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Tuesday, 29 July 2014

Expecting Dave to take on Goliath

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I was once advised to “Tell them what you’re going to tell them, then tell them, then tell them what you’ve told them”. The leaking of pretty much every speech which a politician is going to give might help it to get into the papers on the day it is made rather than the next day – a day after the broadcast and web-based media have had it – but it does sort of spoil the fun.

Anthony Peters, SwissInvest Strategist

Alas, so it will be with David “Call me Dave” Cameron’s set piece today at the annual conference of the Conservative Party. The key themes have been well publicised in advance and I take my hat off to him, should I find out tomorrow that he has spoken as flagged.

None of the forced jolly rhetoric which we hear on a daily basis out of the eurozone where even casting shadows on the pastoral scenery is becoming a capital offence. Cameron will make it quite clear that we have spent a long time – under all hues of political leadership – living above our means and that until fiscal equilibrium is restores, the job will not have been done.

The art of electoral politics is selling hope – or at least it has been. Cameron looks to be prepared to display the guts and to stand up and to tell it as it is, as painful as it might prove.

Cameron will today remind the country that one cannot simply spend one’s way out of debt, as nice as the idea might appear.

Olivier Blanchard might have put the cat amongst the pigeons yesterday by suggesting that the British economy will be the great under-performer, going forward, but if anyone is courageous enough to remind people that it is also the economy with the highest per-capita personal debt levels, then maybe, after some head-scratching, they might begin to understand that there might be some correlation between the two and that curing both goes hand in hand. That is a responsibility which the people must take on themselves and for which the government can no more than point the way. Talking of growth at the same time is like attempting a virginity study in a natal clinic.

The Bible tells the story of Joseph and the Pharaoh and of the seven fat years and the seven lean years, not of the seven fat years followed by another seven fat years. The United Kingdom exited the seven fat years – 2000 to 2007 – with the highest deficit in its history and the highest debt levels in the developed world. Though the son of a minister of the Church of Scotland, the invisible Scotsman, the Right Honourable Member for Kirkcaldy and Cowdenbeath who abolished the boom and bust cycle and who saved the world, must have missed out on reading and, more to the point, understanding that particular part of Old Testament teaching, thus leaving the nation and its finances in an unholy mess. Cameron will today remind the country that one cannot simply spend one’s way out of debt, as nice as the idea might appear.

A interviewee on the wireless this morning – I missed who was speaking - referred to the markets as “the enemy” of government. Sorry, sir, the markets are not the government’s enemy, they are its creditor. You do not insult and castigate your creditors. You put on your best suit, polish your shoes, wash your hands and behave as politely as you know how to because the past five year have reminded us, not taught us, just reminded us that credit is not a right but a privilege. That goes for governments raising billions to individuals seeking pay-day loans for hundreds.

Angie, you can’t say we’re satisfied

Meanwhile, Mutti Merkel put on her best game face and flew to Athens in an effort to assuage just such creditors – not the ones who have lent to Greece but those who have lent to Spain. Greece has become the dike which protects Spain from flooding and she went there to stick her finger in it. Whether or not she will succeed is not yet sure but former Prime Monster George Papandreou’s assertion in Berlin in 2010 that the eurozone needed Greece more than Greece needed the eurozone, as audacious as it was at the time, is proving to have been remarkably prescient. Maybe it was as prescient as Professor John Kay’s throw-away comment that the sovereign debt crisis is not at its end but possibly still at its beginning might still prove to have been.

Global markets still seem to be uncertain as to what the outcome will be – who can blame them – so they will look to take some lead from the US earnings season which got off with a big wet squib yesterday as Alcoa opened the dancing with some pretty weak numbers. Revenues might have been higher but the forecast was gloomy as management is preparing for a notable slow-down in demand from China.

This dovetails with the Reserve Bank of Australia having cut rates in anticipation of the same phenomenon. Nevertheless, I still would prefer to own equities for dividend than bonds for coupon.

Analysts are forecasting overall softer earnings but I would suggest buying the dips.            

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