Jonathan Rochford of Narrow Road Capital has written a gem on the role of central banks in spawning this current crisis. An excerpt here:
“The rapid and widespread sell-off over the last four weeks is a textbook systemic deleveraging. Whilst the culprits are many; hedge funds, risk parity strategies and investors using margin loans have all been caught out, the underlying cause is excessive leverage across the economy and particularly the financial system. The timing of the unwind and the economic damage from the Coronavirus wasn’t predictable, but such a highly leveraged system was like a truck loaded with nitroglycerin driving down a road dotted with landmines.
Frustratingly, this inevitable deleveraging was clearly predicted. Rather than act to reduce systemic risks central banks encouraged governments, businesses and investors to increase their risk tolerances and debt levels.“
Naturally, it fits our own long-held view on central banks.
Jonathan adds some sensible actions which are contained in this link. The question remains whether governments will put principle ahead of expediency in the cleanup?
The easiest thing about understanding trends in markets is following the money. 291 hedge funds closed their doors in Q1 2016, up from 217 in Q1 2015.
As I’ve said repeatedly and in today’s report, the markets are heavily manipulated by authorities. Whether in Japan it is buting 58% of the ETF market or c. 100% of bond auctions, these distortions make it harder to make money. Not to mention hedge funds now are saddled with so much red tape that to run one requires so much legal & compliance without $1bn assets under management you wouldn’t cover costs. So these figures probably represent ‘too hard basket’ than just poor performance.
As an old industry hack, many acquaintances still in the industry know the writing is on the wall. They are drifting in their corporate driftwood waiting to be thrown a lifeboat package. That is a bigger signal. There is no real money left in a lot of financial services companies as we traditionally know it.
While many may cheer at the death of many banksters, note among the bad ones, we also lose a lot of creative, intelligent and smart people the world really could do with. We should be careful of what we wish for.