Pressure to reduce Office Space

Given the increasing prevalence of working from home - be it part-time or full-time - will finally lead to a reassessment of the use of property assets by many employers. Why pay for lavish offices - often featuring huge empty spaces in the reception area that is just for show or to polish the image of the occupying business? Even if staff works only one day a week from home that could easily lead to a reduction of required floor space by 20 percent.

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).