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No goody new shoes

By Ralph Sinclair
31 Jan 2014

I had a hole in the sole of my banker’s brogues which in this, the wettest January since records began, was another deterrent to walking out for a client lunch in the first month of the year. There are other deterrents, namely having no clients to speak of, the hardship of Subsistence Broking in Austerity Britain and the surrender of the asset class I (notionally) broke. With the January sales drawing to a close, however, it was now or never on the new scoobies front so I limped gingerly round to the shoe shop on the corner to confront the problem foot-on.

As luck would have it, the only shoes which were sufficiently discounted but also appropriate for a City professional were not available in my size so, sacrificing comfort for parsimony once again, I bought a pair a size too big, working on the assumption that when I’m a rhinestone cowboy there’ll be space for a dollar tucked inside my shoe.  

Chancery Lane was slick with rain, the leather soles of my new shoes were too smooth to provide traction and so I sloped with slow and dainty steps to my favourite wine bar for a drink after work. It was like walking as if I'd stepped in something unpleasant with both feet — a sensation which takes me unfailingly back to my childhood. 

There are three flights of stairs down into the bar, called 28-50, and I negotiated the first two of these successfully but came a cropper on the last. On the penultimate stair my right foot slid forward a couple of inches in the shoe, which in turn failed to grip the edge of the tread and I clattered down the last few steps. The pain in my right knee was immediate and acute but not so acute as the embarrassment as staff came rushing over to help Sir to his feet. In this place they are more than familiar with the sight of me stumbling and staggering on the way out but on the way in was a first. 

Sadly it was the camp waiter from Madrid who came to my aid first rather than the attractive blonde sommelière. The chances of me ever seducing this woman were always remote but now I could sue her instead, I suppose. 

But the net result is that in addition to all my mental infirmities I am now walking with a pronounced limp.

I was meeting a friend of mine from the world of developed market equities. This asset class is similar in many respects to the one I treat with the exception that over there, apparently stocks can go up as well as down, which was news to me.

Sometimes, he told me, even the stocks he recommended would go up. 

“Good heavens," I exclaimed. "Whatever will they think of next?” 

To my rising incredulity, he told me of these mysterious phenomena experienced in developed European equities, for example, when things known as ‘inflows’ pour into the stock market generating an upward pressure on share prices. 

I said I thought I could understand how that might work in principle but without first-hand experience of the marvellous concept I couldn’t see how it would work in practice. 

Occasionally, customers of his give orders to buy stocks in Europe and, when you have executed the bargain and report it back, the lucky buggers are already in the money and showing a profit as opposed to under water and disenchanted before the fraught relationship between fund manager and shareholding has even begun.

From crisis to crisis

I’ve been immured in emerging markets for twenty-two years, almost my entire ‘career’ in the City. For the most part, I’ve been stumbling from one crisis to another like a drunk bumping into furniture on his way to bed. The Tequila Crisis, Asian contagion, Russian default, the LTCM debacle and the Great Financial Crisis of 2008 have been the milestones and signposts along the pathway I have trodden, each one setting me inexorably on course for the next, steeper downturn. It’s been a scenic road to nowhere. 

Back in 1992, having flopped in all my initial capacities at Salomon Brothers I was offered two jobs within the firm. One involved UK equities and the other emerging markets although back then it wasn’t known as such. 

"Two roads diverged in a wood and I —/I took the one less travelled by/And that’s what’s screwed things up so badly” is how Robert Frost might have put it. Instead of the bowler, the beret or the Tyrolean, I chose a sampan, a sombrero, a shapka and then a fez and each one conferred worse luck than the previous and failed to shield me from the regular, faecal showers which assail. I know it’s an immutable law that all good things must come to an end but it would be nice if they could start in the first place.

Broking perma-bear markets was never my intention. It just turned out that way. On the rare occasions I get to speak to a client it’s almost impossible to exchange opinions on stocks and markets, on buys and sells, on lunch and commission — the staple fare of buy-side/sell-side interaction — because they are incarcerated in gloom. 

They research their companies, build their models, meet managers, attend presentations and the like and then it’s all rendered pointless because every time they assess their portfolios they are hit with another redemption. I imagine it’s bad enough being an emerging market fund manager without this blizzard of broking misery calling you to darken the gloom. 

I don’t know whether emerging markets contributed to the development of what passes for my personality or whether the latter chose EM because we were ideally suited. I could ask the same question about adopting Everton as my football team. Occasionally, by which I mean every five minutes or so (except for Tuesday night when the question was on my lips for the entirety of Everton’s 4-0 derby drubbing at the hands of Livepool — at half-time I pushed aside the remote control and started completing my tax return as the only distraction which could seem more painful) I find myself asking no one in particular just how much sadness can a heart contain? 

A bird doesn’t sing because it has an answer but because it has a song and my song is “Rhinestone Cowboy”. My heart seems to have an infinite capacity for sadness which, like the junk in your house, expands to fill all of the storage space available. At a certain point with a drunk it doesn’t matter whether he’s actually drunk or drinking, it’s just the way he is, and the same principle can be applied to a malcontent. Everton could be winning, emerging markets could be rallying but it wouldn’t feel any different.

Yes, you make your bed and you lie in it and the RAT asset class of Russia And Turkey is an bedbug-infested one to be sure. Developed market equities offer sound corporate governance, political and economic stability, reasonable valuations, protection of minority shareholders, superior liquidity, monetary orthodoxy and, to my jaundiced eyes at least, a vast commission pool. Emerging markets are beset with political volatility, illiquidity, random and chaotic economic policies, low standards of corporate governance (where the concept actually exists), economic unpredictability and it boasts not so much a commission pool as a draining swamp with deeply unappealing creatures brawling in the mud. 

Emerging markets stink — but it’s the stink I know and unlike my leaky shoes, it's too late to change.

By Ralph Sinclair
31 Jan 2014