What perils lie in wait for financial markets?
I attended a conference in Blackfriars last week centred on just this question.
This “risk horizon” event was intended for fund managers and other investment professionals. We’re on the fringe of the mainstream financial industry here at Southbank Investment Research, but I like to take the pulse of the mainstream from time to time, and went along. What I found there was troubling, to say the least.
There were three speakers, and all had an impressive pedigree. One was a member of the Shadow Monetary Policy Committee, another was an adviser to a billion-pound family office and the last was in the upper echelons of a stockbroker with tens of billions of pounds under management.
And yet, despite the great CVs of those presenting… not a single one of them even mentioned Italy in their presentations.
Instead the speakers virtue signalled about Donald Trump… congratulated themselves for their pro-remain stances on Brexit… and extolled the benefits of mass migration, among other things.
Not exactly what I was expecting from an event meant to inform me on market risks. It seems a major risk facing financial markets is the attitude of market participants to risk!
The closest anyone got to the risks in the EU was the risk of “strongmen” rising to power in eastern Europe and the protectionist policies they might enforce.
I was intrigued as to what the speakers actually thought of the Italian problem, and whether it registered on their radar at all. After the event I approached one of them who had spent much of his presentation in a self-righteous political fervour, and had provided little useful content. Amazingly, he agreed that Italy was a massive risk, but that he hadn’t had enough time to include it in his presentation!
He agreed that Mario Draghi’s hands are tied, being unable to raise rates with Italy in such poor shape. He also agreed that the enormous Target2 imbalances between national central banks in the eurozone will only grow greater, and not average out over time as they’re supposed to.
And yet, he still believed that Italy can be kept alive in its current state. In his view, the European Central Bank will continue to extend Italy cheap financing, one way or another, like a limitless IV drip, and that somehow, everything will end up OK…
While I’m sure “Super Mario” Draghi will do all that he can to keep Italy afloat, the ship is holed below the waterline – and I don’t want to be on board when it goes down.
Speaking of sinking ships, a relative visiting the States was kind enough to bring me back one of these:
Davy Jones Locker – 2 troy oz silver round by Elemetal
The Americans are much more enamoured by silver than us Brits – something I attribute to the fact that we pay VAT on silver bullion, and they don’t. It’s incredible just how deep the relief is on these silver rounds, something you sadly won’t find in British precious metal refiners.
Physical assets are a great antidote to risk conferences don’t discuss risks and “paper” wealth that exists only on a screen. I’ll add this to my “car boot portfolio” that I described last week. Maybe “Davy Jones’ locker” is a better term for a portfolio of tangible investments – wealth that doesn’t die, even if the financial system sinks.
All the best,
Boaz Shoshan
Editor, Southbank Investment Research
Category: Economics