Money Movers

We discussed Fed policy, outlook for rates, and unique dynamics that exist in the global credit markets. Here are 4 insights:

1. Banks dynamics have turned hugely positive: 1) NIM is soaring as front rates/bank funding costs decline relative to long end which will drive earnings, 2) less imposing federal regulations allow banks to reduce admin costs – hugely positive for large banks and regional banks alike. Jamie Dimon, the most outspoken on this issue says: “It’s been years of strangulation, there’s no question in my mind we have hurt ourselves with overregulation. We have five or six regulators, and they all want different things. We’re unable to do our job properly. It’s mind-numbing and very painful.”- Jamie Dimon. I worked for Jamie back in the day, and he has a tremendous track record, not only for how he navigated the 2008 financial crisis, but also for consistently delivering strong financial results, ability to manage risk, foster innovation, maintaining a forward-looking vision to advocate for responsible capitalism. 

2. Tariffs are NOT as inflationary as most think. The impact on inflation with China tariffs 8 years ago were minimal and it will have marginal impact for US consumer this time around. The big beneficiary will be the U.S. who will bring back manufacturing to the U.S. create jobs with more reliable supply-chain. Vietnam, Cambodia, India, Mexico, Canada will also be beneficiaries. U.S. companies have had 8 years to move away from China and this trend will continue. I believe China will be forced to devalue its currency over time to remain competitive with exports and that the China manufacturers will also hold price to keep the business.

3. Long Ukraine, its sovereign debt (~$23B) trades ~15%+ yield. This opinion is based on my view that a deal will be worked out and reconstruction will begin. The Russia-Ukraine war has been devastating for both populations and their economy, alike. Russia GDP has fallen by 8%, Ukraine by 20% since the war began with casualties now exceeding 1 million men, combined. Both countries will come to the table, a deal will be worked out—that is my base case. The IMF, World Bank, EU, and U.S. will all provide aid for Ukraine and the Marathon Asset Management team is confident that investing in Ukraine’s sovereign bonds not only supports humanitarian efforts but is also an attractive investment opportunity.

4. M&A activity adjusted for market cap is at its lowest level (2023, 2024) in 30 years – CEOs find it difficult to get regulatory approval. The next 4 years will see a boon to M&A as CEO confidence soars, for large and small businesses alike. This chart below shows 2016, but mark my words, when WSJ conduct its 2024 year-end survey, you will see the same inflection point as 8 years ago LBO activity.