The Board of drowning Italian bank Monte dei Paschi was this morning locked in a meeting during which it must take a decision on the sale of the lender’s non-performing loans servicing platform known as ‘Juliet’. Several bidders seemed in line a week ago, but sources suggest the bid-price is going to be a fraction of what dei Paschi needs.
In 2012, the Bank of England told MPs it did not know about allegations of Libor manipulation until later that year. But in an email dated 15 August 2007, a Lloyds executive tells a senior colleague about a meeting he attended the previous day with the Bank of England’s Paul Tucker and senior bank executives from Barclays, RBS, HSBC and HBOS. At the meeting, bank executives agreed “there was a case for us fixing Libor considerably higher.”
We’re still in the 2nd stage of Old morphing into New. But the pace hasn’t slackened: we just haven’t been paying attention.
Donald John Trump versus the HillaryBillies has been a weapon of mass distraction (albeit unwitting on the whole) since the end of the summer holidays season. One can’t of course separate Don the Builder from what happens next: but the time is long overdue whereby We the Unaligned Radicals focus attention back on inequities elsewhere. And there are indeed inequities in equities. And Bonds. And oil. And rates. Time to buff and hone the shine on Gold?
The problem every investor eyeing the stock markets faces is being ‘in’ at the back end of nearly 14 years of greedy denialism and macro-rigging. Real valuations hotfooted it over the horizon after 2010, and it would a be a foolish man who predicted when they’ll return, and – when they do – at what speed. I know, because I was that man during 2011-12, and it wiped 30% off my SIPP. Only gold’s rally saved me from acquiring an accurate knowledge of every edible hedgerow life-form.
The group-noun one can apply to most bourses in the world today, however, is “ludicrously overvalued”. QE, direct intervention, criminal directionalising and sheer naivety have all played their part; but that’s not important right now.
What’s vital for those still in possession of an open mind is why it applies to every mainstream equity. Be it debt, Fed mediocrity, Trump reflation, bank multiples or élite revenge on Trump, the US indices are plain daft. The stagnating economy, currency millstone, central banking and at least three wobbly Italian banks alongside Deutsche make the eurozone an investors’ nightmare; and the cynically disguised but still parlous nature of two British banks – and one-legged nature of the economy – combine with Brexit to make the UK equally impossible to call.
Australia is overdependent on China; China is overdependent on PBOC purchasing and foreign demand; Russia is overdependent on oil; and all of them are holding the wrong parcel at the wrong time.
What to do what to do?
Commentators have come to see the bonds sector as the New Black of late, but I’m not one of them. For many people in it, it seems to me, it’s a last resort they don’t understand very well (I certainly don’t) but also somewhere they’d rather not be in the longer term. Trump’s election has meant spikes are already appearing in the longer-dated products – 30+ years is getting hammered bigtime – and the fragilities post US election are back in the limelight: investors who bought Italian sovereign bonds last month are some €12-15million worse off now.
Reflation means more debt, higher rates beyond bonds mean fewer bond Bulls, and put together they mean higher risk and dangerously high yields. Add to this the eurozone investors’ eagle-eye being on what Draghi tapering produces – nothing good, that’s for sure – and I for one can see a raging Club Med crisis again by mid 2017. At that time, for example, Portugal is going to be in a very tricky borrowing supply corner.
Even at today’s more restrained crude-oil price (around $44, see left) I have never bought into anything like that level as being natural. It’s an argument I’ve had with people over and over again, but the facts are clear enough to me: without central bank interventions via QE and beyond – and if you don’t count the QE itself as ‘economic activity’ haha – we’ve been suffering a global recession since, at the latest, 2012.
The Opec/Russia farce continues and is unlikely to help. If Trump reflates, that will clear the backlog….but when? He doesn’t take Office for another seven weeks, and if he hits the ground running it will still be 2018 before oil responds in any real sense – assuming his FDRism works.
But below $30 a barrel, the US oil business would be in the doodoo. So it won’t be allowed to happen. The opportunity to Bear or Bull oil doesn’t strike me as even halfway safe.
So here we are back with the shiny stuff. Gold is unique on a number of levels: Chinese citizens buy it because they distrust paper currency, and Indians because of religious significance. Arab decor and fashions continue to be based on it. Central banks with Queen-sized balance sheets are going to need it sooner or later. On their own admission, the neocon monetarists have run out of ammunition. It’s the one thing I see as undervalued in the medium term….but that could change very quickly. Above all, it once again feels to me like a safe haven just waiting for the next seismic shock:
I can only tell you what I’m doing: what notice you do or don’t take of that is your affair <<<— spot the arse-covering legalese.
I think in the Obama>>Trump handover interregnum, there will be more use of balm to calm: Christmas is coming, geese are flying south to avoid getting fat, turkeys are abstaining, good times are just around the corner and downside blues are merely upside mellow yellow in disguise.
In the last six hours, a downward correction of $100 (now steadying) puts the price at $1224(ish). Neutralising wild Forex movements versus Sterling, I’m holding fire until, post Inauguration high-sounding new dawn optimism, the price gets somewhere in the $1000-1100 range. Then, for me, it’ll be a buy. But a hold-your-nerve-ignore-the-price buy for a minimum of 15 months.
The Slog 