Wry & Dry

Clinton: 100 points below the line. It's a...Yeti. Apple car: maybe.

Wry & Dry hits your doorstep one day early this week.  This is because of the generosity of the government of the Socialist Workers' People's Paradise Republic of Victoria in declaring the day prior to the Australian Football Final, i.e. Friday, a public holiday.  

Watch for 22nd April [1] being the next addition to the public holiday schedule.


The next Victorian public holiday will celebrate the birth of this man

But at least the lights are on in Victoria.

Readers will know that W&D doesn't watch reality TV shows.  But he understands that these exemplars of unedifying culture are populated by personages with extreme personalities, extreme voices or extreme six-packs.  And viewers' short attention spans must be catered for with a new and varied offing every so often.

So it seems with financial markets.  It didn't take long for bored market traders to find a new and critical indicator of something their clients might think is important.

Instead of (or perhaps in addition to) the excitement of the reality-show six-pack, traders look for portentous insights such as the oil price; the price of iron ore; perhaps the widely misunderstood Baltic Dry Index [2]; or the price of soy beans.  They might as well examine the entrails of a sheep.

Well, move over. Like a new reality TV show, the Mexican peso/ US dollar exchange rate has hit centre stage.

Yes readers, the outcome of the first presidential debate - Clinton v Trump - was widely measured in the media by the movement in the MXN/USD exchange rate.  "Mexico's peso rebounded from record lows," was the headline, implying that Trump lost the first debate.  Or had the Mexican central bank just raised interest rates?

So much for sober analysis.  Yes, Trump-the-salesman indeed got trumped by Clinton-the-lawyer/ ex-Secretary of State/ US Senator.  She got 100 points below the line, as it were [3].  And 100 points above the line.  But no slam.  W&D would award Trump 65 points above the line.

PicnicWhat they really think of each other...

Close.  But no cigar.

Speaking of cigars, not many were lit by members of the UK parliamentary Labour Party as the rank-and-file re-elected Comrade Jeremy Corbyn as its leader.  His parliamentary colleagues voted no-confidence in him in early July.  

How does that work?  Well, it's a result of the leadership being decided by a vote open to all members of the UK Labour Party.  The hopeless idealism of the membership (aside from the Conservative spoilers who paid £25 to join so as to vote for Corbyn) probably more resembles a Brownie camp than a Trotskyite revolution.  Better suited to pretending the world is a nice place and continuing to tie useless knots. 

Speaking of idiocy, W&D notes that Australian bankers will stoop to anything to protect their bonuses.  Now that bank profit-growth has peaked and expected growth is benign, the banks' lads and lasses are now negotiating 'non-financial' bonus targets to ensure that the trough remains full.

The CBA is leading the fill-the-bank-CEO's-trough race, with a proposal for its CEO's bonus to now comprise 50% non-financial targets: 25% for 'diversity, inclusion, sustainability and culture,' on top of the existing 25% for 'customer satisfaction'.

[And note the shareholders of AGL voted down the remuneration proposal for its CEO, a major reason being the non-financial bonus targets.   See the accompanying Investment Matters for more.]

CBA hit back at criticism that such targets were 'softball', 'flakey', etc with the following self-indulgent twaddle: "CBA occupies a special role in the Australian economy and society and it is important that..."

Special role?  Good grief.

Readers will recall last week's comments in W&D about Westpac's Chief Teller saying that, "banks are different to other business and should be treated differently".

Clearly the media communications departments of the banks have got together to re-frame their market image.  This will be reinforced by the army of lobbyists knocking on the doors of parliamentarians with the heavenly news of the exceptionalism of banks.

And watch out for common threads from the bank CEOs as each fronts the House Banking Committee over the next few weeks.

Speaking of banks, Deutsche Bank, Germany's largest, is causing some headaches.  Deutsche's share price has fallen about 55% in the last 12 months, as it staggers from lending disasters to law suits.  It will have to seek more capital, otherwise it will breach its regulatory fiscal ratios (see more later about a thing called CET1).

But the problem is also political.  Iron-Chancelloress Angela Merkel has been somewhat, well, strong in the view that governments shouldn't bail-out banks (refer Italy, Greece).  But the German government cannot allow Deutsche to fail.  The failure of the largest bank in the largest country in Europe would be cataclysmic.

Perhaps the Bundesadlers [4] are coming home to roost.   

And later in this truncated edition: it's a... a... Yeti; what about the Apple car? and what's in a name?  That which we call a hybrid...

Elsewhere, Follow The Money updates the odds on the US presidential race following the Great Debate #1.  And, as expected, the Wicked Witch of the West has improved, with the Trumpster sliding.

And, of course, Miscellany, to soothe your troubled mind.

Finally, W&D sadly notes the passing of Tangles, Max Walker, the most loved Australian cricketer and quintessential Australian character.  Let's not lose our ability to laugh at ourselves.

[1] The birthday of Vladimir Illych Ulyanov, aka Lenin.  Actually it was 10th April, in the Old Style (i.e. using the Julian rather than Gregorian calendar).

[2] The Baltic Dry Index (BDI) is an economic indicator issued daily by the London-based Baltic Exchange.  Not restricted to Baltic Sea countries, the index provides 'an assessment' of the price of moving the major raw materials by sea. The index covers dry bulk carriers carrying a range of commodities including coal, iron ore and grain.  

The flaw in BDI is in its composition.  Readers will know that the supply of cargo ships is generally both tight and inelastic: it takes two years to build a new ship, and the cost of laying up a ship is too high to take out of trade for short intervals.

So, marginal increases in demand can push the index higher quickly, and marginal demand decreases can cause the index to fall rapidly.  It's use as a reliable leading indicator is therefore misunderstood. 

[3] Readers who are bridge players will be familiar with the scoring system.  A game is won if a team scores 100 points 'below the line'.  There are three games to a rubber.  There are additional points 'above the line', which are sort of bonus points for a variety of success e.g. over tricks, slams bid and won, etc.

[4] Bundesadler or "Federal Eagle" is on the coat of arms of Germany.