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1 September 2016

Death of the Financial Cliché?

Written by: Andrew Wilde, Director at Smithfield

Financial

It is an indication of strange times when some of the hoariest entries in The Financial Pundit’s Book of Staple Soundbites look outdated. When received wisdom about financial companies and the markets in which they operate is inverted, a corollary is that the commentary around these topics (often crystallized in cliché) demands reassessment.

If the below examples demonstrate that a cliché is no longer necessarily an axiom, perhaps the time for reassessment is upon us.

  • Markets hate uncertainty – Both the FTSE and S&P are up since Brexit. Both are around record highs‎. (As an aside, not linked to what is happening in the markets, I’m always bemused by this statement. Far from “hating” uncertainty, markets depend on it. Indeed, they are predicated on it as people invest on the conviction – but not the knowledge – that an asset will go up or down and prices are based on how many investors take one view versus the other; a “certain market” would be inherently untradeable).
  • Cash is King – RBS has notified a number of institutions that it will start to charge to hold money as rates turn negative. To continue the royal analogy, a monarch bent on losing his subjects’ money may be target for a coup in a political sense, but surely could not be regarded as a coup in the financial sense?
  • Buy the rumor, sell the fact – If you bought into FTSE on the basis of the widespread rumors the day before the EU Referendum that a victory for remain was a sure-fire thing, you would have lost more than 3 percent of your money; if you sold on the fact that Britain voted to leave the EU the following day, you’d have missed out on the 12 percent rally to date.
  • In uncertain times we will see a flight to quality (bonds) – Junk bonds are back in vogue. So, either we won’t necessarily see this happen, or the definition of “quality” needs re-examination.
  • In uncertain times we will see a flight to quality (equities) – Huge inflows into emerging market funds. As with the point above, Indonesian builders, Mexican miners and Indian Fintechs would not be considered “quality” stocks in traditional financial parlance. The search for yield in an ultra-low growth environment has seen a pivot towards, not away from, riskier assets.

‎So, while avoiding clichés is probably for the best for stylistic reasons, we’re now in an era where they demand questioning on a fundamental semantic level too – where the unthinking employment of financial cliché can move from the merely banal to the outright misleading.

Or perhaps, ’twas ever thus. George Orwell, in Politics and the English Language, written 70 years ago, observed: “When one watches some tired hack on the platform mechanically repeating the familiar phrases – bestial atrocities, iron heel, blood-stained tyranny, free peoples of the world, stand shoulder to shoulder – one often has a curious feeling that one is not watching a live human being but some kind of dummy, the appropriate noises are coming out of his larynx, but his brain is not involved.

Andrew Wilde, director, Smithfield Consultants.

This article originally appeared on Edelman.com. Image: Finance behind the glass by Max London

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