In politics, brinkmanship is an Olympic sport
Question: Is North Korea really a threat or has Kim Jong Un just perfected a way of pushing all the right buttons at the right time? Is he the school yard bully who threatened other kids by boasting that he reads Boxing Weekly?
Ballistic missiles, unless equipped with some very smart technology, are actually pretty blunt instruments which carry a limited payload and in many ways have not progressed since the days of the V2 missiles launched on London in 1944.
Of the 1,400 V2s which were launched, 500 made target and although the death-toll of 5,000 was not insignificant, in the greater scheme of the loss of life during the raids on London, it was not a game changer.
What it did achieve was a terrorisation of the population as the rockets struck without warning and without any known method of prediction or defence. In the modern day both of these matters have been resolved.
So should markets be scared of the North Korea effect? Or perhaps the more pertinent question is whether they are, as well as whether the falls Asian markets overnight – at the time of writing the Nikkei is off 0.44%, the Hang Seng 0.39% and the Kospi 0.56% – are actually caused by the North Korean rocket over Hokkaido or whether it is just a darned good excuse to do a spot of selling.
Australia’s ASX was the worst performer with a loss of 0.88% which took it back into negative territory for the year and to its lowest level since February 9. On the hand, the Kospi, the key South Korean equity index, which has most reason to be wobbling under the thunder of North Korean rocket engines is still up 16.33%, year to-date.
North Korea and its playing around with rocketry isn’t quite a storm in a tea cup, but it is a cup of very, very weak tea. If investors feel like taking some of their risk off the table, so be it. Korea is a good excuse but certainly not a serious cause.
There is little doubt that the direction less White House remains more of a threat to markets but an even greater threat is to be found in the blind faith markets have grown to place in monetary authorities and the concomitant risk to confidence which could spread if, as and when they acknowledge that the monetary authorities are now also pretty clueless.
With the UK having been closed on Monday, we are a day behind and the great Jackson Hole non- event has largely been digested, in as much as there was anything at all to be digested. I’m not sure what people had been expecting. Did they really think that Mario Draghi was going to present an earth-moving change in the ECB’s monetary policy or that Janet Yellen was going lay down the path for future Fed Fund rate developments or a concrete and binding timetable for balance sheet shrinkage? If they did, then the market has more idiots working in it than even I had estimated. The theme of the Jackson Hole symposium was “Fostering a dynamic global economy” and not “Janet and Mario reveal all”.
So we’re back today for the miserable week between the UK’s Late Summer Bank Holiday and the US’s Labor Day Holiday and I chatted to a German market player yesterday who acknowledged that it will not be until America’s post-holiday four-day week is done and dusted that proper and reliable liquidity will return to markets.
Meanwhile it was interesting to hear of both British and German businesses calls on both London and Brussels to stop pussy-footing around and to get on with working on solutions for a post-Brexit world. Perchance I dropped in on Saturday on a motoring chum of mine who also happens to be the COO of one of the UK’s leading industry associations and, despite Brexit, the elected president of the Europe wide grouping too.
As ever we talked at length about the administrative dog’s breakfast which the Brexit negotiations have become and the rather vague and vacuous formulations used by Westminster in the various white papers on the subject. Although my friend, who has read most of them, was critical of the rather optimistic wish lists he also conceded that the equally childish manner in which the European partners just blankly dismiss anything out of London with a “No!” is of no use either.
In politics, brinkmanship is treated as being tantamount to an Olympic sport – think North Korea – but in the world of manufacturing it’s as toxic as ricin. A one and a bit percent swing the other way in the referendum and the UK would have voted to remain. Is it not incumbent on the EU negotiators to bear this in mind when time and again laughing the UK representatives out of the room? It was to a very great extent that attitude which swung that one and a half percent to vote to leave and rather than sitting on a high horse, it’s time that both negotiating teams dismounted, put their swords and shields away and began to embrace a constructive future. There still seems to be a fierce sense amongst the EU team that a friendly solution would encourage other members to rethink their own relationship. What is it that is so terrible about the thought of an economic union without political union…other than they might lose their jobs and copper-bottomed pensions?
As of yet the loss of 10% of the EU’s net income hasn’t been debated in parliament and it has been left to the negotiating team to squeeze as much out of the UK as possible in order to postpone that issue for as long as possible. In his own way Young Macron has stated several times in the last week that the EU cannot go on the way it is and that reform is urgently necessary. The reform he is alluding to is the very reform which would have fended off a vote for Brexit.
Here in the UK the biggest problem remains that the politicians are still trying to find a way to make a party political issue out of a situation which is not party political. That fact hinders constructive debate and makes the country look even more confused than it already is. Theresa May might be in Number 10 at the moment but I somehow doubt whether Moses, Genghis Khan or Charlemagne could make a much better job of it. Mind you, I’d pay good money to watch one of those three go toe to toe with the Muppet in Chief, Jean-Claude Juncker, even if he hadn’t seen a bottle of brandy for a week.
Business is speaking out now and that is good. The question remains whether elected politicians will learn in time to listen to those for whom they are supposedly working?
Finally to the oil price which is confused over the damage which Mother Nature has done to the Texas refining capacity. On one hand there might be gaps in the supply chain but America is car dependent in general and Texas as so in spades. The near collapse of road transport in parts of southern Texas should, on the demand side, not be underestimated, so in fact Harvey is to some extent demand/supply neutral.
As far as the effect on insurers is concerned, I can only quote an old friend of mine, formerly of Swiss Re, who said after Katrina: “For us it’s not a problem. That’s what we do. One or two catastrophes a year is what we budget for. It only gets bad if we get hit with a third or a fourth…”. So far so good and no need to short insurers and reinsurers.
Onward and upward and for the returning Brits and have a good week. For the rest of Europe, time to wake up again.