I watched a somewhat obese and casually uncaring US analyst on a video-conference panel this morning. It’s what I do rather than than listen to the stream of banal inanities emitted by BBCNews. I’d rather sniff iron filings than watch BBCNews any more.
He was bald as well – not that this matters – and he had that drawl very clever Americans have to understate (and thus underline) the importance of what they’re saying. And what he was saying was that things were looking just great for the M&A sector in the forthcoming Quarter. M&A, by the way, stands for mergers and acquisitions, while ‘forthcoming’ is American for ‘next’.
The sector was already enjoying ‘relaxed’ money, he added. Come October, he felt, “we’ll be swimmin’ in the stuff”. I’m serious: that’s what he said. I found his innocent insouciance chilling.
This isn’t the first time I’ve heard this about M&A, and when you think about it, the bloke’s predictions make entire sense. Or rather, they are an inevitable outcome of the policies being conducted by fiscal managers in the West today. That’s not sense as such – but it is a logical extrapolation.
Let me tell you what zero rates (ZIRP) and QE have done so far in terms of energising the flow of credit, and generally aiding a broad socio-economic recovery. Zilch.
Now let me explain what these strategies have done for some elements of our ‘risk’ capitalist system – which in terms of wealth generation, by the way, can still knock agrarianism and communism into cocked hats….when it’s not being stitched up for the benefit of around 0.6% of the global population.
Zero rates have allowed big fat banks to sit on their big fat buttocks and earn 2-3% on Government debt with their free bailout money.
QE purchasing any old bond rubbish has allowed lenders to get out from under mad loans they made to Greek tavernas and Cypriot donkeys entirely scot-free.
But zero rates have also enabled already omnivorously huge big businesses to get hold of cheap money, and use it to fund M&A, thus making them even more corpulently corporate than they were before.
And handling/arranging these marriages of convenience has enabled big fat merchant banks to become morbidly obese on the fees they earn.
Zero rates have also rendered the biggest single demographic – Silvers aged 55+ – devoid of earned interest. (These are the folks Charlie Beanstalk was earlier this week ordering to spend the money they are no longer getting,
so that this M&A fun can so that the recovery can get under way some year soon.)
QE purchasing is debasing the value of the money you and I have been assiduously squirrelling away all these years, taxed as it was so that Lord Humphrey & his Pals could in the dark future sit on their pimply bottoms in high-walled Sussex back gardens, and listen to the street-fighting going on in the distance as rival gangs fight it out for the last anorexic potato.
It is also wrecking the balance sheets of central banks everywhere, because it consists largely of buying worthless junk bonds with which to paper the Boardroom walls over there in Bankfurt.
And yet, and yet….the M&A sector will shortly be awash with all the cash that its tumescent, CEO onanists might desire.
I think it’s time to add some numbers here, so that the facts underlying my intemperance can be brought to light – and you too can become one of the high bp sufferers currently littering the chaotic, underfunded A&E departments*of the western world. (*US readers – ER Rooms).
Last month, UK lending in Sterling currency to small and medium business contracted by £400 million. In the Atlantic EU, Ireland is being brought to its knees as the result of insane bank lending to it in general, and the Anglo-Irish collapse in particular. In the Mediterranean EU, Greece, Spain and Portugal are about to empty the ESFS, ECB and IMF as a result of insane lending to them by largely Franco-German banks, with a fat dollop of help from the inmates at Barclays. And in the States, while Main Street Momma and Poppa businesses face fund starvation and foreclosure by the very banks they saved from self-destruction, Ben the Bernanke and his Fedelves are about to start another round of money-printing, this time more publicly than the stuff they’ve been doing since March.
But in the rarified stratosphere that is Growing by Getting Bigger, there is none of this air of desperation that infects the rest of us.
The Dow Jones Nasdaq website totally supports Mr Baldyfatty’s optimistic outlook. In the second quarter of this year, Dealogic’s statistics showed that the total US M&A value was $552.7 billion – a major pick-up from 2009, but still less than the expected YOY growth of 43% in the third quarter….to an eye-popping 730.3 billion bucks. Now that is big bucks. In fact, let’s be specific: that’s what Bernanke is going to spend making it even easier to pull this kind of stunt each and every month in the planned next round of US QE.
In the Europe we had previously thought of as Bankruptcy in a Basket, says Nasdaq, M&A in August – normally a slow month as Vodka Palaces cruise the Mediterranean in search of Government ministers to corrupt – was up 100% on August 2009. In Q2, EU M&A grew 6% on the previous quarter. In Q3 it is forecast to grow 13% on that. Cross-border M&A in Europe grew by 60% this year so far over 2009 in total.
Globally, bank-sponsored management buy-outs (MBOs) more than doubled. The BHP Billiton hostile bid for Canada’s Potash Corp. of Saskatchewan alone racked up $43.4 billion. In Asia, the new kids are learning fast from the old lags: there’ve been 9,000 M&A deals in Shanghai so far in 2010, totalling just under 50 billion Yuan. Beijing has spoken: the Chinese Government has laid out plans to promote industrial mergers and acquisitions ‘in a bid to accelerate economic restructuring’. In other words big = good.
Well I’m sorry, but when Beijing thinks something might be good, then risk capitalists who believe in the individual’s right to generate wealth creatively need to think again. Specifically, they need to think: what the Bejesus is going on here?
In simple terms – and simple doesn’t mean simplistic – you do not have to be mathematician of the year to work this out: banking and business are using our money and Government-sponsored ZIRP to get even more dominant, quasi-monopolistic and multinational than they were before. They have taken the money we foolishly gave them, and turned a Dunkirk rout into a D-Day triumph in two years flat.
Big is not good. Big M&A destroys shareholder value in 43% of cases (says that hard-line Moscow Commie magazine the Economist) and lays off much-needed breadwinners in almost 95% of cases. Big business stuffs the retail trade with stock to keep out better but smaller competitors. Big Retail in turn kills communities and personal-service retailing wherever it rears its Elephant Man head. And above all, Big Banking helps Big Business to accelerate this process by giving it cheap money to merge with other Big Business. It does this not because of some wicked global plot, but because dumb Governments chock-full of yet more bankers give Big Banks Free Big Money with which to facilitate these Big Deals.
The Slog has been saying for some time that the future of politics no longer lies in Left v Right. The Libertarians insist that the future will be one of State v Individual, but that’s because most libertarians have little experience of business. The future will be this simple: Controlling Big v Independent Small.
In the UK right now, Controlling Big = Edache Labour and its Union bully-boys. Unfortunately, even the Coalition of the Cleggerons is Controlling Big – but in the shape of Banks and EU. This Government is not going to control either of these undesirable elements….any more than the last one did.
Independent Small has few weapons – but one is still hugely powerful: the internet.
This is why, last month, The Slog rattled on so much about the coming demise of net neutrality. Allow Big to take over – to both control and censor the Web – and it is game over for Small Independent.
But on our small canvas here in Shakespeare’s Sceptred Isle – outside of the virtual, and on the ground of the real and ordinary – there is a further option: the creation of a new Party. A more intelligent version of America’s Tea Partiers – and our UKIP – that would favour the innovative over the formulaic, the economic over the Fluffy, the family over the State, a new world over the old EU, merit over mad pc, believers in risk over banks, sane over same….and above all, small over big.