Wednesday, 23 January 2019

Alpine freshness

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Davos, Davos, Davos…. wall-to-wall coverage of the most ridiculous show on earth. 

I’m not quite sure what the Global Economic Forum aims to achieve and certainly no surer that I could distil what, other than supporting the economy of the canton of Graubǘnden, it has ever achieved. I was tickled to read that CEOs are more confident at the moment than they have been for more than a decade and that that is proof that the world must be in good order. 

But let’s face it, much of this confidence springs from the growth story in the US. That’s fine until one scratches the surface to discover that much of that story, along with yet further record high closes on the Dow and the S&P 500, are driven by the Trumpian tax cuts but without regard for the trillions of dollars of debt that will be created in the process. Debt-fuelled growth is and remains vanity. But is that the CEOs’ concern? Of course it isn’t. They get paid to expand their businesses, to increase their dividends and to increase their stock price. They might be in Davos under the banner of closing the wealth gap and fostering equality, and they might publicly make all the right noises, but when push comes to shove they’re there to do whatever that can to pursue the three key objectives for which they get paid. 

At the same time the politicians who are there, and whose agenda is to do the best for the people who have elected them, also spout about the grand global project while privately doing nothing that is not to their nation’s advantage. Barack Obama was criticised for caring more for rest of the world than he did for America and Donald Trump rode into the White House by not only thinking of America first but by making a lot of noise in that direction. He might act like a buffoon but there is little doubt that the unemployed miner in West Virginia or jobless car worker in Detroit or idle blast furnace operator in Pittsburgh don’t give a fig for how much better the lot now is of their peers in China, Korea or India. They want the opportunity to pay their mortgages, educate their children and fuel their cars. Whether or not the Donald can achieve all that is a moot point but at least he has given them hope and that is, for them at least, already a step in the right direction.


Blunt instrument 

Over the years I have met and known senior executives from finance and the manufacturing sector although I can’t remember a single table conversation that focused on saving the planet, fighting global warming or countering third world poverty. As already noted, that’s not what they get paid to do and although they might publicly pay lip-service to the lofty Davos rhetoric, their rise to seniority that helped them get the invitation to the jamboree in the first place was most certainly not built on moral rectitude. Davos is a convocation of some of the most ruthlessly power-hungry individuals on the planet; do we truly believe that having shinned up the greasy pole, knifing all adversaries on the way up, we can now expect sincere altruism and concern for the poorest and most downtrodden? If there is one thing to be said for Trump, then it is that he calls a spade a spade and when he is being hypocritical, he makes no secret of it. 

Trump is a pure Darwinian, a believer in the survival of the fittest. Whether the US, when faced with an ascending Asia, is the fittest or even among the fittest is something that only time will tell. Davos and social Darwinism are diametrically opposed, rhetorically at least, and it will be interesting to see how the audience relates to the president when he speaks and, without a doubt, rehashes his APEC speech of last November. Since then the Dow has put on about 3,000 points and the tax reform bill has passed into law. He will walk into Davos all guns blazing and ride out without having given Klaus Schwab’s philanthropic themes a second thought, or even a first one, for that matter.


Dumping ground 

So while the “great and the good” fight their way across the snow-covered Wolfgang up to Davos to show their solidarity, the Trump administration has made true its threats to impose tariffs on goods it believes are being dumped in the US. He has begun with solar panels and washing machines, early deliveries to be taxed at 25%, then further supplies at 50%. Korea is quite understandably already crying foul and threatening to appeal to the WTO, although Trump’s disdain for some of these international organisations means that he won’t really care. 

Twelve months ago, just after the inauguration and the ruthlessly isolationist speech, Davos was behaving as though the world was just about to come to an end. Now it is riding on a wave of global growth and a belief that all is well in the garden. The funny thing is that in January 2008 all seemed to be well too. Is that uniform belief that nothing can go wrong now not the greatest warning sign of all? Warren Buffett said that he buys when everybody else is selling and sells when everybody else is buying. Though not always right, he does have a record of being right more often than wrong and in being right in larger size than he is wrong. 

The media might be obsessed with the glamour of Davos but we should not. If global growth is as deep and crisp and even as is generally assumed, than it cannot be long before the central banks will begin to act. They can’t really afford to as too much of the global economy is funded by cheap debt and upsetting that apple cart isn’t in their interest. On the other hand, as wages begin to rise ahead of CPI and we begin to get cost-push inflation, they can’t afford not to act either. Damned if they do, damned if they don’t.


Bit part

Finally, last week saw the annual North American Bitcoin Conference in Miami. Anyone who might have expected doom and gloom after the huge price correction in the headline cryptocurrency had better think again. Never, so my little spies tell me, has confidence been higher and never has so much cash been looking for investment opportunities in the blockchain space. There are clearly bubbles forming in the technical side of the industry too although by all accounts there is some seriously good work being done in distributive ledger technology. DLT brings with it a paradigm shift in the way business can be transacted.

Has anybody noticed how the banks, which just six or so months ago were decrying the crypto space as the exclusive playground of criminals, drug dealers and money launderers, are increasingly beginning to offer services to their institutional clients and to experienced investors? Sure, they will steer clear of servicing retail clients – they don’t want to be held responsible if it were all to go horribly wrong - but they are coming round to accepting that denial is not a river in Egypt. We are still a long way from full-service banking for blockchain technologists and clearers but it will surely not be long before they will be courted and received by bankers who are not holding their noses while only letting them in through the side-door and after dark.

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