Mint – Blain’s Morning Porridge
Undinal songs urge the sailors on, till lured by the sirens’ cry…
Tomorrow we’ve got US payrolls. Will it turn the world around? Perhaps – recent US data points to a strong number.. but that’s just me reading the runes..
This morning, it’s hurry-up and wait.
The collapse of the UK property sector highlights the liquidity fears and rush for the exits mentality that drives current markets. From the headlines, you’d think UK property has turned to dust.. yet, deep down we all know the sidewalks of London remain literally paved in solid gold..!
Is the collapse of the property market on the back of panicked retail withdrawals herd mentality? Or a genuine investment reversal? More than one of my chums has reminded me it was BNP and Bear Stearns running into problems in their CLOs (collateralised loan obligations) and closing redemptions that triggered the crash in 2007. But, the other lesson we learnt then was that a liquidity blockage is not the same as an investment becoming zero value.
Property is one of the main sectors we’ve been focused on in our Alternatives Assets business. We’ve never pretended that financing a housing estate in Scotland, providing senior leverage on well capitalised development loans, or equity into hotels was a liquid game – but they generally provide very solid “dull, boring, predictable” returns: the very touchstone of a solid non-public instrument investment portfolio. (Which is why every serious fund has a property team.)
Of course, some smart funds (well done Coleman Street) put much of the property portfolio into cash, anticipating ructions. But others have been floored by the queues of anguished investors who’ve made the mistake of reading the Daily Mail sprouting whatever nonsense [Bank of England governor Mark] Carney said about voting Brexit (British exit from the European Union) meant the end of everything.
What the current ructions in property highlight is the fickle nature of investors – largely retail – who’ve bought the mood of panic, accepting the gospel truth that the UK leaving Europe means there will be nary a single banker left in Canary Wharf, superstores will lose every customer overnight, and since UK business stopped dead on the morning of June 25, then the only thing to do is hold cash.
There is a growing raft of conspiracy theorists who say the current uncertainty across the UK has been exacerbated by the Bank of England and others. They say Carney was overly partisan in his “doom and gloom” forebodings of a post-Brexit holocaust. Since then he’s fuelled biblical terror with his promises to stand ready with rate cuts to save his ungrateful flock. In short, he’s scaring the pants off confused savers.
That said, we remain convinced there are great property investments out there.
Right across the Alternatives Sectors (that part of the market that seeks to provide non-correlated real returns by avoiding the perverted negative yields of the bond market, or overinflated stock prices distorted by yield hungry bond-tourists, by investing in tangible real return assets), there are opportunities for stellar returns.
We’ve got three main strategies: investing in solid cash flows via secured cash flows, event-driven investments (such as rising values in shipping or distressed plays in oil), or disruption like a new firm that makes Facebook look like smoke signals when it comes to communicating and monetising the embedded value and marketing potential of private social networks.
Meanwhile.. back to the day job as a day traipsing round the city beckons..
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