What We’re Watching: CIM’s review of 2023

December 2023

Tis the season of outlooks and reviews. In the spirit of the season, this month we’ll share some books, podcast and other things that have influenced our team’s thinking during 2023.

Favourite book:

• Pete Robinson, Head of Investment Strategy: I enjoyed Dead in the Water which is one for the conspiracy theorists amongst us. It is centred around the sinking of an oil tanker off the coast of Yemen and explores some uncomfortable realities of how our goods get to our doorsteps as well as delving into the arcane and shockingly backward Lloyds of London insurance markets. We assume the plumbing of the financial system is constantly refined and refreshed so as to be as efficient as possible; sometimes it’s a 100 year old set of pipelines held together with gaffer tape and wire. If you enjoy Dead in the Water an older novel which touches on similar territory is the Shipping Man by Matt McCleery.
• Brent Stephan, General Manager Credit Risk: I read fiction away from the office and finished the Border Trilogy of books by Cormac McCarthy. He has a unique style of writing that sets a distinct tone while managing to describe landscape and life’s deeper themes eloquently and efficiently. Lots of cowboys if you are into Yellowstone.
• Gerard Hargraves, Head of Real Estate Lending: Mine were Red Notice and Freezing Order by Bill Browder – it’s a thrilling read of Russian government corruption and criminal activity and is an in-depth insight of how Putin’s kleptocracy permeates the government system down to judges, policemen and prison officers. Bill Browder is famed with the birth of the Magnitsky Act which is fast being adopted by all Western countries around the world to sanction Russian, and now other countries, individuals who are the beneficiaries of crimes against humanity. Being a Michael Lewis fan, I do have a copy of Going Infinite on my Christmas list.
• Linda Mead, Senior Institutional Business Development Manager: A few years ago, I was given the perfect summer holiday read, “Into The Rip”. This book, written by American, Damian Cave, when he was posted in Sydney to establish the New York Times’ Australian bureau. He and his wife covered the Iraq war and were thinking that a posting in Sydney would be a nice change, that is until he and his kids sign up for nippers and the Bronze Medallion! It’s a great story but, I found his analysis and comparison of risk taking in Australia to the American way of life, spot on, as they say here!
• Jonathan Kearns, Chief Economist and Head of Regulatory Affairs: One Minute to Midnight about the Cuban missile crisis is hard to put down. It’s fascinating to read a thoroughly well-research account of how the world was slipping toward a nuclear conflict and how small accidents or misinterpretations brought us perilously close. It’s a state of the world we hope we’ll never find ourselves in, but we always have to think how to avoid it and best respond.

Favourite podcast:

• Michael Bors, Senior Portfolio Manager, Investment Grade Corporate Credit: For work related topics I like the vast suite of free podcasts from Bloomberg. The content is on par with the very highly priced terminal subscription. The June 2023 ‘Odd Lots’ interview with Zoltan Pozsar is possibly the last time the public will ever hear from him. Away from work, I enjoy the ‘THEMOVE’, a show about the pro cycling scene hosted by Lance Armstrong.
• Pete Robinson, Head of Investment Strategy: Capitalisn’t, with Luigi Zingales and Bethany McLean explores whether capitalism is doing more harm than good. Each episode involves the hosts (an economist and a journalist) interviewing someone about a topic of interest, exploring whether this is a capital-is (i.e. capitalism as a driver of prosperity and growth) or a capital-isn’t (i.e. a flawed structure which is inevitably exploited). My favourite episodes of the year were the debate around whether private equity is good or bad and Raghuram Rajan discussing the failure of Silicon Valley Bank and the wider implications. Both topics remain relevant in my view with the lagged impact of the regional bank issues still yet to be fully felt.
• Kieran Roane, Senior Portfolio Manager, Investment Grade Corporate Credit: I enjoy the FT’s Alphaville podcast, an alternative take on current market themes to get you thinking away from the financial news headlines. I came to the “Risk of Ruin” through a recommendation from Pete Robinson. The podcasts’ main theme covers the gambling industry, but the recommended episode was one titled “Inside Long-Term Capital”. This story has been very well covered over the years, but this episode is from the perspective of Eric Rosenfield, an LTCM partner – fascinating, as are the other episodes covering gamblers and the gambling industry. Paul Donovan, UBS’s wealth management chief economist does a great, bite size daily podcast which can be quite cutting – he compares investment professionals’ reliance on macro data headlines to crypto zealots – as he encourages listeners to look under the hood and question the data and not rely on the sensationalism which has seeped over from social media.
• Gerard Hargraves, Head of Real Estate Lending: not really a pod cast listener and so, for me, it’s hard to go past the NAB Morning Call. It’s a quick and concise coverage of overnight global financial markets which keeps me up to speed with the macro technicals that I hear often discussed within our public market credit teams.
• Jonathan Kearns, Chief Economist and Head of Regulatory Affairs: I have to agree on ‘the Odd Lots’ for bringing some great academics to discuss real world issues. And because economics is never far from politics I have to pitch ‘Left, right and center’ for the US and ‘the Party Room’ for Australia.

Favourite X/Twitter follow:

• Pete Robinson, Head of Investment Strategy: CRE Analysts (@CREAnalyst1). I found this account early in 2023 as I was trying to better inform myself about some of the dynamics in the US commercial real estate markets. Tweets (are they still called “tweets”??) plenty of charts which are presented clearly and concisely. The account does a great job articulating the argument that the change in interest rates means that these assets cannot be financed at current valuations. We’ve done a bunch of work testing US CRE credit fundamentals against the Australian market. While Australia is currently on much stronger footer with lower interest rates, higher occupancy levels and looser financial conditions, it’s instructive to constantly compare the two markets.
• Michael Bors, Senior Portfolio Manager, Investment Grade Corporate Credit: I keep hearing there is some good content among all the noise but am yet to embrace it. I’m more intrigued by Musk’s recent admission the company might not survive the recent advertiser boycotts.
• Kieran Roane, Senior Portfolio Manager, Investment Grade Corporate Credit: I don’t actively follow X, formerly known as Twitter, for fears of rabbit holes. I do follow Dr Parik Patel BA, CFA, ACCA, Esq, and his amusing and comic commentary on financial and broader news stories. It’s good to not take ourselves too seriously at times. That said, much like my colleague Michael Bors, the story of Twitter post Musk’s takeover is fascinating including those exposed to the fallout– from bridging finance for the takeover deal that is sitting on banks’ balance sheets to commercial landlords who haven’t been paid since the takeover. Musk has turned things around in the past, so will be interesting to see what he might pull out the hat this time.

Favourite research:

• Michael Bors, Senior Portfolio Manager, Investment Grade Corporate Credit: ‘The Flow Show’, Michael Hartnett, Bank of America Global Research. Very macro but neatly combines secular and cyclical views with thought-provoking charts and data points in an easy to digest format. His observation in January 2023 after two terrible years for rates investors that there had never been three straight years of losses from treasuries, citing data back to 1796, has just held true. If you don’t have time to read it weekly, try his annual ‘’The Longest Pictures’’ for a compilation of charts with time scales measured in multiple decades or centuries. 
• Pete Robinson, Head of Investment Strategy: I really enjoy the Silver Bullet, which is a newsletter written by Alberto Gallo of Andromeda, a European credit fund manager. Throughout 2023 they have questioned the ability of central banks to achieve both price stability and financial market stability. I’m wary of confirmation bias but their view lines up with ours that central bankers are more willing to look through some financial instability in order to achieve price stability.
• Kieran Roane, Senior Portfolio Manager, Investment Grade Corporate Credit: The benefit of working in a team with broad interests is that there is no shortage of recommendations for great research from different sources and viewpoints. I enjoy contrarian viewpoints, like those of Albert Edwards at Société Generali, whose ongoing mission is to push back on market optimism. A few months ago, he presented what he called the “maddest chart” he had ever seen which showed that despite a raising rate environment, and tightening financial conditions, large US non-financial corporates are seeing their net interest payments, as a percentage revenue falling. Driven he said by these companies heavily borrowing long term at low fixed rates and parking cash at rising variable rates – and which he believes may, in part, be delaying the US recession he believes lurks around the corner.
• Gerard Hargraves, Head of Real Estate Lending: I religiously read the Berkshire Hathaway Annual Letter to Shareholders each year as it is a constant reminder that fundamental, bottom up, active investing is the tried and tested method of harvesting alpha. The next letter will be especially insightful as it will no doubt feature the workings of the genius who was Charlie Munger. I also get the GMO Quarterly which invariably counters Buffet’s optimistic outlook.
• Jonathan Kearns, Chief Economist and Head of Regulatory Affairs: It’s not really research, but for an entertaining way to keep informed on all sorts of things you can’t go past the email of Bloomberg columnist Matt Levine. He has an incredible knack of explaining issues in a transparent, insightful and very entertaining way.