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Saturday, 16 December 2017

A day away from Canary Wharf’s ivory tower

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Anthony Peters, Swiss Invest Strategist

Anthony Peters, Swiss Invest Strategist

I enjoyed something of an away day yesterday which I spent in the “real world” with people who actually make things and sell them to people who can use them. Every now and then I would pull my Blackberry out of my pocket, watch the melting markets, and remind myself of just how immaterial this is to the group of people I was with.

The product in question is an energy optimisation system, the sort of unit which measures and manages the power usage in a business – something which represents a perfect piece of 21st century technology and which should be flying off the shelves. But as the saying goes, nobody will beat a path to your door, even if you invent a better mousetrap. Although I must say that I was impressed by both the product and the people who run the business – it is clear that they too are facing an uphill struggle. With a 2-1/2 year payback horizon, their units are attractive but in the current economic environment and given cashflow constraints, businesses are not necessarily all that caring in investing in savings, they want and need to see them hic et nunc.

The event these kind folks invited me to was a motor track day, once (and probably still) the peak of corporate entertainment. The investment which goes into the pool of sports and racing cars available for us punters must be huge but I can imagine that businesses like that one must be struggling too as corporate entertainment spending from the financial services sector evaporates. I cannot tell you how much good it did me to get out of the ivory tower of Canary Wharf, to drive through a bit of middle England on a midweek morning and to meet and speak to people whose interest in markets is limited to wondering what effect it will have on their respective retirements in twenty or so years’ time.

In a funny way I also enjoyed skipping a day of commentary; how many different ways can one find to describe yet another session in markets which are trying to prepare themselves for what appears to be the inevitable while those supposedly in control still don’t appear to have really woken up and smelt the coffee.

Not without sin

The rapid decline in the reputation of Dexia is a case in point. As little as three months ago it sailed through the European banking stress tests with a clean bill of health and now it finds itself on the critical list. Dexia, a specialist in public sector lending and made up of the erstwhile Credit Communal de Belgique and Credit Local de France was once seen as the perfect set-up with low yield but even lower risk. The shift in both the perception and the reality of lending to the public sector has come together here in the perfect storm.

When dealing with the fallout of the sub-prime and consumer credit boom during the 2007–2009 phase of the current financial crisis, bankers cannot hide. I recently heard of one who found himself at a public speaking engagement and, when being pilloried by his audience, asked whether they would be kind enough to show him the gun. What gun, they wanted to know. The one, he replied, that the bankers had put to the heads of borrowers when forcing them take more credit. I appreciate the sentiment but do believe that as a whole we in the financial sector, as a collective, now do acknowledge that we are not without sin.

However, we, the bankers, did not create the rule which determined the 0% or 10% capital reserve weighting for central or regional government lending. The notion of the “risk free” came from those who wrote the rules, not us and although we foolishly lent them all they wanted to borrow, it was they themselves who determined how much they asked the markets to give them.

I have yet to hear a single serious “mea culpa” from the political class when it comes to staggering levels of public sector over-indebtedness

On Goldman and the Greek government

Goldman Sachs has taken immeasurable stick for its advice to Athens as to how best to cook the books but as the National Rifle Association so keenly reminds us, guns don’t kill, people kill. Goldman might have given the advice but it was the Greek government which chose to take and to implement it. I have yet to hear a single serious “mea culpa” from the political class when it comes to staggering levels of public sector over-indebtedness which is the cause of the prevailing crisis. The best way to bail out Dexia would be for the public sector borrowers to pay them back the money which they have been lent and which the markets evidently fear Dexia might not see again. Simples. 

Meanwhile, of course, our transatlantic cousins decided that it was too early to declare the end of the world; after another miserable session for European equity markets, the US ones closed higher and Europe will probably do its Tuesday reversal on Wednesday – is there nothing one can rely on any more?

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