Wry & Dry

2020: What Doesn't Matter. Meghan's DCM. Low rate folly.

2020

Welcome to Wry & Dry's bumper debut 2020 issue.  Understandably, Readers have been emailing Wry & Dry for his 2020 prognostications.  He will decline.  Well, almost.

And only point to what he sees are things that matter.  And things that do not.

But firstly, a short play... 

Meghan's DCM - A tragedy in six acts

Act One (2017 - somewhere in the New World)

Meghan (excitedly): "Oh, Harry, a title.  And an about-to-be-expensively renovated home.  And a reassuringly expensive royal wedding.  Oh, Harry, how could I say no.  And in a few years we'll be able to do a deal with Netflix."

Act Two (early 2020 - in a house in the grounds of Windsor Castle)

Meghan (strongly): "Oops.  Sorry, Harry.  We're outta here.  We've got the 20 million pounds you inherited from your mum.  And there's the annual dosh from your Daddy's pile in Cornwall.  And we'll get to keep this cute holiday home.  And I keep my HRH title.  You'll love Canada.  And just wait for the Netflix rights."

Act Three (two weeks later - a phone call from somewhere in Canada)

Meghan (wailing):  "What!  Harry!  What's going on?  Your grandmother's not a fool after all.  You've now got to pay for the renos.  And we lose the money from the government.  And I lose my HRH.  Too bad, though, that you lose all your military honourable thingys.  There's no money in them anyway.  But just wait for the Netflix rights."   

Cartoon wallis simpson

Act Four (2025 - a phone call from somewhere in the Republic of Canada)

Meghan (apologetically):  "Oops, Sorry Harry.  Well, you know how it is.  And you met Randy last year.  Archie really likes him.  And you can visit Archie whenever you come to Canada.  The bad news is the Netflix rights turned out not to be so good.  So you'll have to up the allowance.  Again."

Act Five (two weeks later - phone call from somewhere in the Republic of Canada)

Meghan (wailing):  "What!  Harry!  What's this letter?  You b*****d.  What do mean 'now only an army pension'?  That's less than a tenth of what you were paying me.  And what's this: you no longer have to pay for Frogmore Cottage?  And I lose my bodyguards.  And my staff.  And you get your HRH back.  [Pauses]  Oh, Harry, I'm sorry, please take me back.  Randy's such a bore.  And his business just went broke.  I'll live anywhere with you.  What shall I do?" 

Act Six (email reply)

Harry: "Frankly, m'dear, I don't give a damn."   

Curtain. 

What Matters

1.  Putin

Tsar Putin was always going to find a novel way to extend his autocracy.  Under the current constitution, he cannot again run for President in 2024.  So, rather than unsubtly change the two-term limit, he announced earlier this month that he wants to push power down from the President to the Prime Minister.  A role that he will probably resume in 2024.  Power will then rest with the PM.  The President will become a mere figurehead.  

Cartoon putin on statute

Tsar Putin will be entrenched in the Kremlin until the economy collapses.  Or he does.

2.  Not Brexit - but how Borisconi manages the opportunity

Readers know that it took just, err, 1,317 days.  On 23 June 2016 the folk of the United Kingdom of Great Britain and Northern Ireland voted to leave the European Union.

Cartoon the great game boris

And today, 31 January 2020, the divorce decree nisi of this dysfunctional marriage comes into operation. [1] 

The reality is that Brexit has happened, more or less.  PM Borisconi now has to move on from the excitement of Brexitism to the mundanity of running a country.  Actually, it need not be mundane.  The opportunity is as large as Attlee (years of privilege-driven poverty) and Thatcher (years of stifling socialism) found when each came to power. 

The Brits are cautious about change (miles per hour, anyone?).  It took a while for the welfare state of Attlee to be absorbed in their consciousness.  And also for the free markets of Thatcher.  But each left the UK better off.

Borisconi now finds himself with a similar opportunity set as he ponders his dream of the re-emergence of Britain.

[1]  But it's not over just yet.  The terms of the final trade arrangements need to be agreed by 31 December 2020.  And that might be messy.

3.  US debt 

The chickens will come home to roost.  Eventually. 

Under I-Wanna-Spend-My-Way-To-Four-More-Years-Trump the US budget deficit has grown from 4% of GDP to an expected 5.5%.  Increased spending and massive tax cuts over the past 4 years are the problem.

And it's about to get worse.  Wry & Dry predicts that as part of his re-election campaign,  I-Wanna-Spend-My-Way-To-Four-More-Years-Trump will soon introduce further costly tax cuts. 

Readers will know that of the 42 largest economies in the world, only South Africa (deficit = 5.5% of GDP), Saudi Arabia (6%), Egypt (7.1%) and Pakistan (8.9%) have a worst budget position than the Yoo-Ess-Ay. 

What wonderful company.  And the Republicans accused Obama of fiscal dissipation.

4.  Bridget McKenzie

Readers might think that the problems caused by government minister Bridget McKenzie in doing a little pork-barreling will go away as soon as she does.

Err. no.  Prime Minister Morrison doesn't read Shakespeare.  Or history. 

If he did the former, he'd know that it is better to move quickly and then move on.  Or, as the Bard said, "Twere it be done, then 'twere well it be done quickly" [2].

If he did the latter, he'd know of reports of former Prime Minister Whitlam's refusal to break a prime ministerial holiday in Greece and return to Australia when Cyclone Tracy flattened Darwin on Christmas Day, 1974.  Readers will know that Whitlam did in fact break his holiday - for three days, before returning to Greece by New Years Day. [3]  As much as the incompetence of his ministers, that want of national leadership was another nail in Whitlam's coffin.  

Prime Ministers can tough it out if they are in a position of strength.  But Jimmy Morrison shot himself in the foot over his overseas vacation and his inability to lead a national response to the bush-fires. 

Cartoon koalas burning

And it's hard to tough it out when you are limping with a hole the size of Texas in your foot.  McKenzie should have been given the DCM the day after the Auditor General released his report. 

Wry & Dry senses that Morrison will find it difficult to regain a position of a respected leader.   

[2] Macbeth, Act 1, Scene 7.
[3] Whitlam should have stayed in Greece.  1975 was a year of disaster without mitigation for him, as his far sighted vision for Australian crashed on the rocks of fiscal ineptitude and ministerial incompetence.  His government was routed in the 1975 general election.

2020 What Doesn't Matter

1.  Go-On-Impeach-Me-Trump's Trial

The 100 jurors (i.e. 100 Senators) will listen to the testimony like sturdy yoemenpeople, nod wisely, shake their heads gravely and raise eyebrows speculatively. But the outcome is decided. 

This farce expands to squeeze out other more worthy news.

2.  What Meghan does next

The shrewd Meghan Markel (self-styled 'Princess of the United Kingdom') didn't quite get what she wanted from her husband's grandmother in a redundancy package.  But really, really, how important is this?  Other than to fill the media columns.

3.  What Andrew does next

Insects that spend time in a cocoon metamorphosise into beautiful things like butterflies.  Readers will be aware that Prince Andrew has been in a cocoon since he left the service of the Royal Navy many years ago.  That was a fully-funded cocoon, also occupied by remittance and chinless Hooray Henry's.  He emerged from his cocoon not in a blaze of dazzling colours, but in a BBC-thrown dirty brown sludge that will never be removed.     

Dear media proprietors, please take him off the front pages.  He didn't matter  And doesn't.

4.  Election results in Hong Kong and Taiwan 

Readers will know that in late 2019 Emperor Xi Jinping got a punch on the nose when pro-democracy candidates won the most seats in Hong Kong's local council elections.  And then, in January, the pro-independent President of Taiwan was elected with a massively increased majority.  Another punch on the nose for the Emperor.

The trouble is that the Emperor doesn't give a damn about his nose.  

He knows that each of Hong Kong and Taiwan rely on China for economic success.  He controls anything that moves in or over China.  Consider the squeeze he put on Cathay Pacific, when its CEO said that what Cathay employees did in their spare time was their concern - even demonstrating.  Cathay was threatened with losing its fly-over rights with China, which would bankrupt the airline.  Chinese state-owned firms started boycotting the airline.  Cathay flight attendants who demonstrated were fired. 

Just before the CEO was fired, he was told by Beijing to provide the names of all Cathay employees who had demonstrated or supported demonstrators.  In an act that has gone down in Cathay lore, the CEO sent an email with one name on it.  His own.

Early 2020 prediction: I-Wanna-Second-Term-Trump will get second term

Having said upfront that Wry & Dry won't make predictions for 2020, he has shown another lamentable lack of will power.  And predicts that I-Wanna-Second-Term-Trump will get a second term.  For three reasons.

Firstly, Readers will recall that Trump won in 2016 because of one person: Bernie Sanders.  It was Sanders' push to the extreme left that forced Hillary Clinton to move from the centre ground also to the left.  Trump strode into the vacant centre and into power.  The same is happening in 2020.  Sanders is doing it again.

Secondly, unlike Australia, voters in the Yoo-Ess-Ay do not walk around with clip boards, assessing the key performance indicators of their elected leaders.  Promises made in an election campaign count for little.

For example, voters voted for the catchy slogan "Make America Great Again" to protest at a perceived national decline, not in the expectation that I-Wanna-Make-America-Great-Again-Trump would actually do anything about it.   

His broken promises will melt into nothingness in voters' minds. 

Thirdly, what does amount to more than a hill of beans is the longest unbroken economic expansion in America's history.  There might be 40-45% of voters who would vote for anybody who might stand in the way of its continuation.  But not 50%.  

Unclear on the concept

Wry & Dry thought it would be difficult to miss the message of Prince Andrew's self-hoisted-with-bespoke-petard BBC interview.  That is, if you've nothing to say, don't say it.  The eighth-in-line for the top British gig is still baffled at what went wrong.  Poor dear.

Which brings Wry & Dry to the hapless Federal Liberal MP, Craig Kelly.  Allow Wry & Dry to join the dots for Readers. 

If:

a.  some squillion square kilometres of Australian forest has been cindered by bush fires; and

b.  one score and five Australians have perished and hundreds of homes torched in the fires; and

c.  you are an avowed and very loud disciple of the-climate-is-not-changing-movement; and

d.  also a member of the government the Prime Minister of which was then showing as much leadership as Nero; and

e.  UK television interviewers make Attila the Hun look like Bambi.

then:

There is absolutely no upside from you appearing on UK morning television for a grilling about bush-fires and climate change.  

Undaunted, Mr Kelly couldn't, or wouldn't join the dots.  And he himself got roasted alive.  Figuratively speaking, of course.

Barnaby, move over.

Cartoon Barnaby calling

Terrible economic ideas

There have been some terrible economic ideas over the last century.  Readers will probably consider central planning (e.g. Soviet Russia); nationalisation (UK); punitive taxes (UK) and the euro (Germany, France, etc) as amongst the worst. 

With a meeting of the tellers of the RBA upcoming, Wry & Dry will add ultra-low and negative interest rates to the list. 

Cartoon RBA

Consider three perverse consequences: 

a)  no efficacious manner for cash to be distributed between savers and investors; 

b)  encourages investors to reduce cash holdings and invest in higher risk non-monetary assets; and

c)  do not provide any incentive for companies to prudently manage their balance sheets.

But hope is at hand. Just before Christmas,  Sweden’s central bank, the Riksbank, which happens to be the world’s oldest, ended its five-year experiment with negative interest rates.  The reason? It wasn’t that the economy was too strong. It was that negative rates were not helping – and may well have been making matters worse.

Readers will hope that the Chief Teller of the RBA doesn't, on Tuesday, continue the trend toward ultra-low interest rates.

But, wait!  There's more: researchers at the Bank of England have discovered that for each one percentage point fall in benchmark interest rates, birth rates rose by 5% among families paying floating interest-rate mortgages.  

So there is an upside, after all.

Cash is king

Cash held by Berkshire Hathaway, the investment vehicle of guru investor Warren Buffett, now represents nearly 25% of its market capitalisation.  And provides enough firepower to buy all but a few dozen of the companies on the S&P 500.

Allow Wry & Dry to put a figure on that cash figure: $128 billion!

Last year, shares of Berkshire under-performed the S&P500 index by 20.5%, making 2019 the company’s worst year in a decade in comparison with the broader market. 

Since 2015, the doyen of the investing world has warned his shareholders repeatedly that he may struggle to clinch another big acquisition, saying that “prices are sky-high for businesses possessing decent long-term prospects”. 

Snippets from all over 

1.  Four critical statistics

a.  Australian new car sales fell by 8% in 2019; and monthly sales in December were the 21st successive month of falls.

b.  Births in China in 2019 fell to their lowest level in 60 years.

c.  US economic growth for 2019 was 2.3%, down from 2.9% in 2018 and well short of I'm-The-Greatest-President-Ever-Trump's goal of 3% annual growth. 

d.  Melbourne will become Australia's biggest city by 2026.  

Wry & Dry comments:  Only the last statistic is relevant. 

2.  Four comma club

Big Tech is bigger than ever before.  In January, Google (aka Alphabet) became the fourth U.S. technology company to reach the $1 trillion market cap level, following Apple, Microsoft and Amazon (which has since slipped back to about $930 billion). 

Wry & Dry comments:  Adding Facebook into the group, the five most valuable U.S. tech companies are now worth a massive $5.2 trillion, accounting for over 17% of the S&P 500.

3.  Mercedes crown

Mercedes-Benz successfully defended its title as the world's best-selling luxury-car brand in 2019, topping archrivals BMW and Audi for the fourth year in a row.  "The record year underscores once more the strong demand for Mercedes-Benz vehicles, even amidst far-reaching changes in the mobility landscape," said Mercedes Chairman Ola Kaellenius.

Wry & Dry comments:  'Mobility landscape'? 

4.  Tesla's valued zooms

Continuing its share price surge into 2020, Tesla's company's market cap ($100 billion) boomed to the highest ever recorded by a U.S. automaker, topping the combined value of Ford and General Motors.

Wry & Dry comments: Tesla's market cap still trails Toyota, which is valued at $200 billion.  And it doesn't have a P/E ratio, as its E (profit) is negative.

5.  Boeing, Boeing...

Boeing halted production of its grounded 737 MAX in mid-January.  It also changed its mind, and now recommends flight simulator training for 737 MAX pilots.  It also put the cost (so far) of the problems at $17 billion, with its first annual loss in more than 20 years.

Wry & Dry comments:  Aside from its plane deliveries falling to 380 in 2019 (well behind Airbuses 863) it posted negative orders for the first time in at least 30 years.  Oh, dear.    

And, to soothe your troubled mind ...

Miscellany 

Last words ...

“The Revolutionary Guards have sent a message to the US that, if you attack us once again, we will level Iran to the ground.”

 -  Joke shared on Iranian social media.

This followed the deaths of 176 people in the accidental shooting down of a commercial passenger aircraft, and over 60 crushed to death in a stampede at Soleimani's Revolutionary Guards-managed funeral.   

A lightly salted absurdity ...

Deepak, Wry & Dry's Uber driver ... 

...grinned widely as Wry & Dry swung open the door of the jalopy. 

“You are looking very fine Mr. Wry & Dry. Clearly Mrs. Wry & Dry looked after you well this summer,” he chuckled with a smack to his own rapidly increasing girth.

“You can’t talk. I’m in fine shape, or so my wife tells me. Speaking of which, how is Anjali?”

“She is in her second trimester Mr. Wry & Dry,” Deepak announced proudly.

“Her second what?” asked a very confused Wry & Dry.

“She’s 20 weeks,” Deepak said.

There was a light bulb moment in the backseat as Wry & Dry grasped that Deepak was in fact speaking of gestational matters. Matters of which Wry & Dry had somehow suppressed into a long-lost compartment within his hippocampus. 

“Ah huh.  Well, enjoy, Deepak. They say this is the best bit, this second trimester,” Wry & Dry added with feigned confidence.

Feeling ever so slightly on unfamiliar territory, Wry & Dry steered the conversation back to more mundane matters. “And tell me Deepak, how are the other crocodiles in your household?”

Deepak lit up, “Mr. Wry & Dry, you remembered what we discussed last time, the famous Hindi saying… Paani me rahkar magar se bair?”

“How could I forget Deepak: living in water and being an enemy of the crocodile is not a good thing. Such wisdom…” Wry & Dry tailed off with a sagely air.

“Well I’ve turned over a new leaf. To mix metaphors, I am making sure all my crocodiles are well-fed and lazing in the sun.” Deepak laughed, a showing a flash of white teeth.

“What exactly do you mean?” asked Wry & Dry, ever so slightly concerned.

“Well, I saved up a little on the side, never you mind how, and sent the large crocodile off with the hatchling to this over-priced island resort in Fiji: Tokoriki.  So Anjali and I could have some space,” Deepak re-joined tapping the side of his nose for affect.

“Damshi and Amulya unattended at a luxury beach resort, sounds like expensive trouble to me,” chortled Wry & Dry thinking of Deepak’s mother-in-law and her ill-fated trip to The Seychelles.

“You don’t think Damshi would get up to something, Mr Wry & Dry? Even after I had to rescue her from the Delhi jail? No, this time she will behave. No more big spending for her, even on someone else’s Bitcoin! She’s reformed you know… there were classes in the prison,” Deepak declared. 

Wry & Dry raised an eyebrow. “Haven’t you heard that leopards don’t change their spots, in this case, err, crocodiles…. ” Wry and Dry searched the recesses of his mind for just the right imagery and failed.

“Put it this way, I trust you mentioned to the resort when you booked, not to accept room charges, or worse: charges from all of those shops in the resort foyer. They sell handbags you know… croc ones…” W&D added with a gleeful glint in his eye.

“Damshi did mention something about crocs now I come to think of it, when she called yesterday... The line was not great, lots of giggling. But I thought she meant those rubber shoes some people wear... not croc handbags! And she said she wanted to get one for Anjali, too,” he squealed as he fumbled for his phone.

As Wry & Dry alighted he heard the agitated voice of Deepak trailing off.

“Siri, what is the number for Hotel Tokoriki Fiji, it’s an emergency!”

Crikey, thought Wry & Dry, he’s doomed again.

[It is probably timely to reveal that the holder of the quill about Deepak is in fact Mrs Wry & Dry]

 

Cheers

Anthony 

 

First Samuel client events calendar

EVENTS FOR 2020

First Samuel Chief Investment Officer Events

"Managing for a Low-Interest Rate Future"

Most events are at full capacity. 

Please call Jess on (03) 8610 9222 if you need to cancel or make other arrangements 

11th Feb - ARIA, Sydney

12th Feb – Elyros, Camberwell

13th Feb – VITA (formerly Hellenic Republic, Kew

25th Feb – Chin Chin, Melbourne CBD

26th Feb - The Botanical, South Yarra

27th Feb – The Botanical, South Yarra
(Lunch & Dinner)

5th March – Stillwater, Dromana