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Thursday, 19 October 2017

Six days to save the world? Kennedy had 13

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Anthony Peters, SwissInvest Strategist

Apparently US Treasury Secretary Tim Geithner told the G-20 this weekend that they had six days to save the world – funny, because I was distinctly under the impression that the invisible Scotsman, the Rt Hon MP for Kirkcaldy & Cowdenbeath, had already done that three years ago – but maybe Geithner missed something. However, I owe Secretary Geithner a debt of gratitude for he treated me to the most timely quote imaginable.

Over the weekend I read the late Robert F. Kennedy’s short volume on the Cuban missile crisis of October 1962 which he wrote from his own diary notes called “Thirteen Days” and which many will know from the Hollywood movie of the same name.

What had struck me in the book was a passage in which he writes about the “actors” in the drama, the men who sat with the President, his brother Jack, as they tried to find the correct way to deal with an intractable problem. Kennedy wrote of those involved: “They were men of the highest intelligence, industrious, courageous, and dedicated to their country’s well-being. It is no reflection on them that none was consistent in his opinion from the very beginning to the very end. That kind of open, unfettered mind was essential. For some there were only small changes, perhaps varieties of a single idea. For others there were continuous changes of opinion each day; some because of the pressure of events, even appeared to lose their judgement and stability.”

Even without Geithner’s six-day deadline to lead me in, I was intent of taking a look at the younger Kennedy’s observations and wonder what relevance it might have to the way the current European leadership is dealing with the prevailing debt crisis.

I feel that the “Crisis? What crisis?” approach which it appeared to be taking to the deteriorating position at the back-end of 2010 has forced it into public denial through most of this year and now must and will result in a monstrous U-turn. When trying to assess why markets have reacted so poorly and to some extent irrationally to the problems, the answer must be sought in the dichotomy between the way in which officialdom was trying to behave as though all was well in the garden how global investment capital assessed the situation.

More to the point, I think investors were unhappy by the way in which those who had so catastrophically overborrowed were busily trying to solely blame those who had overlent, in the process of which, in the wise words of my friend Ros Price, CIO of Seven Investment Management, we went from risk-free yield to yield-free risk.

I feel that the “Crisis? What crisis?” approach which it appeared to be taking to the deteriorating position at the back-end of 2010 has forced it into public denial through most of this year and now must and will result in a monstrous U-turn

You can read in any two-bit finance column that investors are scared, that there is no risk appetite, that there is a lack of confidence. What it never goes on to say is that this fear is to a large extent driven by the total lack of what Kennedy calls “…men of the highest intelligence, industrious, courageous, and dedicated to their country’s well-being”. What we were faced with was the repetitive reminder that Sarko faces elections in 2012 and, more worryingly, Mutti Merkel in 2013 – how can you be expected to deal with a crisis if winning distant elections becomes a significant consideration in facing a problem.

Sarko’s challenger

Incidentally, the French Left has chosen its challenger to Sarko for next year’s Presidential elections in the form of none other than Francois Hollande, former head of the Partie Socialiste. For those who are either forgetful or who are simply not acquainted with him, he is of course a SciencePol graduate, an Enac and, in passing, also the partner and father to the four children of Segolene “Sego” Royal whom Sarko defeated pretty comprehensively the last time around. He is always cited as never having held a position in government but given the recent record of those who supposedly have decision-taking experience, it is not such a huge disadvantage.

Meanwhile, as equities continued to be bid, bonds have gone severely to the dogs with both 10-year and 30-year yields rising 50bp in 10 days. The only things that seem to be getting operationally twisted at the current time are the necks of all those long duration buyers; presumably not quite what the Fed had in mind. Did the FOMC misread the economy or are markets getting ahead of themselves in confidence?

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