“Sell everything except high quality bonds. This is about return of capital, not return on capital.” RBS yesterday
Tom Orlik of Bloomberg has a piece up this morning pointing out that the Shanghai sieve doesn’t say anything about the Chinese economy, so what’s all the fuss about?
It’s insouciant pieces like this one that make me despair as to where Page One has gone. Surely, if the Shanghai has nothing to do with ‘real’ business, then the whole bourse form of capitalism is shot full of holes?
The TV version of Big B had a British asset manager – obviously a bloke with an illustrious past, so he ought to have something worth listening to – opining at the same level as Orlik….that is, ‘business as usual’. The euro, he said, was 20% undervalued against the Dollar. He didn’t interrogate why the Dollar is so ridiculously high. Nor did he venture a view as to whether the euro is worth anything – let aone 80% of the buck. But he was happy about today’s UK retail results, because the word was that the companies involved had beaten analysts’ expectations. I almost never rate such expectations, because most of the idiots involved don’t know what they’re talking about. In turn, I rarely trust ‘results’ because they are always full of massage and obfuscation. But he didn’t venture anything about why Sterling has weakened against the euro – so I will: Osborne’s scooter has lost a wheel, and has a puncture in the other one.
Finally, the Brit asset expert said eurozone equities – especially the banks – looked like “a good entry point for investors”. I’m so glad. Mainly, I’m glad he isn’t my wealth manager.
As well as chucking Yuan at the Shanghai, the PBOC, it now emerges, is upping spend on the currency to balance the onshore and offshore rates. It also intervened several times during last night’s session. But not to worry, because Tom Orlik says it’s nothing to do with business. And capital flight is nothing to do with business, and the price of the Yuan has nothing to do with exports, and the collapsing price of a Top Ten Company has nothing to do with investment in business and sexual intercourse is totally unrelated to population growth.
One of the UK retailers reporting today is Morrisons. Lots of people are jumping for joy because its like-for-like sales are positive. Put out more flags: people should look more closely at its ROI per square foot in general, and its margins in particular. You can’t have the cheapo sector storming ahead without the middle fatties suffering somewhere along the line. Only Sainsbury has given out the right message – watch the pennies but don’t compromise on quality – and it’s paid off. Tesco and M&S, by contrast, are all over the place.
The overall point I’m making here is that no major television 24/7 channel is paying any heed to the underlying causes of what’s going on: the growing dominance by, and dysfunction of, bourse globalism, the atrocious lending history of banks, the runaway nature of the UK national debt, the inexperience of the Beijing politburo, the global slump being disguised with QE, the inability of Britain’s poorest 50% to drive a consumption recovery, the overdependence of the London City on commodity trading, the planetary dependence on debt for growth, and the hare-brained geopolitics of oil overladen on an already plunging commodities sector.
The price of oil is now $30.35, and RBS thinks it could drop to $18. Rubbish Bank of Shakey is, without question, one of the most doubtful investments in Europe; but on the other hand, when it comes to being in the mire, there is the old adage that it takes one to know one. On a landscape full of people looking the other way as a mushroom cloud sprouts on the horizon, at the moment RBS is a notable exception.
“Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small,” said its latest client note. The investment arm expects stock market corrections of around 20%, while having the nous to note that both investment lending and world trade are way, way down. What, indeed, is the point of rising liquidity if nobody has the confidence to borrow it?
RBS has been ultra-bearish for six weeks now, and it’s hard to argue that they’ve been wrong: the markets are down roughly 6%, and as far as I’m concerned the argument that China doesn’t matter is codswallop: the economy bone is connected to the Shanghai bone, and the China bone is connected to the global bone. Any other view is just idiocy or PR.