COVID became a household word in early March of 2020 and within six weeks, a tidal wave of stimulus, coupled with non-existent interest rates, created a powerful wind blowing at the back of almost every single financial services firm. As we all know by now, the result was a non-coincidental period of remarkable outperformance due in part to the extreme “priming of the pump” by the world’s central bankers. Yes, everyone at Jefferies worked incredibly hard and as we have said continuously through this period, nobody could be prouder than the two of us as we saw what each of you accomplished on behalf of our clients, stakeholders and your fellow partners at the firm. That said, we all know in the back of our minds and hearts that while incredible work was required during this adverse period, it was easier to be more “brilliant and successful” when the markets were going up every single day.
We all sensed the winds starting to change last fall with the beginning of a rise in interest rates, inflation rearing its ugly head for the first time in decades and of course the resulting increase in volatility that was always inevitable as soon as investors sensed the long period of (almost) free money was coming to a close. As the new calendar year began, these concerns got worse and were further complicated by a devastating and indefensible war, increased global COVID complications leading to supply shocks, and an ever more aggressive Fed focused on aggressively tamping down inflation. Surprise, surprise, things are now more complicated, not as much fun, and suddenly none of us feel as clever or as sure of ourselves as we did during the period where everything we touched worked perfectly for ourselves, our clients and our stakeholders.
There is no doubt that we are currently in a challenging period in the financial markets, but as two people who have been through countless cycles, we are far from the truly dark periods. That said, it is undeniable that the world has clearly changed, and that is why we would like to offer some thoughts about what we should all understand and acknowledge about this transition in sentiment and suggest some specific things we might do to help us navigate as we look forward, and not backward. Hence, here are:
Some Gentle Reminders Of What Each Of Us At Jefferies Should Think About And Do When The Market No Longer Goes Up Every Day
- Acknowledge and Accept: The period of super low interest rates and overwhelming stimulus is over. Barring a complete catastrophic event, it will not return in any time period that should allow us to contemplate otherwise. Historical trading levels, priorities that used to drive valuations, cost of capital, and endless liquidity for even illiquid assets is gone. We will not be able to convince our corporate and investing clients that they need to embrace the new world for the benefit of their constituencies if we don’t truly accept reality ourselves. No advisor is worth listening to if they are focused on wishing to return to their enjoyable vision in the rearview mirror. That said, the more commonsensical trading levels, valuation drivers, cost of capital and liquidity premiums are just fine for all of us to operate in. They have worked historically, and they will work going forward, as long as we embrace reality.
- Maintain Confidence: As advisors and trusted partners, we should all be proud of the jobs that we did for our clients as we helped them navigate these past 2+ years. We had conviction, access to all the products and services needed, a keen ability to execute on a global basis and a sense of urgency that we believe is the envy of our industry. We all felt smart, on a mission, and fully committed to assist our clients in getting to where we all knew they needed to go. When the wind shifts and the music stops, it is easy to feel less confident in one’s advice and approach. It was easy to get lulled into a false sense of smartness when every answer you gave to someone happened to work out well. It takes someone really in touch with reality to be comfortable enough to understand that while their advice and execution was top notch, the environment also really helped make all of us look even smarter than we really were/are. We are all still really good at what we do. The answers may not appear as obvious and the execution and solutions may not be as seamless as before, but there is an abundance of common sense, goal alignment, and experience throughout our firm and the truth is, our advice and perspective are more important and needed in tougher times than in periods of a somewhat artificial bull market.
- Remember The Basics: There are a few things that distinguish us at Jefferies from most of our competitors. But when times are good it is easy to not pay attention to them because we are just too busy executing at a frenetic pace. But when things slow down a little or are more complicated, it is a great time for each of us to remind each other:
- It is always the more challenging times where we can truly distinguish ourselves to each other and our clients. In an easy bull market even people who are going through the motions can do well. When the cross winds begin in earnest, the people who have true passion, tenacity and commitment are the ones who distinguish themselves and shine.
- Having a consistent business strategy (over cycles), coupled with a true long-term vision that defines the type of company we want to keep building, will allow us to surpass our larger, more complicated, often inconsistent and more short-term oriented competitors.
- Relationships, trust and integrity always count more when things are more complicated rather than when everything is working easily.
- Any organization can navigate in a period of exceptionally strong markets and governmental support. It takes a firm with a culture to shine when things get a little messy. How we all treat each other today (while things are a little more complicated) will enable us to set the stage in the future for continued growth and market share gains. We have proven this time and time again.
The last point that we need everyone to be reminded of is that while business and productivity in the financial industry are clearly not as much fun today compared to the previous two years, the bottom line is that they are still PRETTY DARN GOOD! For the most part, the capital markets are functioning orderly and well. There is ample liquidity to accomplish most of our client’s objectives. The consumer is generally strong. Unemployment is at record lows. Yes, rates are higher, but by any historical norm they are still extremely workable and attractive. Our brand, market share, human capital, competitive position and capabilities have never been stronger or healthier. Our client base has never wanted to work with us more and now that everything is not as straightforward and easy as it was in times of over-stimulus, our clients need us more than ever. They also need us more than ever (and we need them) as we console each other over tragedies like Russia/Ukraine, the continuation and evolution of COVID, and the horrible gun violence throughout America. Yes, the world is a complicated mess right now but together with our clients we will do our best to help each other get through this period and as has always been the case at Jefferies, we will emerge stronger, healthier, more caring and more inspired to be positive contributors to the world.
Grateful to be your partners, even more so when times are complicated than when times are easy,
Rich and Brian