Via the always excellent Damien Boey at Credit Suisse::
In Tom Clancy’s 1984 best-selling novel “The Hunt for Red October”, a Russian Naval captain attempts to defect to the US by commandeering a state-of-the-art nuclear submarine “Red October” into US waters. The twist is that for a long time while the submarine is sub-merged, neither US nor Russian intelligence knows what the captain’s intentions are, leading to much speculation and angst. US officials fear an attack, while Russian officials fear defection and loss of their vessel.
October 2018 certainly has been a “sea of red” across equity markets. But the poor performance of equities is not the only sense in which we have been experiencing “Red October”. There is a second, but equally important question about the character of defensive equities. Are they friend or foe? Currently, the market is not sure whether expensive defensives are truly defensive. Investors are toying with the idea of value stocks being more defensive than defensives themselves. And as this uncertainty phase plays out, there is much speculation and angst. Colloquially speaking, defensive equities have become the new “Red October”.
