La Rentrée

Some say the French concept of La Rentrée is far more than just “back to school”. Capturing the deeper spirit and atmosphere of renewal, page-turning and celebration of this time of year (perhaps closer to new year’s than just back to school). I’m here for it!

In this back-to-work episode: a quick catch-up on markets, a check in on hybrid working data, update on big votes (no, not that one), the best podcasts I listened to over the summer and I’ll finish with a chart that’ll make you go … hmmm. Grab a coffee and let’s get your September started right. ??

?? Well hello there … how we doing?

Aaaaaaand, just like that it’s September. Hope you had a great summer whatever you were up to. I spent a lot of time jumping into French rivers with an energetic ~2 year old, which was quite lovely. The rivers were unseasonably warm, great for jumping into but not so great for France’s legendary nuclear reactors, or more widely for water-bourne freight across the continent as water levels hit multi-century lows.

Catch up quick: markets.

We’ve had glass-half-full and glass-half-empty type sentiment dynamics over the summer, have you missed much? Maybe not - markets are at similar levels to where we were at the end of June.

The dip in US inflation announced in August plus decent company earnings prompted a stock market rise through to the middle of August (maybe the worst was over, and things weren't as bd as priced?), but stern words from Jerome Powell at the Jackson Hole confab (“we’ll do what it takes, even if it causes a recession”) caused that to reverse.

Bottom line: Markets care a lot about the Fed, like really a lot. We're in a strange moment for economic data. Good is bad (a booming economy means the Federal Reserve will tighten the screws more). And maybe bad is bad (nobody wants a recession).

Inflation is still the big, big news (but you knew that already). And of course, there’s an energy crisis which is only starting and looking so huge in scale in Europe it’s almost hard to grapple with. More on this in later newsletters but the Resolution Foundation in a briefing note have said that inflation looks set to wipe out twenty years of income growth in the UK, and could plunge 3 million more people into poverty. Grim stuff. Our new prime minister faces the immediate prospect of two lost decades.

Inflation in the world’s largest economies:

But also … sterling is falling- mind the gap between dollar returns and sterling returns. This really matters for sterling investors (for whom a weaker sterling is actually good news): global stocks in dollars are down almost 20% this year whereas in sterling the same portfolio is off just ~5%.

Bonds are back at the lows as interest rates have shot higher , again . Long-dated interest rates are pushing their highest levels for a decade in both the UK and US. Collateral top-up calls from LDI portfolios are coming thick and fast.

Yes but, lower bond prices means better yields and 96% of sterling corporate bonds now yield a healthy 4%, compared to just a smattering at the start of the year.

My view: If the outlook seems clear as mud that's because it is. And the shock truth is no-one really knows what’s going to happen - pays to remember this. Price drives narrative a lot of the time not the other way round.

Three things I’m reading:

1. Charts! Charts! Charts! We love them. The JP Morgan guide to the markets (link) is just out updated to the end of august and is always well worth a look if like me you love a good chart. My quicktake on the economic and markets story contained therein is:

• Company earnings are strong and
• The US labour market remains very strong but
• Inflation is off the charts almost everywhere so
• Central banks are still, still, raising rates and surprising markets all over the place but
• Markets think inflation calms down soonish but interest rates are the real story which means
• Stock and bond markets are down, price-earnings valuations are back to average levels and
• Credit market spreads and yields show some of the best opportunities in a decade

2. WFH. Speaking of Rentreé, a year after the big return to office phase of September 2021, where are we with WFH practices? here’s some interesting data:

50% of visits to the office were for only one day a week according to data from Basking.io, a workplace-occupancy analytics company (per Bloomberg)

Looks like we might be stabilising at 30% WFH overall says Nick Bloom, a huge labour market shakeup vs pre-covid.

3. Shareaction votes to watch - the results, what happened? (blog)

Of ShareAction‘s 20 votes to watch, none passed (takeaway: resolutions are hard). These were things like Paris-alignment at Shell, anti lobbying at Exxon, environmental impact report at Kroger, workers rights report at Marriot, science-based targets at J-power.

yes, but - 3 were also withdrawn , suggesting some success in getting action (takeaway: it’s not all about votes)

Climate still gets most support, but support on workers rights is growing (note resolution on workers rights at Amazon garnered most support at 39%, takeaway: asset owners need to take a view)

One common reason for asset managers not to support is a feeling a resolution is too prescriptive on management .

But if they are just enforcing a commonly agreed standard then how controversial are they really?

final takeaway: votes matter, things are changing a lot and the Universal Owner mindset means that asset owners will be looking a lot more at this.

Two things I’m listening to.

1. The Long Now seminars (web | apple). I’m fascinated by this idea that universities are among the world’s longest lived institutions because they are required to reinvent themselves every year for a new cohort of students

2. Gary Klein on decision making with Shane Parrish ( web | apple ) is as good as you’d hope. Key points:

3 pathways to insight:

• 1. Connection: 2+2 = …
• 2. Contradiction + curiosity “that doesn’t make sense , why “
• 3. Resistance. This isn’t working. Why?

Yes, but: But: Companies & institutions tend to reject insight

Because it requires change & could be disruptive

“Knowledge shields” cause folks to reject insight

And new ideas are fragile: only usually needs one person among many to reject

Grab bag -

Why has the death of 60/40 been announced so many times? I think it’s because complexity sells, and the way you sell something complex is tearing down something simple (comments from me and others in this piece on 60/40).

I got really into Desert Island discs over the summer (yes, I’m aware I’m not exactly ahead of the game on this ??) . Particularly enjoyed George Michael, Billy Piper and Kate Moss.

In this week’s charts that make you go hmmmmmm (from Will Yeates) “We studied 40,000 pieces of litter to find out where it all comes from – here's what we discovered.”:

One thing to brighten your day:

“Cringe is a core part of our voice here at LinkedIn”. Hilarious Dan Toomey imagines the linkedin CEO defending the platform -

Have a great rest of the week!