雷曼倒閉 - 我們學到的是什麼？(只備英文版)
Lindsay Williams: This week on the Big Picture, the big picture turns into a giant canvass. I am speaking to Jason Borbora, who is an Assistant Portfolio Manager at Investec Asset Management in London.
It is almost the 10 year anniversary of the collapse of Lehman Brothers, Jason, and that, of course, precipitated the giant collapse of the stock markets, which bottomed in March 2009, but that period between September 2008 and March 2009 was a very tricky period for the world. We pulled ourselves out of it but what have we learned since then and, indeed, what lessons should we have learned since then? Maybe go back a bit – what actually happened?
Jason Borbora: Sure. So in September 2008 you saw a collapse of sort of one of the largest financial institutions in the world and I think what is potentially more interesting about that anniversary is that actually a year before the problems had started to occur. So it was in August 2007 when BNP Paribas froze withdrawals from some of its funds which held investments related to sub-prime mortgages in the US and it was basically over the following year that the credit crunch began to appear and trust evaporated from markets and therefore people were unable to extend lines of credit and those who needed it unable to achieve them and this sort of precipitated the fall of Lehman Brothers.
Lindsay Williams: Yeah, sub-prime was one thing but it wasn’t specifically related to Lehman Brothers but, because of the interconnectivity of these instruments, the whole banking system was affected. It wasn’t just sub-prime though, was it? Were there also some less than kosher (if you like) banking activities that were going on associated with that time of profligate instruments and behaviour?
Jason Borbora: Yeah, I think that’s exactly right and it basically caused a reassessment of creditworthiness and the trust that went with that. It is exactly I think what caused Lehmans to suffer the kind of downfall that it did.
Lindsay Williams: Since then, of course, we have recently seen some fairly stellar results from Wall Street banks. I don’t know where they are getting their money from but are they starting to sort of ease their way back into those practices of 10 years ago or are the results that we are seeing now based on good, solid fundamentals?
Jason Borbora: I think it is remarkably different. So if you look at return on equities for banks prior to the crisis and compare it to now, you are probably half your ROE’s and so you are lucky in the US to sort of achieve double digits there and that would have been a far cry from what you would have seen prior to the crisis and a lot of that has come from regulation and the fact now that banks have stepped away from proprietary trading and that the sorts of loans that they extend have changed also.
That is not to say that there is not signs of excess in some parts of the market. I think if you look at the kind of loans that have been extended in the autos markets, in particular, and some credit card markets also, then there are signs that there has been that similar sort of profligate lending but it doesn’t appear to be of the same magnitude as you saw with the banks lending into the collapse of the US housing market and equally other forms of lending have come in to pick up that slack. So that is not to say that profligacy is still occurring but perhaps it is being made by other forms of lenders, non-bank lending in particular.
Lindsay Williams: You have given me three aspect of the last decade in a piece that you kindly sent me earlier today. You say three aspects of the last decade stand out: first, the rise in passive investing and you go on to say that it is estimated around $8 trillion worth of assets are passive and account for about one-fifth or 20% of global assets under management. Why have you particularly picked up on that one? Is that a warning sign to you?
Jason Borbora: It is I think and it is just amazing I think how different the world in terms of market structure looks today to that in the early 2000’s and one aspect to that is how investors now seem to allocate their investments and, in particular, the rise in ETF’s.
So you have gone from sort of maybe 600 or so in the early 2000’s to now probably over 6,000 and there are more indices than there are individual stocks, which I think says something about how people now want to invest. They seem to place a bit more importance on the sort of top-down view than the bottom-up and we think actually that could be a potential pitfall as you move into the next crisis.
Lindsay Williams: The second point you make is that investors would accept negative yields over the last decade or certain parts of it, with 20% of the developed market government bond index offering such returns. Now that was an extraordinary moment in time, wasn’t it? It has rebalanced itself since then but at one stage people were willing to give someone something and receive less than they gave them a year later.
Jason Borbora: Yeah, there has been a bit of a rebalancing but it is still the case that across many parts of Europe and in Japan you are guaranteeing, if you hold to maturity, a negative return on your investment and that tends to be towards the shorter end of the curve, i.e. 1-5 year maturities, but nevertheless there are still those that, for whatever reason it might be – either they think that inflation is going to be so low as that a negative nominal return could be converted into a positive real return or they believe that someone else will buy the bond from them at even lower yields than that at which they buy it.
Lindsay Williams: Final point of the three that you made (related perhaps, you say, to all of the above or the previous two that we have spoken about) is that central banks could create money through the quantitative easing programmes. The Fed’s balance sheet, you say in brackets, alone grew from around 1 trillion to 4.5 trillion at its peak and do this without stoking significant economic inflation. Of course, that has been rebalanced now (mentioning that word again) because quantitative tightening has become a reality or should become a reality I think.
Jason Borbora: Yes and I think for us this is the worrying aspect of all of the three points really in those three prior points which were made because, as we move over the next year or so with the Federal Reserve running their balance sheet off, later this year the ECB stopping their programme and potentially we think the Bank of Japan looking to at least perhaps stop their programme also, there is a big change in the sort of next 2-3 years compared to the last 2-3 years.
That to us is quite a significant worry because one of the things which doesn’t appear to have changed is the tendency that people herd into particular trades and so the idea that you see this rise in passive investing, where people are buying broadly without really understanding the fundamentals of what they own, the idea that people will buy things with negative yields without perhaps contemplating the impact of that and the fact that you have had this big buying programme from central banks. The confluence of those I think is potentially worrying.
It is noteworthy I think that, if you go back to the start of 2008, you had the S&P 500 consisting of around a fifth of its exposure in financial companies and that has fallen quite significantly since then but it shows you that there is not always that realisation that things are changing and that investors haven’t particularly changed how they move en masse into things.
Lindsay Williams: I don’t think that investors will ever get away from that herd mentality because of the media, because of the fact that they don’t want to be contrarian, because they want to be in sort of a set of people that are doing the same thing. That is human nature I suppose but do you think that we are getting to the point now where, with the S&P and the Dow approaching all-time record highs, the S&P at all-time record highs as we speak, that it is at record highs for the wrong reasons and for some of the reasons that you have already outlined?
Jason Borbora: It may not necessarily be that it is wrong for it to be there today. I think it is always quite difficult to stand against where it has moved to although I did note that actually in those few days that ran up to BNP Paribas freezing withdrawals, the S&P had rallied nearly 4% and so it does show you that there is not always information in the market because it then fell 50% over the next couple of years.
What I would say though is that I think investors need to start thinking more about how to insulate their portfolios from potential falls. So as we sit at record highs, as valuations don’t look particularly appealing and as we think the chance of recession is starting to, albeit gradually but nevertheless, increase, at least over the next couple of years, then it is important we think to start thinking about owning assets that could benefit from that sort of environment.
Lindsay Williams: Anyone listening to this is going to say well, I am just looking at a graph now, a bar chart, of US GDP growth and, okay, three times during the Obama era it was above 4% but 4.1% was the original GDP print – the latest GDP print, revised to 4.2%. He/she might be saying that Jason Borbora is probably being a little bit pessimistic to even think about recession.
Jason Borbora: Yeah, absolutely but markets don’t peak on bad news. Markets tend to peak on good news and I think it is one of those things now where ultimately the gains over the last near decade have been very significant. What we should as investors do now is try and think about ways to lock in some of those gains and also, if the environment turns a bit more tricky and that might be because quantitative easing now starts to go into reverse, liquidity is less easily available than it was before because central banks become more tight from an interest rate policy perspective and also just that the economic cycle perhaps does look a bit frayed in some aspects, therefore there is enough need to start thinking about insulating portfolios.
Lindsay Williams: Jason, thank you very much for your time. That is Jason Borbora, who is an Assistant Portfolio Manager at Investec Asset Management in London.