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The polite form of a question I’m often asked is: “What do I read to keep on top of financial markets?” The impolite form is more common, though. “Where on earth do your silly opinions come from?”
Famous investment analysts love to reveal their reading habits. The Financial Times or Wall Street Journal in bed. Then it’s an hour on Bloomberg and devouring a dozen research notes before a morning run while listening, of course, to downloaded academic papers. Or reports from the world’s major central banks and institutions such as the IMF or Bank for International Settlements. Depends on the route.
After that, a morning coffee and flicking through hundreds of Substack commentaries and social media posts from investment gurus who just can’t leave it alone post-retirement or having been fired.
Oh, and the books! Your favourite strategist reads literally hundreds of them each year. There is always one which has the word “abundance” in the title. Anything by Yuval Noah Harari. It’s all relevant to investing, if only you could join the dots like they do.
You can tell from my tone that I’m sceptical. To me, it’s akin to people who say they’ve watched every hot new streaming series. Or every company in a sector promising to increase their sales by 30 per cent. There aren’t enough hours nor customers.
But even if I had the time, I wouldn’t be so voracious. What chance do I have of beating an index or having an original idea if I’ve spent my life consuming everything everybody else is thinking? A consensus view is guaranteed.
Hence, portfolio managers outside a region tend to outperform rivals close to the ground. And everyone knows that new ideas never emerge from meetings. That’s why companies have so many of them.
In other words I have spent the past few decades trying to reduce my inputs to as few as possible. The Financial Times for news. Bloomberg for data. Capital IQ for corporate analysis. Academic papers for research.
I do read books, but investors only need two. Anything by Andrew Smithers if you’re a professional (they kind of repeat themselves, which is a good thing). And for retail punters, Heads I Win, Tails I Win by Spencer Jakab, as I’ve mentioned before.
No bank research reports for me, either buy- or sell-side. They’re just noise. And I ignore everything from the big international financial institutions such as the World Bank and regulators. Too political.
The IMF’s global financial stability report, which comes out twice a year, however, is in my opinion by the far the best when it comes to explaining the interplay between economics and finance.
I spend months devouring each release. They are so packed with gee-whiz numbers and charts it sometimes takes me a day to absorb a single page. Lots of it is over my head, even when sober and reading each sentence twice.
Still, if you said I had to manage my portfolio with the aid of just one publication it would be that. Hands down. And don’t be put off by the word “stability”. Risk and returns are two sides of the same coin.
Yes, the IMF gets loads of forecasts wrong. But I don’t care. So many perennial optimists are screaming at me all the time that a serious counterweight is welcome. I can always ignore it — and mostly do.
The latest report has me brooding, however. It’s a compendium of all the worrying stuff lurking beneath the calm waters of the financial system. But it comes with data — rather than some doom-monger on CNBC rabbiting on about government debt or whatever.
Lots of it doesn’t bother me much. I’m fairly cool on the rise of stablecoins and don’t really care if ETFs and open-ended funds own 45 per cent of US high-yield bonds, for example. Nor do I reckon a monster is soon to emerge from the forex swamp.
Two risks leapt out at me though. The first is the rapid rise in interconnectivity between traditional banks and non-banks, such as investment funds, mortgage companies, broker-dealers or securitisation vehicles. Covid aside, all financial crises have involved the world’s biggest lenders. Knowing that their balance sheets are fine, I am guilty of concluding there’s nothing to see here.
But mega banks are lending non-banks ever-increasing amounts. In the US they account for 90 per cent of all loans to such intermediaries, even if the exposure concentration is more acute in the regional banks and those with assets under $100bn.
Whichever way you cut it, the number of US banks with non-bank exposure exceeding their tier one capital — a regulated buffer if you like — amounts to half of the total assets in the IMF sample (not all banks disclose this information). It’s a similar story in Europe too.
And if you reckon banks have moderated their behaviour post-financial crisis, get this: US loans to private equity and credit funds have jumped by 60 per cent between the fourth quarter of 2024 and the second quarter of this year. To almost half a trillion dollars.
What? Maybe I don’t read enough, but I haven’t seen that splashed across every financial bulletin in the world. Forgive me if I missed it. That is an insane rate of growth over such a short period. Naturally, the IMF has stress-tested an “adverse scenario” hitting these loans. You don’t want to know.
The next thing that spooked me were half a dozen charts on corporate margins and earnings downgrades. I knew the profit outlook for non-magnificent seven US stocks had been heading south since the tariff games started in February. But I hadn’t clocked how global the phenomenon was — nor how high margins everywhere (save Brazil and China) still are relative to the past 10 years.
See what reading too much does to a man? Perhaps I should do even less.
The author is a former portfolio manager. Email: stuart.kirk@ft.com; X: @stuartkirk__
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