Wry & Dry

Always back the nag called Self Interest. Probing Banks. Syria: the real culprits.

Wry & Dry is ...

... back, with quill in shaky hand, blinking rheumy eyes and brain trotting along at a stately pace.  He thanks all those Readers who emailed to express concern at his one week's absence.  It can now be disclosed that some speculative medicines taken to overcome a ricked back caused his mind to temporarily locate to a place in the sky where Barnaby Joyce's brain permanently resides.  But all is now well: his health is fine.  

Headline of the week

The Financial Review took Wry & Dry by surprise with its Monday headline: 'Banks hit by new probe'.  Wry & Dry always considered a probe to be a device that a doctor inserted in, err, dark places.  And who was the unfortunate Mr/Mrs/Non-binary Banks?  And what had he/she/it done to deserve such an examination? 

But, clearly, Wry & Dry was still affected by those speculative drugs.  What the headline meant to say was that there would be another inquiry into the bad behaviour of those pillars fiscal disrepute, the banks.  Readers will be keen to read more, below.

Brexit: too close to call

Will Borisconi turn Brexit into the greatest British triumph since Waterloo? 

Cartoon always the irish

Or will it be worst since Isandlwana?

Readers will know that the EU has just re-negotiated the deal it said that it wouldn't re-negotiate.  Funny what happens when you finally pull your key negotiating tactic out of your back pocket - the No Deal. 

Clearly, former PM Theresa May didn't have a back pocket.

Now it's up to the House of Commons to accept Borisconi's deal.  The vote will happen tomorrow, when the Commons sits on a Saturday for the first time since the Falkland's War.  The Saturday sitting will cause much consternation amongst MPs: the weekend away with the mistress; the weekend shooting defenceless birds [1] or the EPL game [2] all given up to listen to the erudite and charismatic Borisconi on one side and the soporific Jezza Corbyn on the other battle it out with emotional rhetoric.  But words won't count.  It's self interest.

As former Australian PM Gough Whitlam observed, "In the Race of Life, always back the nag called Self Interest."  Which MPs in marginal seats will listen to their constituents, rather than the debate or party-line?

Wry & Dry's man person in Westminster advises that Borisconi will need a net 30 votes from Mrs May's last losing Deal.  Too close to call.

[1] 1st September is the start of the UK shooting season for Grey Partridge, Red-Legged Partridge, Golden Plover, duck and geese.
[2] But it's okay.  The massive Man United v Liverpool game is on Sunday.

The sky is falling.  Again.

The International Monetary Fund has caused the Henny Pennys [3] to start shouting from the hen-houses.  The IMF revised its forecast for Australia's GDP growth for 2019 downward, to 1.7% from its previous 2.1%.  The RBA has forecast GDP growth as recently as August of 2.4%.   

The IMF rounded up the usual suspects [4]: Brexit, Sino-American trade war, and other geopolitical stuff ...

The Henny Pennys are demanding a cut in interest rates and a boost to government spending to reignite growth.  Both suggestions are thoughtless.  As repeatedly observed by Wry & Dry, cutting interest rates below current levels will only further ignite the speculative housing market and not boost consumer spending.  And unless the government embarks upon a Pink Batts Mk II [5], which is unlikely, it takes two to three years before a cash splash (i.e. government spending) becomes effective. 

Cartoon IMF

If Wry & Dry ruled the world, he would, by fiat, (a) implement speedy and serious micro-economic reform and bureaucracy-busting measures and (b) reduce personal income tax rates for low-income earners.  But he doesn't.  So he cannot.

[3]  More commonly known as Chicken Little in the Yoo Ess Ay.  Either way, an acorn hit the bird on the head, causing it to shout "the sky is falling'.  That phrase has passed into the English language as a common idiom indicating a hysterical or mistaken belief that disaster is imminent.
[4] Some readers may recall Claude Rains' po-faced comment in Casablanca, after Humphrey Bogart shot Major Strasser: "Major Strasser has been shot.  Round up the usual suspects."  
[5] One of the more stupid and expensive responses to the GFC promoted and executed by former Treasurer Wayne Swan.  The Home Insulation Program (aka Pink Batts) created a $2.8 billion frenzy of unsafe and unsupervised work by untrained workers to install insulation in homes, funded by we-the-taxpayer. 

Is the bank inquiry into 'mortgage cost of funds'?  No, read the tea leaves.  

Treasurer Frydenberg has asked the ACCC to investigate how banks price their residential mortgages and to examine obstacles to customers switching banks.  Wry & Dry knows that Mr Frydenberg is a smart fella.  And that he (Mr Frydenberg) already knows the answer to the question he has posed to ACCC: banks price their mortgage interest rates at the highest possible margin over their cost of funds without damaging their deposit base.

But if the banks think that it's all about pricing mortgages and turning up to the ACCC with algorithms and spreadsheets, they will be disappointed. 

What Mr Frydenberg really wants is the next step: the ACCC to report that it's not the complexity of calculating 'cost of funds' that matters.  It's the size of the margin: i.e. bank profitability.    

Cartoon banks enquiry inquiry

Readers should make no mistake: banks should be profitable.  Of course.  But they should have a return on equity commensurate with the risk of their businesses.  Australian banks are very low risk, with mortgage default rates close the zero.  The first $0.25m of each depositor's deposit with each bank is guaranteed by we-the-taxpayer, which guarantee they receive at zero cost.  They have an overall implicit guarantee from we-the-taxpayer.  Their capital adequacy ratios are comfortably above that required.  Their average current return on equity of about 11% is massive by global standards and some 10% higher than the risk-free rate (i.e. 10-year government bond rate).

Readers will also be aware that the banks have media communications departments second only to Qantas for spinning a message across to we-the-public.  The messaging has already started.  Consider: 

a.  "Banks need to be profitable".  Correct.  Otherwise the sky will fall and we'll all be rooned.

b.  "Australian banks received 'not a cent of taxpayers money' during the GFC."  Correct.  They got an even better deal.  A blanket guarantee from we-the-taxpayer.

c.   "Banks' profits are a big contributor to superannuation returns and retirement savings."  Correct.  So why not extend the government guarantees to other companies that are big contributors to superannuation returns and retirement savings.  Like First Samuel.  Or more esoterically: BHP.

Not clear on the concept

The next Group of Seven (G-7) [6] summit will be held in the Yoo Ess Ay in August, 2020.  Now, where to hold it?  Hang on, now here's a good idea.  Why not at Trump National Doral golf course resort, in Florida?

Hang on.  That resort is owned by I'm-The-President-of-The Yoo-Ess-Ay-Trump.  What a coincidence.

Nice work if you can get it.

[6]  A talk-fest of the seven largest countries: Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.

Syria: who is looking the other way?

A great deal of fetid manure has been dumped from a great height upon Great-and-Unmatched-Wisdom-(his words)-Trump for prematurely withdrawing American troops from northern Syria.

Cartoon soldiers dessert

And deservedly so, for the reasons enthusiastically espoused in left-wing media, admonishingly in centre media, and sheepishly admitted in right wing media.  But Readers should allow Wry & Dry to present another perspective.

Have Readers noticed the two national groups whose mouths are as silent as the tomb of Tutankhamen?  Yes, the United Nations and the European Union.

The UN has not and did not send one single soldier to protect the Syrian Kurds, much less assist in the drive to eliminate the Islamic State. 

But that's okay, isn't it.  Because UN Secretary-General Antonio Guterres has been too busy meeting with Greta Thunberg and drafting a new green deal to distribute Western wealth to poor nations (including China). 

The EU benefited more than anybody else from the security of the US led-fight against ISIS (because of the amelioration of further consequences of Angela Merkel's disastrous open borders, welfare-for-all policy).  But like the UN, the EU stood by and allowed even more of a human crisis to fester.  It has not and did not send one single soldier to protect the Syrian Kurds (but the Brits did provide air support).  

But that's okay, isn't it.  Because all of the EU elite (ex-UK) is focused solely on the more important issue of making it as difficult as possible for the UK to exit the EU, just in case others wish to do the same, no matter the costs to EU industry.  Syria is "a country too far away, of which we know little." [7]

Of course, Turkey was always going to take advantage of any situation to protect or advance its interests.  By whatever means.  And then some. Sultan Erdoğan well knows Otto von Bismark's copybook: if domestic problems cause they-the-people to be unhappy, create or undertake an international adventure.  

Readers will know that there are no easy answers to the problems of the Near East [8].  Anyone who thinks the upcoming mini-genocide could have been avoided needs to read more history.  An easy start would be to read of the partition of India in 1947, that cost up to two million lives, displaced up to 12 million people and 72 years later left two antipathetic nuclear nations sharing a 3,300 kilometre border. 

But the Turks, Syrians and Kurds don't play cricket.

[7]  Famously said by UK Prime Minister Chamberlain, as Germany annexed Czechoslovakia and UK refused to act.
[8]  As the region should rightly be called.    

Not really important, but interesting

Readers who love costume dramas will be salivating at the upcoming new season of The Crown, the mini-series that introduced Wry & Dry to the world of Notflox.

The new season starts in November.  And the Notflox media communications folk have gone into overdrive to excite Wry & Dry and others.  This week's media episode focused on Helena Bonham Carter [9], who is to play Princess Margaret.

Clearly the world of acting is one similar to that found on Planet Canberra.  That is, "you don't have to be mad to work here - but it helps."  In an admission worthy of Barnaby Joyce, Ms Bonham Carter has claimed that she spoke to the actual but very dead Princess Margaret via a psychic, to ask if she could play her in The Crown.

Wry & Dry couldn't make this stuff up.  And, yes, Ms Bonham Carter got a response: That would be fine, the princess-in-the-sky said, provided Bonham Carter smartened up a bit and learned how to wield a cigarette holder.

But then it got more weird.  The Oscar-nominated actress said the 'little chat' was nothing out of the ordinary for her because she always consults a psychic when portraying the lives of the deceased.

Wry & Dry remains speechless. 

[9]  Bonham Carter's paternal grandmother was politician and feminist Violet Bonham Carter, daughter of H. H. Asquith, the Prime Minister of the UK during the first half of the First World War.  Violet almost married Winston Churchill.  She was dismayed at his engagement to Clementine Hozier, whom she thought "as stupid as an owl", which, given the wisdom of owls, is an interesting metaphor.  

Extinction Rebellion

Some Readers have been caught up in traffic jams by folk gluing themselves to the road at major intersections.  The gluers are calling themselves part of an amorphous group called Extinction Rebellion.

Cartoon glue mammoth

Who are these folk?  Well, thorough Wry & Dry research suggests the UK XR (as it is known) has three demands:

  • The government must declare a 'climate emergency'
  • The government must commit to net zero carbon emissions by 2025
  • A 'citizens assembly' must be formed to oversee the changes

Sigh.  The familiar words: we demand, emergency, net zero, citizen's assembly.  Oh, Death, where is thy sting!

But wait, it gets better.  The XR movement expanded to the Yoo Ess Ay, which added a further demand:

"We demand a just transition that prioritizes the most vulnerable people and indigenous sovereignty; establishes reparations and remediation led by and for Black people, Indigenous people, people of color and poor communities for years of environmental injustice, establishes legal rights for ecosystems to thrive and regenerate in perpetuity, and repairs the effects of ongoing ecocide to prevent extinction of human and all species, in order to maintain a livable, just planet for all."

Phew.  That's okay.  Wry & Dry was concerned that XR's scope was too narrow. And that it wasn't asking for compensation.

Readers should view the chart.  Wry & Dry is waiting for those XR protesters to glue themselves to the road in a couple of high CO² emitting countries.  Such as China and Russia.

Chart XR

Wry & Dry dips his lid to the protesters.  It's a real exemplar of struggle, to pick the seriously dangerous places to protest.  Those really awful places, with few human rights, brutal police and governments, and no toleration for dissent.  Such as London or Melbourne. 

And just wait until after the university exams are over.  

Snippets from all over 

1.  Indian economy to weaken, sharply

Citing risks in its non-bank financial sector and a cyclical downturn, the World Bank has trimmed its 2020 economic growth forecast for India to 6% from 7.5%.   

Wry & Dry comments:  The World Bank is putting down its numbers before the IMF does. 

2.  World economy to weaken

The global economy is growing at its slowest pace since the financial crisis, the International Monetary Fund (IMF) has said.  The fund said world growth would hit just 3% this year - down from its July forecast of 3.2% and a sharp slowdown from just two years ago. 

Wry & Dry comments:  The IMF blamed the slowdown on Sino-American trade war, Brexit uncertainty and other geopolitical crises.  The usual suspects.  

3.  WeWork won't work

Struggling WeWork is favoring a junk debt rescue from banks led by JPMorgan over a lifeline from backer SoftBank.

Wry & Dry comments:   JP Morgan's $5 billion package would be one of the riskiest offerings in years but could be the last best chance for key private backers to avoid heavy dilution.  WeWork has gone from hero to zero in less than a month.    

4.  China - less pork on the fork

A surge in pork prices is largely responsible for Chinese consumer inflation that hit a near-six-year high.  The country's consumer price index rose 3% year over year, led by pork that jumped 69.3%. 

Wry & Dry comments:  China is in the grip of a porcine flu epidemic.  

5.  China - more offices to rent

China’s deepening economic slowdown and a glut of supply has pushed the nation’s office vacancy rate to the highest since at least 2008.  Vacancies rose above 20%.

Wry & Dry comments:  and that figure will under-report the problem.

And, to soothe your troubled mind ...


Last words ...

“Vladimir Putin would readily agree that US President Trump is the best in history."

 -  Edward Luce, columnist with the Financial Times.  

A lightly salted absurdity ...

Deepak, Wry & Dry's Uber driver ... 

... sent a text message, saying he was on his way back to Melbourne for the so-called Spring Racing Season.  So he would be too busy to drive Wry & Dry for 'a little while'.




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First Samuel Chief Investment Officer Events

"Managing for a Low-Interest Rate Future"

February, 2020

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