I missed the last two days of the past week as I took time to spend with my niece who has just turned 30, is in the tech industry (having trained as a graduate with Bloomberg) and who was on her way home to New York after a three month secondment in Singapore. She gives me the feeling that the future of our corner of the world is in pretty good hands and it was a delight to “hang out” and to converse with an engaging young lady who not once answered with “Wa’ever!” or “Ye know, like….”
I did, nevertheless, catch two key events, the first of which was obviously Janet Yellen’s speech and the other was the appointment of Matthias Mueller as new CEO of Volkswagen and successor to the defenestrated Martin Winterkorn.
With respect to Madame Yellen, I do hope she recovers quickly for her bout of weakness which overcame her during her mushily anticipated address at the University of Massachusetts. Some observers reported it to be a “highly balanced” affair which left the Fed open to any chosen course of action, going forward, but to me it appeared more like frantic back-pedalling after a massively botched September FOMC.
If anybody was expecting forward guidance, they’d better think again for she said “Most FOMC participants, including myself, currently anticipate that achieving these conditions will likely entail an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter,” and then, just to confuse matters, added: “But if the economy surprises us, our judgments about appropriate monetary policy will change.” From where I’m sitting, that was an unequivocal “absolutely and positively maybe”.
Meanwhile, on Friday, US Q2 GDP was revised up from 3.7% to 3.9% on the back of an upward revision of consumer spending. The Fed has put itself quite firmly behind the curve and I fear that those who have been celebrating the delayed tightening will be hardest hit if, as and when the FOMC finds that it has to first play catch-up and then overtake with the real economy. That said, the massive slow-down in the global commodities markets will soon begin to kick through both in terms of a decline in demand for plant and equipment, a key driver of growth in the industrialised West and the impact of low oil prices on US shale gas and on its creditworthiness.
Then again, on the other hand, the economy has never described a straighter path than when our central banks threw all that free money at it and I can’t see many people really wanting a repeat of that. Perhaps it is time for economists to stop trying get away with painting simple, monochrome black and white pictures of the world and to learn again that the odd quarter-over-quarter decline of this and that does not necessarily spell the end of the world and command the need for the central bank to act immediately. Once again, Alan Greenspan has much to answer for.
Having concluded, following the Fed’s rhetoric two weeks ago, that tightening was off the table, Madame Yellen’s speech of Friday negates pretty much everything she said at the post-FOMC press conference and we’ll have to do a rethink. Anyone for humble pie?
The Untouchables
Meanwhile, although absent, I did file column on Volkswagen in this week-end’s edition of the IFR. In it I noted that:
”Part of VW’s arrogance is to be found in its shareholding. The dominant position of the Porsche family trust and the State of Lower Saxony makes the company look invulnerable to attacks from the outside. The Porsches and their cousins, the Piechs, own 32.2% of the company and the State of Lower Saxony holds 12.7%.
In votes, however, these two groups command 50.73% and 20% respectively. Qatar Holdings has a 16.4% shareholding with 17% of the voting rights and Porsche Holdings – that’s the company, not the family – has 1.5% and 2.73%, respectively. The owners of the residual 37.2% of the company that are in free-float only command 9.9% of the votes. Thus, what is a potential blocking minority of more than one-third of the shares is pretty much disenfranchised and the Porsche and Piech families, along with Lower Saxony, still have near total control. Talk about untouchable!
One outcome of the scandal should be to upgrade the system of checks and balances within VW, but I’m afraid pigs will fly before the families cede control.”
The rapid appointment of Matthias Mueller from within the ranks – funny that the Porsche family has appointed the head of Porsche AG to take over the VW family business – should have corporate governance bells ringing at alarm strength. The fiasco which has befallen the company is, to my mind, proof of a failure of the corporate culture. The only proper outsider to try to run the business so far, the amazing Bernd Pischetsrieder, was defeated by the phalanx of vested interests, strongly represented by chief family representative Ferdinand Piech who was, incidentally, Chairman of Volkswagen when the fraudulent emission readings began but who seems so far to be Teflon coated in that respect.
In any other company, shareholders would be calling out for an untainted outsider to be brought in to clean up and the deal with what is clearly a deeply rooted cultural problem. But, as noted above, the 37.2% holders of the free-float between them garner less than 10% of the votes. Given the obvious snook which the Porsches and the Piechs have cocked at the rest of the world, it should be incumbent on the executives of institutional investors to now decree the withdrawal of capital support for the company, to mandate the sale of shares and to minute that holdings will not be re-established until corporate governance generally reaches more acceptable standards. A possible display of character and courage over the coward’s option of index neutrality? I wonder….
The week ahead…
It’s astonishing how quickly time passes but this week again ends with the US Payrolls Report. I’m not sure how important it will be, given the Yellen speech but the Street will currently hang on to anything which it thinks might help to add clarity and to calm volatility. Actually, it’s an all round heavy week for US data but it also brings us on Thursday the Bank of Japan’s Quarterly Tankan Survey. Tomorrow brings Eurozone CPI and given the ECB’s desire to see a spot of inflation creep back into the system, these numbers aren’t irrelevant either.
This week will most probably bring a spot of much-needed life back into markets but I would warn from confidently holding one’s breath…
