Throwing Oil On The Fire-Sale?
Jess Delaney says that “oil-exporting nations may raid their sovereign wealth funds to plug budget holes, but the funds’ asset allocation remains unchanged…Oil exporters have four basic ways of responding to oil price shocks: cutting spending, issuing debt, tapping their sovereign wealth funds and, in the longer term, diversifying their economies. In today’s circumstances, [Terrence Keeley, global head of BlackRock’s official institutions group] sees debt issuance as the first recourse for hard-pressed exporters…[So far,] there’s little sign that sovereign funds are altering allocations…’There really is no linear relationship between a country’s break-even oil price and its appetite for risky assets.’” Meanwhile, Chevron Corp issued $6bn in debt yesterday, 30% of which is priced at 50 bps above US treasuries, and, in total, “gives Chevron a lower borrowing cost than the average of company debt with similar ratings and maturities.” Speaking of corporate debt, “the supply of corporate bonds has more than doubled since the precrisis period, with a little more than 80 per cent of that growth coming from a boom in the supply of highly-rated bonds…Whether corporates will be able to deliver the same level of profitability when (if?) rates end up rising is unclear.” Meanwhile, liquidity is still a concern (alt): “Regulations aimed at bolstering stability at the core of the financial system, combined with a growing demand for liquidity, may eventually lead to increased instability and fire-sale risk in the periphery” (read: illiquid bonds and alternatives). Furthermore, “ETFs are being used not only by end investors looking for instruments with daily liquidity, but also by mutual funds seeking to mitigate the differences between the liquidity their investors expect versus the (poor) liquidity available in the underlying bonds.”
Creation — Destruction
Fortune magazine is pretty worried about “deploying 3,000-pound robots on public streets.” “Self-driving cars are the first potentially deadly robots the public will meet, but they won’t be the last.” And for MIT professor Erik Brynjolfsson, driverless cars represent a significant advancement towards technology replacing (alt) “the uniquely human skills of judgment and dexterity.” “It’s gotten easier to substitute machines for many kinds of labor. We should be able to have a lot more wealth with less labor…But it could happen that there are people who want to work but can’t.” Meanwhile, the classroom next door is taking “the non-alarmist view”: “fear has outpaced reality…humans can do many things without being able to explain how…if a person can’t explain how they do something, a computer can’t be programmed to mimic that ability.” Furthermore, “if we automate all the jobs, we’ll be rich — which means we’ll have a distribution problem, not an income problem.” Meanwhile, a Barclays analyst thinks that “economists have probably been far too generous in their accounts of potential output and most likely under-estimated the scale of potential growth destruction that has taken place in the global economy as a result of the financial crisis.” Furthermore, he argues that even pre-recession, developed economies were already transitioning from “manufacturing toward less-productive services as competitiveness worsened, and trends toward part-time work and more flexible working arrangements weighed on hours.” Meanwhile, Klaus Schwab sees an age of disruption leading us into new waves of growth: “in this new era, economic growth will occur more slowly — but potentially more sustainably — than it did before the crisis. And technological change will be its driving force…One outstanding feature of this revolution is the scope and scale of its disruptiveness (i.e. the “Uber of X” phenomena)…Gone are the days of big fish eating small fish. In the post-post-crisis world, fast fish will dominate — and slow fish will die.” Speaking of slow fish…
“While it is possible to imagine that the current disdain for actively managed mutual funds among individual investors will eventually subside and possibly even be replaced by enthusiasm, there are all sorts of institutional forces that will keep pushing money out of active funds and toward cheaper passive ones. And while it was once believed that the rise of index investing would make markets less efficient and thus create new opportunities for active money managers, the new thinking is that…the lack of retail punters and their harvestable mistakes cuts off one of the most reliable historical sources of alpha for sharp-eyed managers.”
Charts: I Love Mountains, Don’t You?