Adam Parry – 1.21 Gigawatts for EU SURE bond
Right. The clocks have gone back and it’s dark at 4.30pm. Covid-19 (last mention I promise) seems to be accelerating the UK and other nations back into something approaching a full lockdown. Christmas is cancelled and it’s grey, dank and cold outside.
So, I think it would be prudent to try and cheer everybody up a little bit and attempt to put a small smile on the faces of the loyal readers. In the words of the immortal Max Bygraves “I’m gonna tell you a story”. Any reference to living individuals, I can sort of assure you, is purely coincidental…
Thursday 14 May, 1987, 11.52am.
It’s my 21st birthday and a few of my colleagues are gathered around the statue of Julius Reuter outside the home of the LIFFE market at the Royal Exchange. A short distance away in a tiny little wine bar named Green’s, I am at the counter buying Veuve Clicquot. Who said the 1980’s were a time of conspicuous consumption?
As I am handing over my £50 for a couple of bottles of poo, my little, fat broker friend from the floor approached me wearing his yellow and black jacket and already looking slightly the worse for wear despite the earliness of the hour.
“Take that outside and come with me” he said in an urgent whisper “I’ve got an hour and a half before initial jobless claims and I’ve got something you need to see”.
So I took a quick slurp of the golden elixir and headed off to an underground garage just off Cornhill.
“Happy birthday, mate” said the rotund youth as he pulled a cover off a battered looking grey DeLorean.
“What a piece of junk” I said, somewhat disparagingly
“Wait a minute” he said as he opened the gull wings “you need to see inside”.
The control panel had been replaced by a display divided into three sections that appeared to show dates. Behind the front seats, meanwhile, was a box containing three flashing Geissler-style tubes in arranged in a “Y” configuration.
“What is this?” I asked
“I bought it off some crazy old coot with wild grey hair in Greens yesterday for a couple of bags” said the bookie. “He reckons it is a time machine that has caused him far too much aggravation, being a bit long of Veuve I lifted him. I was so hungover that I’ve not had a chance to test it yet. Shall we give it a go?”
“Ok” I said somewhat warily “What do we do?”
“He said we just put in the date we want to go to and then find somewhere to get up to 88mph. Only one problem, the month on the time destination is stuck on October. So where shall we go”
Extremely warily, I suggested that we headed back to October 28, 1928. Black Monday.
“Off we go” said the bookie as he gunned the accelerator and hurtled off up Cornhill. The speedometer hit 88mph just as we got to the junction of Bishopsgate and immediately there was a flash. As we emerged down Gracechurch Street, the world looked very different. The few cars and buses there were looked ancient, and there were no traffic lights.
The bookie turned the car around and headed back to the Stock Exchange. But nobody looked at the strange vehicle. The whole City had a funereal quality. As we entered the Stock Exchange, the reason for that became apparent. Jobbers were running everywhere looking to sell stocks. The market was in freefall.
“My god” I whispered “It only bloody works. We’re going to make a fortune” (it was after all 1987 and greed was good).
So the pair of us headed back to the DeLorean and went back a week. Using Barings we opened an account and sold blue chip paper. We hunkered down in a house in Epping Forest for a week before coming back on October 29 to take our profit. We opened accounts at Barclays for both our car mechanic grandfathers and sent the two callow teenagers a letter informing them of their good fortune.
Getting back to 1987 and we found ourselves in very different circumstances. Back at Green’s our old colleagues were deferential and subservient, calling us Mr Parry and Mr Marks. We soon discovered that this was down to our families owning a merchant bank, which had been founded by our grandfathers back in the 1930’s.
From that point there was nothing to stop us. We travelled forward to October 2020, and found that despite everybody wearing strange facemasks, there was a plethora of information on the markets on something called ‘the internet’.
Being confined to the month of October, we started with the panic of 1907 and managed to get long the market just before JP Morgan and his Wall Street pals rode to the rescue on their dashing white chargers.
Next we returned to 1987 and built up some massive put option trades on both the US and UK stock markets through the summer on the LIFFE floor in the name of Marks Parry & Co. On October 19, these trades paid out handsomely on the second Black Monday, although we were stuck in our country piles thanks to the hurricane the Friday before.
We just missed the ERM Black Wednesday fiasco because it took place on September 16, 1992 but managed to make a killing on short sterling a few weeks later. And we missed the collapse of LTCM by just a week in 1998, but again were positioned correctly on October 1. 16 years to the day after the ERM farce, Lehmans went belly up and we were in prime position to capitilize on October 24, 2008, when many of the world’s stock exchanges dropped 10% in a day, their worst percentage drops in history.
But by now, the decrepit DeLorean was struggling. So we headed back to 1987 and parked the machine in a garage on my Somerset estate and vowed never to use it again. The bank was purchased by a major US investment bank for a fortune in 2021, securing our families fortunes.
In early 2026, my youngest grandson found the DeLorean and decided to take it for a spin over the moors, only to get hit by a tractor on a country lane. He was fine, but the time machine was wrecked and would never work again.
In our dotage, the little fat bookie and I would short the markets for a bit of fun on two specific dates every year. January 31, for 8 times out of 19, a January rally in stocks is swiftly reversed by some hefty profit taking in February. And September 16 (for sentimental reasons) in the hope of another major shock for the markets as the nights draw in. We didn’t always get an October crash. But just in case you feel like a punt in the future, October 2027 could be very messy indeed. I’ll give you a clue. Single currencies across different sovereign states just does not work.
Ah well. It’s nice to dream. But back to reality instead of future and on to this week’s nonsense, and we’ll head back a mere week for more on the highly worthy ESG.
On Monday, the mighty EU waded into the ever-burgeoning ethically and morally responsible market with what they deemed their first SURE trade. And given that ESG is very much all the rage, the deal made history.
Even before the Initial Price Talk (IPT) was announced, the grey market in the bookies had both the 10 and 20yr tranches trading up half a point, which should have tipped the world and his wife off that the deal was going to be a flyer. That proved to be a major understatement.
What ensued was the biggest order book ever seen, with orders soaring past EUR233bn. Lead managers Barclays, BNP Paribas, Deutsche, Nomura and UniCredit started marketing the 10yr at 6bp over mid-swaps, with the 20yr at 17bp over, both of which looked pretty cheap to an investor base looking to gorge. Hence after less than an hour the screaming hordes had placed EUR150bn of orders. Funnily enough that guidance soon tightened to +3bp and +14bp.
And less than two hours after those IPTs were announced the 10yr was sized at a whopping EUR 10bn, with the 20yr at EUR7bn.
Utter lunacy then. And on the back of this we can expect a tsunami of ESG issuance from all and sundry and it’s difficult for us old stagers not to be dreadfully cynical about it. After all we have been there, seen it, done it and worn the T-shirt all before.
I will leave the last word to my old Scottish chum Bill Blain at Shard Capital to sum up what many of us may be thinking about this latest phenomenon.
“ I simply can’t wait for the EU to institute their next programme: Governance bonds! These will lend EU cash directly to European companies that do exactly what Brussels tells them to do.”
Enough said. Have a good week and remember. Keep your chin up.
On the Agenda this week:
Monday: New Home Sales
Tuesday: Durable Goods Orders
Thursday: Initial Jobless Claims
Friday: Employment Cost Index; Michigan Sentiment
Monday: German IFO
Tuesday: Spanish Unemployment; French PPI
Wednesday: Spanish Retail Sales; Italian PPI
Thursday: Spanish CPI; German CPI; Area wide Economic Confidence
Friday: Spanish Industrial Production; French GDP; French CPI; German Retail Sales; German GDP; Area wide Unemployment, GDP, CPI.
Thursday: M4 money supply.