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Monday, 23 October 2017

Resistance to austerity strait-jacket grows

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I don’t know how many people have ever actually read an FOMC statement which comes out after the regular meetings but as such they mean relatively little. The sport is in comparing the differences in the current statement to the last statement as the majority of the wording tends to be identical.

Anthony Peters, SwissInvest Strategist

Nevertheless, I shall give the wording so that it is understood just how little is said and to help to understand how these very few words end up having everyone buzzing.

“Information received since the Federal Open Market Committee met in March suggests that the economy has been expanding moderately. Labor market conditions have improved in recent months; the unemployment rate has declined but remains elevated. Household spending and business fixed investment have continued to advance. Despite some signs of improvement, the housing sector remains depressed. Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations have remained stable.”

That just about sums it up. The entire statement amounts to about 374 words and we all know the conclusions are so let’s move on.

In Europe, the nascent resistance against the austerity strait-jacket seems to be increasing, not least of all on the back of Francois Hollande’s pronouncement that he wishes to renegotiate the fundamental terms of the Fiscal Pact. This is emboldening politicians across the continent to begin contemplating a revolt against the German austerity diktat.

Famous last words

The strangest thing of all is that it was the Muppet in Chief, Jean-Claude Juncker, who had it all neatly summed up when he said in May 2010 “We all know what to do, but we don’t know how to get re-elected once we have done it.”

One government after the other will fall in Europe as voters express their dislike for what is on their plate. And as little as they insist that their children eat up their Brussels sprouts and broccoli, so they expect that they too will be let off and offered a bowl of ice cream instead, as long as they kick up enough of a fuss.

Already this morning there are any number of British newspapers asking the rhetorical question of Chancellor George Osborne in response to his famous words that there is no Plan B, “What’s Plan B” after the ONS reported Q1 GDP at –0.2%, thus taking the UK into technical recession.

However, the economist community is not impressed with the reading and is struggling to square up the surprisingly weak result with all the input data which has been released during the past months. Construction data and retail sales, although not sparkling, never pointed to a contraction in the UK economy and fingers are being pointed at the ONS. However, as a former Canadian colleague of mine used to say: “You can’t put the poo back in the horse.” The two consecutive quarters of negative growth are out there now and all the subsequent revisions which might or might not follow will not change the perception.

As unimpressed as I am with the recent performance of the UK Prime Minister, so much more impressed am I with his Chancellor who took the news in his stride and who has made quite clear that he intends, nevertheless, to stay the course. He was quite succinct in his comment that, had we not piled up debts in the good times, we would not have to repay them in the bad ones. Yes, it might not be the way around in which one would ideally deal with the matter but, as he says, there is no Plan B.

Apple performance

Meanwhile, the stunning results by Apple drove global equity markets higher. A few years ago it was Goldman Sachs which had the same effect. I saw a little podcast from the FT with John Authers a few days ago in which he showed that gross S&P earnings were flat for the last quarter, but if one takes Apple out of the equation, they are down.

Somewhere out there looms the little group of geeks who will eventually feed off Apple’s table. Find that group and you can start planning your retirement

Likewise, the tech sector Q2 earnings are up overall but again, without the benefit of Apple, they are down. One company an economy does not make. The flip side is that Apple has burgled Nintendo’s market as gaming apps have flattened the Wii. Nokia and Research in Motion have been pushed aside by Apple. Now it’s the turn of Nintendo, Sony and Microsoft.

Somewhere out there looms the little group of geeks who will eventually feed off Apple’s table. Find that group and you can start planning your retirement.                                         

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