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Wednesday, 28 July 2010

The Devil is in the Deed-Tail

Updated 21 December 2010: The tail end of June is half year mark and  brings in the tidings for the rest of the year, as does July with the 1H reporting season fully underway. Specifically “tidings’ about economics and investment markets outlook. As 'half-time' corporate and economic results are reconciled with earlier budgeted expectations, the rest-of-year's budgets can be forecast.

Taking a planned-for-event  headline: "BNY Mellon's Little joins Kedge Capital to build global multi-boutiques business", and interpreting this 2nd half strategic plan suggests decision-makers at the helm (mainly people who put their money where their mouth is!) consider that this is a good time in the business cycle to expand an existing business.
A little research into the headline suggests that multi-billionaire Ernesto Bertarelli (commercially-famed for the family biotech firm Serono and it's sale to Merck in 2007), is spearheading the venture to develop a global asset management business by buying “typically single-manager asset management business in both the long and alternative space”; Kedge Capital is the 100-personnel family office assigned with managing the wealth of the Bertarelli clan.

Professional acumen reading between the line suggests that either a) valuations of asset managers are expected to decline further, b) valuations are already near bottom or c) valuations beginning to rally. The latter observation is trader’s idea “buy on the up and sell on the down”.
[Post-publication edit: Indeed asset manager valuations are intended as a indicator of overall financial and economic health. The numerous demand and supply factors that affect valuations are both macro- and micro-issues in regard to the reference entity. If asset managers are to be acquired that signals expectations about financial asset performance and trends in money management. End-edit]

Since proverbially, the devil is in the detail: Jon Little is not expected start till later this year in November, after leaving BNY Mellon this Friday and gardening leave. Further, the headline value of this enterprise might be of greater impact than the actuality in the end (if plans do unfold at all).

So one may be able to see what this lack of immediacy on expansion plans augurs for the market and economic expectations. No great turn-around in economic upswing is in the offing; and in fact the much vaunted double-dip recession is still possible. How close were we from economic and capital markets tail-spin which was only averted / postponed after over 6 months of discussions to rescue Greece. Lehman, subprime, housing problems etc would seem insignificant to a sovereign default especially of an EU member country.

As discerning readers know, akin to taking the pulse rate, headlines augur bullish or bearish wishes / fulfillment depending on its public relations value and the confidence sentiment of the reader.

One can be led to believe that the economic and investment climate is one of the severest since the Great Depression, and even that we are emerging already from it, as has been analysed in this excellent "deduction-by-mechanism" presentation in Daniel Booth's "An overview of US monetary policy - the implications of quantitative easing Nov08".

The reality-and-rhetoric-check tells me policy makers have indeed pulled the rabbit-out-of-the-hat and confidence verges "recovery" not "depression", but on closer examination of macro and micro considerations (never mind 'black-swan' geopolitical risks such as wars, austerity , and weak-links), strongly indicates an uncertain path with pitfalls especially for financial markets. For example, examine the banking and automobiles industry half-year results FT Lex: HSBC and FT Lex: Global carmakers. The Devil is indeed in the Deed-Tail. [kks/27/07]

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