We used to be uncertain. Now we’re nothing like as sure.
Even Larry Fink, chief executive of BlackRock, the largest asset manager in the world, admits to being fearful, with trillions and trillions of dollars sitting on the sidelines because investors and companies lack confidence in the future.
According to private bank Coutts the proportion of entrepreneurs keen to sell businesses through management buyouts has tripled since the credit crisis ended. But chance would be a fine thing.
The merger & acquisition market is dead, with Citigroup struggling to sell music group EMI and Joe Lewis backing away from his tentative bid for pubs group M&B tabled over the summer. Banks are reluctant to lend and companies are reluctant to borrow, destabilising economies in the US, Europe and even China, where problematic infrastructure loans are being compared to US sub-prime mortgages.
Anxiety not only makes it hard for companies to plan for long term. It influences investor behaviour, which has become skittish. Ever since the credit crisis began, investors have been net sellers of retail funds but net buyers of listed Exchange-Traded Funds. They use them to take a punt on the movement of indices, reckoning they can liquidate an ETF far more quickly than a traditional fund.
As far as clients of investment banks are concerned, high-frequency trading, which take advantage of fleeting arbitrage opportunities, is a safer source of profits than investing for the long term.
Depressed? Try not to be.
In the near future, the G20 group of leading economies is due to meet in Cannes in the near future. The pressure is mounting on them to come up with a “global solution” to the financial – and social - turmoil, which is likely to see an awful lot of money thrown at the problem.
Within days, meetings between France and Germany are likely to produce some form of “orderly” default for Greece, plus a state-backed recapitalisation of European banks through a European Financial Support Facility, leveraged to make its €440 billion stretch further. A rally in share prices over the last week suggests that a growing number of investors expect a sensible deal.
The US Federal Reserve is currently restricting its quantitative easing activities to issuing short term and repurchasing long-dated bonds, to lower the cost of long-term capital. However, influential commentators such as Alan Blinder, former Fed vice chairman, has suggested the central bank should repurchase corporate bonds, syndicated loans and other private-sector securities.
Printing money to buy them in would have inflationary consequences but who cares in current circumstances? It would also give stock markets a big shot in the arm.
The other point worth making about the markets is that equities, which provide some protection against moderate inflation, are extraordinarily cheap.
According to veteran investor Bill Mott, manager of the Psigma Income fund, a range of large multinational companies are promising to pay dividends offering a yield two to three times more than medium-dated gilts: “This is normally a strong buying signal for stocks.” Fidelity Worldwide Investment argues that the slide in confidence is not reflected in hard US data, which suggests a degree of corporate resilience.
We shouldn’t, of course, get too carried away with bullish comments by equity managers. Nor should we put too much faith in politicians.
But you sometimes need a crisis to solve a crisis.