Saturday, 21 July 2018

On the crazy dog days of August

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Anthony Peters on Greek surplus promises and taking a Page from Buffett’s book.

They call it “the silly season” but this is ridiculous. We have the euro-jokers looking at and nodding at a bunch of proposals tabled by Greeks which forecasts Athens delivering primary surpluses from now until eternity which would, unless I’m mistaken, put their domestic finances on a footing rivalling those of Germany which has itself only just pulled itself out of a deficit.

Not that it comes as a huge surprise but the powers that be have now accepted the Greek proposals and the third bailout, the one which was never going to happen, is going to happen. I am still not sure what the correct price is for perpetuating the lie that the euro is a single currency and not simply a very sophisticated – and in essence highly successful – fixed exchange rate mechanism, but whatever that price is, it has just gone up by many tens of billions of euros. I wonder how many votes for Podemos are included in the price?

Warren and Alphabet soup

It goes on. Larry Page and Sergei Brin, co-founders of Google, have announced that they intend to create a holding company structure above Google which is to be called Alphabet (Alpha as in alpha and bet as in bet, geddit?), the aim of which is to avoid the risks of becoming a stagnant monoculture from which Microsoft has, not only in their opinion, been suffering.

Page, at 42, no longer the geek in jeans, declared his great hero to be Warren Buffett who, coincidentally, closed his deal yesterday to buy Precision Castparts for US$37 billion. No disrespect, Larry, but a Buffett you ain’t. Punting your surplus cash around in hi-tech while looking for the next big thing reeks much more of putting a few quid on every horse in the race as was common in the pre crash market than following Mr Buffett’s strategies where he has probably been tracking some of the companies he has major stakes in since you were still in short trousers tuning your skateboard.

Out of left field

Enough? Not yet! Britain’s Labour Party is in the process of electing a new leader after the rather rushed departure of Ed Milliboy on the back of his rather humiliating election defeats in both England and Scotland. Blairites versus Brownites? Forget it. Enter stage, far left, one Jeremy Corbyn. If you’re not British and had never previously heard of him, no reason to be ashamed. Nor had any of us. In fact, he struggled to find enough MPs to support his candidacy until a few open-minded members stepped up and lent him their support in order to broaden the range of debate within the election process.

One of the key questions which Labour thought it had to deal with was how to get elected while busily promising to spend money it didn’t have or which it would have to take off the people first. British voters appeared to have got the message that governments don’t have money of their own and that they can do nothing other than re-allocate what they collect from tax-payers. With, apparently 53% of British households drawing in more in state benefits than they contribute in tax payments, it should have looked like an open goal although the old ideological chestnut that anything could be achieved by simply soaking the rich has gone by the by with the decline of the working class and rise of the middle class. And then came the leadership race.

Corbyn is an old school socialist and very much in the Marxist tradition who has a strong belief in workers owning the means of production – that’s broad based nationalisation to you and me – and who carries with pride the banner of class warfare. Now, according to YouGov, it looks as though he might carry 53% of the vote and find himself elected to the leadership in a first-round sweep. Voting begins on August 14th. 

The Tories are cock-a-hoop as they blithely assume that a big swing to the left will render Labour unelectable “for a generation”. They should be careful what they wish for. Dave “you may now call me David again” Cameron did a great job in stealing Labour’s “progressive” mantle but in doing so it is seemingly forcing the left into regression.

But it should be borne in mind that nobody ever wins an election. They are customarily lost by the incumbents and much can happen between now and 2020. If Corbyn were, perchance, to be sitting in the opposition leader’s seat come the time, the country might find itself in for a shock, just as it happened to the French when they woke up to find themselves with Francois “Qui? Moi?” Hollande in the Elysee Palace. Hollande never won the election; Sarkozy simply lost it.

Hollande’s great pull to the left of course never happened but France has been left in the lurch for the last three years in which the President has achieved nest to nothing. In the words of the France based elderly mother of one of my partners here, all he has achieved is what she refers to as “reformettes”; I think it’s more commonly known here as fiddling while Rome burns.

Heavy metal

Back to markets where my suggestion yesterday that US equities would love the Buffett acquisition was proved to be on the button. The Dow added 241.79 points or 1.39% with Caterpillar – I did say metal bashers would be the big winners – rose by 3.71% and Boeing didn’t do too badly either at +2.42%. That said, the gains did clock across the board.

There is a strong August feeling about and the new issue market is quiet. Still, the banks are busy raising money and if Private Equity decides to chase the Buffett lead, the high-yield corporate market will be girding its loins.

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