The last knot

Regular readers will know that one of my passions is fishing. At this time of year, I spend a disproportionate amount of time reading books, blogs and magazine articles on fishing in preparation for an annual trip to the rivers of Scotland. One such blog this week talked about the importance of the “last knot.” After you have bought a rod, reel and an array of equipment, arranged time out of the office, driven for a day, paid for your stretch of the river you are fishing and the accommodation whilst there, taking care and time to tie the knot in the last piece of nylon that attaches the line to the hook is the difference between possibly catching the fish of a lifetime or watching your line snap and reeling in with nothing.

It would be impossible not to write about Article 50 this week despite the relatively static state of financial markets after the significant act of the UK’s departure from the EU; the major moves having taken place last year when the world was first coming to terms with the referendum result.

Reflecting on the UK’s membership of the EU is, at this point, rather futile; critically, the line that attached us economically, legally and financially has broken. Whether we consider this a moment of freedom from which we will prosper or one in which we are at risk from a plethora of other factors over which we have no control will differ from one person to the next. But what we can possibly all agree on is that insufficient care was taken over the knot that connected us together.

 

The wrong sort of populism

This time next week I will be in Northern France visiting the Normandy beaches and museums to learn more about the D-Day landings.  Five of us, who all grew up together, discussed this last year after a fine dinner and concluded that it would be a memorable weekend trip.

Since I spent most of my school history lessons staring out of the window rather than paying attention, I have been reading fanatically to fill-in the sizeable gaps in my knowledge and have recently been tackling Ian Kershaw’s book “To Hell and Back.”

He opens by saying “Europe’s 20th century was a century of war. Two world wars followed by over 40 years of “Cold War” – itself the direct product of the Second World War – defined the age. It was an extraordinarily dramatic, tragic and endlessly fascinating period, its history one of huge upheaval and astounding transformation. During the 20th century, Europe went to hell and back. The continent, which for nearly 100 years after the end of the Napoleonic Wars in 1815 had prided itself on being the apogee of civilisation, fell between 1914 and 1945 into the pit of barbarism.” In going on to explore the reasons for this he sights, “an explosion of ethnic-racist nationalism,” “acute class conflict,” and “a protracted crisis of capitalism,”

We may or may not describe our continent as the apogee of civilisation today, but the result of the Dutch election this week which saw Mark Rutte’s VVD party triumph over the Geert Wilders PVV (anti-immigration) party marks an important reversal in recent anti-EU thinking. What is interesting in reading the paragraph above is that it takes – very roughly – a generation to pass before the true horrors of war and conflict are brushed aside and the same root-causes (racist nationalism, class conflict and crisis of capitalism) resurface. The Dutch vote against the “wrong sort of populism” shows some sage thinking from a country that saw that pit or barbarism at close quarters.

India – it’s now!

Coming towards us down the narrow street was a taxi, two tuk tuks, a handcart, a cow and 3 scooters. Our driver, a man with a cheery smile, big moustache but limited English, turned to us; “driving in India you need three things: good brakes, good horn and good luck” he said and with this he accelerated down the street.

The only element that everyone was willing to give way to was the cow; somehow or other, everyone managed to screech around each other with a cool acceptance that this was just normal.

There is a colloquial Hindu-Urdu word; “jugaar” which I believe roughly translates as “muddling through” and many commentators on the economic development of India might suggest it accurately captures where they are. In this, having just returned from two weeks travelling through the country, I would wager they are wrong.

Nearly one fifth of the world population (1.33 billion) sits in India. The rapid expansion of an educated middle class is nowhere more clearly expressed than in the near doubling in number of universities in the last ten years (400 in 2007/8 to 785 today) and higher education enrolment leaping from 17.2 million to over 34 million in the same period. At the same time, the policies of Prime Minister Narendra Modi since election nearly three years ago are making India a far more attractive and accessible place for foreign investment. Significant spends on infrastructure, grants to alleviate rural poverty, an aggressive blitz on corruption and the introduction of a cashless economy are all making their mark. Importantly the amnesty to repatriate hidden assets coupled with the recent assault on the shadow economy by withdrawing high denomination bank notes will ultimately drive a more sizeable tax take for a country ambitious to drive growth from the current rate of 7.5% well into double digits.

The horn is sounding, the brakes are off and luck, in the form of improving commodity prices, seems to be on their side. This is an amazing country, a joy to visit and one that will dominate the world stage in the years ahead. Fasten your seat belts and make sure you are part of that journey!

To finish first, you first need to finish

In recent weeks I have been reflecting on the advice given to Alex Thompson, the Britain who narrowly missed coming first in the Vendee Globe round the world yacht race; “In order to finish first you first need to finish.” In a gripping climax, he managed to narrow a 900 nautical mile deficit to come in just 12 hours behind France’s Armel LeCleac’h. Thompson lost one of the foils on his yacht just 14 days into the race when he hit an unidentified object and had to compromise his sailing for the remainder of the race.

Donald Trump has certainly made front-page news every day since his inauguration and there are doubless plenty of people watching his strategy unfold who would question his chances of completing even a first term as President. But his recent announcement that he is, “going to do a big number on Dodd Frank”, will have been greeted by many in the financial markets around the world. The Dodd Frank act, quickly followed by the Volker Rule, has restricted the ability of banks to trade speculatively whilst wrapping them up in a pile of regulation.

Unsurprisingly, the legislation from the US was quickly echoed in European regulation and Mifid II and Basel III contain elements, and in some instances amplifications, of the new US regulatory framework. There is no question that financial markets and liquidity in key markets has been damaged by this wave of regulation and that, whilst some of the more prudent constraints on capital adequacy and clearing are sensible to retain, a repeal of the most cumbersome rules will be a boost for the US financial markets. But rather like the Vendee Globe this is a “round the world” race and we will all wait with baited breath to see whether a deconstruction that starts with Trump in the US will be matched by similar bold action in Europe or indeed the UK when it stands alone!

Squeezed in

I am sure I am not alone in feeling a bit over-stuffed post-Christmas. Don’t get me wrong, I enjoyed it and ate some delicious food, drank more than I should have, did less exercise than usual and generally over-indulged in every way; but clearly I was a paragon of virtue compared to some! I am sat on a crowded train in a set of six seats – three facing three. I say that I am sat but in truth I am perched; as the only one of the six people below eighteen stone, it is proving a struggle to secure more than one buttock on the edge of the seat.

It is at this point of considerable discomfort and general frustration that I am reminded of a recent article. Research published in the journal Nature Human Behaviour followed the “Pareto principle” under which many distributions obey an 80:20 rule. The 38 year study found that children as young as three could be tested on IQ and self-control and that the results, combined with some other factors, would allow researchers to predict with “considerable accuracy” which would go on to be the greatest burden on the state.

In conclusion, a fifth of the population is responsible for four fifths of crime, two fifths of obesity, three quarters of fatherless families and for claiming two thirds of benefit. It is a truth that needs to be more sympathetically acknowledged than I am currently feeling able that supporting this sector of society early on in life will result in significant savings further down the road. Interestingly the research also found that about one third of those studied did not show up in their records because they make minimal use of hospitals, haven’t been before the criminal court or claimed any benefit or accident compensation. These are labelled as “the tax payers” who make up the support ratio; to this research you could add the season ticket payers who are struggling to squeeze into their seat – I wonder if the slimmer among us could qualify for a discount!

Happy New Year

Reflections and other things we should never do

At the turn or every year, I analyse the predictions of most of the financial press to understand which companies they expect to outperform in the year ahead. If one company appears in more than one of these articles, I tend to make a modest investment and assess it at the end of the year. In all honesty, I am struggling to recall a single one of these positions that has ever made money. This year, after being rated in three separate columns, I invested in the building supplies group Travis Perkins; almost immediately thereafter the shares fell 25% and have remained underwater ever after.

Market predicting in the freight market is a dangerous pastime and futures markets provide little clarity to what may lie ahead. On December 31^st 2002 the value of the panamax 2003 market was $12,100 which was a significant premium to the performance of the market over the course of that year which had averaged $7,725. But selling at this price would have proved a costly mistake given that the market performance over the course of 2003 averaged over $20k and peaked at just a snip under $38,000 in October. There are some similarities in the market position now and at the end of 2002 – the market of 2002 started the year below $6,000 and only truly picked up in November where it took many by surprise with its strength. There were many more doubters than believers and only the brave took long positions and sat on them long enough to make significant money. This year the panamax market started the year below even $4000 but only rose significantly in November and spiked to $12470 on the 12^th December.

Cal 17 panamax can be bought at around $6,700 but few will consider this an attractive proposition in a year where the panamax has festered at such low levels for much of the year and only the recent gains has pushed it to an average for the year of $5,550. But if you are starting with a flat book, 2017 will not be a year to be short panamax. Pace yourself – timing will be key but a buying opportunity to position yourself cheaply for the second half of the year will emerge and there may be some rich pickings. And if that doesn’t work, let me know and I may flog you my Travis Perkins shares – they will probably do rather better in your hands than they have in mine!

Merry Christmas one and all and may 2017 bring you health, happiness – oh and some good fortune too!

The French and fireworks

It is easy to fall into the trap of smugness in Christmas preparation which usually precedes the uncomfortable realisation that something essential has been forgotten. Mindful of this, and recalling the New Year fireworks of years gone past that had fizzed briefly and very unimpressively before entangling themselves in the cherry tree, I swerved into our local purveyor or pyrotechnics for some advice and the pick of his stock before the inevitable last-minute rush. In recent years he has become increasingly obsessed with health and safety but his response on this occasion took me by surprise;” will any French people be present?” he said in his rather nasal twang.

2016 is drawing to an end, which must be as great a relief to the bureaucrats in Brussels as it is to the rest of us. The Austrian election may have restored some confidence but this was a mere sparkler in what is set to become quite an explosive 12 months. The Italian referendum has set that country into a Catherine wheel spin with the departure of the unpopular Matteo Renzi leaving space for the anti-EU Beppe Grillo and his 5-Star movement. Meanwhile my recent trip to Germany assured me that Angela Merkel is going to have trouble lighting the fuse on her ambitions to secure another term in the German elections due to take place in late summer 2017.

But more imminent than all of this is the French presidential election in April where Marine Le Pen continues to draw support away from the mainstream parties and may only be thwarted by the centre right candidate Fillon. You may still be sitting on your winnings from the Trump election result but you can currently get 5.5:1 on Le Pen and a success for her would create a spectacle that would render the night skies incandescent and probably shatter the entire EU dream.

Thinking that our local firework salesman was about to launch into a tirade about the state of European politics, I braced myself for what felt likely to be a lengthy conversation and considered the probability of picking up a ticket for my illegal parking; his issue though was rather more simple and brief, “never leave a Frenchman in charge of explosives,’ he said – perhaps it was a more pithy summary of where we stand than he thought!

Prepare to travel

Some weeks ago I was talking to someone who had voted to leave the EU in the recent referendum who was asking about employment prospects for his son in the City. It was a tricky conversation in which I only just resisted the urge to be brutal.

Theresa May spoke at a banquet at The Guildhall on Monday this week which was a moment to assure the City that her government recognises the role played by financial services and the contribution that it makes to the country. For those hopeful that she might talk about passporting, the complexity that the UK will face in dealing with European customers in the absence of a common regulatory policy, there was disappointment. Instead there was a repeat of a previous theme that a global elite is responsible for the widening social gap and the dissatisfaction demonstrated both by the Brexit vote and the recent US election result.

The word being used in many board rooms in recent months has evidently been “contingency” and this cannot come as a surprise. If regulated businesses, banks, funds, financial and insurance brokers risk being unable to continue to do business with a significant proportion of their customers, they have to plan to locate to where this risk can be neutralised. With two years to set up and staff a regulated business in the EU, real estate agents from Paris to Frankfurt are being kept busy. So the answer to the man whose son was looking for a career in banking was that family reunions in future may take place in Luxembourg- not entirely what he wanted to hear.

 

My money is on Trump

As a nation we are incredibly good at believing what we are told in the press, which makes the whole subject of Donald Trump an awkward one. If you provide such a limitless supply of ridiculous and offensive statements, the press have so much material to fill their columns with that there is barely room for any deeper exploration of character.

Searching for positives about Donald Trump, the best you can find is a list of reasons why he might be better than Clinton; with 233 years of national debt doubled in the last seven years to provide a 1% growth rate whilst 15 million join the unemployed and the shambolic state of foreign policy particularly in the Middle East, his allies will say that he is not culpable of any of this whilst the Clinton and Bush dynasties have held positions of President, Vice President or Secretary of State for over 30 years. This is hardly a ringing endorsement for someone standing for chief executive of the most powerful nation in the world.

But if you are asking whether he will win, I suspect that there is a fair chance that he will. In the republican primaries earlier this year he polled 60% more of the vote than four years ago proving that he seems to be engaging with that segment of disaffected voters that we are equally familiar with over here. Motivating these people to make it to the polling station next Tuesday will be decisive in whether he is victorious whilst the latest FBI focus on Clinton will drive many towards him as the “least worst” candidate. So I have put my money on Trump and have two reasons to hope that he wins; with odds of 6.4:1 when I placed my bet, it seemed too good an opportunity to turn down but I am also hopeful that a Trump victory might, however briefly, focus the harsh glare of ridicule somewhere other than the UK.

It’s Marmite

In recent years Marmite has come to mean more than just a thick black paste from an oddly shaped jar with a unique flavour that is spread on toast. Loved by some, loathed by others, it has crept into the everyday lexicon as the go-to expression for love-hate relationships.

With the steady weakening of sterling that we have witnessed since the Brexit referendum, cable has collapsed from 148 on the 22^nd June to 122 at the time of writing whilst the GBP/Euro journey has been an equally uncomfortable 130 to 111 over the same period. Whilst this makes UK exporters and the tourist industry particularly happy, importers are having the opposite problem with a negative forex margin slapping them hard and resulting in the inevitable shift in prices and consequent fear of inflation.

So when Unilever are alleged to have told Tesco that their prices are going to rise across the board by 10% it is sufficiently newsworthy to make the headlines of the national newspapers with a sense of outrage being expressed as to how a number of our products are going to become rather more expensive. Now you may be someone who is sympathetic to such views and feel a sense of indignation that prices are rising and the Europeans are trying to “get their own back”; but you may come from the rather more brutal school of thinking which goes something along the lines of, “you voted for it, so now you can suck it up!” It’s Marmite!