Wry & Dry

An over-valued market will always... Keystone cops. Wannabee QCs.

Fill in the blanks...

Sigh.  Readers should know that W&D has often said, "An over-valued market will always [................], the reason given doesn't matter."

So Wednesday night's modest meltdown of the US stock-market (-3.3%) was ascribed to concern about the US' trade war with China.  And then rising US interest rates.  And then Tarzan Trump.  And then...

Err, no.  The US market was trading on a forward P/E of about 18, some 22% above its long-term average.  The market wasn't outrageously expensive, but still expensive.  And some technology stocks were certainly expensive.  Anyway, a break was needed. 

And so, to complete the sentence for W&D's younger Readers: "An over-valued market will always correct, eventually.  The reason given doesn't matter." 

Insert your adjective here 

The inevitably of a modest downturn (and modest it is - this isn't a correction i.e. down 10% - and down 6.9% from its 20th September all-time high) didn't stop the scouring of the OED [1] by media editors, searching for exciting adjectives to portray the world-ending 3.3% fall in a market that has risen 8% in three months. 

Cartoon the panic is over valued

Rout, sell-down, plunge, in-the-red, drubbing, torrid and wipe-out all appeared in a font-size usually reserved for the death of a princess.  Tony Grieg [2] might have said, "There's some real carnage out there." 

Equally, Crocodile Dundee [3] might have said in response to a share-market fall of  3.3% in one night: "That ain't a rout.  This is a rout."  And then remembered 19th October 1987: 

That aint a rout

The falls this week masked some subtleties.  Readers will know that stock-market indices provider S&P Dow Jones Indices last month instituted the biggest overhaul of S&P 500 sectors in the classification system’s 19-year history. 

The much watched Information Technology sector now has a greater focus on hardware makers, with stocks such as Alphabet and Facebook leaving the IT sector to become part of the Telecommunications Services sector.  Netflix departed the Consumer Discretionary sector to also join the Telecommunications Services sector, among other changes.  So analysis of sector performances is almost meaningless. 

China not #1 for Australia

Readers will be surprised to know that China is not Australia's #1 economic partner.  Sure China is #1 in trade terms, but if one includes such measures as portfolio investment and direct investment a different picture of economic engagement arises.

According to Australian and Japanese Economic Intelligence, China is sixth, with a mere 3% of the total economic engagement that Australia has with the rest of the world.

Economic engagement

Keystone Cops - Russian style

Were it not so sad, it would be hilarious.  That is, the appearance on Russian television of the two Russian agents accused of poisoning a couple of Brits and killing a third.  Their risible story of them going to the UK twice just to see Salisbury Cathedral (and each time ending up not seeing it) was bad enough.  But to front the world to profess their innocence was a masterstroke of idiocy. 

Rissia Salisbury cathedral

But Readers should also consider the early 1980s, when the Cold War was somewhat hot.  But idiocy still abounded.  The Soviets had decided that UK Labour MP Ron Brown was ripe for cultivation.  Brown had often and openly expressed strong support for the communist regimes in Europe and Asia.  So the KGB sent one Oleg Gordievsky to recruit Brown.  Gordievsky, in his memoir, Next Stop Execution, recalled that Brown could give valuable insights into government.

Trouble was that Brown had a very deep Scottish accent, that was as thick as porridge.  To Russian ears he was incomprehensible.  Gordievsky could only understand about one in ten words.  And so wrote up reports to his masters only guessing at what Brown had said.  The reports were a fabrication and, essentially, useless. 

Russia: Plus ça change, plus c'est la même chose. [4]

Cold War Marque II

Tarzan Trump's trade-war with China is getting much prominence.  But astute Readers will have noticed a little reported speech of Vice President Mike Pence, given last week.  In it, Pence gave an updated version of former President Ronald Reagan's famous "Mr Gorbachev, tear down this wall" speech [5].  Well not quite.   The Hudson Institute, Washington, is not quite the Brandenburg Gate, West Berlin.  And Pence is no Ronald Reagan (is anybody?).  And Reagan was speaking of Russia's role in Germany, rather than China's in a variety of places.

Pence came loaded for bear, or panda, as it were.  And gave China both barrels: oppression of Tibetans and Uighurs; debt diplomacy (often highlighted by W&D), South China Sea geographical expansion (ditto); third world economic aggression (especially in Africa and Southern Asia); increased censorship and domestic oppression; theft of intellectual property; etc. 

Cartoon China taking over the world

This was a major clarification of Tarzan Trump's China strategy: national security matters more than economic friction. And there will not be any backing down.

Readers will note that W&D has implied that Tarzan Trump actually has a 'strategy'.  Good grief, what is going on?

Latter Day Cold War Warrior

W&D notes with some sadness the resignation of Nikki Haley, the US' Ambassador to the UN. 

Cartoon UN anywhere with a shower

Ms Haley, born in South Carolina of Sikh parents, had an objective to call out the amazing hypocrisies of the UN, such as the election of human-rights abusing nations to the UNHCR and the extraordinary bias of the UN against Israel.  She had a Thatcher-like quality about her, but without the shrill lecturing.  

The point of W&D's observation is for Readers to put it in a mental time-capsule, to be opened in 2024.

It is with reluctance...

... that W&D comments on the appearance of a duo of bank CEOs before the federal parliament's Economics Committee.  The MPs looked like turkeys.  Each trying to out do each other in a contest to see who could give the best impression of the droll RC Commissioner Hayne or the skewering Counsel Assisting Rowena Orr QC. 

They failed.  The bank CEOs did as expected: with wringing hands and soulful eyes, they stood in the naughty corner and apologised ceaselessly and promised to better behaved in future. 

Fat chance.  These boys are in the business of making dosh for themselves and their shareholders.  So, unless there is structural change in the industry (see below) there will be nominal obeisance to new and tighter regulations, codes of practice and ethical guidelines.  Sigh.

Did W&D pen the words 'structural changes'? Indeed.  Farsighted Readers might consider W&D's recipe.  Break up each bank into what they used to be, that is, more-or-less, a 'savings bank' and a 'trading bank'.  More on this, later.

It is with reluctance... 

... that W&D says he told Readers so.  It's about the Italian banks.  Astute Readers will recall last week's reference to the univestibility of these successors to the founders of modern banking.  Readers know that modern banking started, essentially, in Florence in the 14th century. The most famous Italian bank was the Medici bank, established in 1397 [6].  The oldest bank still in existence is Banca Monte dei Paschi di Siena (BMPS), headquartered in the beautiful city of Siena [7], which has been operating continuously since 1472.

Cartoon siena ATM

It's complicated, but BMPS survives only because of the Italian government buying its shares (now owning 68%).  The bank is technically broke. A move to 'bail-in' debt investors (i.e. convert bonds, which paid interest, into equity, which was effectively worthless) failed in early 2017, because so many bond holders were retail investor and the public outcry would have brought down the government.

The latest is that increasing interest rates for Italian borrowers (because of the perceived fiscal irrationality of the new government) means that bonds issued by BMPS now trade at less than 91 cents on the euro, just as the bank needs to issue more debt.  BMPS other problem is that it keeps on buying Italian government bonds, so that the holding now makes up over 200% of what is called its 'tier 1 capital'. 

Hang on!  The government owns 68% of BMPS.

The government is not going to let BMPS sink into the dusty Tuscan plain.  And neither is the EU.  But it's just another carriage on the slow moving train wreck that is Italy and, ultimately, Europe.

And the EU is worried about Brexit. 

Snippets from all over 

1.  Sears Roebuck: And now, the end is near...

Venerable US department store and original catalogue seller is teetering on the edge of filing for a 'Chapter 11' bankruptcy.

W&D comments:  Sears' stock price has fallen 88% this year.  As one commentator bluntly put it, "it has failed on every facet of retailing from assortment to service to merchandise to basic shopkeeping standards.  Under benign conditions, this would be problematic enough but in today's hyper-competitive retail environment it is a recipe for failure on a grand scale. That failure has manifested itself in lost customers, lost market share, and a brand that has become tarnished and increasingly irrelevant."  Ouch.

2.  Brazil shoots to the right

Brazil is following other fragile democracies and is leaning to the right of the soup spoon.  Sunday's first round of the presidential election saw far-right, former Army captain Jair Bolsonaro take nearly half the votes. 

W&D comments: Why is it that most South America countries always sits on the edge of an economic or political abyss.  And yet produce amazing soccer players? 

3.  Down at the car wash...

The US unemployment rate in September fell to 3.7%, the lowest since 2000.

W&D comments:  Tarzan Trump will take the credit.  He should take some (massive tax cuts), but there is also a creature called the economic cycle that will not get any thanks.  And an ugly one called debt blow-out, which will emerge from the depths when Tarzan Trump is long gone.

4.  Gnomes of Zurich

Mystery-cloaked numbered bank accounts have officially come to a close in Switzerland, the world's biggest center for managing offshore wealth.  Swiss authorities have begun automatically sharing client data with tax agencies in dozens of other countries - under global standards that aim to crack down on tax cheats 

W&D comments: Why the fuss about 'numbered bank accounts'?  Even W&D has numbered bank accounts.  Perhaps they mean 'no-name' bank accounts.  Readers will remember the original Thomas Crown Affair, with Steve McQueen's character lobbing into a Swiss Bank with suitcases of cash.  So 1960s. 

5.  Turkey's economy soars with ... Turkeys

Inflation in Turkey hit 24.6% in the year to end September.  The Turkish lira is now down almost 40% against the US$ this year.

W&D comments:  Aside from the slowly collapsing Turkish economy, Readers should consider those rocket surgeons that lent to Turkey in US dollars and euros.  With the collapse in the lira, Turkey's non-lira debt to foreign banks of some US$160 billion has ballooned to US$224 billion.  Spanish banks own most of the debt, with the French not far behind.  And the EU is worried about Brexit.

Tool of the Week 

Podium finish goes to ... Jason Falinski, Liberal MP for Mackellar in NSW and member of the House Economics Committee.  In yesterday's bank-CEO-inquisition he was keen to pursue the issue of lack of competition in the banking sector - a worthy issue to pursue, as W&D has often observed from the comfort of his Chesterfield.  But just when things were going well, Falinski asked Westpac CEO, Brian Hartzer, with great flourish, whether Westpac should have been allowed to buy St George Bank during the GFC.  Hartzer blandly replied what most Readers would have known, that St George Bank would have fallen over had Westpac not taken it over.  In fact the whole takeover was engineered by ASIC and the RBA.  

Undaunted, Falinski ploughed on, asking if Westpac should have been allowed to keep the brand.  Whaaaaat?  Hartzer seemed as puzzled as W&D as to the question.  And answered as opaquely as the question.  

Undaunted, Falinski ploughed on.  W&D will spare Readers the rest of the exchange.

Curious Readers will find it interesting that Falinski succeeded Bronwyn Bishop in the seat of Mackellar.  The apple doesn't fall far from the tree. 

Deepak, W&D's Uber driver, was wanting to...

... talk about smartphones.  "I read that Samsung has released a mobile phone that has the world's first rear camera with four lenses," he asked. "What's the point of four lenses?"

"Well," replied W&D as he buckled up his seat belt, "You have heard correctly.  It's called the Galaxy A9.  And it does have four lenses."

"So why four lenses?" Deepak pressed.

W&D hesitated.  "I don't understand very much about mobile phones.  Or cameras.  But I'm told that it's all about the ability of the photographer to alternate between different lenses that enable specific shots, such as long distance or panoramic."

"Ah, ha," chirped Deepak.

"Ah, ha. What?" W&D was puzzled.

"Well, I have great news," he said exultantly.  "I am going to be a father of a son. As I predicted."

"Congratulations," enthused W&D.  "Well done.  Nice work.  Is all okay?"

"Anjali is very well, the scan was amazing.  This will be the first of five sons."

"A fatal conclusion," observed W&D, as he stepped from Deepak's car.  "Might I suggest you take things one child at a time.  And consider Anjali.  After all, she is the one who has to carry your babies.  And give birth.  And she is your wife.  She may only want, perhaps, two children."

"No.  We will have five sons," defiantly responded Deepak to a receding W&D.

"Of course," paused W&D.  "But remember how uncomfortable it was sleeping in the spare bedroom." 

Deepak looked horrified. 

And, to soothe your troubled mind...  


Last words...

"The Fed is making a mistake. They’re so tight. I think the Fed has gone crazy.”

 -  Donald Trump, US President, adding his point of view on what he sees was the cause of the market downturn.   

... and again breaking the unwritten rule that Presidents do not comment on the Fed and interest rate policy..   

First Samuel client events calendar

CHIEF INVESTMENT Officer Dinners 2018

FY-18 was a Year of Harvest and Sowing Seeds for the Next Five Years

**Places are now only available at

Wed-17-Oct   Dinner  Donovans (additional event)

Wed-14-Nov   Lunch  Donovans

Please contact Jess if you haven't already.

Some lightly salted absurdities from all over ...

At the extreme left-hand end of the Bell Curve

Avalone Fishback, 20, from Oklahoma, wanted her ex-boyfriend murdered.  So she did what any smart woman would do: she went on a dating app ('Plenty of Fish') and started asking for someone to do the deed. The plan came unstuck when one aspiring lover, dismayed that he wasn't wanted for his charm, contacted police.  The police looked up the website.  And found her.

She fessed up.  And then said that she would have been happy if she had found someone to do the murder.      


First-degree solicitation of murder. 

Guess what happened next?

Marc Rubin picked out his spot to propose to his future wife, in front of the Cinderella Castle at Disney's Magic Kingdom, in Florida.  A Disney employee asked him to move one metre back, for the regular Disney Parade.  He lost his cool, screamed at the Disney employee and grabbed her.  Police were called, Rubin was charged with disorderly conduct and fined $100.  What did Rubin do next?

a.  Vow never to go to a Disney Park again;

b.  Propose to his future wife at McDonalds, instead;

c.  Go back to Disney's Magic Kingdom and propose in a place didn't block anything; or

d.  Lawyer-up and sue Disney for false imprisonment, negligence, etc, etc.       

Close.  But no cigar.  d. is correct.  He lawyered up.  And is seeking $15,000 in compensation.   

(Orlando Sentinel)

W&D still awaits news on whether he did eventually propose.

You idiot, Watson, someone has stolen our tent

Thieves stole an entire lead roof from All Saint's Church, Houghton Conquest, Bedfordshire, UK.  The 20 tonnes of lead was taken over a long period time, by thieves posing as tradesmenpeople.

The theft was uncovered on Tuesday when daylight could be seen through the ceiling.      


They're kidding.  No-one noticed for all those weeks?


Have a Wry & Dry weekend. 



[1]  Oxford English Dictionary

[2]  The late Tony Grieg was a captain of the English cricket team who later became a cricket commentator.

[3]  Crocodile Dundee was a very, very light Australian comedy movie, starring Paul Hogan as an archetypal larrikin Aussie who goes to New York and in one scene saves his girlfriend from a knife-wielding would-be robber.  Click here to see the full clip.

[4]  The more things change, the more they stay the same. 

[5]  The speech was given in June 1987.  The Berlin Wall was torn down, with Gorbachev's tacit acquiescence, by East Berliners in November 1989.

[6]  The Medici Family had its fingers in many pies.  Not least of which was the Papacy, producing three Popes of the Catholic Church: Pope Leo X (1513–1521), Pope Clement VII (1523–1534), and Pope Leo XI (1605).  The family also produced two queens regent of France—Catherine de' Medici (1547–1559) and Marie de' Medici (1600–1610).  In 1532, the family acquired the hereditary title Duke of Florence.  In 1569, the duchy was elevated to the Grand Duchy of Tuscany after territorial expansion. The Medicis ruled the Grand Duchy from its inception until 1737, with the death of Gian Gastone de' Medici. 

[7] Home of the famous Palio, the horse race around the town square (more like a circle) and featured in a James Bond movie: Quantum of Solace.