Invest-ability bulletin 15/12/21: Fear and Loathing

Why it’s time to start paying attention to weirdos

As Hunter S Thompson once put it, “when the going gets weird, the weird turn pro.” If only the great journalist were alive today, because HST levels of weirdness are what’s required to make sense of the wonky world in which we’re living right now. From where I’m sitting, things seem even crazier now than they did at the start of the pandemic in March 2020 (or maybe that’s just the view from the very strange and brilliant place that is Suffolk).

Where to start with the crazy? The latest inflation figures, maybe – CPI jumped to 5.1% in November, catching no one by surprise except those in the business of managing interest rates. What’s becoming harder to work out is why in the face of soaring inflation central bankers seem so intent on sitting on their hands (update: the BoE has only gone and done it, raising rates from 0.1% to 0.25% this morning, surprising everyone once again).

The standard argument is that they don’t want to choke off an economic recovery, especially in the face of new Covid worries. The common cynic’s view is that having expanded their balance sheets so much during the pandemic they’re quite happy to see inflation whittle it away. The unkind view would be that they are simply not very good at their jobs and sitting rabbit-like in the inflationary headlights, terrified of making a so-called “policy error” which they’ve probably already made anyway by sitting rabbit-like in the inflationary headlights for so long. And the conspiracy theorists’ view would be that they’re buying their rich mates enough time to liquidate before rate rises bring asset prices crashing to earth again.  As my new economist Christine Shield argues, it might not matter anyway – we’re in pickle already.

As it happens, I think the conspiracy theorists – the nutters that warned us a year ago that a health crisis would turn into a civil rights crisis – might be more right than anyone else, because the rich are indeed selling up. According to Bloomberg’s Billionaires Index, the richest Americans have sold $42.9 billion of stock so far this year, which is more than twice the amount they sold throughout the whole of 2020. According to their own wealth managers, there are a multitude of reasons why they might be doing this, including incoming tax changes, philanthropic plans, and fears of a market top. All of them suggest the same thing anyway – having accrued massive riches throughout the pandemic they’re now trying to hang on to as much of it as possible, through fair means or foul, and that’s worth paying attention to.

We should also be paying attention to what’s going on in China, where the slow-motion car crash called Evergrande – the very first thing I wrote about for Invest-ability – is delivering the contagion that experts repeatedly said wasn’t possible. As Richard Frost at Bloomberg puts it “Forget Evergrande the big concern is about Shimao,” because its bonds might not be quite the investment grade that ratings agencies had previously thought.

Who knows whether it’s enough to ripple into major western markets, but I am reminded of the post-Lehman moment when a now Bank of England regulator – naming no names – suggested there was “no read-across for British banks”. I remember that gob-smacking moment as though it were yesterday, and the culpability of ratings agencies in the GFC. And if, as chaos theory suggests, a Blue Morpho fluttering around in the Amazon can cause a tsunami on the other side of the world, then imagine what damage an elephant-like property developer collapsing in China can do.

As for China, I am firmly of the belief – and I say that as firmly as it is possible to say – that the broader risk is being hugely underestimated, not least the ESG one, but who cares about that because I think, unashamedly, that ESG as perpetuated by the City is largely a massive fraud anyway – and I am not alone. Uighur Muslims are a big thing to set aside, and I think that the vested interests in perpetuating the view that when it comes to China “there is nothing to see here” are massive and horribly wrong.  You only have to watch the brilliant Ros Atkins at the BBC, or the incredible science writer Matt Ridley, to see what I mean. And that has repercussions, not least that the globalised system that we have all been used to for so many years is about to change beyond recognition.

Call me a conspiracy theorist – or a nutter if you prefer, I can handle it…this is not my first rodeo. But the world is as weird as I can ever remember it – and I remember being evacuated from a stockbroking office on Cornhill when the Twin Towers went down. The world changed after that, and will change after again after what has already proved a far more catachlysmic event. It might pay to think a little more Hunter Thompson right now.

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