Whoever said that markets have the attention span of a gnat appears to be rather rude to gnats. After a whole two days, the Ukraine/Crimea crisis has been left to being a political issue and has, as such, ceased to be a market moving one. By close of play yesterday, the losses of Monday had not only been recouped but risk markets generally closed higher than they had finished the week on Friday before the fireworks went off.
The iTraxx S20 Crossover closed at 260/262 which was level with Friday’s close but the FTSE ended at 6,823.77 points vs 6,809.70 points on Friday while the S&P did even better by going out at 1,873.91 points vs 1,859.45 points, a new all-time high.
Storm in tea cup, market wise?
I still believe that Russian President Vladimir Putin will emerge from the events with the least soiled clothes and I’d suggest that President O’Bama looks like the most out of touch of all the leaders, Caroline Ashton excepted, whereby she surely has to be ranked as the most under-qualified person on the entire European political and diplomatic chess board, Francois Hollande included.
One US investor I spoke to commented: “Our President looks out of his depth, even in the shallow end…” The UK administration doesn’t really seem to care what happens, so long as it plays well to the domestic gallery and knocks stories of under-performing schools and saucy nurses off the front page of the tabloids. Mutti Merkel, once again, watches on from a distance and limits herself to making discreet but sensible suggestions as to how to balance desirable rhetoric with sensible actions and achievable outcomes. Otto von Bismarck would be proud of her as I hope the whole of Germany and the rest of Europe are too.
Meanwhile, it should not be forgotten that much of what is happening is tainted by the smell of gas, albeit that the natural gas in question has next to no smell at all. Germany is dependent on Russian gas which arrives by way of a pipeline which bisects the Ukraine.
No matter what is written in the contracts, Merkel is aware that Putin will do as he pleases and that he can still pretty much close her country down at any time with the turn of a tap. Shale gas in the USA has changed some of the long standing dynamics of what might be termed “petro-geography”, the interdependencies which global production and consumption of hydrocarbons brought with them. The US had been smugly becoming more isolationist – I’m all right Jack, pull up the ladder – but events of the past few days have reminded it that Western Europe, its most staunch ally, is still left rather exposed. Time for a review? Watch this space.
Farming today
Now digressing totally, I received a note last evening from a reader, Steve Cannon, a veterinary surgeon and near neighbour of mine in rural Oxfordshire on the back of yesterday’s column. I had commented on the way in which the Ukraine, even as an agrarian powerhouse, struggles economically. Steve picked that up and wrote to me the following which I would like to share simply as a matter of interest and as a view of the world which most of us self-satisfied, besuited City folk would rarely hear:
…The situation in the Ukraine is alarming, but one sentence of yours particularly caught my eye.
Though fine and dandy and very necessary for all of us, producing food makes nobody rich and certainly does not generate the income to run the infrastructure of a modern nation.
This, unfortunately, is a general truism and is still causing huge difficulties in the farming communities with which I work. Food has become very cheap relative to average wages, due largely to the efforts of the supermarkets to drive down their costs and maximise their profits. Farmers have a perishable commodity to sell and are usually selling as small units to the buyers, so are easy targets. Producing arable and livestock is a skilled business these days, requiring a lot of knowledge of diseases etc., particularly as the only way to make a profit is to intensify production which always brings disease in its wake.
I deal with livestock farmers, who have given up in droves over the past 10 years or more, as it is so difficult to make a living with dairy or beef cows. This has resulted in the average age of farmers increasing rapidly to around 60 years of age as none of their sons are following them into farming. It is very hard work, full of risk and with huge amounts of capital tied up, with too little reward for the sons to be interested. Jim Rogers, the famous financier, has realised this and currently is advising anyone who will listen to train as a farmer as there is a shortage in the West.
Currently we are increasingly relying on cheap food imports from other countries for our food, but as China, India and other nations develop a taste for meat, the overseas sources will get more expensive as demand grows. It is unwise to rely so heavily on overseas produced food and we could easily afford to pay more for it to give farmers a better living. In the fifties, 35% of the weekly wage was spent on food. We spend less than 10% now. We need to make farming an attractive career again in the West and value food more. This will probably mean curtailing the buying power of the main supermarkets and increasing the price of food somewhat. Would this be such a bad thing with the obesity epidemic which is overtaking the West…
Thanks, Steve, much appreciated.