Saturday, 23 June 2018

Tinker, Tailor

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  • Anthony Peters columnist format

I had hoped that some clarity would return to the markets and we could begin to plan our next longer term positioning. 

With the closing of the French polls, however, and with the surprise announcement of the UK elections the smoke machine has been switched on again. But it is beyond these political uncertainties that confidence is also being rattled. After the dismal quarterlies from both Goldman Sachs and Johnson & Johnson, IBM also miserably failed to meet expectations and suddenly the great reflation trade is looking tired and unloved. 

After years of being branded a doomster, I had to some extent set aside my huge concerns about the eye-watering over-indebtedness of the system – not just in the US but also of most of the West, most of the East and as much of the rest as I have been able to get my head around – and for some time I have been inanely smiling as markets have rallied. My core scenario is, I suppose, that we are so stuffed that the authorities will do whatever they can and need in order to keep the house from falling down. 



And then, this morning, I read a few lines by my dear friend Raja Visweswaran with whom I once worked at Bank of America and whose candid and lucid thinking still impresses me as we communicate on a more or less daily basis. Today he gave us this: 


Martin Wolf and the art of ineffaceable irony … 

Writing in the FT, the sage philippics Wilbur Ross thus “(his words on trade)…show one can be a billionaire and yet not understand how the economy works, just as one can be an athlete and not understand physiology”. 

Ouch. So sharp an attack. And yet … 

Well, yes Martin old chap - may I add also that one can be the chief economics commentator for the FT and not understand how economics works? Given good old Wolf’s frequent diatribes on markets, austerity and pretty much anything in the Austrian School’s ken, one does wonder just how much more evidence of Keynesian failures at the very heart of the wrenching political changes across the Anglo-Saxon world do Wolf and his “intellectual” brethren like Paul Krugman need to change their views? 

You lot bleat about Trump and Brexit as if they are uncorrelated to the Keynesian nightmare that you have continued to cheerlead for. What does it take for you to understand that these are the effects of this economic zombie system that has been fostered by the bailouts and massive deficit spending on welfare? 

Ross isn’t the fool here …


These are pretty harsh words although I do have to agree with Raja in that Wolf has spent most of the past nine and a half years since the global financial crisis began to bite missing the point as to where it had all begun while staunchly remaining in denial as to where it is leading us.


Election rhetoric abounds – Jeremy Corbyn gave his first campaign speech yesterday and shambolically misquoted Winston Churchill about fighting in the streets and on the beaches as he continues to believe that he can make the poor rich by making the rich poor. Would somebody please remind me which century we’re living in? 

By the way, I was also struck by the lack of joined up thinking in Brussels where on the one hand they are clamouring for the UK to keep contributing according to what it terms “prior financial commitments” while on the other hand advising its own agencies to blank British firms from bidding for EU-related contracts. Until this country formally leaves the union it is a fully paid-up member and excluding British contractors from pitching for business would be a flagrant breach of its own rules – what’s sauce for the goose is sauce for the gander. 

There is no question that, from a budgetary perspective, Brexit will give the EU more headaches that it will the UK. I might suggest that the British government consider suing the EU for anti-competitive practices while demanding something in the region of €20bn per year for the next two years in punitive damages. 



Greece hasn’t made too many major headlines of late although the latest proposal to prevent that benighted country from going to the dogs is to offer an interest holiday – I’m not sure about this but the year 2043 rings a bell – which will be tantamount to another bailout to the tune of €180bn. How impressed am I then going to be when I hear that Athens is reporting a primary surplus of 3.3% of GDP? Hey, I make €3,000 a month and only spend €2,800 a month on food and fuel, which is super as long as I conveniently forget that I’m not making any interest payments on my €12m mortgage on a house I bought but which since then inconveniently burnt down without insurance. All the while Ekathimerini reports that the EU Commission is planning to downgrade its growth forecast for the economy from 2.7% to….it does not tell us. In the greater scheme, one must ask, does it really matter? 

Wonderment over the differences in the demography of Eurosceptics between the UK and France. In the UK it was the youngsters who were the great remainers while in France it is their peers who are the greatest proponents of Marine Le Pen and the anti-EU and anti-euro camp. The British youth sees its future in free access to the mainland while many of their Gallic counterparts perceive their future opportunities being mortgaged up in order to keep their grandfathers’ dream alive. As one French commentator put it, France was enthusiastically European in the fifties and sixties when it felt that it could make the rest of the continent more French. But as the aspirations of Robert Schuman – not to be confused with Robert Schumann – drift further and further off track, so the purpose of a unified Europe becomes, in a French context, less compelling. The polls are now formally “too close to call”. 

Meanwhile good news from Japan, which reported a significant “beat” in its trade performance for March. The trade surplus - ¥614.7bn versus ¥608.0bn expected - has already led analysts to upgrade year-on- year GDP growth forecasts to 1.4% from 0.8%. The increase in export activity is important as it shows bona fide demand-driven growth rather than just growth fed by deficit spending by the government. It is far too early to be patting Prime Minister Shinzo Abe on the back – he can’t take plaudits for foreigners buying Japanese goods – but any crack of light is blinding if one has spent so long sitting in total darkness. 



As US banks continue to report, their black-out periods also end and expect a slew of issuance across the capital structure. It will be interesting to see whether Goldman’s poor numbers will affect their pricing. I doubt it. Talk is that the firm believed it own propaganda rather more than it should have done and that the mass exodus of its own to Washington guided it to believe in the reflation trade rather more than did some the other houses. But this is Goldman which, like them or loath them, rarely makes the same mistake twice. Any cheapening in pricing and widening of relative credit spreads should most probably be bought. 

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