Two words excite me like no others.
They are synthetic securitisation (or, for the truly old-school, they are three words: regulatory capital trades). These deals usually involve repackaging loans on a bank’s balance sheet, then slicing them up into different tranches, and selling the exposure to a non-bank entity like an insurer, hedge fund, or asset manager through the use of credit derivatives.
In many respects, they hark back to the early days of securitisation, when JPMorgan first put together its BISTRO trades, otherwise known as the first synthetic CDOs. Banks may be genuinely offloading risk here, and the deals were called reg-cap trades precisely because they offered capital relief that’s so far been genuinely sanctioned by regulators. On the other hand, they seem to speak to some of the worst of the current environment: a pervasive search-for-yield that may see investors put their money in silly things at silly prices (for this reason, you will sometimes hear reg-cap specialists – usually hedge funds – gripe about the non-expertise of new entrants and the need to price the deals perfectly), as well as nagging concern that in fortifying the banking system post the financial crisis, we’ve simply offloaded a bunch of balance sheet risks onto other entities in a classic case of regulatory arbitrage.
In any case, I bring it up because in less than a week we’ve seen two stories published on the market, now said to be booming, first in the Financial Times and then in the Wall Street Journal. Both detail the rise of the market, with issuance described as having jumped by anywhere from 5.6 percent in the first quarter to at least 33 percent so far this year.
Those looking for a graphical representation of the recent rise of synthetic CDOs, could do worse than this chart from Deutsche Bank. It shows European deals only, but the direction of the trajectory is pretty obvious. The WSJ story also references some interesting figures from consultancy Coalition, pointing out that structured credit revenues at the top 12 investment banks more than doubled year-on-year to $1.5 billion the first quarter of 2017, exceeding the growth rate in more conventional trading businesses in the same period.
Growth in the business is not exactly a surprise, though.
More than five years ago I wrote in the FT about some of the bigger banks working hard to get the business going as a way of securing some new fees at a time when many of their other revenue streams were sluggish. In retrospect, that story’s now looking pretty prescient.
Big banks seek regulatory capital trades
Big banks are aiming to help smaller lenders cut the amount of regulatory capital they need to hold against loans in an attempt to make money from deals similar to those first created in the early days of securitisation more than a decade ago.
The big banks want to create so-called regulatory capital trades for smaller lenders as they expect demand for these kind of securitisation structures will rise ahead of regulations designed to provide more stability in the financial system.
Such trades, also known as synthetic securitisations, involve repackaging loans on a bank’s balance sheet, then slicing them up into different tranches.
The bank typically then buys protection on the riskiest or mid-level tranche from an outside investor such as a hedge fund, insurance company or private equity firm.
Doing so allows a bank to reduce the amount of regulatory capital it has to hold against the loans – a tempting prospect as banking groups are forced to hold more capital ahead of new regulation such as the forthcoming Basel III rules.
Some of the biggest global and European banks, including Barclays and Standard Chartered, are known to have recently built and used the structures to reduce the amount of capital they need to hold against corporate or trade finance loans.
But some large banks are now hoping to sell their structuring expertise and help distribute the resulting trades to buyers, investors in the trades say.
“The holy grail for some of the investment banks is to try to get some of the second and third tier banks involved, to get structuring fees,” said one investor. The trades hark back to the early days of securitisation in the late 1990s, which helped fuel the financial crisis.
“It’s almost as if you’re seeing the start of the securitisation market coming back in a very modest way,” said Walter Gontarek, chief executive of Channel Advisors, which operates Channel Capital Plc, a vehicle with $10bn in portfolio credit transactions with banks and has started a new fund dedicated to these structures.
Investors such as Channel Advisors say the yields on the deals are attractive compared with other debt securities on offer, and they are able to gain exposure to a specific portion of a bank’s balance sheet rather than invest in the entire thing. The insurers, hedge funds or private equity firms are not bound by the same, relatively onerous capital regulations as the banks. That makes it easier for them to write protection on the underlying loans in a classic case of regulatory arbitrage.”
Some more early coverage below, for those interested.
Synthetic tranches anyone? – FT Alphaville
Anti-Abacus, anti-BISTRO and anti-balance sheet synthetic securitisation – FT Alphaville
Big banks seek regulatory capital trades – FT, April 2012
Banks share risk with investors – FT, September 2011
Balance sheet optimisation – BOOM! – FT Alphaville, 2010
The idea of a shortage of ‘safe’ assets is a favorite of mine, dating back from 2011 when I first wrote about a crunch in triple-A rated assets for FT Alphaville to more recent things such as this piece for Bloomberg, and sometimes even on this blog. So it was a pleasure to discover, courtesy of Simon Hinrichsen (a former Odd Lots guest whom you should definitely follow on Twitter), a new paper on exactly this topic from Ricardo Caballero, Emmanuel Farhi and Pierre-Olivier Gourinchas. Read it for rather glorious sentences such as this one: “What is relatively new, relative to post–World War II history, is that the global economy is going through a complex structural period where the standard valuation adjustment for safe assets— via interest rate changes—have run out their course.”
Here’s a summary I wrote as part of our morning ‘Five Things’ newsletter, which you can sign-up for here.
“Want a stylized prism through which to understand almost everything that’s happened in the global financial system over the past two decades? Then take a look at this paper on “The Safe Assets Shortage Conundrum.” In it, the authors argue that savers’ desire to put their money in a reliable instrument has created a need for ‘safe’ assets that the financial system has had various degrees of success in fulfilling. In the early 2000s, the private sector tried to fill that need by creating triple A-rated bonds out of subprime mortgages. We know what happened next. After that, safe financial assets became largely the purview of governments via the bonds they sell – first the eurozone (which then experienced its own ratings problems) and then the U.S. Supply has ultimately failed to keep up with demand, however, mostly because slower growth has meant ‘safe’ governments in the developed world have been unable to generate assets at a fast enough pace to satisfy savings from emerging markets. It’s a state of affairs that will probably stick around for a long time, and one that helps explain why bond yields continue to plumb new lows, seemingly without rhyme or reason. But seriously, go read the whole thing.”
A side note: I do wonder what might constitute safe in the current environment. Yes, government debt is the clear winner here but corporate debt issued by cash-heavy, investment grade, national champion corporates – think Apple – can’t be far behind…
No, seriously.* Hear me out.
Citi’s Willem Buiter offers one possible explanation to stubbornly low-inflation, and by extension, sluggish economic growth. Here’s the excerpt:
“We draw attention to one additional hypothesis: that we underestimate the amount of slack in the economy not primarily because we underestimate the amount of slack in the labor market or overestimate the degree of utilization of tangible capital but rather because potential output can be boosted greatly at effectively zero social marginal cost and without increased use of labor and tangible capital, through the use of new production methods based on recent advances in information technology, machine learning, artificial intelligence, big data, the internet of things, robotics, automation, autonomous machines and nanotechnology.
Because the value added in many of these new activities is mostly pure rents (returns to genius, luck and monopoly power) the distribution of income and wealth created by these activities is increasingly unequal. That weakens the aggregate marginal and average propensity to consume. Unless this shortfall of demand is made up for by increased consumer demand through fiscal redistribution towards households with higher marginal propensities to spend, or by capital expenditure, public consumption or net exports, some of the potential output gains may not materialize but turn into excess capacity and a growing (or at least larger than expected) output gap. Lower-than-expected inflation is the result.”
As Paul Caple pointed out on Twitter, there’s a simple mismatch at play here. Advances in technology mean you can boost potential output without the need for (mere) humans, yet consumption remains a human-driven activity. With more profits accruing to owners of capital — the Piketty-esque element in Buiter’s argument above — consumption drags. After all, there’s only so much a billionaire can spend, much as they might try. Meanwhile, the proximate cause of greater potential output is paid nothing, and presumably contributes nothing to consumer demand beyond potentially making goods more affordably or efficiently, which may or may not encourage people to by them (As the cycle of improvement continues there’s only so many times you’re going to upgrade your TV. iPhones appear to be the exception here).
The solution is simple: pocket money for robots.
A politically-unpalatable solution for sure, but think of the “fiscal redistribution” that could be achieved. The nuts and bolts spending, if you will. Unlike human beings, robots can also be programmed to spend consistently, thereby avoiding the over-savings problem that has plagued the 2000s. So long as the robot-owners don’t extract the wages as rent. And so long as the robots themselves don’t go off the rails: I can save I I everything else to me to me to me to me to me to me to me to me to me.
*Readers assume all responsibility for taking this seriously.
A recent Barron’s interview with James Montier got me thinking. In it, the GMO man answers a question about lofty valuations across both bonds and stocks that have caused consternation for asset allocators seeking good value in the market. In response, he says: “The US market is at its second or third most expensive point in history. So people are saying, ‘I either don’t understand the world anymore, or I don’t think that valuation matters anymore.'”
I think he has a point but maybe not the one he means. Valuations do matter because in a world of inflated asset prices but suppressed actual price inflation or economic growth, they’ve become the easiest and most surefire way for investors to generate outperformance, and so, that is what they are chasing. I still think Citigroup’s Matt King put it best, when he argued two years ago that something fundamental had changed in the market’s behaviour.
The crux of this argument is that markets used to be self-limiting. Prices of securities would move up to a point where their yields would become unattractive, at which time investors would trim some of their positions, causing prices to go down and yields to recover. Now the intense search for returns has altered that dynamic, with investors chasing inflows as a means of getting higher prices and higher profits.
While the notion that value investing is disappearing in a market that has moved ever upward for the past five years is not exactly new, King’s presentation here is stark. Investors have been moving in tandem, he says, making markets far more homogenous. The chart below shows investor positioning in credit markets, where the number of longs has vastly outnumbered the shorts, along with the International Monetary Fund’s herding metric. In short, investors across a number of asset classes are going mooo as one-way positioning dominates…
We often say the market can stay irrational longer than you can stay solvent. Maybe the updated version should be that the market can self-perpetuate for longer than expected.
There’s so much talk about volatility right now — and specifically the stubbornly low behaviour of the VIX — that I thought I’d do a round-up of some of my previous pieces on it.
Please note, I’m in an anti-paragraph, anti-proofreading kind of mood today. So typos and big blocks of text are ahead.
1. On the VIX
Let’s start with this one, from September 2013, about a new index trying to challenge the VIX, the index that most people associate with ‘volatility.’ For more than two decades, the VIX index run by the Chicago Board Options Exchange has been the financial industry’s go-to method for measuring expectations of volatility in the wider marketplace, with the CBOE turning the index into something of a cash cow thanks to the launch of futures tied to the gauge. VIX-related futures have in turn allowed a plethora of VIX-based exchange-traded products (ETPs) to also launch. With all that money benchmarked to the VIX, it’s no surprise that we have occasionally seen upstarts attempt to challenge it.
2. Selling volatility
Now let’s go here to this story from December 2014. About six years on from the financial crisis and deep in the era of monetary stimulus, investors are struggling to make returns and seize upon the realisation that selling volatility — whether that be through shorting the VIX or some other derivative-based method — can be a lucrative (if risky) strategy. This was the big shift in the volatility market. Instead of having a bunch of banks or hedge funds (or de facto, GSEs) sell volatility, you suddenly have a bunch of buy-side funds and retail investors who are interested and able to do so, the latter largely thanks to the explosion in VIX-related products. The big question, per the piece, is whether these new sellers of volatility are more likely to behave differently than traditional vol-sellers. Are they more or less likely to react to abrupt shifts in volatility?
3. Self-reflexive VIX
By September 2015, the VIX is again in the headlines after the unexpected devaluation of the Chinese yuan spooked markets. While the VIX did jump on this news, it was the VVIX (in effect, volatility of volatility) that reached an all-time record. Here’s my article about that: “When there’s a sudden spike in volatility, as occurred last month, the price of near-term VIX futures rises. Meanwhile, volatility players — notably hedge funds and CTAs — scramble to buy protection as they seek either to hedge or cover short positions, causing a feedback loop that encourages near-term futures to rise even further.” CFTC positioning data at the time did suggest a classic short squeeze as investors closed out their short vol positions post the spike. In effect there were said to be two major forces impacting the VIX, systematic volatility sellers as well as VIX-related ETPs that have to buy or sell futures to rebalance. This rebalancing act makes the VIX curve important, a point picked up on by Chris Cole of Artemis Capital in a story I wrote about a month later: “VIX term structure inverted at the greatest degree in history in August, so much so and so fast that many structured products that use simple historical relationships to gauge term structure switching and hedging ratios just couldn’t handle it,” he said. The concern is that the explosion in volatility-trading means more demand to buy or sell futures to rebalance, which could impact the shape of the curve itself.
4. VIX and beyond!
The proliferation of ETPs tied to the VIX is a concern insofar as it affects the volatility landscape, but it’s not the whole story. To explain, let’s go to Bill Gross, who became the poster child for volatility-sellers after publicly saying in June 2014 — while still at Pimco — that the company was selling “insurance, basically, against price movements” to juice returns in an era of low interest rates. Not once did he mention the VIX. It wasn’t until October 2014, after Gross’s abrupt departure from Pimco, that we got a better sense of what that insurance-selling strategy might mean when the U.S. Treasury market experienced a sudden melt-up, of sorts. At the time, there was plenty of talk that Pimco was liquidating some derivatives positions, which ended up having an outsized effect on the underlying cash market. The U.S. government’s report on the episode later mentioned that: “In particular, anecdotal commentary suggested that some dealers had absorbed a portion of the sizable ‘short volatility’ position believed to have been previously maintained by large asset managers. As volatility spiked on October 15, those positions would have prompted some dealers to dynamically hedge this exposure, exacerbating the downward move in yields.” Then, in August of last year, the BIS published a paper on asset managers dabbling in eurodollars including the example of Pimco in 2014, which I wrote up in a piece called “This is where leverage lives in the system.” That article contained a laundry list of potentially risky strategies across rates (viz eurodollars, futures, forwards), credit (using swaptions and swaps) as well as equities (options, VIX ETPs, etc.). What’s my point? I don’t mean to underplay what’s happening with the VIX, but my concern is that if we’re looking for potential flash points in the financial system then we may want to broaden our horizons.
I said earlier that I have a theory that you can replace the term “distributed ledgers” with “shared Excel sheets” in about 90 percent of talk about blockchain and finance. I wasn’t joking.
“A shared Excel spreadsheet is a record of transactions or other data which exists across multiple distinct entities in a network. The spreadsheet can be wholly replicated across participants, or segments can be partially replicated across a subset of participants. In either case, the integrity of the data is ensured in order to allow each entity to rely on its veracity and to know that data they are entitled to view is consistent with that viewed by others entitled to view the same data. This makes the shared Excel spreadsheet a common, authoritative prime record — a single source of truth — to which multiple entities can refer and with which they can securely interact.”
That’s from a certain blockchain paper. You could tweak the language to make it a little more accurate – “password-protected Excel spreadsheets whose earlier entries cannot be edited” or some such, but the point stands. The reason it stands is because it highlights a major issue with blockchain technologies when it comes to finance — what problem are you trying to solve here?
Centralized databases have existed for decades. Blockchain might be modestly more efficient, but the notion that it’s completely immutable and can never be abused seems open to questioning.
Here’s Christopher Natoli and Vincent Gramoli as written up by The Register:
“The problem: if everyone in a consortium trusts each other, they don’t need blockchains to protect themselves; if they don’t, current blockchain protocols have a flaw that allows a bad actor to game the system.”
Elisha Wiesel, the son of Holocaust survivor and author Elie Wiesel, is replacing Marty Chavez as Chief Information Officer at Goldman Sachs.
It’s an interesting bit of Goldman kremlinology given his history at J Aron. It’s also an excuse to revisit some of my old work on Midnight Madness – the epic all-night Wall Street scavenger hunt/first-person puzzle/charity fundraiser that Wiesel is credited with inventing and which I wrote about for the Financial Times.
So here’s a fun throwback to 2013, when Midnight Madness was first expanded to include non-Goldman firms:
Wall St lines up for ‘Midnight Madness’
Some time next week Dan Keegan, Citigroup’s head of US equities, will be asked to sing a ballad over the speakers on the bank’s New York trading floors.
The unusual request is part of Citi’s efforts to raise at least $250,000 to enter five teams into a fundraising competition known as “Midnight Madness”.
Traditionally the purview of Goldman Sachs bankers, this year the all-night competition has expanded to include other financial groups. Goldman will now compete in the lavish scavenger hunt and puzzle-solving game against Citi, Credit Suisse, the hedge fund BlueMountain and Secor Asset Management.
The competition takes place on October 5 and has already kicked off a flurry of activity across a competitive Wall Street. The prospect of earning bragging rights in a battle of wits against rivals while raising money for charity is set to lure about 250 traders, quantitative analysts and bankers to this year’s event.
“This type of mental Olympics, combined with adventure, is something that I think might have a broad appeal on Wall Street, and when it’s all for a good cause it’s an attractive combination,” said Michael Liberman, managing partner at BlueMountain.
Goldman has asked participants to stump up at least $50,000 per team. Proceeds go to Good Shepherd Services, a New York City-based charity which offers education and support services for poor or at-risk children and teenagers.
A pamphlet used to pitch Midnight Madness to potential participants describes the games as “a series of cleverly camouflaged, incredibly ingenious and devilishly difficult puzzles – the answers to which indicate the location of the next puzzle . . .”
Last year’s competition saw teams play with lasers in an abandoned building, use circuit boards to reveal locations on a map, and work to change the colour of the lights at the top of a New York skyscraper.
The geekiness of the Manhattan-based event has earned it a reputation for attracting the cadre of “quant” maths experts who have increasingly come to dominate Wall Street institutions and their trading strategies.
This year’s event will include 25 teams of 10 people each, organisers said. Goldman is fielding 16 teams, down from the 20 it sent last year.
From next week, Citi will hold a series of silent auctions and challenge senior staff to “dares” in order to raise the $250,000 in funds it needs to compete. One executive plans to pay $5,000 to challenge Mr Keegan to croon “Danny Boy”.
Citi staff can also pay $20 to wear jeans (usually a no-no on the trading floor), proffer cash to throw pies at their superiors, or enter a hot dog-eating competition. The bank chose team members in a random draw after receiving more than 100 volunteers.
At Credit Suisse, convincing staff to participate in the elaborate competition was relatively more challenging. “It had this reputation of an event that’s very complicated and extreme,” said Dan Miller, head of strategic risk management for the investment bank.
The bank is entering one team into the event and raising cash the old-fashioned way – through solicitation. Division heads were asked to pay $5,000 each to nominate one of their brightest underlings to the Swiss bank’s team.
The Credit Suisse team has also been given a $3,000 budget to buy supplies such as cellphone chargers and copious amounts of Red Bull, the energy drink.
Elisha Wiesel, a partner at Goldman and a member of Good Shepherd’s board, said it is not unknown for contestants to fall asleep on the sidewalk while competing in Midnight Madness, which was started in the 1990s but went on hiatus in 2007 until it was revived last year by Mr Wiesel and other organisers.
“This is really like a marathon. It’s a sporting event,” Mr Wiesel said. “You have to survive a very, very challenging evening, morning and potentially afternoon.”
Last year’s “Madness” raised $1.4m, after about $270,000 of expenses. This year’s budget is “going up a little bit” because the event is “aiming to be more ambitious and make more money for the charity,” Mr Wiesel said.
The hefty budget for last year’s event drew some scepticism, including from Reuters columnist Felix Salmon, who wrote that “at some point you do have to wonder whether they really needed to spend that much money on the game design”.
When asked whether the competition could become an annual Wall Street event, Mr Wiesel said that it would depend on organisers’ ability to commit their time.
But he added: “This is just too cool and too fun not to do.”
Those looking to get on the new CIO’s good side can go here, to an old FT Alphaville post, to try out some Midnight Madness puzzles and practice lateral thinking for themselves.
I love to travel and I love to read.
I read some great books on my most recent trip to Nepal, which led me to list some other memorable reading recommendations from some other recent-ish travels.
Massacre at the Palace – I was surprised to see that the paperback version of this book isn’t available on Amazon given that it seems to be in every bookstore in Kathmandu. Regardless, this is a compelling account of the 2001 massacre of Nepal’s royal family. It’s packed full of history but reads like a thriller. Interestingly, a big chunk of the Nepalese population doesn’t seem to buy that Crown Prince Dipendra murdered his family and then committed suicide – one reason the book gets mediocre reviews on Amazon. If you visit Narayanhiti Palace in Kathmandu, you’ll also notice no mention of Dipendra’s role in the massacre or his suicide.
Into Thin Air: A Personal Account of the Mt. Everest Disaster – Compulsory reading for trekkers in Nepal I guess. I read this book and then dreamed of Everest for the next week (not in a good way). Make sure to read the end bit in which Jon Krakauer deals with a rival account of the 1996 Everest Disaster by Anatoli Boukreev.
From Goddess to Mortal: The True Life Story of Kumari – This is the photo you’ll see on every travel brochure for Nepal – the Kumari is a young girl believed to be the physical manifestation of the Goddess Taleju. There are at least three in the Kathmandu Valley and this is an account written by a former Royal Kumari of Kathmandu in the early 1980s. Perhaps the most interesting thing in this is getting first-person perspective of her life (including her thoughts on tourists!) and her opinion on the role of Kumari in Nepalese society. While some have criticised it as a form of child labour, this ex-Kumari believes the position can help unite religions since the tradition sees girls from a Buddhist Newari caste become the embodiment of a Hindu goddess. If you don’t want to read, this documentary on the Bhaktapur kumari is also excellent, free to watch, and occurs against the backdrop of Nepal’s Civil War.
Pakistan, India and the Middle East
The Dancing Girls of Lahore: Selling Love and Saving Dreams in Pakistan’s Pleasure District – Sociologist Louise Brown spent a long time living with and shadowing a family of dancing girls in Heera Mandi, the Lahore’s ancient red-light district. There’s obviously a firm-focus on sex work in this but Brown’s account also contains much detail about the daily life of the poor in Pakistan, including food, religion, cleanliness and the stubbornness of the caste system.
The Taliban Shuffle: Strange Days in Afghanistan and Pakistan – Journalist Kim Barker gives her account of war reporting from Afghanistan and Pakistan.
Inside the Kingdom: Kings, Clerics, Modernists, Terrorists, and the Struggle for Saudi Arabia – Seems to be standard recommended reading on Saudi Arabia.
City of Gold: Dubai and the Dream of Capitalism – A highly-readable one-stop shop account of Dubai (and to some extent, the entire UAE’s) transformation from desert outpost to modern metropolis. The first section is history, followed by some contemporary issues divided by topic – including labour rights, environmental degradation and social problems caused by a huge influx of immigrants. Worth reading as more and more Gulf states attempt to wean themselves off oil.
The Media Relations Department of Hizbollah Wishes You a Happy Birthday: Unexpected Encounters in the Changing Middle East – Neil MacFarquhar is a well-traveled reporter who gives a great cultural and political tour of the Middle East, organised by country. This is the book that taught me about ‘Bebsi‘ and Fairuz.
Behind the Beautiful Forevers: Life, Death, and Hope in a Mumbai Undercity – A true-life account of a family living in a Mumbai slum that reads like a Charles Dickens novel. The human impact of India’s convoluted courts system is one thing that really struck me from this Pulitzer Prize-winning book.
Guatemala, Mozambique, Various
The World Until Yesterday: What Can We Learn from Traditional Societies? – There’s a tendency to write off traditional societies as primitive or old-fashioned but Jared Diamond makes the case that many of their customs and practices persist for a reason. This book has stuck with me for a long time – and the lesson he learns about “constructive paranoia” in the aftermath of a boat accident somewhere off the coast of New Guinea is one I tend to bear in mind whenever I travel.
China’s Second Continent: How a Million Migrants Are Building a New Empire in Africa – One of the things that surprised me in Mozambique was the pervasive presence of the Chinese. From Maputo to Maxixe, Beijing’s influence is behind everything from football stadiums to newly-constructed roads and the trucks and cars on them. Howard French’s book tackles this issue and includes some memorable anecdotes – including a Chinese immigrant attempting to repopulate the continent in his image.
The Art of Political Murder: Who Killed the Bishop? – Riveting and informative tale of Bishop Juan Gerardi’s 1998 death in Guatemala City. A good introduction to some of the horrific history of Guatemala’s long civil war as well as its continued troubles with gangs and general political corruption.
Banana: The Fate of the Fruit That Changed the World – I never thought I’d enjoy reading a book about the history of a fruit (although, that said, I did read this book exploring every ingredient contained in Twinkies and it was pretty great) but I picked this up before heading to Guatemala in an effort to get a grip on the United Fruit Company and its role in the country. What I got was much more – including, eventually, an Odd Lots podcast with the author Dan Koeppel.
Previous Convictions: Assignments from Here and There – A travelogue by the late, great AA Gill.
Is this the end? Are you my friend?
It seems to me, you ought to be free.
You used to be mine when the chips were down.
You used to be mine when I weren’t around…
– The Doors.
Those immortal lyrics spring to mind courtesy of this Citi survey of investors:
I’ve been surprised by the suddenness with which markets appear to have shifted gears from an apparent six-year reliance on easy monetary policy to pinning their hopes on the expectation of fiscal stimulus that is still far from materializing. We’ve touched on it in our various coverage at Bloomberg but it seems this will be the theme to watch in 2017. How rapid is the tightening? How pervasive? And, crucially, can the market remain relatively resilient in the face of rising rates and investors who still have a massive long position on credit?
Speaking of which, as is becoming tradition around here, here’s this year’s list of credit coverage. You’ll notice it peters out as the year goes by. That’s because I got busy with a new home and some new work. See you in the new year and here’s hoping your 2017 be filled with all the right kind of surprises.