Wry & Dry

EU letter from UK. Trump might look to Reagan. US market optimism.

Aside from the China extradition treaty fiasco (see later) and the end of the Australian cricket team's sledging tour of India, it's been a dull week in Australia.  So Wry & Dry takes refuge in the stories that keep giving: Brexit and Tsar Trump.

But before that, the dullness in Australia was highlighted by the media prominence given to... the Bureau of Statistics release of population data.  Wow.  

And with it the usual capital city bragging contest.

Y'see Sydney remains the largest city (just over 5 million folk) with Melbourne at 4.6 million.  But Melbourne is by far the fastest growing city, up over 100,000 (2.4%) in the last 12 months.  Those extra 100,000 people all seem to be on W&D's nightly train from the decrepit Flinders Street railway station.  

Sigh.

It's in the mail

Well, it wasn't really.  The letter from Teresa May, the UK PM, to the EU, saying 'We're OTD [1]' was hand delivered.  Rather like the Olympic torch relay, the precious letter from the sceptred isle [2] was relayed by a series of self-important and probably white-gloved civil service hands from 10 Downing Street [3] across the Channel to the EU in Brussels.

Wistfully, W&D would have wished that it were hand-written, in a sort-of copperplate script.  But it was probably printed in boring Calibri 11 point font.  

And this is the week of the 60th anniversary of the Treaty of Rome [4].  What a way to celebrate, with the second largest member not coming to the party.  

W&D sees two matters.

Firstly, Brexit is not #1 on EU's problem list, notwithstanding the expositions of the popular press.  To EU's East lies Russia and Turkey, each run by an autocrat-under-the-guise-of-democracy and each uncovering geo-political reasons to find common cause.  Turkey does aggrieved almost as good as the Chinese, and the EU's ongoing and interminable delay in considering Turkey's membership has caused Turkey to turn north-east rather than west.  Such semi-revolution is aided and abetted by Tsar Putin's desire to put yet another burr under the EU's saddle.  The other burr's are Tsar Putin's prodding and outright interference in the Balkans (Serbia) and the Baltic States.

But wait, there's more: the deep economic problems of Greece, Italy and Portugal.  Readers do not need yet another W&D epistle on how precarious these economies are.  And so none will be given.  Well, not this week.

But wait, there's even more: the rise of populist and anti-EU sentiment.  Whilst perhaps a mercurial evocation of protest after the rise of Trump and the Brexit vote, the eurocrats wouldn't want the anti-EU sentiment to get any larger.  The Dutch election result allowed the eurocrats to sleep easier.  The upcoming French presidential elections will be the next test.

But wait, there's even more: the cost, today and tomorrow, of EU's porous southern and eastern borders.

Good luck with your projects, EU.

Brexit

Secondly, UK will negotiate Brexit well and will prosper, notwithstanding the ongoing gnashing of teeth, forecasts of foreboding/ apocalypse/ end-of-UK as we know it.  Economically, the EU is as reliant on the UK as the UK is on the EU.  A harsh tariff regime or Brexit cost imposition by EU, whilst a seeming negotiating victory, would be shortsighted.  And hurt the EU as much as the UK.  Remember that the bitterness felt by many Europeans about Brexit will ease as they consider the EU's other problems (see above).  UK is still a member of NATO and integral to Europe's defence.  And will use that as a lever.

Ms May's letter now takes the process out of the hands of the politicians and into the hands of the bureaucrats.  Well, at least for now.  Just two years to wait for the actual severing of ties.  

Tsar Trump just doesn't get it

In the property world, if the property deal doesn't work, you can always find another sucker.  This was Tsar Trump's business world.  Bully, bluster, coerce, scream and sulk until you get your way.  He owned the company.  It was his money (or the bank's).

Now let's try that on Congress.  Tsar Trump has yet to realise that there is a document called the Constitooshun of the Yoo-Nited-States (the original of which was beautifully hand written in copperplate script) that sets out that there are three branches of government.  That document says that Congress is one of the three. [So is the judiciary, as Tsar Trump is finding out with some obstacles to his Executive Orders concerning immigration].

So to do certain stuff Tsar Trump has to deal with Congress.  The last US president before Tsar Trump to have a serious and winnable battle with Congress over fiscal matters was Ronald Reagan.  (Obama was never going to win).

Tsar Trump is dealing with Congress like the last remaining business opponent.  Bully, bluster, coerce, scream and sulk until you get your way.  It's not working, as shown by his embarrassing defeat in trying to repeal Obamacare.

Trump cartoon

W&D recommends that Tsar Trump take a leaf out of Reagan's book.  That book was one of charm.  In his first term, Reagan was having trouble getting some Republicans (i.e. those on his side) to support his budget proposals (which were to become known as Reaganomics: lower taxes, smaller government, etc).  Reagan invited each waiverer to the White House for a folksy chat.  He charmed each of them.  And his changes eventually sailed through Congress.  

Like Tsar Trump, Reagan wasn't the brightest globe in the chandelier.  But Reagan knew that politics was the art of the possible.

Reagan was elected for a second term in 1984 with the greatest US presidential electoral majority ever: he won every single state except one: opponent Walter Mondale's home state of Minnesota.

Tsar Trump might find himself at the US equivalent of Centrelink unless he lifts his game.  Whatever game that is.

Americans the most optimistic about the share-market since 2000

Oh, dear.  Americans haven’t been this upbeat about the U.S. stock market since 2000, according to the Conference Board’s latest consumer confidence report released this week [5].

More than 47% of respondents said they expect equities to move higher in the next 12 months, the largest per cent since... January 2000.

The US share market peaked two months later, in March 2000 (see chart, where left-end of upper red line touches the blue market line).  Just over 12 months later, the S&P500 was 45% lower (lower red line).

Tech wreckThe difference between the red lines is 45%

W&D is not going to suggest that the US market is going to fall 45% over the next 12 months.  The 2001-2 bear-market was a reversion of the crazy bubble in tech-stocks.  That bubble was the first of the 'this time it is different' mantras from Wall Street, as the public got sucked into exciting tech stocks that were going to change the world.  Only a handful did. 

It is never different.  An over-valued market will always correct.

Elsewhere

W&D takes a look at a Chinese issue bigger than the extradition treaty fiasco.  And, as usual, Miscellany to soothe your troubled mind.  

[1] OTD: Out The Door.

[2] This royal throne of kings, this sceptred isle, This earth of majesty, this seat of Mars, This other Eden, demi-paradise, This fortress built by Nature for herself Against infection and the hand of war, This happy breed of men, this little world, This precious stone set in the silver sea, Which serves it in the office of a wall Or as a moat defensive to a house, Against the envy of less happier lands,-- This blessed plot, this earth, this realm, this England."  John of Gaunt's speech from Richard II, William Shakespeare. 

[3] 10 Downing Street, colloquially known in the United Kingdom as Number 10, is the headquarters of the Government of the United Kingdom and the official residence and office of the First Lord of the Treasury, a post which, for much of the 18th and 19th centuries and invariably since 1905, has been held by the Prime Minister.

Situated in Downing Street in the City of Westminster, London, Number 10 is over 300 years old and contains approximately 100 rooms. A private residence occupies the third floor and there is a kitchen in the basement. The other floors contain offices and conference, reception, sitting and dining rooms where the Prime Minister works, and where government ministers, national leaders and foreign dignitaries are met and entertained. At the rear is an interior courtyard and a terrace overlooking a garden of 0.5 acres (2,000 m2). Adjacent to St James's Park, Number 10 is near Buckingham Palace, the London residence of the British monarch, and the Palace of Westminster, the meeting place of both houses of parliament.

Originally three houses, Number 10 was offered to Sir Robert Walpole by King George II in 1732. Walpole accepted on the condition that the gift was to the office of First Lord of the Treasury rather than to him personally. Walpole commissioned William Kent to join the three houses and it is this larger house that is known as Number 10 Downing Street.

[4] The Treaty of Rome, officially the Treaty establishing the European Economic Community, is an international agreement that brought about the creation of the EEC. It was signed on 25 March 1957 by Belgium, France, Italy, Luxembourg, the Netherlands and West Germany and came into force on 1 January 1958. 

[5] The Conference Board is a Not for Profit US research institution, that releases surveys of consumer, business and markets.