My recent observation that politics is the new economics continues to hold true.
Maybe it always has been but the belief that politicians had nothing in mind other than smoothing the way for economic growth and the ideology-adjusted financial wellbeing of the electorate meant that we never really challenged their actions. Thus it was, during the darkest days of the global financial crisis, that all the blame was loaded onto the shoulders of the bankers. The politicians, the very people who were supposed to have legislated against much of what had gone catastrophically wrong, were caught napping while raking in the tax dollars and who, for reasons which still defy logic, were never really brought to book for their flagrant failings.
Could it be that the burgeoning disconnect between voters’ electoral behaviour and an incumbent generation of politicians that has been weaned on gaining office with bland promises of more for less is part of a delayed reaction, which turned the banking crisis into a global economic crisis and now, in consequence into a crisis of political consensus?
The French presidential TV debate could well have pointed in that direction. Frontrunner Emmanuel Macron might not be the “disruptor” in the vein of second favourite Marine le Pen but his strongest selling point is that he is not one of the old-school political establishment. That said, he is still very much the product of the Grandes Ecoles system with the both Ecole National de L’aviation Civile and SciencesPo on his CV but, then again, how else would he in a French context have risen to minister for the economy by the time he was 35?
The debate did nothing to change the ongoing dynamics, with Macron and Le Pen coming out on top. This would have been the one chance the struggling François Fillon might have had to close the gap and to remind the electorate that, Penelopegate aside, he would have been the most competent of candidates. Last night he failed to make any major inroads into the lead of the other two. The simple truth that Le Pen will get slaughtered in the second round, irrespective of who she faces, won’t go away and Mrs Macron can confidently head off to her dressmaker to get a few formal rags run up.
French election box ticked. Next.
That, however, isn’t the end of it. Jeroen Dijsselbloem, Dutch finance minister and highly regarded head of the Eurogroup, is in all kinds of trouble following the devastating results of his Socialist Party in the elections where it lost 29 seats, leaving it with only nine. That is not much of a base for him to maintain his position as finance minister. What then? The Eurogroup wants him and he wants to keep the job but would his remaining in place not confirm the very disregard by the ruling elite for the democratic process from which it supposedly derives its right to rule?
GIMME! GIMME! GIMME!
The Eurogroup stands in the centre of the Greek conundrum and needs its own stability; losing Dijsselbloem would be in nobody’s specific interest, not least of all as the position of that benighted country goes from bad to worse. Brexit might be the headline catcher but the risk of a Grexit is still stalking the union. The underlying fiscal position of the Hellenic Republic is not getting any better. Although it has now, so we are told, reached a state of primary fiscal surplus, that does not include debt servicing costs – a bit like the discredited measure of Ebitda - and they are off the planet. In other words,, Greece is just as bust today as it was when all of Athens’ fiscal lies and deceptions came to the surface, if not worse. Brussels is guilty, mainly at the expense of German taxpayers, of having done no more than to replace the singed curtains in the front room while the rest of the house was still burning down.
The Greece 4 .75% April 17 2019 bond is trading at around 93, which gives a yield of around 8.55% or, for arguments’ sake 900bp over the equivalent German Schatz. Sure, a year ago the same bond was at close to 11% in yield. The fact that the bonds are neither trading at a default price nor at a value that reflects confidence they will be redeemed at par in two years’ time should make us all very uncomfortable. I’m not sure it does and that makes me very uncomfortable.
We are told that the members of the European Union have decided to continue the discussion with Greece. Given the parlous state of its finances, the unanimous decision to continue talking is worth about as much as a chocolate teapot. Sure, the 60th anniversary celebrations of the Treaty of Rome don’t need either Brexit or Grexit to cloud the skies but they will not go away. The eurozone might, as a whole, be in a decent cyclical recovery but its equivalent of what Napoleon referred to as his “Spanish ulcer” is not set to suddenly disappear. Agreeing to continue discussions with Athens is, one must conclude, the next worse thing to completely throwing in the towel. Watch that space, stay long dollars and remain very vigilant on the euro.
NAME OF THE GAME
Meanwhile and elsewhere, my excursion into the world of blockchain has generated some very interesting conversations. I was yesterday talking to a chum who has migrated from mainstream investment banking to the world of fintech where he has, in his own words, not earned so little since he was in his 20s nor has he also had as much fun. He is involved in a very much financial markets-related end of the sector. To call it a business, at this early stage, might be a step too far. What did surprise me though was how he described how his phones are overheating as the great and the good, from exchanges via brokerages to major banks, are knocking at his door while trying to make sure that they don’t miss the boat.
Although the “dark web” is still, so I gather, dominant in much of the blockchain world, all that tells us is that the crooks are once again ahead of the game, not that the game is of itself bent. There is a race going on to be part of this next leap forward in technology. There might be much less hype than there was during the dotcom boom but the paradigm shift in how we do business might be just as significant. Remember that it’s only 10 years and a few days since we saw the first of the iPhone and seven years less a few days since the iPad’s first showing.
Although the media are more interested in the “internet of things” because more readers, listeners or watchers can relate to that, the development of blockchain technology will have a far greater impact on what we bankers do and how we do it. The great IPO rush during the late 90s’ dotcom madness doesn’t look likely to be repeated in quite the same way since start-ups are more likely to turn to trendy crowdfunding sources. That does not make them of themselves wrong and rather than getting bored in low volume markets, I’d recommend taking some time to read into the subject. It’s fascinating and scary in equal measure.
Finally, I mentioned on Friday that I had lost, at Heathrow airport, my briefcase with Macbook, iPad and the works. I am happy to report that the world is a better place than many of us credit it as being as the case was handed in with all the toys on board. Human decency, thank God, is still alive and kicking.