Wry & Dry

Trump: George III revisited. Hong Kong's Head Prefect. Get off my lawn.

George III revisited

At some time in the future, historians will quill their understanding of the event that finally determined that I-Wanna-go-Down-In-History-Trump was certifiable.  In a similar fashion to George III.

Readers will know that courtiers to George III long suspected he was losing his marbles.  It first came to a head in the Regency Crisis of 1788 [1].  Eventually, in 1810, he was effectively certified and a Regency established.

For the President, will it be the simple straw that broke the camel's back, i.e one small incident that finally caused clarity in the minds of Americans of the madness?  

Or will it be one major epoch-defining event?  As it was with George III (perhaps being the loss of the American colonies).

Well, W&D has no idea which.  But the action of I-Wanna-Go-Down-In-History-Trump to impose a 10% tariff on the remaining goods not already hit by the Sino-American Trade War (roughly $300 billion-worth of Chinese goods) might either be the back-breaking straw or the epoch-defining event.

The increasingly autocratic and sometimes impulsive decision making of I-Wanna-Go-Down-In-History-Trump suggests that for any policy area he might have an objective, but has no idea how to get there when Plan A fails.

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The Chinese responded to Plan A, part 5 within a nano-second.  Firstly, purchases of all US farm products have been halted.  Secondly, the People's Bank of China (the central bank) allowed the renminbi to weaken past 7 to the dollar.

Both of these reactions will have a massive impact on the Yoo-Ess-Ay.  

The easiest barometer at which to look is the stock market, which fell sharply.  But Readers will know that's not a good measure, as Wall Street (and the ASX) were well over-valued.  That is, had the markets been fair or under-valued the market effect would have been much more modest.

Astute Readers will have instead been watching the US bond market.  For the technically minded, the yield on three-month US Treasury bond traded as much as 41.23 basis points above that on the benchmark 10-year government bond — the widest gap since March 2007.  Such an inversion of the yield curve — in which short-term yields are higher than longer-term ones — has preceded every recession of the last half century.

But Readers will know that the reverse is not true: not every inversion has led to a recession.  The US economy is very buoyant.  However, the fear of an inversion will prompt the probability of another round of US interest rate cuts.

W&D looks for where the bucks stops for this.  And, look no further.  It's the 21st century's King George III.

Where are those men in white coats?

[1] Made into a play, which later became a movie.  It was originally called The Madness of George III, but changed to The Madness of King George because there was a worry that American audiences would think it was a sequel, and not go and see it on the basis they had missed 'I' and 'II' 

Hong Kong's Head Prefect

It's wontons at 20 paces.

The demonstrators won't stop.  And the government won't relent.  W&D sees the problem quite clearly.  It's Carrie Lam, the Head Prefect of Hong Kong.  

Readers will know that she has been in the role for a mere two years.  She is a 36-year career-administrator, her previous roles include Secretary for Development and Chief Secretary for Administration.

She was educated at a Catholic girls' school in Wan Chai, where she had her first taste of being a Head Prefect.  And that is the sum total of her prior head prefecture experience.  Prior to becoming the Hong Kong's Head Prefect, she had never held an elected position.

And as an administrator she would respond like a head prefect.  In fact, in a speech in 2015 she cited the eight Beatitudes [2], saying "Some said that the eighth blessing applies very well to me – it says, 'blessed are those who are persecuted for righteousness' sake: for theirs is the kingdom of heaven' – there is already a place reserved for me in heaven."

Good grief.

This is the way that she has approached her job; and it mirrors the character of a head prefect:

  • Do as told by the Principal
  • Don't allow anyone to answer back
  • Don't consult
  • Don't negotiate

Indeed, there is a place in heaven for those who are persecuted for righteousness' sake.  And there probably also is a place for Ms Lam.

But back on earth, the best way for peace to break out is for Ms Lam to resign and a senior and respected local politician to succeed her.  And Readers will know that universities in Hong Kong resume on 2nd September, thus giving students other things to do.  

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[2] The Beatitudes are eight blessings, recounted by Jesus in the Sermon on the Mount (Matthew 5:3-12).

Brexit musings

W&D is delighted to see that he is not alone among centrist observers of Brexit.  That is, not all Brexiteers are to the right of the soup spoon.  Readers will know that W&D has long held the view that Britain would, in the long-term, be better off outside the EU.  W&D's reasoning is appropriately simple (i.e. for W&D's small mind); the EU is an economic and bureaucratic anchor.  Why chain a country's future to an anchor?

Adrian Blundell-Wignall (a delightfully complex name, evoking Wodehouse), a former director of of the OECD and a professor at Sydney University, quilled a succinct piece in the AFR this week.  In it he fleshed out W&D's simplistic reasoning with soundness.

He showed that the UK's exports to the EU as a percentage of GDP has been unchanged since it joined in 1973.  Whereas Switzerland's (not in the EU) have leapt.  It is the EU that has more benefited from UK being in the EU, not the other way around.  Britain is currently the second largest trading nation in the EU.  Trade will go on.  And an unencumbered UK will quickly move to comparative export growth again.  

The problem is, of course, that after Brexit focus will be on the media headlines and photos of queues of trucks at Dover, waiting for customs clearance.  That is not the measure of success.

Borisconi might, in the end, surprise on the upside.  Personality and personal failings notwithstanding.  

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"Get off my lawn" 

Readers will remember that Clint Eastwood movie Gran Torino, where he played a retired but ornery war veteran.  The troublemakers were confronted by Eastwood's character bearing a decent firearm and telling the kids to, "Get off my lawn."  They fled.

Which brings W&D to the four living former Federal Reserve chairpeople [3].  They have effectively told I-Want-Lower-Interest-Rates-Trump to get off the Fed's front lawn.

They have banded together in an article in the august Wall Street Journal to emphasise the importance of a Fed chairperson who's "permitted to act independently and in the best interests of the economy, free of short-term political pressures and, in particular, without the threat of removal or demotion."

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W&D can reveal to Readers the transcript of the bedtime conversation held that night in the White House:

Donald: Gggrrrr

Melania:  Who's upset you today, my dearest, most handsome husband?

Donald: It's those loonies who used to run the Fed.

Melania: Oh, my darling, genius husband, what have they said?

Donald: They want me to stop threatening Jerome Powell with the DCM if he doesn't do as he's told.  And cuts interest rates.

Melania: Oh, my special leader of the free world, how rude.  Don't they know how powerful and wise you are?

Donald: They are about to find out.

Melania: Oh, you are such a decisive man.  Quick to spot a problem and quick to fix it.  You are such a strong person.  What will you do?

Donald: I can't have the CIA or FBI take them out, like the old days. I'll have to tweet them out.

Melania:  Oh, that is such a clever idea.  The pen is mightier than the sword.

Donald:  Don't be stupid, Melania.  I'm not going to kill them with a pen.  And I never said anything about a sword.  

Melania (sighs):  Oh, how silly of me, darling.  Of course you are so right.  Again.  I'm going to bed.  Are you ... coming?

Donald:  Well, I'm going to hit Twitter after I've fixed my hair. 

Melania (cheerfully):  Okay, I'll see you at breakfast.  (Aside) Another night alone.  Thank God.

Donald: Oh, Mel, can you fetch my ... [indistinct] 

[tape ends]. 

[3] Paul Volcker, Alan Greenspan, Ben Bernanke and Janet Yellen 

A negative return over 30 years: why invest?

Readers will know that German government bonds with a 30 year maturity traded with a negative yield last Friday.  Twenty year bonds already have a negative yield.

This means that all of Germany's debt - the safest in Europe - would require investors to lose money on any bonds held to maturity. 

And there are now 12 countries whose 10-year government debt now has negative yields: Switzerland, Germany, Denmark, Netherlands, Austria, France, Finland, Sweden, Belgium, Japan, Slovakia and Slovenia. [4]  

Why invest in a security that will provide a negative return for the rest of its tenure?

Yes, this is the Greater Fool Theory [5] in operation.

Investors who buy these bonds hope that central banks will take them off their hands at even lower yields (i.e. higher prices).  No one is buying a negative yielding long-term bond to hold it to maturity.

W&D's view is that these are professional investors who don’t really care.  It’s other people’s money, and they’re going to change jobs or get promoted or start a restaurant or something, and they’re out of there in a couple of years.

[4]  Australia's 10-year government bond hit a record low on Tuesday: 0.97%.
[5]  Out there, somewhere, there is a bigger fool than you who will buy the investment from you to give you a profit.  The skill is not to be the last fool.

Queensland: half brained one day, zero brained the next

The latest push to work even less has spouted in Queensland.  Where else?

The Queensland government wants to make Christmas Eve a half-day holiday.  A great idea.  W&D is all for more holidays.  

The People's Democratic Republic of Victoria has led the way, globally, with sporting-based public holidays: Grand Final Eve (i.e the day before the Australian Football League's Cup Final) and Melbourne Cup Day (or equivalent in regional Victoria), for a horse race.

Queensland currently has the traditional public holidays: Christmas Day, Boxing Day, Queen's Birthday (weirdly held in October), etc.  W&D thinks a couple more holidays should be thrown in to celebrate those uniquely Queensland contributions to the nation.

W&D suggests: 

1.  Daylight Saving Doesn't Start In Queensland Day: first Sunday in October

2.  Fish 'n Chip Day: Pauline Hanson's birthday 

"He would say that, wouldn't he?"

I-Wanna-Kick-The-Chinese-Trump has accused China of being a 'currency manipulator'.

Well, he would say that, wouldn't he.  Because the US has effectively been trying to manipulate the US$ down for years.  The US Federal Reserve has led the world since the financial crisis, pumping trillions of new dollars into the financial system to prop up its banks and hold down interest rates — and undermine the value of the US dollar — which has wrought havoc with ­exchange and interest rates.   


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Focusing on the big issues

Readers will be pleased to read that Saudi women are now allowed to travel without the consent of a male guardian.

Watch for the queues of ladies clutching one-way tickets for airlines that fly from the more cosmopolitan cities of Riyadh and Jeddah to, well, almost anywhere.

Unclear on the concept

In the wake of the Sandy Hook Elementary School shooting in Newtown, Connecticut, Yoo-Ess-Ay in 2012, in which 26 people were killed, the Senate of They-The-People-Of Those-United-States voted on a bipartisan law that would have required background checks on all commercial gun sales.

It was defeated by a vote of 54 to 46.

Since then, there have been more than 2,000 mass shootings in America. [6]

[6] Source: The Economist.

Travel advisory

As Readers read this, W&D is in Europe.  Not lounging on a lounge chair beside the pool sipping a Waterford of 2007 Perrier-Jouët Belle Époque at The Grand Hotel Timeo (Taormina, Sicily).  But meeting senior bankers and investment folk about the state of the investment world.  Readers can expect a succinct report on Friday 30th August.

Snippets from all over 

1.  UK vehicle production plunges

Production of vehicles in the UK plunged 20% in the first half of 2019, compared to the same period last year, as the fallout from sharply declining demand in key export markets such as Europe and China as well as fears of a no-deal Brexit took a heavy toll on the sector

W&D comments:  That's 13 successive months of declining vehicle production. It's not the domestic market - it's exports. US down 13%, China down 53% etc.   

2.  Gold!  Gold!  Gold! [7]

The price of gold rose above US$1,500 per ounce for the first time since 2013.

W&D comments:  The price of gold has risen 17% this year.  W&D guesses that it is something to do with the Sino-American trade war.  Or perhaps the Hong Kong demonstrations.  Or the action of India to effectively annex the disputed, Muslim-majority state of Jammu & Kashmir.  Or [insert your problem: here]   

[7]  Readers might remember the irrepressible swimming commentator, Norman May at the 1980 Moscow Olympic Games: click here    

3.  PNG plays the China card

Papua New Guinea has asked China to refinance its entire government debt of $11.8 billion in an unprecedented move that could give Beijing huge leverage over Australia’s nearest neighbour.

W&D comments:  PNG is merely playing off China against Australia.  This sort of behavior reflects the fact that PNG feels ignored by successive Foreign Affairs ministers, most recently the first-class-flying-clothes-horse, Julie Bishop.

4.  GDP forecast falls

The RBA has slightly reduced its GDP forecasts for the Australian economy to 2.5% (from 2.75%) in 2019 and 2.75% (unchanged) in 2020.

W&D comments:  No recession in sight.  But there is no doubt the wheels are turning a little more slowly: too many shops for rent in W&D's local shopping strip.    

5.  Buffet's pile builds

Warren Buffet's Berkshire Hathaway reported a 17% jump in net profits for FY-19.  And it now holds US$122 billion in cash, compared to $200 billion in stock.

W&D comments:  Sounding very much like a wealth management company W&D knows, Buffett said, "The inability to identify attractive ... companies to acquire is a problem that has persisted for a long time.  This cash balance ... is frustrating to investors, but they have been taught over decades to appreciate [we] will be cautious and wait for opportunities."

And, to soothe your troubled mind ...


Last words ...

"Now where the country's (England's) first question was once, "How do we solve Brexit?" the question is now, "How do we get Steve Smith out?""

 -  A CNN (a US cable news channel) commentator on Australian cricketer Steve Smith, after Smith broke England's hearts and a few records in the First Cricket Test.

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One swallow a summer doesn't make.  But it's a good start.

A lightly salted absurdity ...

Deepak, W&D's Uber driver ... 

... was gloomy as W&D swung open the jalopy’s door.

“Mr. W&D, meet my mother-in-law,” Deepak said between gritted teeth as W&D climbed in beside a very elegant woman.

“A delight to make your acquaintance, I’ve heard so much!” W&D enthused.

“Ah, my reputation precedes me,” she retorted, a twinkle in her eye.

“Perhaps, and how is your new abode coming on?” W&D asked.

Deepak groaned loudly from the front seat.

“Quite well, but I think it is best that Deepak has a little time without me breathing down his neck as he finishes things off.  And family duty calls so I am arranging a trip to visit my elderly relatives back in India.”

“I see,” W&D responded carefully.  

“Also,” she continued, “I think it would very good for Anjali and Deepak to have a little time alone together.  Things have been a bit tense the past week or so.”

“How so?” W&D encouraged with a tingle of mischief.

“Oh, just one of their little disagreements.  It appears that Deepak unwisely left some login details on the fridge, spelled out in those little magnetic tiles.  For what is it called, those cryovac things, my dear?” she called to the front seat, a hand on Deepak’s shoulder.

“It’s crypto-currency, my crypto-currency and my bitcoin, it’s all been taken!” Deepak wailed.

She patted Deepak’s shoulder reassuringly. “Well never mind dear, one must learn to be careful where one leaves one’s passwords, mustn’t one!”  Deepak spluttered something in Hindi.

She laughed, rolling her eyes at W&D.

“Don’t tell me that Deepak has been mysteriously locked out of his account?” W&D asked, with an air of feigned innocence.

“Well yes, and it could’ve been anyone, and it was most unfair to blame Anjali.”

With that, the car pulled to an abrupt halt.

"This is not my stop," spluttered W&D.

"But it's mine," his back-seat companion announced.  “My travel agent.”  

“I see.  ‘Exclusive agent for Seychelles Luxury Getaways for Mature Singles’.  Family duty calls, huh?" W&D asked with a grin.

“Absolutely,” she pressed her finger to her lips and winked.  "And, Deepak, I'll call you when I'm ready."

As she alighted she turned to W&D, "I'll fill in the blanks when we next meet," she chuckled and waved to W&D with a flourish as she strode to the travel agency.

First Samuel client events calendar


First Samuel 20th Anniversary Investment Forum

Tuesday 24th September

with Special guest
Hon Josh Frydenberg, MP, Federal Treasurer

Invitation now sent

Please let Jess know if you are interested in bringing your children along to hear Mr. Frydenberg speak

Chief Investment Officer Dinners

Invitations now sent
Contact Jess at responses@firstsamuel.com.au to RSVP your preference of venue


Venue Seating Date & Time
Cumulus Inc. - Melbourne CBD Lunch 27th August 12pm
Hellenic Republic - Kew Dinner 27th August 6pm
Stokehouse - St Kilda Lunch 28th August 12pm
Chin Chin - Melbourne CBD Dinner 10th September 6 pm (Dinner fully booked)
The Botanical Hotel - South Yarra Lunch & Dinner 11th September 12pm & 6pm (Dinner fully booked)
Many Little by Polperro - Red Hill Dinner 17th September 6pm
Elyros - Camberwell Dinner 18th September 6pm