BofA September Global Fund Manager survey: Short-term “pain trade” is up again for risk assets
{X,} FMS sentiment is super-bearish, BofA says, with cash levels rising to 6.1% - the only ever higher reading came after 9/11.
{X,} BofA says that max bear sentiment and benign data has resulted in SPX retests and fails of 4,300; BofA says it is remaining fundamentally and patiently bearish.
{X,} On the macro front, FMS reveals global growth expectations are near all-time lows, with a net 72% expecting a weaker economy next year, a net 79% expect lower inflation in the next 12 months.
{X,} On policy, investors think the peak Fed Funds Rate will be 4.0-4.25% in Q2 2023; mid-term election expectations shift, with a GOP sweep seen down from 44% to 28%, GOP House/DEM Senate up 8% to 22%.
{X,} On risk: cash levels jump from 5.7% to 6.1% as record net 60% investors taking lower-than-normal risk
{X,} On tail risks: Top 3 tail risks are inflation, central bank hawks, geopolitics.
{X,} On asset allocations: The most crowded trade is long USD, contrarians note most extended FMS position since 'long US tech' in November 2020; cash allocation at record overweight (62%), stocks at record underweight
{X,} On sectors and styles: FMS is the most underweight on European equities ever, and most overweight consumer staples since Dec 2008. The September rotation has been from tech to banks.
{X,} On contrarian trades: FMS says it is unambiguously 'short USD', 'long equities-short cash', 'long EU cyclicals-short US defensives', and 'long consumer discretionary-short energy'.
‘Vegan Leather’ or Plastic? A Materials Marketing Battle Heats Up
Fuzzy definitions and bad data have left fashion consumers facing an array of claims and counterclaims as new and established materials jostle to market their sustainability credentials.
KEY INSIGHTS
- Last week, Woolmark launched a campaign with the tagline “wear wool, not fossil fuel.”
- It’s the latest salvo in a marketing battle that stretches from leather to diamonds as sustainable fashion becomes big business and upstart alternatives challenge established materials.
- With no standardised way to measure whether materials are sustainable or not, consumers face confusing claims and counterclaims.
“Do you know where your clothes come from? Would you wear plastic?” Those are questions Australian wool group Woolmark poses as part of its latest campaign.
Launched last week, it features a strikingly haunting video of an oil-slicked trio scrambling from a pool filled with crude against apocalyptically overcast skies. As they emerge, they strip off their tar-drenched garments in favour of wool and the surroundings transform into a natural paradise. The campaign’s tagline: “wear wool, not fossil fuel.”
The choice is “a false narrative,” said filmmaker Rebecca Cappelli, whose documentary “Slay” launched a few days after the Woolmark campaign and highlights the negative impact of animal skins in fashion. “It’s kind of textbook, something you see across the fur, leather and wool industry to attack synthetic fibres … that doesn’t make what they are promoting magically good and ethical.”
Claiming the moral high ground is increasingly important for brands and their suppliers, as sustainable fashion — once the niche domain of only the crunchiest consumers — becomes big business.
It’s more than just marketing at stake; brands from H&M to Gucci have made high-profile commitments to avoid materials that don’t meet baseline environmental and ethical standards in the coming years. And regulators are stepping in with policies that fortify those ambitions as more than simply voluntary goals.
But the industry has no standardised way to measure sustainability, or even a clear definition of what “sustainable” means. That’s opened a branding battle that stretches from diamonds to leather, as upstart materials vie with established players to present themselves as the best option for conscious consumers.
“You can’t really finish a sentence these days without the word ‘sustainability’ being in it,” said Woolmark chief executive John Roberts. “Whilst I don’t think we’ve come to any serious agreement on what that means, we know we need to state our case.”
A Marketing Battle
In 2017, Gucci chief executive Marco Bizzarri declared fur passé. Five years later, a material that once embodied the idea of opulent glamour is widely seen as out-of-step with modern luxury.
The shift in attitudes was underpinned by decades of campaigning by animal-rights activists, but once anti-fur sentiment became mainstream, the material’s disappearance from the shelves of many of fashion’s biggest luxury brands and retailers was swift.
Now those shifting cultural currents are challenging even fashion’s most entrenched materials.
Take leather, a profit engine for the luxury sector, prized for millennia for its versatility, durability and cultural value. In 2020, leather goods made up around half of the roughly $100 billion Europe’s five largest luxury companies generated in sales, according to equity analysts at Bernstein.
But the leather supply chain is also linked to animal cruelty, high-impact industrial cattle farming and polluting tanning processes. Alternatives once dismissed as tacky plastic derivatives have been rebranded as luxurious and fashionable vegan materials by labels like Stella McCartney. Associated sectors like plant-based meats and milk have grown rapidly, fuelled by demand from young consumers concerned about both animal rights and the climate crisis.
Luxury’s biggest players from Kering to Hermès are dabbling in buzzy leather alternatives derived from mushrooms or grown in a lab. Last year, Danish label Ganni said it would stop using virgin leather by 2023, after finding the material accounted for the bulk of its emissions. Demand for vegan leather products nearly tripled last year, according to fashion search engine Lyst.
“It has become a battleground,” said Debbie Burton, chair of trade association Leather Naturally. In June, the organisation launched a global campaign called “Leather Truthfully,” geared towards addressing common criticisms of the material. It emphasises leather’s versatility and durability, positioning the material as a natural byproduct of the meat industry and underscoring that many alternatives on the market contain substantial amounts of plastic.
Woolmark has taken a similar position with its new campaign. Its current spending on promoting wool’s sustainability credentials is in the “low millions,” CEO Roberts said. “But we know we’re going to do a lot more; it’s gone from zero to hero,” he added.
Animal rights campaigners contest this presentation of materials like leather and wool. Leather itself is often coated in plastic and the role of hides in the economics of the meat industry is murky. Investment in challenger materials is growing too, with ongoing efforts to drive down plastic content and improve performance. The nascent wholesale market for innovative alternatives for animal skins is expected to hit $2.2 billion by 2026, according to nonprofit Material Innovation Initiative.
Information Wars
The problem for consumers is that they are now faced with a plethora of competing sustainability claims from materials all pitching themselves as a better option.
The reality is much more complicated than any campaign might suggest.
“When asked what the best material is, the answer is always, ‘it depends’ ... Every material has tradeoffs,” said Beth Jensen, director of climate and impact at Textile Exchange. “We have to, as an industry and as consumers, get away from this idea that there will always be black-and-white answers.’”
Underlying the current marketing battle is a heated debate over how sustainability should be defined and measured. The industry suffers from a yawning data gap, with the quality of information about many materials limited, dated and unfit for purpose, according to critics.
Commonly used metrics lack a defined framework, which means users can pick and choose how they use and present data to fit the narrative they want to tell. And environmental assessments don’t measure important areas like social impact or animal welfare.
Efforts led by European policymakers to more tightly regulate sustainability claims have only fuelled controversies around existing data and methodologies, which animal fibre producers say favour synthetic materials. In June, Norway’s consumer watchdog ruled the Higg Index, one of fashion’s most high-profile sustainability rating tools, was misleading when used to back up eco marketing claims.
For consumers who want to be more sustainable, the simplest solution remains to buy less.
“In some ways I find it baffling,” said fashion industry analyst Veronica Bates Kassatly, who has written numerous reports critiquing fashion’s current approach to measuring impact. “If we wanted to reduce impact tomorrow, everyone would buy less clothes and wear them more.”
Simon Property Group Lifts Its Luxury Appeal
Atlanta's Phipps Plaza, one of Simon's top malls, is redeveloping, expanding and adding Hermès, Givenchy and Alexander McQueen, among other high-end fashion tenants to the mix.
The Simon Property Group, sensing strong demand for its space and higher-income customers still spending big, is elevating its luxury appeal through much of its portfolio.
The nation’s largest owner and developer of shopping centers — from off-price outlets to tony upscale enclosed and open-air malls — currently has a particular focus on the Atlanta market.
“Phipps Plaza has been changing substantially,” Vicki Hanor, Simon’s senior executive vice president of luxury leasing, told WWD in an exclusive interview. “Pre-COVID[-19], we added Gucci, Saint Laurent, Valentino, Tom Ford and Dolce & Gabbana, and earlier this year, enlarged Bottega Veneta and Balenciaga stores. We have an additional 14 luxury brands coming to Phipps,” Hanor said.
Among them are fall 2022 openings for Amiri, Givenchy and Alexander McQueen, and on Monday, Simon revealed that Hermès is moving into Phipps Plaza with a 7,000-square-foot store that’s scheduled to open at the end of the second quarter of 2024. Dior is also under construction and plans to open in spring 2023. The center is anchored by Saks Fifth Avenue and Nordstrom.
At the neighboring Lenox Square mall, also owned by Simon, Ferrari and Tag Heuer recently opened; Louis Vuitton is currently undergoing an expansion, and David Yurman recently expanded. Lenox Square is anchored by Bloomingdale’s, Macy’s and Neiman Marcus.
“Hermès is synonymous with artisanal craftmanship and rich heritage,” said Hanor. “The addition of Hermès at Phipps Plaza is another exciting step in the luxury evolution our consumers expect in Atlanta.”
Hermès will be adjacent to the redevelopment under construction at Phipps Plaza that includes a Nobu hotel and Nobu restaurant, an office building, a food hall, a Life Time Fitness center, and a community park space. The French luxury brand is being designed with a unique feature: An exterior patio where food and beverage will be offered.
“The first floor of Phipps is 95 percent luxury, including the new brands. There has been so much demand for space that we have run out of traditional space, and now we are starting to lease in the lobby of the office building” under development.
“This is going to be one of the best luxury properties in the U.S. Phipps today is incredibly productive. It will be way more productive after we open these boutiques.”
While the first level of Phipps is almost entirely luxury, the second houses less expensive retail tenants, though Hanor said it’s still “highly productive.”
“Atlanta is just an incredibly hot market,” Hanor said, referring to luxury goods, not the weather. “It has a great demographic. There is high demand and it has high-quality shoppers. I lease luxury across the U.S. but I liken the Atlanta market to Las Vegas. It’s a very dynamic market. It pulls from so many miles away.”
She cited growth in Atlanta’s entertainment and sports industries as major factors driving luxury sales. Phipps, as well as Simon’s Lenox Square, are both in Atlanta’s Buckhead community, which is affluent. The two malls share a street corner. Executives at Saks and Macy’s Inc. said last month that Atlanta is among the strongest markets in the country.
“These are two legacy centers that have both been around for a long time,” Hanor said. “For the first time ever we have luxury brands that want to be in both centers. Traditionally they would pick either Phipps or Lenox. But there are five luxury brands in both, including Gucci and Tiffany. What is fascinating is traditionally, they would want to locate in the Neiman Marcus wing of Lenox, but they have started to [enter] into the main area of the mall.
“The luxury story at Lenox is just as strong as Phipps,” Hanor said.
She pointed out that in Indianapolis, Gucci and Louis Vuitton were recent additions at the Fashion Mall at Keystone, and that there is also a heightened focus on luxury at the Stanford Shopping Center in Palo Alto, California; Copley Place in Boston; King of Prussia, Pennsylvania; The Shops at Riverside in Hackensack, New Jersey; the Houston Galleria: Town Center at Boca Raton, Florida; the SouthPark mall in Charlotte, North Carolina, and in Las Vegas, The Forum Shops at Caesars Palace and The Shops at Crystals.
She said Atlanta, in terms of luxury sales, is a top five market for Simon, along with Las Vegas, Houston, Austin and Miami.
“The higher-income consumer is in good shape,” David Simon, chairman, chief executive officer and president of the real estate company bearing his name, said last month when the firm issued its second-quarter results.
“Brick-and-mortar stores are where the shoppers want to be,” Simon added. “Outpacing e-commerce across the world and the broad retail spectrum, demand for our space is extremely strong. Worldwide retailers need to grow, and they’re doubling down on the U.S. International tourism is returning. Domestic tourism is strong.”
>>> Up
* Aegon Raised to Buy at SocGen; PT 5.25 euros
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>>> Down
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>>> Initiation
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>>> Call
* Bernstein’s McCarthy Sees Further Equity Outflows, Earnings Cuts (+)
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Armenia Requests Russian Military Assistance As Fighting Breaks Out With Azerbaijan
Update (2305ET): The overnight outbreak of fighting in multiple spots along the Armenian-Azerbaijan border is serious enough for Yerevan to have asked for its powerful ally Russia's help. This has been revealed hours after Armenian Prime Minister Nikol Pashinyan held a late night telephone conversation with President Vladimir Putin. The Armenian government has since confirmed it has requested Russian military assistance to repel Azerbaijan aggression and shelling, according to a statement (machine translation):
"During the meeting, further steps were discussed to counter the aggressive actions of Azerbaijan against the sovereign territory of Armenia that began at midnight. In connection with the aggression against the sovereign territory of the Republic of Armenia, it was decided to officially appeal to the Russian Federation in order to implement the provisions of the Treaty of Friendship, Cooperation and Mutual Assistance, as well as to the Collective Security Treaty Organization and the UN Security Council.
Armenia is basing the request on the Collective Security Treaty Organization pact it has with Russia, and under which Russia previously sent peacekeeping forces to Nagorno-Karabakh after the Fall 2020 conflict.
Independent geopolitical analyst and Russia watcher Clint Ehrlich concludes of the hugely significant request at a time the Ukraine war is raging: "If Russia accepts, we could see a second NATO-Russia proxy war explode."
Of the earlier in the night Putin phone call, the Kremlin said via TASS:
"The Prime Minister gave details about the provocative, aggressive actions of the Azerbaijani Armed Forces in the direction of the sovereign territory of Armenia, which began at midnight and were accompanied by shelling from artillery and large-caliber firearms. The Prime Minister considered the actions of the Azerbaijani side unacceptable and stressed the importance of an adequate response from the international community."
However, it should be noted that during the last major flare-up in fighting between the two longtime rival nations which share a restive border, Moscow was careful to not get too deeply drawn in - only agreeing to help broker a ceasefire and send several hundred Russian peacekeeping forces to oversee the terms of the agreement.
If Moscow does get pulled in, it might be seen in the West as an opportunity to "weaken" Russian forces on a separate front.
Some US Congressional leaders have meanwhile spoken out and stood firmly on the side of Armenia, citing unprovoked Azerbaijan aggression.
* * *
Heavy fighting has broken out between Armenia and Azerbaijan along the border shortly after midnight local time, with the ministry of defenses for both countries citing clashes at several locations. Armenia is saying its territory is coming under attack, and that intensive shelling is currently targeting Goris, Sotk and Jermuk in the east.
Crucially there are reports of exchanges of fire beyond far beyond the contested Nagorno-Karabakh region, but shelling on Armenia proper. "Azerbaijani Armed Forces have launched military offensive against Armenian positions in Armenia proper," writes one regional correspondent.
It appears the fighting has already been sustained for two hours, suggesting this could be the beginning of a broader full-scale war as tensions have simmered going back to the last war for Nagorno-Karabakh in September through November 2020.
Arman Torosyan, spokesman for Armenia’s Defense Ministry has confirmed that "intense skirmishes are continuing following Azerbaijan’s large-scale provocation along the Armenia-Azerbaijan border." Both sides are now charging the other with aggression and provocations.
The Jerusalem Post is additionally reporting that "large clashes broke out between Armenia and Azerbaijan forces along the border between the two countries on Monday night, according to Azerbaijani and Armenian Defense Ministries."
"Azerbaijani artillery and UAVs reportedly targeted sites in Vardenis, Goris, Sotk and Jermuk in eastern Armenia."
Below is the full Azerbaijan defense ministry statement:
Contesting these Azerbaijan accusations of a "sabotage" operation which were alleged to have kicked off the fresh hostilities, Armenia's military countered with the following official statement:
On September 13, at 00:05, units of the Azerbaijani Armed Forces began to fire intensively at the Armenian positions from artillery and large-caliber firearms in the direction of Goris, Sotk and Jermuk. The Azerbaijani Armed Forces also use UAVs.
Complicating matters, there are still several hundred Russian peacekeeping troops in the restive Nagorno-Karabakh border region, as part of the settlement from the last round of fighting centered there.
This peacekeeping mission is now in doubt, and Russia's major base in Armenia territory is said to be on "high alert".