Reading between the red lines
Every year for the last seven years, the August holiday period comes an end. Every year lots of commentators (myself included on occasions) say that two weeks away will have restored the balance of market trading and directionalising among those claiming to serve the investment community. And every year, after a slight wobble (if any) things return to the now surreal normality of business media anchors and press pundits saying “the recovery is coming”.
Among those threaders at The Slog, the standard ‘cynical wisdom’ is that “they” – and we’re never really told who “they” are – will keep the plates in the air/show on the road/Ponzi scheme growing/merry go round turning for as long as it takes to create The New World Order. Of course, under 4% of blog readers ever either vote or comment, so that sort of negates their view anyway.
But there are two major flaws in it. The first is that, by definition, one can’t keep plates in the air and Ponzi schemes going infinitely: the plates crash to earth and the scheme eats itself. And second, I do not see a shred of reliable evidence to show a consistent conspiracy to create a NWO which, quite obviously, would collapse on the basis of near-zero consumption. Further, the word ‘order’ is miles out: what I discern is disorder, thinly veiled panic, mercantile dirty tricks, and the ‘salvation’ ideas getting sillier and sillier with every Quarter.
However your mind thinks, it is hard to see China v Japan v the US v Russia v the EU v the UK as any kind of concerto: it’s a screeching cacophony of sociopathic chess in which the winner may well take all, but by the end “all” will be nothing.
They are, in turn, low cost/low quality producers, manic monetarists, currency hegemony colonialists, geopolitical energy players, deranged imperial bureaucrats and a crypto low-tax haven. A grand design? More like a crude, abstract photomontage to me.
To be sure, there are policy similarities, but these represent nothing more than uniquely global classes equally concerned to save their backsides: central bankers want cheap gold all to themselves, private bankers insist on QE, bourses insist on high valuations as a result, Chinese and Japanese leaders hoover up every piece of worthless loo-paper around to stop market collapses, and – most obviously of all – production costs (aka wages) and tax bills have been ruthlessly cut throughout the West to ensure that its industries can still ‘compete’ with Asian tigers…which of course they can’t do….and indeed, shouldn’t even try.
But none of this is heading for a New World Order: these are last-ditch attempts to save the Old Globalist Neoliberal free-for-all of the 3%….which, without things like zero and now negative interest rates, would’ve been in freefall years ago.
The Left sees the tax evasion, workforce deregulation and Right-wing reduction in services as a callous attack on working people. It is without doubt callous; but for the élites it is dire necessity driving them, not a desire to create the new mediaeval serf class.
You truly know that any system is in a mess when dire necessity is merely the stage before dehydration of consumption liquidity – and even that liquidity is propped up by unsustainable levels of cheap credit.
However, the degree to which this bizarre idée fixe about cost reduction has taken hold among the professional classes serving the 3% is at times astonishing to behold. It can best be viewed by following the Twitter debates between UK State pension delay victims (the Waspis) and the “advisers” who oppose them. The pros trot out the clichés about “no money available”, “no alternative”, “a greedy ask” and “means testing for the most obvious cases of hardship” as if this State embezzlement of National Insurance contributions was entirely reasonable and to be expected.
It makes all decent Brits still of balanced mind incandescent with rage. But ultimately, it is a symptom. And the disease is called Acute Desperation.
At the start of 2016, there was a brief five-week period when market movers and gurus did finally see the Blinding Light. The unseemly rush of very fat and sweaty persons at Davros to get themselves in front of news cameras and lie about the ‘counter-intuitivity’ of the stock market gyrations was amusing, but disturbing, to watch. It also coincided (if that really is the right verb) with a flood of trolls at The Slog, the like of which I haven’t seen before or since. These were not pro-am nutters: they were intelligent peddlers of bollocks using persistent sanctimony to criticise predictions of doom for causing unnecessary anxiety to investors. I was, they insisted, “talking” the world into a collapse that was “not justified by the data”. Much as I was flattered by the idea that a blog with 7,000 daily readers could talk a village into anything – let alone an entire planet – I do know from other econo-financial commentators that they got the same treatment.
But that was then and this is now. Every year, the symptoms get more obvious, and every year investment managers grow increasingly weary of the central banker insistence that all will be well….next year.
Some immediate smells bubbling to the surface of the swamp right now include:
- A tentative US Fed which will be damned if it does, hzlf-does or doesn’t – whichever of the at most three options left it can go for.
- A Deutsche Bank in such deep trouble that it is handing out limp excuses to High Net Worth customers who suddenly find they can’t get their hands on Xetra-Gold by cashing in their bonds. Xetra says they’re fully entitled to the gold, but Deutsche insists that “for reasons of business policy, the service is no longer available”. DB isn’t letting on just whatTF the point is of having Xetra Bonds if this is the case.
- The situation in Japan, which has now taken on most aspects of a Jonathan Swift satire. Economically detached Abenomics (which, as predicted here, never stood a chance of success) has now emptied the snake-oil salesman’s bag of tricks. There is nowhere left for Japan to go, and every thinking investor knows it.
- The spectre of a mendaciously audited and reported Italian banking system somewhat short of funds, ideas and bailouts. In reverse order, banking Minister Pier Carlo Padoan told the media last Thursday that a bailout had been “absolutely ruled out”; at the Lake Como Italian business bunga bunga over the weekend, however, Renzi and Padoan came under intense pressure to explain how Dei Peschi bank could be saved without one; and now, news is spreading of serious capital tier problems inside Unicredit. For those with a deductive left brain in working order, Italy is now simply another form of Japan, stuck in the Too Difficult to Solve file.
The trick for any investor, trader, observer or Hedge Fund from this point on is to rigorously interrogate the provenance of every opinion being expressed.
There is, after all, no shortage of media pundits laying on the balm with a trowel. To be crude, some of these are merely the bumboys of proprietors, shareholders, finance ministers and treasury officials. And some, like Roger Bootle at the Telegraph, have very obvious reasons for not wanting to start a panic.
Bootle is the Executive Chairman at Capital Economics. His column in yesterday’s Torynaff was a masterpiece of sitting in a room crammed with elephants without noticing anything beyond a vague feeling of claustrophobia.
‘The Chinese stockmarket is roughly flat over the past year, and it looks as though the Chinese economy has grown….in reality by perhaps 4.5pc’. Not mentioned: Direct PBoC purchases of plummeting stocks and legal curbs on all selling.
‘In Japan it looks as though Shinzo Abe’s ambitious plans to raise the country out of its torpor are not succeeding.’ Not mentioned: the world’s biggest sovereign debt per capita ad adua, and loans being sought at negative interest rates while the Yen strengthens to bugger up exports.
‘More importantly, worries about the fragility of the US economy have not been vindicated’. Not mentioned: falling hours worked, rising level of employees wanting to work more hours, reversal of misreported Q2 growth, property prices on the verge of a chute, the Fed split down the middle on inflation targets and rate hikes.
‘The oil price is off the bottom and seems to have stabilised at about $50 a barrel’. Not mentioned: 15 months ago it was $120, there is no logical reason for it to be even at $50, and the evidence of storage as opposed to usage of oil is now overwhelming.
The South American owners of dollar denominated debt don’t merit so much as a mention, and nor does China-dependent Australia. All in all, in fact, Mr Bootle’s piece yesterday was a summary of glimmering hope lubricated by soft soap.
Capital Economics is one of the leading independent economic research companies in the world, providing country and regional research on the US, Canada, UK, Western Europe, Japan, China, India, Latin America, Emerging Europe, the Middle East, Africa, Emerging Asia, Australia and New Zealand. It’s business model is based entirely on client subscriptions.
In the company’s own words, “Many potential clients naturally wonder why they should pay for economic research, given the large amount apparently distributed for “free” by investment banks and brokers….One apparent solution is to provide research in-house. But this is extremely costly…..The alternative solution is to buy in independent research from outside…….That is the solution we offer.”
So far, so good. But three decades of corporate management experience taught me that, when things turn bad, such research is the first thing to be cut.
You must draw your own conclusions. Some of us have an interest in pumping up confidence, and some of us only have an interest in objective examination of likelihoods and consequences.