GFC taught me something – credit markets move way ahead of equity markets.

By Tshepo Magagane

GFC was bad – looking down as Lehman bankers were having pints at 9am in Canary Wharf – this will even be worse re: level of automatic buying eg ETFs and lack of experience sitting at desks / risk committees – so many seniors only read about a crisis🤞🏽

A month or so before GFC; a team member came back from lunch and looked worried “over coffee he then went ‘a friend in PF is saying that the market is experiencing problems’ “

A year before then, I was speaking to a HF manager about joining them and he went “we like how you think but no point in joining, returning cash to investors, i am way above hurdle but it is musical chairs out there”!

CDS spreads below out to 1000bps for companies – trading on 1.5PER.

The era of low rates has created an environment that has not existed before.

Think of this, rates are hitting levels higher than when I started.

I dont know this unfolds but it is going to be messy!

The Capex spend on AI pushed out this reckoning which should have happened 3 or 4yrs ago…

Best positioning – increase cash and hard assets – WHY?

What happened during GFC was simple – let us take CBs – I have explained, it is simply, short the equity + buy CDS and the long the vol (why they loved junior mining bankers)…

…it was the best performing asset class BUT what happens when there is a stress / liquidation environment – YOU ARE FORCED TO SELL YOUR BEST ASSETS FIRST…

…HOWEVER,  on the other end, you have assets (good assets), that get stranded by either equity or financing markets closing…

…therefore, you get the opportunity of a lifetime – Jan-09, I started looking at assets that eventually went to 50-60x.

What is developing will be something we have never experienced but it will present opportunities we have never seen – HOW FORTUNES ARE MADE.