Flows

Lots of focus this week, in the UK at least less so, perhaps, in the canteen at Twitter, on the Government’s fourth big budgetary shemozzle as it desperately tries to regain the trust of the kind strangers who keep the whole show on the road. The muted market reaction to yesterday’s steely speech by Jeremy Hunt suggests time has been bought, and a semblance of stability has returned. For now. Stepping back, the tale of the tape YTD can be summed up by performance of the lesser known ‘NGRU levered big oil ETN’ which has returned a none too shabby +286%; relative that is to the also, not-for-vicars-and-nuns, ‘BULZ levered FAANG’ product which has slumped -89%. And there it is, a secular shift into inflation assets as the boom time thump-thump of excess wanes. The consequences of an egregious decade-long misallocation of capital meanwhile, has started to shake out the charlatans. The new CEO of FTX, one John Ray III, who tidied up Enron, spoke this week of his shock at the lack of any sort of corporate controls and complete no show of any reliable financial information. He is, one would imagine, a man who is quite hard to shock. FTX is, likely, just the start of it. Also of note is the inversion of the yield curve in the US, where the closely watched 2s10s is the most upside down since February 1982 giving those of a bearish leaning more than enough to scare the supper party guests over ripe brie and port. With pending home sales -30%, lumber -70%, freight rates -75%, amongst others, a recession does indeed seem to be coming. That said, LEIs have ticked up and the Atlanta FED’s much tweeted GDP Now series is calling for Q4 GDP to come in with a 4-handle, suggesting the huge inflow into equity markets this week is a taster of what’s to come; and speaks of some pent up appetite to chase performance into year end. Mince pies all round.