The most interesting financial markets of our time
A few months ago, I wrote about how AI was all anyone was talking about. It felt like 2025 would be the “year of AI.” It’s amazing how much has happened since.
The news cycle over the past few months has been relentless. And, as everyone here knows, it’s been driven entirely by the passions, ambitions, whims, and follies of one man. Rightly or wrongly, it’s Trump’s world, and we’re all just living in it.
For us here in the global capital markets, it certainly hasn’t been boring. Each new policy focus has had significant potential capital market implications. Remember when the most interesting topic du jour was European defense and how that was going to be funded? Maybe a new SSA issuer dedicated to the cause? JD Vance’s much talked about speech at the Munich Security conference was just 6 weeks ago…yet today it feels like it was a lifetime ago.
In the past week, we’ve now seen what everything has been leading up to. “Liberation day” according to Trump. The beginning of a “new world order,” according to Ray Dalio.
Economics 201?
I won’t waste too much time here revisiting the analysis on whether Trump’s tariffs are good or bad policy. According to everything we were taught at university, they are bad.
Yet, most of us acknowledge that on some level, the status quo was increasingly untenable. Latest data shows the US trade deficit is running at an annualised rate of nearly $1.4 Trillion. Last year, the US government ran a fiscal deficit of over 6%, and that was when the economy was firing on all cylinders.
Are tariffs the right solution to those problems? Conventional economics would say not. But I’ve seen enough of the real world of financial markets over the past 17 years to know that economics is a fuzzy science at best. The smartest thing I can say is to echo Howard Marks, nobody knows.
4D chess?
What matters more to market participants is whether this policy will persist, or if we will see some great climbdown. The 90-day reprieve announced on Wednesday might give some relief. The moves in the Treasury market suggest that the administration is at least partially responsive to market feedback.
But, for anyone who doesn’t think the administration has the will to persist, I’d recommend you watch interviews that some key members have given over the past few months. Two of the most interesting I’ve seen have been with Howard Lutnick (Commerce Secretary) and Scott Bessent (Treasury Secretary), both of whom were interviewed on the “All-In” podcast. Both interviews convey the message that the reduction of the trade deficit is the number one priority for the Trump administration, and they have a deeply held belief that this is the right thing for “middle America.”
(For those who don’t know, the “All-In” podcast is hosted by 4 prominent Silicon Valley tech investors, and generally covers a range of topics from science and technology to finance and increasingly, politics. Full disclaimer, some viewers have recently criticized the podcast as moving from politically neutral to mostly “pro-Trump” over the past 6-8 months, so the interviews might seem a bit “softball.” But, there’s no better way to see behind the curtain of the administration than to listen to these guys talk for 1.5 hours, to really understand what they’re thinking and how deep their beliefs run).
Whether Trump’s erratic moves are all part of some grand negotiating strategy, or just a reflection of him being an erratic man, it’s impossible to say. The only thing that is safe to assume is that uncertainty is here, and will persist.
How to navigate these markets
For traders, it’s time to dust off the 2007-8 or the 2011-2012 playbook. When markets are so beholden to political announcements, it’s important to stay nimble: buy the rumor, sell the news.
For longer term investors, pay attention to valuations. Howard Marks’ latest letter has some important advice:
I love the title of a book by a market analyst named Walter Deemer: “When the Time Comes to Buy, You Won’t Want To.” The negative developments that make for the greatest price declines are terrifying, and they discourage buying. But, when unfavorable developments are raining down, that’s often the best time to step up.
And for issuers? Flexibility and agility are key.
The windows for issuing will open and close quickly - issuers need to be able to react when the window is open and demand is there. Being flexible on timing, tenor, size, structure, and currency can be incredibly helpful in these uncertain times. Issuers that are already familiar with private placements and issuance in different currencies will be well placed.
And automation will definitely help. When timelines are tight - there is no time to waste on manual tasks such as document reconciliation, transaction management steps, or pointless email chains. We’re not quite there yet with “one-click issuance,” but we’re getting closer.
We’ve seen our clients take advantage of limited windows to be fast out of the gates and get trades done, and we’re pleased to have helped with that process. It’s a good reminder that automation is not just about “cost reduction,” it’s about empowering issuers to be faster, nimbler, and more responsive, so that they can get the best deals done at the best price in very uncertain markets. If you’re an issuer who has considered adopting a more flexible or automated strategy for your funding program, now is a great time to get in touch. (/shameless plug for Origin).
Stay safe, “enjoy” the ride
Having been through my fair share of market convulsions from the Lehman trading floor in 2008, through the Greek Sovereign crisis, to Covid, all I can say is that, on some level, we’re very lucky to have a front row seat to such momentous historical events. While stressful in the moment, time does eventually move on, and only a few of us are lucky enough to say, “I was there when…” Wish you all the best of luck in navigating these historical markets.