Where finance and media intersect with reality


Spot Markets Live Transcript, 16/10/23 (Polish elections, VC armageddon, Reserve requirements)

Izabella Kaminska 10:30

Hello everyone…

Is there anyone out there?

Julian Rimmer 10:30

only me?

Good morning, aloha and greetings fellow market wizards. Well, the Indian summer is very definitely over, the nights are shortening, and there’s an uncomfortable sense of impending doom.

Izabella Kaminska 10:31

Good morning everyone.

But, I have to say, the weather was absolutely splendid yesterday. A great day for queuing. It was like 1988 all over again.

I’m recovering from Polish election drama.

72% turnout! Ealing (mini Polska of London) was overwhelmed with queues.

And if you were an oldie you got to cut the queue, just like in the days of communist inflationary bread queues. But more on that in a bit.

But what’s the bigger picture Julian?

Julian Rimmer 10:32

It looks very civilised, very orderly, very democratic and it’s what Europeans do best.

Well, amid the catastrophic teletext that is geopolitical newsflow at present, this opening to a piece in Foreign Affairs by Robert Gates caught my eye this weekend:

Izabella Kaminska 10:33

 The United States now confronts graver threats to its security than it has in decades, perhaps ever. Never before has it faced four allied antagonists at the same time — Russia, China, North Korea and Iran — whose collective nuclear arsenal could within a few years be nearly double the size of its own.”

Here’s the link FYI

Julian Rimmer 10:33

On the cusp of Israel’s ground offensive and a humanitarian crisis of biblical dimensions in Gaza, it’s hard to escape the feeling that it’s the thundering hooves of the four horsemen of the apocalypse you can hear. David Frum’s phrase, ‘the axis of evil’ is receiving a lot of airplay at present.

Izabella Kaminska 10:33

It does feel ominous right now.

Julian Rimmer 10:33

I prefer WB Yeats: Things fall apart; the centre cannot hold;

Mere anarchy is loosed upon the world,

The blood-dimmed tide is loosed, and everywhere

The ceremony of innocence is drowned;

The best lack all conviction, while the worst

Are full of passionate intensity.

For instance, the WB/ IMF meetings in Marrakesh last week were completely overshadowed by newsflow from the Middle East. Delegates noted the US was presented as weak and divided, (at this stage the Republicans’ inability to elect a Speaker means the US has not even been able to issue a condemnatory statement about the Hamas attacks yet) .Geopolitical risk is rising and analogies are made with the 1970s and even the 1930s.

Izabella Kaminska 10:34

Though oil prices not freaking out entirely just yet.

Julian Rimmer 10:35

I saw BNP went long oil last week in their recommended strategies.

An economist at Marrakesh described the palpable fear there of a Trump re-election, recognised an unmistakable resentment towards the funding of Ukraine mounting. Attendees were also a bit huffy about G10 hypocrisy that lectures EM on climate change while Germany restarts coal powered stations.


Izabella Kaminska 10:36

There was also a big spat about the wording of the statement. Politico’s Paola Tamma sent us this report from the ground:

MARRAKECH — Disagreements over language referring to Russia’s invasion of Ukraine prevented the issuance of a joint statement from the annual meeting of the International Monetary Fund and World Bank.

Officials gathered in Morocco to discuss economic and monetary policy have failed to come to a consensus after countries including Ukraine, the Netherlands, Canada and the Nordics objected to the way the invasion was described in a draft text.

The language was “totally unacceptable” said an official from Ukraine, who was granted anonymity to speak about confidential talks. “It was just not strong enough,” said an official from another country.

Spain, which chaired the talks, had proposed replicating the language agreed to by G20 leaders in Delhi last month, which did not condemn Russia but instead stated that there are “different views and assessments of the situation.”

“We have tried our best to reach a communique,” Spanish Finance Minister Nadia Calviño said. “This was not possible.” 

Instead, the IMF issued a “chair’s statement,” as it did after IMF and World Bank meetings in the spring. 

Julian Rimmer 10:37

Apparently, the economic reforms proposed by Turkey’s Simsek Fin Min were about the only thing meeting with general approbation but this simply illustrates how bleak things feel right now if an economic basket case like Turkey can be seen in a positive light. I, for one, still have major reservations about lira devaluation. The strength of the dollar is still seen as major headwind for all EMs but Turkey especially.

For the life of me, I cannot fathom investors who think Turkey and Erdogan have undergone some kind of Damascene conversion to economic orthodoxy and conventional central banking.

10:39 For the record, the IMF sees global gdp 3 percent 2023, 2.9 percent 2024 and inflation moderating from 6.5% this year to 5.8% next.

The heavy debt burdens of advanced economies – from the United States to China and Italy – was a recurrent theme in the meetings, which came after financial markets in recent weeks pushed U.S. bond yields higher. Italian central bank governor Ignazio Visco said there was an impression markets were “reevaluating the term premium” in a very general sense as investors become more nervous about holding longer term debt. More on ‘re-evaluating the time premium’ in a bit. That’s a big euphemism in my book

Izabella Kaminska 10:39

Before we get to pole talk, anything the rabble is particularly interested in hearing about?

Julian Rimmer 10:40

I cannot wait for Pole talk

Izabella Kaminska 10:40

We can ad lib any time



Just so happens today was “cultural dress up” day at school. So I had to dispatch my daughter in the traditional garb, so anyone watching me coming to school probably thinks it was some sort of PiS protest move.

But it wasn’t.

Julian Rimmer 10:41

what is Polish ‘cultural garb’? A mink coat? Big hat?

Izabella Kaminska 10:42

(For those who don’t know, PiS was organising loads of cultural themed picnics as part of their election campaign in the countryside. Lots of memories of that awkward Polish eurovision entry)

Julian Rimmer 10:42

white smock, flowers woven through wheat-coloured hair?

Izabella Kaminska 10:42
YouTube 9:42Donatan & Cleo – My Słowianie – We Are Slavic (Poland) 2014 LIVE Eurovision Grand Final – YouTube

News Image

Powered by http://www.eurovision.tv Poland: Donatan & Cleo – My Słowianie – We Are Slavic live at the Eurovision Song Contest 2014 Grand Final

Blog | Eurovision boobs | Our view on the Polish contestants

Julian Rimmer10:43

no selfies, Izzy

that maid looks like she’s done some serious milking

Izabella Kaminska10:44

My five year old went more like this though…

Loving Poland | Polish traditional costume, Polish clothing, Traditional outfits

Julian Rimmer 10:44

thank the Lord, social services will be relieved.

Izabella Kaminska 10:45

But back to the elections…

Julian Rimmer 10:45

No good results for neutrals from the RWC this weekend with all the poetry eliminated after defeats for France, Fiji and Ireland by the iron pragmatism of the All Blacks, England and the Springboks but one shock result that was most welcome was the outcome of this fiercely contested Polish election.

Izabella Kaminska 10:45

The exit polls are showing PiS’s overall percentage of the vote slipping to 36.6 percent of the vote, relative to 43.6 percent of the vote in 2019.

That means even though they are the winning party, they are unlikely to forge a controlling coalition.

Julian Rimmer 10:46

so the three leading opposition parties would have 248 seats in parliament, while PiS and its far-right electoral allies, Confederation, would have 212.

Izabella Kaminska 10:46

But former PM Morawiecki was still talking tough this morning, claiming they may be able to forge a coalition, even though PSL – the party they would have to win over – is having none of it.

Donald Tusk on the other hand has been doing a victory lap since late last night.

Kaczynski, while celebrating the party’s top position, to his credit has said he will respect the result and is happy to work either in power or in opposition to continue to defend his party’s values. Which (if he sticks to what he says) slightly undermines the claims he’s anti-democracy.

Julian Rimmer 10:47

is there even the remotest possibility of a Jan 6th-type event in Warsaw?

any Polish proud boys?

Izabella Kaminska 10:48

I’m not going to say no. But i think the variables would be different.

The actual ballots still have to be counted. And there is already talk of potential bad practice at polling booths which may undermine the integrity of the vote. Or at least introduce uncertainty to it all.

 I think the big blind spot on the Polish elections is the assumption that the results will confirm the exit polls.

Julian Rimmer 10:48


Izabella Kaminska 10:49

There was an absolutely huge share of foreign votes, which get counted late – though they’re unlikely to tip the balance as they fall into the Warsaw constituency, they might reflect some variance on the referendum, which (according to polls) came up short.

But there’s already talk that polling booths were inappropriately asking if people really wanted the referendum card.

The opposition had led a campaign to try and discredit the vote, by getting people not to submit the referendum result so as to not meet the 50% threshold for it to hold.

(Embarrassing admission. I didn’t even know there was a referendum. So I was confused at the polling booth yesterday when someone did indeed suggest to me not to fill out the referendum ballot.)

10:51 The question is, will there be any meaningful divergence on that referendum submission between the diaspora and Poland proper? If so it could indicate some sort of integrity issue, which might be seized on by PiS if they do badly to claim the vote did not count.

It’s a stretch though.

And since Kaczynski has made positive noises about respecting the vote, i think the bigger risk is if the ballot count is better than the exit poll suggests. I think then there might be a protest by the opposition.

Julian Rimmer 10:52

(we blame Trump for this now traditional refusal to respect the ballot but, of course, Gordon Brown, in the home of parliamentary democracy, set the precedent and was reluctant to leave No.10 and squatted there for several days before Nick Clegg evicted him)

Izabella Kaminska 10:52


Julian Rimmer 10:53

The dismal performance of Confederation was perhaps the most surprising aspect of the vote for me and the rejection of what have been euphemised as the ‘traditional values’ of PiS.

Pis leader Kazcynski insisted his party would work to ensure that its program (like backsliding on democratic practices, polarising the electorate on immigration and gender politics and deconstructing an independent judiciary) won’t be abandoned.

Brussels will be exhaling loudly.

Izabella Kaminska 10:53

Well i’m going to push back on that view slightly. First, confederation was always a protest vote against PiS. Like an even more extreme version of UKIP. But the rise of the “Third way” party kind of absorbed a lot of that view. It’s worth remembering there isn’t a single party that is pro-immigration on an official level.

The real driving issue turning people off PiS was abortion.

The turnout itself was the real story in town. The showing was strongest in second-tier Polish cities, and women came out slightly more than men supporting the abortion point. The biggest turn out was, however, in the 50-60 age bracket where it hit as much as 82 percent.

Julian Rimmer 10:54

(‘that’s the way to do it’) I consider myself schooled

Izabella Kaminska 10:54

The big question is how a coalition might be formed.

The government needs to win a vote of confidence to operate. And it’s the winning party that has the first stab at having a go, so that would be PiS.

PSL may be the kingmaker’s, and so far it does look like Tusk will be in power. But if the exit vote tally is confirmed it might not be until December that a government is formed either way.

If Tusk does come through chances are high he will move on his threat to lead a purge of the current government. That means throwing out PiS loyalists from most of the state owned governments and media. Though, imho, replacing one set of loyalists with another set of loyalists is hardly indicative of a return to civilised liberalism. Just more tit-for-tat. It also undermines media pluralism in this case, as the conservative perspective would be crowded out.

Though, people like the National Bank of Poland’s head Adam Glapinski will be much harder to budge.

Tusk has, however, promised to pursue criminal charges against those who have “broken the law” and operated in a corrupt way. That includes President Duda, who he says acted illegally in signing the judicial laws in the first place. [Though expectations are that they’ll use this as leverage to ensure he doesn’t veto too much legislation.]

If there’s any more news on that while we’re on we will revisit, but for now we just have to wait.

Julian Rimmer 10:58

Naturally, as we enter the last quarter, the thoughts of everyone in finance turn to expectations of year-end bonus

and, the best setting imaginable for a bumper payout in December is the legendary, almost mythical 4thQ rally into year-end

Izabella Kaminska 10:59

Are we going to get one?

Julian Rimmer 10:59

that’s a very good question, Izzy, and one I hope to answer in the fullness of time

11:00 Goldmans, and in particular, their equity strategist, the most delightfully-appellated Pasquariello is bullish on S&P into YE, especially the ‘compelling setup’ for US tech stocks into Q3 earnings, even if he’s wary of higher rates. I know he’s the GS strategist while I sit here in my rented suit but I’m a tad sceptical of those drivers on which his bullish call is predicated.

Chiefly his optimism about growth (even though 4Q GDP will be <1%), earnings (1% growth for the S&P in 2023, 5% in 2024), flow-of-funds (GS Prime Brokerage reported an increase in single stock shorts for ten straight weeks, which I don’t think will sustain) seasonals (Oct/ Nov/ Dec best 3mths of calendar year, esp for Nasdaq) technicals (S&P bouncing off 200 DMA) and so on and so forth

He is of the opinion the Fed is unlikely to hike but the mkt will force yields higher and financial conditions are tighter. Broader questions about US debt sustainability will dominate the discussion for 2024 and will no doubt generate pockets of discomfort throughout next year.

Geopolitics would appear to represent the primary obstacle to YE rally but GS are minded to view higher rates as a headwind to growth, not a recessionary shock. Both NDX and S&P can handle of bit of rate discomfort if you look at this chart…

11:04 Obviously, someone who feels the pulse of the market coursing through his veins didn’t spend the weekend drinking wine and watching rugby, but was instead listening to financial news commentary. I listened devotedly to Paul Tudor Jones on CNBC, it’s clear he thinks the biggest problem for the US is that the two likeliest candidates for next year’s election (Tramp and Biden) are the people responsible for the recent excrescence of the deficit and therefore  neither is qualified to really tackle the issue with any credibility nor are they likely to campaign on the issue in 2024

Izabella Kaminska11:04

Is that an intentional typo on Tramp?

Julian Rimmer 11:05

(i had many, many deprecatory terms for Donald Trump and that is merely the most obvious among them)

I suspect Tramp would struggle to articulate any coherent policy on this subject and it’s not an argument Dems traditionally make. Immigration and identity politics are more readily available causes for Trump to espouse and the Dems will feel they can win again if this is the ideological battleground. Paul Krugman: ‘the chances of serious action on the deficit anytime soon are near zero.”’

Izabella Kaminska 11:06

Is that an intentional typo on Tramp?

Julian Rimmer 11:06

I plead guilty, your honour. (I lost a job at Jefferies for insulting him but that’s another story altogether)

Izabella Kaminska11:06

Sounds like an interesting HR debacle

Julian Rimmer 11:07

Not how my wife described it

Anyway, I’m convinced the story of 2024 will be the US deficit and that markets will eventually force Washington to address the issue but it may take a crisis to persuade them and irrespective of whose fault it was or is, it will be the  incumbents who will bear the brunt of the criticism

Democrats will receive the brickbats because they are in govt now and it’s much harder to defend than it is to attack on an issue like this.

Izabella Kaminska 11:08

Unless, of course, there’s a miracle growth burst because the Inflation Reduction Act does what it’s supposed to do.

Certainly Yellen is making noises that it’s not all doom just yet.

(She’s in Luxembourg today btw, looking at whether to conjoin the EU in America’s tariff war with China)

(The idea is that the EU would be swept into a steel and aluminium “club” with the US, and thus benefit at the cost of China)

But really, all this signifies to me, is the clearcut end of free markets. Tariffs are no longer a dirty word.

Julian Rimmer 11:10

The Inflation Reduction Act always sounds like a paradox to me.

Izabella Kaminska 11:10

Inflation reduction Act was just a rebranding exercise of “Build back better”

Because the latter became too stigmatised on social media.

Julian Rimmer 11:11

Going back to the “reevaluating the term premium” we discussed earlier, I think central bankers simply don’t appreciate the capacity for geopolitical chaos to disrupt their plans

Izabella Kaminska 11:12

Should we talk more about Chaaaaayna?

Julian Rimmer 11:12

Following up on the contrarian trade idea I adumbrated Friday about China’s capacity to wrongfoot EM fund managers positioning into YE, I note GS have turned tactically positive too.  Most stocks are trading well below their historical average based on current-year earnings and investors have already priced in the further deceleration ahead.

Both CSI300 and HSCEI are now trading -5.5% and -10% YTD vs TPX +25% and SPX +14% (see exhibit 1). Considering a) the strong travel demand during the summer season, b) companies’ cautious and conservative guidance for 4Q23, and c) potential further policy changes, we are bullish going into year-end and beyond in China. GIR expects more fiscal easing measures in coming months, with conviction of a 25bp RRR cut and a 10bp policy rate cut in Q4.

I’m not going too die on the hill of a Chinese rally but since we are in the business of highlighting what’s in investors’ blind spots, I still think this is worthy of one’s attention. End of.

11:14 I chatted with a banker this weekend – not something I’d normally recommend but it was a dinner party and I had no choice because he was sat next to me. He oscillated somewhere between concerned and alarmist about the Armageddon looming in the venture cap space where many funds are faced with huge valuation markdowns in the near future.

I tried to get him back on football transfer speculation and my favourite vintages but he would not be turned.

He very much feels there is a crash hiding in plain sight.  Instacart valuation rounds, the well-documented problems at Sequioa, the recent travails of Graphcore, as per this story from the FT:

The Instacart IPO at ~$9bn vs last mark of ~$39bn and the collapse of Hopin all indicate a huge valuation mismatch but he was adamant that funds are still positioned as if there’s nothing happening.

There has been too much money allocated in recent years and a distinct dearth of exits. This banker estimated 100% of returns have probably come from 100 companies (or a very small number, in any case, given his tendency to exaggerate). If you’re not a Tier 1 venture fund you wont see the best companies. Exaggerations notwithstanding.

Lots of private wealth managers/ family offices have money tied up in projects that are now funding at much lower levels than previous rounds.

Izabella Kaminska 11:17

That’s interesting.

Julian Rimmer11:18

And many of them are not interested in funding at lower levels. that’s not how it’s supposed to be

Private Equity buys companies with cashflows. Servicing the debt is very painful with rates doubling but there are almost always industry bids to exit. VCs are in at a much earlier stage, faster-growing but often no cashflows at all and even harder to exit.

This is a Big Short kind of story developing here with billions most likely having to be written off. Owing to the illiquidity/ infrequency of marks/ lack of industry standards there is a huge, delayed reaction to the much lower valuations now being attached to VC investments.

Izabella Kaminska 11:20

So basically, what you’re saying, is that there’s a potential write-down on a lot of VC assets coming?

I know PE is finding it ever hard to raising funding now too.

Julian Rimmer 11:20

Thank you for summarising and elucidating my own thoughts so much more succinctly than I could do it myself/

Izabella Kaminska 11:21

So Julian, what do you make of this story?

Fraudsters accused of conning wine merchant in €95,000 Petrus scam

Julian Rimmer 11:21

@Willosaurus – yes, yes and yes

Izabella Kaminska 11:21


Decanter 10:21 Petrus scamFraudsters accused of conning wine merchant in €95,000 Petrus scam

News Image

Petrus scam: Three alleged fraudsters have been arrested after they were accused of paying a merchant €95,000 in fake banknotes.
Julian Rimmer 11:21

‘not again’

Izabella Kaminska 11:21
Here’s some more:

The gang made off with 18 bottles of Petrus 2000 and two bottles of Champagne in the alleged scam, according to the merchant.

Detectives arrested two men and a woman, who are said to be of Serbian origin, but they have not yet been able to recover the wines. The alleged gang members are due to go on trial next month.

The unnamed wine merchant, who is based in Hauts-de-Seine, told Le Parisien that he was approached by a prospective buyer in February.

The buyer claimed to be a middleman working for a Russian couple planning to spend a weekend in the French capital.

Julian Rimmer 11:21

At least this time it’s fake banknotes rather than fake wine

And it was noffink to do wiv me, guv, honest

I would sell fake wine if I thought there were a market for it.

(I Sell alcohol free wine which is the same thing)

It’s called ‘Born Free it costs £6.50 and when people ask me if it’s any good, I reply, ‘I’ve no idea, I will never drink it’

A tiny anecdote from the day in the life of a desperate wine merchant yesterday

A woman puts her head inside the door

I am surrounded by approximately 2000 bottles of wine.

She asks me ‘ do you sell wine here?’


Izabella Kaminska 11:25

I guess that gives us a good pivot to finish off with some BoE/ECB stuff.

Two things caught my attention this weekend.

First, the ever-affable but slightly pretentious Andrew Bailey made some interesting comments in Marrakech last Friday.

Asked about financial stability in the wake of SVB collapse, he said that really we were at the limits of where we could go with imposing greater liquidity buffers.

SVB saw 30% of its deposits flee in one morning.

Julian Rimmer 11:26

(the observant among you will note Izzy spells Marrakech the French way. Very cosmopolitan)

Izabella Kaminska 11:26

But, he noted, liquidity buffers to cover that sort of risk would fundamentally change our banking model, and move it closer to a narrow banking system, which is something we probably don’t want.

In fact, notably, Bailey came out in support of the Mervyn King solution.

Do you know what that is?

Julian Rimmer 11:27

Absolutely no idea

Izabella Kaminska 11:27

Well, King has been banging on about changing the cbank model to what he calls a “pawnbroker for all seasons” system.

Paul Tucker is also in favour.

SO it’s interesting that Bailey should float this in an official discussion.

How it would work is that banks would have to keep most of their assets as collateral at the cbank, which would haircut them according to the risk.

SO monetary policy would be conducted via cbank valuation effectively of the riskiness of the assets.

Only the differential would have to be funded properly in the market (via debt, equity or contingent capital).

So it’s a fundamental change. But a lot of people don’t like it — even though, in some ways the ECB model is already heading in that direction.

Julian Rimmer 11:29

(Andrew Bailey is an alumnus of my college, but to my knowledge he never refers to me that way.)

What about the ECB?

Izabella Kaminska 11:30

Over in the ECB the big palaver is centred on whether they will raise their minimum reserve requirement.

Robert Holzmann, the Austrian cbanker, wants it raised to as much as 10%.

It’s currently at 1%, and banks are already up in arms about the remuneration on those reserves being cut to 0 in July.

If it went up to 10% that would be a significant amount of wedge that they would be losing. And unsurprisingly they’re a bit miffed.

The ECB has seemingly responded to those concerns, so now the expectation is increasingly that when it comes to liquidity removal it will come back to the end of PEPP reinvestments.

Though, even here, there is a controversy, as now is a bit of a precarious time to stop reinvesting the pandemic relief program bonds since there are fears spreads between Italy and German bonds could blow out again. Whatever happens though, consensus is that we are for the time being at least higher for longer.

The next meeting is in Athens next Thursday.

Julian Rimmer 11:33

@graham halliday – revenues are hard to come by even in the imaginary world I largely inhabit

Izabella Kaminska 11:34

@willosaurus – I think that is the key question

Julian Rimmer 11:34

I think the BOE think they are but they may not be.

Izabella Kaminska 11:34

As an aside, there’s also been some interesting amendments to the way the BOE plans to fund itself. They’re moving from a Cash deposit ratio to a Bank levy. It could provide another scope for divergence between the ECB and the BoE

but we are OUT OF TIME.

Julian Rimmer 11:34

gathering swallows twitter in the skies

Izabella Kaminska 11:34

SO on that note, it’s goodbye from me…

Julian Rimmer11:35

and it’s goodbye from him

Izabella Kaminska 11:35

We’ll see you tomor at 10.30, and it will Dario joining Julian. So prepare for meme stock talk.

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