessor. (Advice to all.. if a bank CEO knows too many management consultants and sprinkles McKinsey-speak into his/her conversations… be worried… (I am setting up a shadow bank portfolio shorting any bank where the CEO was ever a management consultant.))

Or maybe I should be writing about the threats to political stability in Europe from the current exuberance in France, or how the miserable outlook, galloping inflation and the optics of the Tories doing everything to diss the poor while favouring the rich spells a summer of discontent in the UK?

I am absolutely sure the above list misses many of the major things we should be worried about this morning…

But… But… But.. and But again: No point worrying today about stuff we are only going to have to worry about tomorrow….

While the market is pausing for breath – and next week we get the Long Easter holiday – maybe it’s time to just stop worrying and write about something completely different – something fun? Something that has nothing to do with finance at all?

Why not?

We all need cheering up occasionally.

Well last night I was cheered up immensely. I went to the theatre with my kids to see Guys and Dolls at the Bridge Theatre. It was a production in the round, and we made the inspired call to buy “immersive” pit standing tickets instead of seats in the stalls.

There has been much thespian froth about how musicals (well musicals concocted round an artist’s list of hits) dominating London’s theatres in recent days, but Guys and Dolls was simply superb.

Porridge readers might be surprised to learn I’m a fan of musicals of a certain vintage. It’s my dirty little secret. I caught the bug in my early teens in the Edinburgh Youth Theatre many, many decades ago. In youth theatre I learnt far more critical life stuff than I ever did on trading floors. I learnt the really important life lessons about how to chase girls and getting decent parts. I learnt the supreme importance of confidence – critical for any salesman, which is pretty much all any sharp financier is.

Anyway, you might be wondering what a 73-year old musical based on the writings of Damon Runyon in the 1930s, set among the hustlers, gamblers and grifters of the Lower Westside of New York has to do with the sheer bloody misery of London today. Absolutely nothing – which is why it is such a brilliant night out… The whole production wasn’t just sharp, brilliant and clever, but it was joyous, exciting and fun.

My face hurts from smiling.

It’s also a great show for the cast – and their enthusiasm shows it. Everyone gets a couple of great songs and there are some superb lines. My particular stand out is “if I was a salad I’d be splashing my dressing”… but there are plenty more.

What more can I say..? Forget the market and go get yourself a ticket – I thoroughly recommend standing.

Five things to remind you of the misery of markets

FT              Credit Suisse sale “forever impairs” ability of banks to issue AT1s, investors warn

WSJ            The Banker Tasked With Saving Swiss Banking

WSJ            The Metaverse is Quickly Turning Into the Meh-verse

BBerg         A $3 Trillion Threat to Global Financial Markets Looms in Japan

Torygraph   London close to being usurped as world’s leading financial centre

Out of time, back to the day job, but still humming Luck Be A Lady…

Bill Blain

Strategist – Shard Capital