Wry & Dry

Borisconi's biceps. Greenland is your land, Greenland is my land. Westpac's wisdom.

Borisconi shows his biceps

Well, so much for the cuddly, dishevelled knockabout Borisconi.  His decision to prorogue (i.e. suspend for a short time) the UK parliament may have come to the attention of Readers.  And shows a streak of testicularity previously only seen in Borisconi's bedroom (x number of children, where x ≥ 5).

His action (in proroguing parliament, not in his bedroom) has provoked howls of outrage and extreme adjective usage from a blend of (a) the usual bed-wetters and self-righteous and (b) some more sober commentators (e.g. Financial Times, Economist).

He has certainly escalated the Brexit process from the boredom and routine within which his predecessor took comfort to one of excitement, outrage and turmoil.  

Cartoon boris making an entrance cannon

Wry & Dry will spare Readers the details of all of this, as much will quickly change.  But to say three things:

Firstly, the British sky is not falling, notwithstanding the leaden clouds always blocking out the noonday sun.  This is not a 'constitutional crisis'.  Sure, it is extreme politics.  But with an eye to the end objective: ensuring a Corbyn government doesn't get into power. 

Secondly, the point of all of this is to get Brexit done and dusted by 31st October.  Deal or No-Deal.  As he promised. 

Thirdly, it will take media attention away from the Australian cricket team for the Fourth Test. 

Wry & Dry's Traveler's Tales

Readers will know that Wry & Dry has recently returned from a short visit to northern climes.  The aim was to have conversations with senior investment and business folk in the UK and Switzerland about matters such as Brexit, the EU, Italy and the Sino-Yoo-Ess-Ay trade war.  The clippings, with necessary footnotes, are:

1.  Brexit

The mood of the meeting is (noting the below was quilled on Wednesday):

  • Get Brexit over and done with.  The Brits are fed up and just want the political posturing to cease.
  • Former PM Teresa May was out-negotiated and accepted a poor deal.  She took a No-Deal off the table at the start and lost her only negotiating tool.
  • A No-Deal Brexit, if accompanied by a significantly reduced payout of funds to the EU (from the £39 billion to perhaps less than £10 billion), would be widely acceptable.
  • Under any Brexit scenario, there will be three years of varying degrees of pain. 
  • Brexit holds few horrors for City of London (the business hub).
  • EU companies were and are hostage to the intransigence of its politicians and its bureaucrats.
  • If the UK falls off a cliff, the EU will say it was not the EU's fault. 
  • If the EU falls off a cliff, the EU will say it was not the EU's fault.
  • No-one wants Jezza Corbyn as Prime Minister.

2.  Italy ...

... is a shambles.  In every way.  It is effectively in recession and soon will be in depression.  Politically, the people and their political overlords do not want to reform - they want more money from the EU, but want to get out of the EU.  They want to stay in the euro-zone.

Cartoon where is italy going

Last night, yet another new government was formed - the seventh in eight years, this time from a coalition of the left and right, to keep out the far-right.  This government will last as long as gelato in the Tuscan sun. 

Wry & Dry's solution: bring back the attitude of Roma invicta [1].  Take the road less travelled [2].  Stay in the EU, but ditch the euro.  Get the benefit of a much weaker currency.  But the easy road is, well, the easy road.

In three years the UK will have recovered from whatever form Brexit takes.  In three years time, Italy will be in an even worse mess.

3.  Germany ...

... is a trading nation.  The slow-down in world trade, the decimation of its motor vehicle industry and a government stubbornly refusing to bend its no-fiscal stimulation rule will see a recession. 

4.  Borisconi ...

... is, according to a chap with whom he went to university, a very, very smart fella.  And he's not a right-winger.  He is more in the mould of a de Gaulle. 

But it's all about Boris.

5.  The worst British PM

Wry and Dry heard two views as to "the worst British Prime Minister since Lord North [3]":

a.  David Cameron, for running two referenda (Scottish independence and Brexit) that split British families and communities; or

b.  Teresa May, for negotiating a Brexit deal that would mean that (i) Germany somewhat belatedly won the Second World War (economically speaking) and (ii) France would finally get its revenge (economically speaking) for Agincourt [4]. 

The jury remains out as to whether Borisconi will join the list of the worst.

6.  Trade war

The temptation is to see Trump as a one-dimensional idiot.  And Wry & Dry admits that it's difficult to see past such a simple conclusion.

But on the Sino-American trade war, his objective is desirable.  And indeed laudable.  China has for too many years manipulated every aspect of international trade rules and customs to its benefit.  Its ongoing breach of WTO rules, forcible technology transfer, intellectual property threat, and one sided trading expectations (you open your doors, we'll keep ours closed unless ... ) are just a few issues.

Cartoon trump and xi jinping trade stealing etc2

The problem is, of course, that having set the tariffs in place, he should leave the negotiation up to negotiators and not act capriciously.  But he cannot and he will not. 

Fake news    

By the way, it is indeed fake news that Wry & Dry's European investigative trip was timed to coincide with a sporting event in St John's Wood Road, NW8 [5].

[1]  "Unconquered Rome", inscribed on a statue in Rome. It was an inspirational motto used until the fall of the Western Roman Empire in 476 AD

[2]  Readers will recall Robert Frost's thoughtful poem, The Road Not Taken, which ends: 

Somewhere ages and ages hence:
Two roads diverged in a wood, and I—
I took the one less travelled by,
And that has made all the difference.

[3]  Who lost the American colonies.

[4]  St Crispin's Day, 1415, made more famous by Shakespeare's Henry V: 

We few, we happy few, we band of brothers;
For he to-day that sheds his blood with me
Shall be my brother;...
That fought with us upon St Crispin's day.

[5]  Lord's Cricket Ground.  An outdated agglomeration of disjointed and ugly stands surrounding a playing field that slopes over 2 metres from one side to the other, with third-world amenity and well-dressed but amazingly rude spectators.

Rocky outcrop opportunities

Readers will be aware from W&D's earlier articles this year that most of what is currently the Yoo-Ess-Ay was either bought (Alaska, from the Rooshans; Louisiana Purchase, from the French) or stolen (most of the south-west, from Mexico).

So it should come as no surprise that I'm-The-Best-Real-Estate-Agent-Trump wants to further expand the Yoo-Ess-Ay.

And having seen the Chinese occupy rocky outcrops in the South China Sea, he must have rolled out a map of the world and pored over it to assess rocky outcrop opportunities.

Lo and behold, there was a rocky outcrop next door:  Greenland.  Well, a rocky outcrop covered in snow and glaciers.

Cartoon Donald the orange

Greenland ticked all the boxes (to use a detestable, but appropriate phrase).  To a man who considers that size does matter, [6] Greenland is big (2.2m km², much bigger than Alaska's 1.7m km²).  It's nearby (a mere 2,400 kilometres from the Yoo-Ess-Ay, hang it all, that's closer than the 3,800 kilometres to Hawaii).  It has vast untapped economic potential.

Having a sheet of ticked boxes, all that had to happen was for someone to 'do the deal'.  And what better person to negotiate the deal than I'm-The-Best-Real-Estate-Agent-Trump.

Well, horse racing commentators have the apposite saying, "He fell at the first hurdle."  The Danes said forsvind [7] within a nano-second. 

Then things become even more weird.  I'm-The-Best-Real-Estate-Agent-Trump was due to visit Denmark in early September.  But suddenly cancelled.  Clearly someone in Trump Tower's Travel Agency found that his passport had less than 6 months before expiry and the Danes wouldn't let him in.

Or perhaps, in a potpourri of petulance and pique, I'm-The-Best-Real-Estate-Agent-Trump cancelled the trip because the Danes told him to forsvind.  And no-one, not any one, does that to the President of the Yoo-Ess-Ay.

"They can stick their rocky outcrop up their glacier," W&D's man person in the White House overheard him saying.  And then, turning to Melania, "Now, would you like Iceland for Christmas?"

[6]  What do each of his three wives have in common?  Correct, they are tall.
[7]  Bugger off, or words to that effect.

Westpac's wisdom

It's been a long time coming.  But at last someone from Westpac has spoken sense.  Lyn Cobley, the CEO of Westpac's Institutional Bank has come out strongly against the need for the RBA to further cut interest rates.  And against unconventional monetary policies, such as a thing called 'quantitative easing'.

[Quantatitive easing, Wry & Dry always thought, referred to one of his children easing quantities of dosh from his slender wallet.  In fact, it refers to a central bank of a country undertaking a massive buying spree of government and other bonds.  Readers will know that more buyers than sellers in a bond market would force down interest rates.]

Ms Cobley's reasoning was that further interest rate cuts would do little to encourage businesses to grow and invest, as rates were already at record lows.

Of course, she was talking her own book, as below a certain interest rate a bank's profitability declines.  And she might have got a hearing on the ABC or in the Spencer Street Soviet had she, rightly, observed that low interest rates are the torment of the poor and vulnerable.  With low interest rates household have no hope of accumulating savings, they are better off being profligate.

Cartoon higher interest rates party

Nonetheless, her reasoning was sound.  

Wry & Dry's response would be somewhat more radical.  The country needs higher interest rates.  Companies have become lazy without the discipline of higher interest rates.  As have households - it's all too easy to borrow.  At these rates, there is no incentive to reduce Australia's world record high personal and household debt.

Essentially, you cannot solve the problem of debt with more debt. 

Wry & Dry senses, somehow, that his interest rate views will be ignored.  But Ms Cobley might get a hearing.

Boeing woes spread

Readers will be aware that Boeing, the US aircraft manufacturer, is a somewhat large beast.  It is the world's largest aircraft-maker and the Yoo-Ess-Ay's largest manufacturing exporter.  It sells over US$100 billion of aerospace kit and services each year.  One in 100 American employees work directly or indirectly for it.

But, "Seattle, we've got a problem."

Boeing aircraft delivered

Source: The Economist

The grounding of the 737 Max has a knock-on effect that is costing the industry US$4 billion every three months.

But do Readers think for a moment that the US government is going to allow Boeing's future to be jeopardised because a pesky airline regulator is belatedly worried about passenger safety?  Soon the pressure will start to bear on the FAA.  Will it fold?

W&D wonders if the story might be different if one of the 737 Max aircraft that crashed had been of a US airline, crashing in the Yoo-Ess-Ay. 

Focusing on the big issues

The state of the German motor vehicle industry:

Germany's pride and joy, its car industry, has been badly damaged by a combination of slowing growth, scandal, and rapid technological change

Unclear on the concept

Readers will know that the concept of a company merger or acquisition is to merge with or to buy a company that will make your long-term profits even bigger.

In 2013 Yahoo, an American email-service technology company, purchased Tumblr, in those days an exciting place on the internet.  The price US$1.1 billion.

It was just sold for $3m.  Ouch.

It is ironic that ...

... I-Wanna-Buy-Greenland-Trump once described global warming as a hoax, but now wants to buy an island the value of which is increasing as melting snows and glaciers make mineral exploration more prospective.

Snippets from all over 

1.  Too many customers

Costco, a discount grocery-cum-department store, was forced to close early on its opening day in China after the store was swamped with shoppers. 

Wry & Dry comments:  Seems like they-the-people-of-Red-China prefer the product of the Yoo-Ess-Ay to that of the locals.  Must have been the magical Costco apple pies. 

2.  Capital move

Jakarta, Indonesia's capital, is to be relocated to the province of East Kalimantan on the island of Borneo.  It is currently home to more than 10 million people and sits on swampy land.  Parts of the city are sinking by as much as 25cm (10in) a year and almost half now sits below sea level.

Wry & Dry comments:  Readers will know of the great local success of building an exciting, colourful and vibrant new capital city: Canberra.     

3.  Currency records

It was a week of bad news for I-Wanna-Weaker-US Dollar-Trump. The Chinese yuan fell to an 11-year low against the USD on news of more trade war capriciousness.  And Sterling fell to its lowest level against the USD since January 1985 on news of Borisconi proroguing the British parliament. 

Wry & Dry comments:  1985 was the economic nadir of the Thatcher government and the denouement of the famous Miners Strike: Thatcher v. National Union of Mineworkers.  Thatcher won.  

4.  Royal Commission's unintended consequence

APRA, the government's prudential regulator, reported this week that since the December 2017 Quarter retail superannuation funds have lost a massive $20 billion of client assets.  Not surprisingly, or even coincidentally, industry superannuation funds gained about the same.

Unintended consequence

W&D comments:  Retail superannuation funds are the actual managers of superannuation assets agglomerated by banks and other large asset gatherers such as AMP.  The woes of the banks and AMP (and others) at the Royal Commission caused a rush for the exits from individual clients.  This means that these fund managers must sell investments to meet redemption requests from the asset agglomerators. 

There are two outworkings of this unprecedented outflow of assets from retail fund managers.

Firstly, a loss of investment assets of such magnitude means that some retail fund managers just have to close.  Already this year over 20 fund managers have closed their businesses.

Secondly, securities managed by these companies are subject to forced selling.  And so the share prices of their investments are under pressure. 

As industry funds are too big to purchase medium and small cap companies sold by retail fund managers, the share prices of these companies will take time to recover.    

5.  Factory slowdown

Activity in America’s factory sector has contracted for the first time in almost a decade, a survey of executives showed, adding to concerns that slowing global growth and the US-China trade war are weighing on the industrial economy.  IHS Markit’s US manufacturing purchasing managers’ index dropped to 49.9 in August, falling below the neutral level of 50 for the first time since September 2009. 

Wry & Dry comments:  Hmm.  Is there a trend here?

And, to soothe your troubled mind ...

Miscellany 

Last words ...

David Gower, former England cricket captain, was once asked if the Ashes was a clash of cultures.  He replied that it couldn't be because Australia doesn't have a culture.  The comment was overheard by Shane Warne, who accosted Gower and barked, "What's this about us having no f***ing culture."

Gower gently replied: "I rest my case."

Wry & Dry overhead this old chestnut whilst on his overseas investigative tour.

A lightly salted absurdity ...

Deepak, Wry & Dry's Uber driver ... 

... smiled as W&D clambered in.

“How was your trip Mr. Wry & Dry?” he asked.

“A delightful mix of places and people with whom to engage, but never long enough,” Wry & Dry sighed.

“Ahh, but I am sure you were missed?” Deepak asked.

“Sure” W&D responded, a twinkle in his rheumy eye. And then he added, "Speaking of missed, are you still missing your mother-in-law?  Wasn’t she off to see her relatives?”

“She was missing alright, but it turns out she is now in India.  She had quite a lot of trouble with her phone for a week or two, you know old people ...” Deepak laughed.

“But it was quite a fuss really when Anjali got a mysterious phone call from a hotel in The Seychelles.  You would nearly think my mother-in-law took a diversion there on the way to India …” he continued thoughtfully.

“Do tell,” said Wry & Dry leaning forward, now fully engaged.

“Well it was man with a husky European accent calling, and asking questions.  He seemed to have some details correct, such as Anjali’s maiden name.  I was quite shocked.”

“I’ll bet you were,” Wry & Dry chuckled, as he recalled Anjali’s mother strolling into the travel agency called Seychelles Luxury Getaways for Mature Singles under Deepak’s inattentive eye.

But never one to snitch, Wry & Dry continued, “Now, did you manage to recover your login details for your bitcoin, Deepak?”

“As it happens, yes,” Deepak said sullenly.

"And?” Wry & Dry probed carefully.

“Too late!  My bitcoin account has been drained," he fumed.  "I asked a friend who understands these technology things to investigate.  It would seem that some cyber criminal from East Africa has hacked it and stolen the lot.” 

“Ah, East Africa …” Wry & Dry mused as he unbuckled his seat belt. “Not The Seychelles?”

"Seychelles.  Why do you say Seychelles?"

"Just joining the dots, Deepak," Wry & Dry observed as he alighted, with the thought of Deepak’s mother-in-law clearing Deepak’s bitcoin account from her luxury Seychelles getaway, causing him mirth.  "Where did you say your mother-in-law was?"

A look of horror came across Deepak's face as Wry & Dry strode away.

 

Cheers.  

Anthony 

 

 

First Samuel client events calendar

EVENTS FOR 2019

First Samuel 20th Anniversary Investment Forum

Tuesday 24th September

with Special guest
Hon Josh Frydenberg, MP, Federal Treasurer

Invitation sent

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

Chief Investment Officer Dinners

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

 

Venue Seating Date & Time
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 (Dinner fully booked)