Tuesday, 24 April 2018

Angie, where will it lead us from here?

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I was somewhat struck by comments from the two sides of the Atlantic. The first was by Richard Fisher, Federal Reserve Bank of Dallas President and non-voting member of the FOMC, who raised doubts over the benefits of extending Operation Twist and the other was from Italian PM and former ECB Council member Mario Monti who reaffirmed than he will continue to push for bailout funds to be used in order to stabilise markets.

Anthony Peters, SwissInvest Strategist

The difference between the two? Fisher is worried about Twist distorting markets while Monti is looking for an agreement at the nineteenth and latest eurozone summit this weekend to distort them until the pips squeak.

It is interesting that within the Fed there is a continuing debate as to the value of market intervention by unconventional measures of which quantitative easing and yield curve manipulation are the most obvious. Although the ECB has shunned anything which might be called QE, the LTRO programme is QE in all but in name and, at the end of the day, does it really matter through what vehicle bonds are bought in an effort to keep rates low and add liquidity to the system?

Frau Doktor Merkel’s assertion yesterday that Eurobonds will only be issued over her dead body had me worried as it is an open invitation to any radical Europhile to take pot shots at her. She continues to be the only senior eurozone politician who either grasps or has the courage to suggest that pushing over-indebtedness “left pocket/right pocket” might have looked clever four or five years ago but that it has lost its ability to mesmerise us, the lenders, into believing that all is well in the garden and that everything is for the best in this, the best world of all worlds. So we look at the leaders convening for the summit with nothing proper to add.

A study of the potential for a centralised eurozone treasury will be commissioned but the group will not be asked for its interim report until October and its final one until the end of the year. I am in two minds about this. On one hand we do need a longer term road map but at the same time we do need some hic et nunc decisions which have credibility.

The drive towards a single union in banking has the Irish up in arms as it would propose a one for all and all for one support mechanism which is all fine and dandy unless you happened to be the first one to grasp the nettle and it now suddenly looks as if those who lied and thieved their way through the past few years will be offered the reward whereas the honest and honourable will be left to flounder.

This sort of issue puts further pressure on the eurozone leaders to revise the terms of previous bail-outs but as the rigorous terms and conditions become watered down more and more, credibility declines. Both Christine Lagarde and George Soros have warned that the euro is heading for the death-zone but, when playing to the gallery at least, the eurozone leadership still looks to be doing little more than patiently tuning its fiddle.

Glencore’s kibosh

Meanwhile, in corporate land, my friends at Glencore are back in the news. Management floated the company at 530p on May 18th of last year and at a price not seen since May 31st of the same year – it closed at 302.70 last night which represents a loss of 43% so far – under the representation that Glencore needed a listing in order to create a currency for its envisaged merger with miner Xstrata.

I had long expressed my doubts about a commodity trader trying to be a commodity producer, as I have seen enough disasters when securities brokerages erroneously but greedily pumped their excess cash into acquiring asset managers. Thirteen months after the IPO, Xstrata has still not merged with Glencore and the shareholders have been getting restless.

The $200,000,000 of retention bonuses which were to be paid have been the first stumbling block as it begins to appear as though corporate logic is being sacrificed in order to keep the good old boys in yachts and jets. In fact, the merger document is phrased thus that the entire merger is subject to the retention bonus package being passed.

I could say that I am staggered by the greed of the joint management but, to be honest, I am not at all surprised. The Glencore guys made their piles in the IPO and now they are trying to share the love. “Chapeau!” to the Qatar sovereign wealth fund for putting the kibosh on this sweet little insider deal and sound of one hand clapping to all the other shareholders who are now beginning to ooze out of the woodwork in support.

Glencore must be heading for 300p and below now and I still wouldn’t want to buy it.       

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