TheChek News Flow

A new golden age for short selling?

Hedge fund short sellers have hardly enjoyed the best of times during a decade or more of a seemingly never-ending bull market. This year their luck finally appears to have changed.

The best known tool of the hedge fund industry, and one of its most controversial, short selling is back in fashion, writes my colleague Laurence Fletcher. That is thanks to the end of what former Soros Fund Management investor Renaud Saleur, who now runs Geneva-based hedge fund Anaconda Invest, calls the “fantasy” market, or the “everything rally” that lifted both good and bad stocks with little differentiation during the coronavirus pandemic.

This year’s huge sell-off in the speculative technology sector has provided a wealth of opportunities for managers, with Goldman Sachs’ Unprofitable Tech index falling 60 per cent as rising interest rates make such companies’ future cash flows far less attractive.

Another area of opportunity has been the cryptocurrency sector, where bitcoin miners have become the latest target. Lossmaking Marathon Digital, for instance, is one of the most shorted stocks in the US market. The firm paid its former chief executive nearly $220mn in stock awards last year but since has then fallen well short of its mining and profitability targets.

Hedge fund managers say that their shorts have been delivering the best returns in years. But it remains a tricky business navigating vicious bear market rallies and rising stock correlations. Meanwhile “speculative technology” is no longer the obvious short that it was at the start of the year.

Short sellers made millions during the dotcom bust two decades ago and again betting against the banks during the 2007-08 financial crisis. If the current bear market turns out to be anywhere near as bad as Elliott Management or Saba Capital’s Boaz Weinstein have recently predicted, then short selling could be entering a new golden age.

Igor Tulchinsky ended up at Millennium Management and founded WorldQuant thanks to a non data-driven approach

When Igor Tulchinsky was deciding whether to join hedge fund Millennium Management three decades ago, the Belarusian former video game programmer eschewed the systematic, data-driven approach that is characteristic of “quants” like him. He simply flipped a coin.

It was not “so that chance shall decide the affair, while you’re passively standing there moping”, to quote a poem by Danish scientist Piet Hein. “But the moment the penny is up in the air, you suddenly know what you’re hoping.”

The coin toss dictated that Tulchinsky should stay at his current employer, options trader Timber Hill. But when he announced the decision to Millennium, “I felt so bad,” he recalled in a rare interview. So he changed his mind and quit Timber Hill for Millennium.

His about-face turned out well for Millennium’s investors. Tulchinsky became one of its top portfolio managers, and in 2007 spun out a quantitative investment manager, WorldQuant, to manage money for the now roughly $60bn-in-assets hedge fund group. Over the past 15 years WorldQuant has grown into one of the largest and highest-contributing units at one of the world’s top hedge funds. People familiar with the matter say it now manages more than $10bn, split between the $7bn or so it trades on behalf of Millennium and a roughly $3bn fund open to other investors.

New York-based Millennium is a so-called multi-manager fund, which allocates money to about 290 different teams of traders across a wide range of investment strategies.

The fund is up around 10 per cent this year to the end of November and has gained an average of 14 per cent a year since it was founded in 1989 by Izzy Englander, according to investors. WorldQuant’s own 15-year record is shrouded in secrecy — even to its own employees and Millennium investors — but insiders say Tulchinsky is one of the highest-paid people in the wider group.

WorldQuant operates in a field of quantitative investing known as “statistical arbitrage”.

Its model is to produce algorithms that try to predict the price movements of various financial instruments, typically equities, and then take advantage of inefficiencies in the markets. Tulchinsky, whose intense gaze and head-to-toe black attire give him the air of a James Bond villain, refers to these algorithms as “alphas” and to WorldQuant as the “Alpha Factory.”

“This whole business grows at an exponential rate, and the data itself is growing exponentially,” he said, outlining how WorldQuant’s own growth has coincided with the exponential growth of data. “We believe the amount of data produced in the next five years will be the same as the amount of data ever produced . . . Today we have 1,500 data sets that we combine in all kinds of ways.”

In a 2017 paper, Tulchinsky memorably depicted technology as a “Quantasaurus” that stalked slow-moving prey. “The Quantasaurus has the potential to create far more than it destroys,” he wrote. “The Quantasaurus will survive, but if we choose to pen it up or flee from it, we will surrender many of its benefits.”

The problem confronting many quants is that what was once an “alpha-rich” environment — dominated by unsophisticated stock brokers and old-fashioned mutual funds that were easy pickings for sophisticated players — has become much trickier to navigate. Quant firms find themselves in an unending battle to sniff out new signals from trading patterns, find new data sets, explore new approaches and mine any inefficiencies before their rivals do.

“Trading signals decay, whether you use them or not, because if you don’t use them others do,” said Tulchinsky. WorldQuant has a library of more than 5mn signals but he estimates that each signal decays — that is, loses its predictive power — by an average of 15 per cent each year. “In the other direction we keep coming up with new signals so it’s a never-ending cycle.” He adds that while “crowding is a concern . . . as long as we just keep researching fast enough, keep finding new signals fast enough, diversifying in every possible way, then crowding is more of an intellectual than a practical concern”.

For WorldQuant, this diversification includes an expansion into new markets, including high-frequency trading and options trading, and trying to create an “Alpha Factory” in corporate bonds — a new frontier for investors. Its headcount has roughly tripled over the past decade, to more than 800 people (compared to more than 4,500 at Millennium), and the firm is one year into a three-year plan to significantly increase staff numbers.

At the same time, it is moving beyond inputting economic and corporate data into its models and using artificial intelligence to look at whether it is possible to predict in real time what future data points will look like — an approach Tulchinsky dubs “data 3.0”. 

“Data may be easier to predict than stock movements because your activity might influence the stock movements but your activity does not influence the cash flow of some company,” he said.

It is also exploring whether it can speed up its trading and compete more directly with high-frequency trading firms to make money out of more fleeting market inefficiencies. The idea is “for now” not to set up a broker-dealer like rival Two Sigma and try to compete on pure speed, but to see if WorldQuant can “create higher-frequency alphas just like we can medium-frequency alphas”, Tulchinsky said.

His has been an unlikely path, even for a corner of the investment industry with more than its fair share of unconventional origin stories. Born in Minsk, Belarus, to parents who were professional musicians, Tulchinsky began playing chess as a child and discovered computer programming at middle school. He started developing video games when he was 17 years old.

“I think being a refugee from the Soviet Union and having seen my parents take a risk and come to the US puts risk-taking EQ [emotional quotient] in my head,” he said. “I’m comfortable with risks, I like making fast decisions.” Coin flips often help decide the trickier ones.

In the early 1990s, when Tulchinsky was a young trading strategist at Timber Hill looking for a job, he sent thousands of letters to company chief executives. “For every 1,000 letters you get about 10 interviews and two job offers, but only if you send to CEOs and only if you flatter them in a vague way. If you send 1,000 letters to Wharton alumni [where he did an MBA] you’ll get a thousand letters back with pages of thoughtful advice but no job offer.”

Tulchinsky’s unorthodox path to the top of the hedge fund industry has informed his approach to building WordQuant, where the geographical and decentralised distribution of its workforce is unusual. It is built on the premise that “talent is distributed equally around the world, opportunity is not”, said Tulchinsky. “And we provide opportunity to the talent.” 

WorldQuant’s headquarters is in the hedge fund heartland of Old Greenwich, Connecticut, but its offices in 13 countries are spread across many non-traditional financial centres, such as Ramat Gan, Israel; Budapest; Mumbai; Ho Chi Minh City and Seoul. “The idea is that if you want to hire the smartest people in the world, they can’t all be in New York City.”

He launched WorldQuant University in 2015, a philanthropic venture that is a free online university offering masters degrees in financial engineering and applied data science courses to students all over the world. And it has built a separate company called WorldQuant Predictive — “AI on demand” — which sells predictive analytics to corporate clients.

After bringing in retired US Army general Stanley McChrystal as a consultant, every two weeks WorldQuant’s entire workforce joins a “giant Zoom call, carefully choreographed”. Tulchinsky is also fond of using anonymous surveys, sometimes several a day, because they “give you the ability to take any idea and pose it out there to 800 smart people and maybe have it shut down in approximately one minute”, he joked.

Right now, the war for skilled staff is “quite extreme”, he said. Most of the people who leave WorldQuant go to high-tech start-ups rather than rival hedge funds.

Tulchinsky said that staff turnover at WorldQuant is 5-10 per cent a year. But at least one high-profile hire has proved shortlived: Gary Chropuvka, the former co-head of quantitative investment strategies at Goldman Sachs, joined WorldQuant as president in 2020 but left after just over a year.

Everything comes back to Tulchinsky’s business philosophies, including “quantity is quality” and “everything is information”. WorldQuant uses crowdsourcing to try to improve performance at the margin. This year it launched the WorldQuant Brain platform that allows people to build and submit “alphas” for potential compensation and it holds regular competitions that it sees as a pipeline for talent.

“Crowdsourcing may be great, but you wouldn’t use crowdsourcing to design a spaceship,” said Tulchinsky. “We already have a successful business . . . we already have a system that determines whether something’s valuable or not, so we’re just looking for incremental improvements.”

DAX:

MDAX:

SDAX:

The French-born Marylin Fitoussi knows the city inside and out, having lived there intermittently for years.

Fashion is as much an attraction as the glorious cityscapes of Paris in the Netflix series “Emily in Paris,” but season-three costume designer Marylin Fitoussi insists she isn’t interested in starting any trends.

In fact, the show’s influence on fashion and the public’s thirst for it have surprised her. “I didn’t realize completely what was going on. It’s probably better this way, because I can work with no stress. My mind is clear and peaceful,” she said.

That being what it is, she listens to the critics and thinks it’s positive that some people hate the show. A few of the criticisms that she agreed with were that it was not fashion and probably featured too many prints, patterns and jeweled tones, but those are her style preferences.

“What they have to say helps me to be stronger, and to make things worse in a certain way. To have had so many critics [sounding off] about the previous season makes you grow. My mission was accomplished. If 50 percent of the people loved the show and 50 percent hated it, that means we provoked some kind of a reaction. What I did was not neutral. You can like it or hate it, but it was a real statement,” said Fitoussi, who took over the lead costume designer role for this new season, succeeding Patricia Field.

Fitoussi’s hope is that one of the takeaways is that her purpose in life is not to do fashion. “I was creating characters and not trying to make trends,” she said.

Having worked under Field previously, she approached the new season with much consideration for Lily Collins’ lead role as Emily Cooper, an enterprising and amusing American in Paris. Fitoussi said, “We knew we had to make an evolution. Now we know the young American is staying in Paris. I wanted to show how much she can embrace the French culture that she has been watching for the past few seasons.”

There was a lot to unpack with that — literally. Fitoussi and her team had more than 40,000 items between fashion and accessories. Valentino, archival looks from Jean Paul Gaultier and Christian Lacroix, Kévin Germanier, Grace Ling and Victor Weinsanto were among the numerous resources.

“It was like a museum, but we were very well-organized. A team of two were receiving and bagging everything that was received at the office, whether those items were loaned or purchased. They also kept straight all of the dates for necessary returns and which items would be used for photo shoots. We are terribly organized. It is like an army inside our showroom,” she said.

Accustomed to working between 15 and 17 hours a day — very often without weekend breaks — Fitoussi does so because she loves what she does and she wants to be a perfectionist. “I don’t count the time. It’s not about glamour — not at all. Often you have to wake up at 4:30 in the morning to be ready on set. But if you’re not passionate, you need to find another job. You need to embrace completely this type of product. It requires many hours [of work], much research and you need to challenge yourself all the time. If not, you can’t stay on your game. You need to think about the next step.”

The ”very clever, resilient and patient” Collins has a “mind that can sensitize many, many things at the same time” like a mathematician. Increasingly confident in her role, the actress and Fitoussi can speak candidly without any hard feelings, which has enabled Collins to be more subtle embracing different silhouettes and evolve her character on screen. Collins’ recall of every style she has worn through the show’s three seasons enables her to speak up if she feels a print or color are too similar to a previous style.

“That’s been very helpful to push me beyond my limits and to break boundaries,” Fitoussi said. “She’s a very deep person and respectful of all of the crew on the set. She knows everybody’s name on set.”

Fans’ zeal for Philippine Leroy-Beualieu’s character Sylvie has delighted the middle-aged Fitoussi.

“For a woman of her and my generation, she may be the [type of] person we have been waiting for. She decided not to hide the effects of aging on a body. In Season One, she had a scene where she could have had her arms and back covered. She decided to show the skin of a woman who was starting to age. She was brave enough and willing to do that, deciding that they need to see how her hands and body are now. And she is a very beautiful woman,” Fitoussi said.

Another crowd favorite is Samuel Arnold’s coworker role as Julian, due to his strength, flamboyance and joyful character, Fitoussi said. “When I first met Samuel, he was very shy. He was dressed in black or navy blue all the time. He didn’t wear any color at that time,” she said. “Now he is asking for color more and more. He is pushing me for more eclectic things and he wants me to take more risks with silhouettes.”

Season Three features bold hues like neon lemon and acid green, as well as unexpected combinations of sky blue and red. Color is a character in itself in the Netflix series and from the costume designer’s perspective, “Why not?”

Noting how the show’s creator Darren Star mused how France’s national colors for style were black, gray and white, Fitoussi said that is a reality, but not one that she adheres to. “Why are we so ashamed and afraid about color? What does it provoke in us? Do we feel too exposed?” Fitoussi said. “French people hate to be overdressed and to be the center of attention sometimes. They want to be neutral. They want to disappear but at the same time they want to have designer [labels]. I am questioning why the French are so afraid of the colorful world and why so few designers are using colors.”

For the third season “a mirror game” was created between Collins’ and Leroy-Beaulieu’s characters that personified their love-hate relationship. Viewers will see how “an arrogant, boastful Sylvie” can embrace color as boldly and confidently as Emily does. In return, Emily can interpret her boss’ trademark high-waisted leg pants into a signature style of her own. They borrow a bit from each other in admiration and competition and can signal a sign of respect without actually saying that, Fitoussi said

Another starting point came from Collins’ freshly cut bangs, which reminded Fitoussi of Jean-Luc Godard’s films, the French New Wave and the iconic ’60s characters portrayed within them. Working with only six weeks of prep time and solely on the first three episodes of the third season, Fitoussi had much to imagine. She also only had two day of fittings with Collins. The most difficult challenge of costume design for this type of series is not knowing what the next scene may entail — possibly a huge runway show or a costume party — and always having to be on alert.

“It’s quite difficult to anticipate. We had racks with a bunch of party silhouettes, business outfits, running outfits and casual ones. We never know what the screenwriters are going to imagine for her,” she said.

Born in the South of France, Fitoussi earned a degree in textile design in Paris and stayed on in the city for 12 years specializing in 18th-century costume design for films. She eventually moved to Mexico, where she lived for 13 years starting at age 33 and became emboldened with the freedom of mixing colors and patterns. She moved back to France’s capital a few years ago to live and work on “Emily in Paris” with Field. This season she took on the lead costume designer position.

But even as a teenager fashion was a focus and she routinely dipped into her grandmother’s trove of vibrant looks from the ’50s and ’60s.

At 16, she had no qualms about wearing some of her grandmother’s jackets and pencil skirts with stilettos, despite fellow students making fun of her. “I didn’t care. I still felt confident about the way I was putting clothes together and wearing clothes. It was always a statement for me to be different. It was not that I wanted to be the opposite of others. I just needed that to be well with myself,” she explained.

Next up for Fitoussi is the second and third films in a “Camelot” trilogy that are being led by Alexandre Astie. The plan is to complete those before the next season of “Emily in Paris.” Fitoussi said the films are not only “another challenge,” but also, ‘It’s nice to escape from the fashion universe and do what I know how to do in a period movie.”

Deal comes after regulators blocked Lockheed Martin’s takeover of rocket maker associated with Himars systems used in Ukraine

US aerospace and defence contractor L3Harris Technologies will acquire Aerojet Rocketdyne, the last independent domestic maker of missile propulsion systems, in a $4.7bn deal.

The acquisition comes after Lockheed Martin, the world’s largest defence contractor by revenue, tried to buy the rocket maker for $4.4bn before abandoning the bid after federal regulators sued in January to block it.

At the time, the Federal Trade Commission (FTC) alleged that Lockheed would use its ownership of Aerojet to damage other defence companies and would ultimately control multiple defence programmes critical to national security.

Under the terms of the deal agreed at the weekend, L3Harris will pay $58 per share in an all-cash transaction valuing Aerojet at $4.7bn, inclusive of net debt. The unconsummated Lockheed deal had been struck at $56 per share in December 2020.

“We’ve heard the DoD leadership loud and clear: they want high-quality, innovative and cost-effective solutions to meet both current and emerging threats, and they’re relying upon a strong, competitive industrial base to deliver those solutions,” said L3Harris chief executive Christopher Kubasik.

L3Harris will use existing cash and issue new debt to fund the deal, which will need US regulatory approval to be completed.

Sean Stackley, senior vice-president for strategy and growth at L3 Harris, played down potential concerns that the deal might run afoul of regulators in an interview with the Financial Times. The FTC’s concerns around Lockheed’s proposed acquisition had focused on its impact on “competition and also on innovation,” he said.

L3 Harris, said Stackley, intended to “strengthen the merchant supplier role that Aerojet plays in defence and space”.

The company, he added, was already speaking to customers of Aerojet: “I think we are getting a warm reception.”

A series of mergers and acquisitions over the past several decades has turned the defence industry into one of the most consolidated in the US. In the 1990s, 51 prime contractors worked for the Pentagon. This has shrunk to five highly diversified companies: Lockheed, Raytheon Technologies, Boeing, General Dynamics and Northrop Grumman.

L3Harris, known for communications and electronic technologies embedded in weapons systems such as sensors, and for its involvement in space programmes, is the sixth-largest US defence contractor with annual revenue of $17.8bn, according to Refinitv data. It is responsible for making the position and navigation unit for the Himars, or high mobility artillery rocket system, a truck-mounted rocket launcher that has been critical for the Ukrainian army in its fight against Russia.

Lockheed, Raytheon and Boeing, the three prime tactical missile contractors for the Department of Defense, rely on Aerojet and a Northrop Grumman subsidiary for critical components such as rocket motors. Its acquisition will make L3Harris a more important subcontractor for these three larger companies as well as the Pentagon. Aerojet executed $2.2bn in sales last year.

Aerojet’s rocket systems have been important on the Ukrainian battlefield, too. They provide the propulsion systems for the Javelin and GMLRS, or guided multiple launch rocket system, missiles the US has provided, the latter of which is shot out of the Himars.

Florida-based L3Harris was formed in 2019 via the merger of L3 Technologies and Harris Corporation, and the group has been seeking further scale through acquisitions. Earlier this year, it purchased Viasat’s tactical data links unit, which provides data and voice communications systems for military vehicles, aeroplanes and ships, for $1.96bn.

Stackley said L3Harris expected both acquisitions to close in 2023.

Advising L3Harris financially are Barclays and Goldman Sachs, while Citi and Evercore are advising Aerojet.

This past summer, the company’s longstanding chief executive Eileen Drake defeated a proxy contest led by the then-executive chair of Aerojet, Warren Lichtenstein. His investment firm, Steel Partners, had been a big shareholder at the company for years and it sought to remove Drake in a heated battle for control.

Drake had testified in a corporate court proceeding that Lichtenstein once offered her a pricey Birkin handbag if she pursued the Lockheed deal’s terms in a way that he preferred. Lichtenstein testified that he had offered Drake expensive handbags as a proper incentive to secure a higher deal price.

Nouriel Roubini: ‘I hope I didn’t depress you too much’

The famously gloomy economist has turned up the dial on dark predictions for 2023 and beyond, but is upbeat about technology and the meaning of life

Nouriel Roubini is gloomy, and it’s not just that he arrived in London on a red-eye flight and couldn’t get a table at Nobu. It’s not even conventional economic worries. It’s everything: a confluence of problems, old and new.

“I think that really the world is on a slow-motion train wreck. There are major new threats that did not exist before, and they’re building up and we’re doing very little about it,” he says.

Roubini is the economist who warned in August 2006 that there was a 70 per cent chance of a US recession, due largely to a housing slump. He was initially dismissed as a crank. Indeed, when you meet him, his unflinching, unsmiling, uncompromising negativity feels like a break with normal human coping mechanisms.

These days pessimism is widespread. To keep his edge, Roubini has turned up his own doom dial to eleven. His book Megathreats is a barrage about negative risks, from inflation to artificial intelligence, climate change and world war three, which he argues will combine for the maximum impact. “We must learn to live on high alert,” he writes. We will need luck, global co-operation and “almost unprecedented economic growth” for things to end well.

I wonder if Roubini underestimates policymakers. When Covid-19 hit in 2020, he said they wouldn’t mount a large fiscal response. They did. Megathreats was written before central banks raised rates in earnest to tame inflation. Roubini remains unimpressed.

“The conventional wisdom, coming from policymakers or Wall Street, has been systematically wrong. First, they said inflation’s going to be transitory . . . Then there was a debate over whether rising inflation was due to bad policies or bad luck,” namely supply shocks such as Russia’s invasion of Ukraine and Chinese zero-Covid restrictions. Roubini sees the consensus now as “six months of recession, big deal”. Again, he disagrees. “No, this is not going to be a short and shallow recession, it’s going to be deep and protracted.

“The Fed, ECB, Wall Street, the City say, yeah, we’re going to have a soft landing. In US monetary history for the last 60 years, we’ve never had an episode where inflation is above 5 [per cent] — today it’s 7.1 — and unemployment is below 5 [per cent] — and right now it’s 3.7 — that when you raise rates to fight inflation, you get a soft landing. You always get a hard landing.”

As for Europe, “it’s much worse. The UK is already in a stagflation. Inflation is above 10 per cent and even the BoE expects at least five quarters of negative economic growth . . . And the Brits shot themselves in the foot with Brexit, so that’s another stagflationary shock.” Because public and private debt is so high — up from 220 per cent of global GDP in 1999 to 350 per cent in 2019 — central banks won’t raise rates far enough.

To identify financial bubbles, economists often point to historical patterns. In other words, this time is not different. But the pessimist argument today is that this time is different, in the range of threats.

“I was born in 1958 in Turkey, then moved to Tehran then to Israel, then Italy,” says Roubini. (His father imported Persian carpets to Milan; the whole family later moved to the US. Roubini sees himself as a citizen of the world.)

“Did I ever worry about a war among great powers? No way. There was the detente in the 1970s, and Nixon went to China. The risk of nuclear war went to zero. Did I worry about climate change? Never even heard about climate change. Did I worry about global pandemics? The last one had been 1918. Did I worry about AI destroying most jobs? Did I worry about deglobalisation, trade wars? No way. Did I worry about populist parties of extreme right or left coming to power? We didn’t have the same polarisation we have today. Did I worry about major severe recession or great depression? Of course not. In the 1970s we had stagflation but then we had the great moderation. Did I worry about financial crisis? I never heard about financial crisis.

“This time is different, but it’s different relative to the last 75 years of relative peace, progress and prosperity, because before then the history of humanity was a history of famine, war, disease and genocides and so on. The last 75 years are an exception, they’re not the rule.”

Roubini is a fly paper for bad news. He gives half a dozen reasons why climate action will be too little. “Even if we do [what was agreed at summits in] Glasgow and Sharm el-Sheikh, we are on the way to 2.4C [warming] and we’re not going to do everything that we said, so we’re on the way to 3C. 3C is really awful . . . In the US, half the country doesn’t believe in climate change or that it’s human-induced, so when the GOP’s in power, policies do nothing.” The old and young are too selfish: a large chunk of emissions “come from livestock agriculture. We should all be vegan, and we’re not. I tried for three months and I gave up.”

He insists AI will take white-collar jobs. “It’s a matter of time before my job as Fed-watcher is made completely obsolete. I guarantee you that, 10 years from now, this AI looks at all economic data, every speech by every Fed governor, and can predict exactly what the Fed does better than the best Fed watcher.”

One of his friends recently asked a new AI chatbot, ChatGPT, whether Roubini’s book was right or wrong. “And the answer was incredible,” Roubini says, handing me the text on a phone. “Very intelligent.” I note that, in the WhatsApp chat with his friend, Roubini was less impressed — calling the chatbot’s answer “relatively banal and conventional”. Is he ramping up his pessimism for effect? “Yeah, yeah, the machine is banal now, but give it 10 years!”

What’s the best rebuttal to his pessimism? Technology, he says: he’s upbeat about nuclear fusion, but argues that “it will take 15 to 20 years. But in 15 and 20 years, we are doomed.” (Days later, the FT reports a fusion breakthrough.) Another critique is that Roubini ignores possible positive interactions between his “mega-threats”: climate migration could help the west’s ageing demographics, although he sees competition for scarce jobs.

Roubini knows that people label him a broken clock: right twice a day. He warned that a US-Iran war was “likely” in 2020. “No one can predict the future right all the time,” he explains. Predicting the global financial crisis was a boon. His research group peaked at 60 employees, until low margins and long hours convinced him to get rid of it in 2016. “I had no life. Singapore noon is midnight in New York . . . My doctor told me: you don’t smoke, you don’t drink, you don’t do drugs, but with this pace of travel, you’re going to get either a heart attack or a stroke. And I was even more overweight than I am now.”

He has saved 20 per cent of his income for the past decade, and now works at an asset manager for the first time, Abu Dhabi-based Atlas Capital. Because of high inflation, common hedging strategies have failed. “This year you lost more money on bonds than you did on equities . . . And suppose inflation expectations get de-anchored!”

So investors need to find safety elsewhere: “The idea will be either you go to short-term Treasuries, you go to inflation-indexed bonds, you go to gold.” Property prices have fallen, due to rising interest rates. But Roubini argues that central banks will blink, so “land is a good hedge”, as long as it is “environmentally resilient. Half of land in the US is going to be destroyed by climate change . . . We have data that look at every country, or even every building, to see which ones of the public [real estate investment trusts] are environmentally sound.”

I watch Roubini at a speaking event in Mayfair. “Here is he, Dr Doom!” cries the host. Roubini dislikes that moniker, preferring Dr Realist. He cites his 2015 view that Greece wouldn’t leave the EU and his 2016 view that China would have a soft landing. “I was much more optimistic than the consensus.”

The talk that Roubini gives this time is unadulterated doom. He argues that world war three began in October, when the US blocked sales of many microchips to China. Trade hostilities will be far-reaching, because soon everything will have a chip. “Even that bottle’s going to have a 5G chip in it,” he says, pointing at an innocent-looking litre of sparkling water.

The audience receives Roubini not as a crank, but as plausible. These days no one wants to make the case for progress. As Roubini puts it, “I don’t know who’s writing a book saying the next 10 years are going to be wonderful.” That really would be contrarian.

I wonder about the personal toll of his pessimism. Aged 64, he doesn’t have kids. “And I don’t want to have kids,” he says, citing various threats. He adds: “If stuff happens, I’d rather die than live in a world that is dystopian.” He had a reputation for partying. Travelling, however, puts his back up: “you don’t eat well, you don’t exercise, you don’t sleep enough and you don’t have time to meditate. When I’m in New York, I’m much more calm and relaxed.” He cites Stoicism and Buddhism. He learnt to cook during Covid, and cooks Shabbat dinners on Fridays, where 20 people discuss the meaning of life and other questions. This is one of “the best pleasures of a realist life”.

“I hope I didn’t depress you too much,” he says, as I leave. “We’ll survive — us. I worry about everyone else.”

Continued price volatility spurs calls to improve access to liquidity support

Electricity companies are urging the UK government to boost access to a £40bn state-backed liquidity support scheme, as continued price volatility in wholesale power markets reignites fears that some suppliers and generators might run out of cash.

The Treasury and Bank of England in October set up an emergency liquidity facility to tackle the margin requirements faced by power generators and suppliers that hedge their sales or energy purchases in the futures market.

Collateral requirements for energy companies across Europe have ballooned as Russia’s invasion of Ukraine has triggered extreme volatility in wholesale energy markets.

The UK has followed a string of other European governments in offering liquidity support to the sector. Finnish economy minister Mika Lintilä in September warned the problem had all the ingredients to create a “Lehman Brothers” moment in the energy sector, referring to the collapse of the US bank during the 2008-09 financial crisis.

Trade body Energy UK told the Financial Times it remained “very concerned” about financial liquidity across the UK power industry “over the coming months” and warned the conditions attached to the government’s £40bn facility meant it was not available to companies that may need it most.

The £40bn “energy markets financing scheme”, which opened to applications in mid-October, is on offer only to companies that are of “good credit quality” and which make a “material” contribution to UK electricity and gas markets. Suppliers, for example, need to have more than 750,000 customers to qualify.

Any company that makes use of the scheme will be blocked from paying dividends or bonuses to executives.

Analysts say smaller suppliers and generation companies that are not part of big, diversified companies are at greatest risk of running out of cash this winter as cold weather has sparked further volatility in power prices.

Energy UK and individual suppliers have raised the matter in meetings with the government since the scheme’s launch, according to people familiar with the situation.

Chris O’Shea, the chief executive of British Gas-owner Centrica, has said he believes many rival suppliers are “struggling for cash” and could go bust in a repeat of the market turmoil of 2021, which saw more than 30 energy retailers collapse.

Energy UK’s deputy director Adam Berman said the sector “remains very concerned about financial liquidity over the coming months”.

“While the government has put the Energy Markets Financing Scheme in place to address this problem, it will have to go further to ensure this facility is available to companies across the sector.

“Generators and suppliers face extremely challenging conditions due to the ongoing [energy] market volatility. An enhanced government backed liquidity programme is the best way of safeguarding the financial resilience of the sector,” Berman added.

Philippe Commaret, managing director for customers at EDF Energy, one of Britain’s top six suppliers, told the FT that liquidity problems in forward energy markets were also pushing up prices for households and businesses.

Fewer electricity generators were trading their output in forward markets because of ballooning collateral requirements and were instead selling in spot or day-ahead markets where they did not face the same cash demands. As a result, prices in forward markets have increased, he warned.

“If we were able to find a way to crack this issue of illiquidity on the forward market, it would have a big impact on the prices for customers,” Commaret said.

The Treasury said it had “a duty to protect the taxpayer and as such, the Energy Markets Finance Scheme should only be used by energy firms if absolutely needed, and this has been reflected in the structure and pricing”.