This week Hedge Clippings attended the 500+ advisor/fund manager annual info-fest run by Graham Rich's Portfolio Construction Forum (PCF). Run is probably an understatement, as is managed - the event is a superb example of organisational efficiency, or should we say control. 

PCF is a longstanding annual event and thus has the benefit of years of experience, some serious theatrics, audio volumes to rival a Bruce Springsteen concert and, led by Rich himself, with an excellent line up of speakers, plus the obligatory "pay to perform" fund managers. In case you're wondering, this is not a paid endorsement or return favour for a freebie or contra ticket - Hedge Clippings coughed up the $795 entrance fee and will happily do so again next time around.

Why? Simply the professionalism of the production and the quality of the speakers - in spite of the geographically impossible location in deepest Redfern, which it seems, as we wandered hopelessly lost* (as Google Maps doesn't call it Redfern do they, probably preferring the more fashionable Eveleigh) around the streets. It seems Redfern has been transformed from "no go" to "inner city chic" in the blink of Sydney's property boom.

But we digress - back to the speakers, the main morning attraction being a global economic review from the likes of Jonathan Pain who is seriously bearish on property. Another, Longview Economics' Chris Watling from London, who held an equally bearish view based on his concern over the expansion of global debt at record low rates (in some cases, zero) which now exceeds GFC levels.

Watling's theme was that "bubbles always burst", having always started with cheap money, and always ending when it gets more expensive. He particularly singled out BBB corporate bonds issued by companies he described as "Zombies" who, after paying their bond holders, had nothing left to invest in R&D or production, and who in a normal interest rate environment would not be able to survive. He was equally critical of valuations, citing We Work currently priced at 20 times revenue!

Watling was unable to predict the timing of the bubble's burst, but one got the impression that, even though he might have been singing from the same song sheet for a while, time was running out.

Watling was followed by Ron Temple from Lazard Asset Management who was more sanguine, but cautioned that global growth was slowing, was surprised by the Fed's recent "pivot" but believed Euro growth will rebound.

Forecasters are notoriously good at predicting the future, but equally bad at calling the timing. We're reminded of the old adage that "the right trade, but with the wrong timing frequently results in a bad outcome."
  
*OK, our fault. A little prior preparation the day before would have averted the long walk, but at least Redfern was a pleasant revelation, and who would have thought we'd say that twenty, or even ten years ago.

As we progressed through 2018 we became used to - fixated almost - the HRC on the evening news, and front pages of the press the following day. Shock and awe (Orr) at the misdeeds and doings at the big end of town, and great fodder for program producers and print sub-editors.

Less than a month after the release of the final report and for many it's a case of moving onto the next big story - maybe that's just the news cycle of the modern age. However, the ripples - or should we say the tsunami - from the HRC continue to impact the financial services sector even as some are questioning if in the long term the real lessons have been learned.

The Commission had a number of immediate effects, particularly on the reputations, and in several cases the careers, of executives, directors and, in the case of AMP and NAB, the Chair of previously impeccable institutions. Shareholder value was equally shredded, although unlike the careers and reputations, it will no doubt recover over time - with the possible exception of AMP where we don't believe any amount of optimism is justified. If the writing was not already on AMP's wall, yesterday's results would appear to confirm it.

Laws may be tightened, ASIC and APRA's teeth sharpened, but how does one really change culture?

In the case of NAB, Hedge Clippings believes the reason the board was so out of touch with its own business was that they rarely actually experienced it at the coal-face. I am well reminded of, whilst working (thankfully briefly) for NAB's newly acquired broking arm A.C Goode in the late 80's, asking my then NAB director to address a team of remaining client advisors with a few words of encouragement post some necessary thinning of their ranks in the aftermath of the '87 crash:

"I'm afraid I can't do that", he replied. "Why not?", I queried. "Generals can't get down in the trenches." was the response. Of course not - they might get shot! The lesson is that while banking products and markets may change, culture is entrenched.

Whether the Hayne Royal Commission will be sufficient to change culture in the long term remains to be seen. We have after all seen previous enquiries (albeit not Royal Commissions) come to nought or very little. Think the Henry Tax Review - which sadly he'll be less well remembered for than his short time in the sights of Commissioner Hayne and counsel assisting, Rowena Orr.

For some of the best in depth coverage of the HRC and its recommendations (as opposed to or apart from Hedge Clippings' brief weekly rants) you should read 'Cuffelinks' and the excellent opinion of editor Graham Hand. For instance, this piece on the Hayne vs. Henry exchange entitled "Ken forgot it was Kenneth's stage", or this on "8 things the Royal Commission missed".  

And on a lighter note, or as we used to call it - "And now for something completely different",we found this clip of Trump's visit to Europe. Particularly relevant as it looks as if a US State of Emergency is looking more likely to be declared.