Working from Home - Misleading Survey

A good example of an opinion survey that may have unintended consequences is provided here: "A survey by the recruiter Morgan McKinley found that 71pc of British white-­collar workers would contemplate quitting their roles if not offered the flexibility they desire, in a sign that remote working is here to stay even when the pandemic subsides." (Daily Telegraph, PayWall)

It is only understandable that if someone is asked: Would you CONSIDER quitting your job that they might well tick the Yes Box. But if you ask: Would you also consider quitting if then you would be unemployed or forced to take a job that pays much less? the reply might not be so positive.

So headlines and surveys that are not more carefully constructed create a false narrative and a bias in favor of home working. While certain jobs may well be suited for WFH the jury is out whether or not that model is applicable for many roles. And the silent majority who cannot work from home - police, hospital staff to name but a few - are not going to be pleased about being forced to work in a much less congenial environment, to put it mildly.

 

Risk from Open-ended Bond Funds, BIS warning

The Cassandra of the markets is not heard, until it is too late. Maybe the BIS is overly-cautious but given the enormous growth in all types of investments the risks arising from a sudden turn in market sentiment are quite substantial. The bear markets of the Seventies could be digested in an orderly basis, apart from serious settlement problems that stemmed from the large rise in transaction volumes. But markets took the massive declines in their stride and nobody ever even thought that the financial system was at risk.

Now - as with the Covid Virus - panic is always in the air if there is the slightest risk of a substantial drop in asset prices. But while this may be overdone there is one risk that is neglected in my view: are margin levels throughout the financial system really able to cope well with a sudden sell-off of, let's say, 20-25 percent? It did happen in 1987 and fortunately that 'blip' got reversed more or less instantly. But now - when volumes are a multiple of those in 1987 - how would the system cope? The desaster that hit Credit Suisse and others when margin was insufficient earlier this year could be played out on a much much larger scale!

BIS Quarterly

Archegos just a warning of things to come

Archegos just a warning of things to come, and it will be ignored! But how many Risk managers are preparing their business for a 1987-style market 'surprise', i.e. a near-instant 25%+ move in prices? Are the clearing houses, prime brokers, margin clerks really set up for this type of 'black swan' event? Markets are much bigger then in 1987 when bond issues of 1 billion were the rare exception and the derivatives market was in its infancy. And we don't even want to think of the break-up of the Euro (my suggestion - if you hold any Euros make sure you are not left 'naked' when it happens).

Credit Suisse troubles due to wrong Leadership Development

Media Pundits and Deal Makers are keen to give free advice to Credit Suisse - sell this, spin off that - especially with reference to its Asset Management unit. But one thing should not be forgotten: there is no clear rationale against combining Retail, Investment and Private Banking and Asset Management as JP Morgan demonstrates. What is required, however, is superior management, and that means having the right people in charge. This means not only hiring potential saviours or mercenaries from outside but creating a HumanResource strategy that develops and fosters talent from the bottom up as demonstrated by GoldmanSachs. Neither the Chairman nor the previous CEO had any proper training as a banker. Head of Risk Management had no previous trading experience or appropriate qualification for the role.

Are CVA's undermining Real Estate Investment?

The widespread practice of reducing rent obligations is leading to problematic outcomes. The UK restaurant chain Leon just last December completed a CVA and today's media report that the operation is sold for an eye-watering amount, giving the founders a substantial multi-million pound pay-off. One has to assume that the sale was made much easier now that the rent bill was reduced - at the expense of the landlords one has to assume (happy to hear about details of the CVA in case you are privy to the information).

Outsourced CIO (OCIO) - solution of fad?

Basically the OCIO (or 'fiduciary') approach to manage institutional portfolios is a move back to what once was popular as the 'balanced' approach to portfolio management. The provider is given more or less discretionary authority though tailored constraints transfer more or less responsibility back to the client. The more constraints are included in the mandate the less responsibility for the ultimate performance can be pinned on the OCIO and in the end the whole thing ends up in a messy outcome where each side blames the other when results are sub-par.
Reading this statement from the quoted report one has to wonder whether or not those responsible for the management of the portfolios are really qualified for their tasks.

The Pandemic Is Spurring OCIO Growth. Transparency Will Follow 

"Crises cause many institutional investors to realize that they are not comfortable or properly structured to effectively navigate a volatile, complex, fast-moving capital markets environment under the traditional consulting relationship, much less fully independently."

            

Limits of Homeworking

All very well, we all will sit on our sofas and - between walking the dog and helping with the housework - do our work on the pc and telephone. But all this new thinking falls down in one important aspect - how to bring new people, experienced and - more importantly - those starting their career - into the business. You cannot just have a fresh graduate sit at home and being taught all the ins and outs of the job. Sooner or later any organisation will be short of talent and will have to face the fact that office life will have to be resumed. Organisation like large retail banks are more and more similar to a utility and basically just have to make sure that a lot of routine transactions get handled smoothly - but this indicates that they are also very easy to be replaced by upstarts that can perform these functions cheaper and more efficiently.

Wuhan Virus turns City into a Ghost Town

One piece of consolation, the cities that want to steal London's crown will not be in a much different position, what price an office tower in Frankfurt or Paris? Always thought the vast expanses of entrance lobbies in the towers were an absurd waste of money, one or two receptionists and a lonely plant, in addition to the inevitable 'security' personnel....and is there really enough business for the cast of thousands employed by the major banks, brokers, lawyers and accountants?
Virus turns City into a Ghost Town

ESG creates quagmire for Fund Managers

And business in general. The demands from lobbies and interest groups will expand and no action by managers and businesses will be enough to satisfy them. Once pandora's box is opened issues that really should be settled in the realm of politics will lead to never-ending complications for what should really be the priority for business and investment - obtaining profits or a satisfactory performance for savers.
(27-July-2020)
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