“Scientists have calculated that the chances of something so patently absurd actually happening are millions to one. But magicians have calculated that million-to-one chances crop up nine times out of ten.”
Is Donald Trump just a very lucky guy?
It’s difficult to imagine he foresaw, calculated and planned this outcome. After poking the fire-hornets’ nest and picking an apparently insane fight with Iran by assassinating its military leader, everyone feared the worst in terms of a never-ending morass of instability, conflict and terror. Instead, the Iranians proved themselves incompetent clowns – successfully managing to miss American troops with multiple missiles, while tragically taking out an airliner instead. Revolution on the streets again. Confidence in the government is “strained”. A revolution is being whispered.
No doubt Iran’s Shiite militant groups will continue to follow every instruction from Tehran, but globally, Iran looks a neutered numpty. It will have to refocus its efforts on domestic repression. Chalk one up for Trump. And more to the point, let’s reassess likely scenarios across the Middle East in terms of investment opportunities and outcomes – suddenly it all looks less bleak and possible. Maybe even Aramco will provide Saudi with a base to expand upon?
Trump also looks lucky on China: he will get a signed trade deal ahead of his election campaign, while China faces not only the festering pustule of Hong Kong, but also Tsai Ing-Wen’s landslide victory in Taiwan – putting it on collision course with Beijing. Tsai has made the point she won because voters agreed it’s been the irreconcilable differences between what Hong Kong citizens want and what Beijing demands – “one country, two systems” doesn’t work, and doesn’t work for the Island.
Geopolitics as a market force looks dented. Don’t believe it. Stay vigilant.
But, let’s not forget US elections are “all about the economy, stupid..” What did Friday’s US data tell us? Nothing particular.. Not galloping forwards, but hardly heading for recession – but enough to stall rising stocks. Does it matter? Most Americans I speak with made their minds up about Trump a long-time ago. The distractions of the when of the impeachment trial now looks increasingly irrelevant.
So… what is there to worry about in market terms? The first big Geo-P challenges of the new year quickly proved hollow threats. Nothing to worry about. Put yer buying boots on and spend, spend, spend. Market buzz is all about the primary debt market explosion as everyone seeks to borrow more and more readies. Apparently, it was a record week for bond fund inflows on the back of the Iran tension. That will be good news for the European sovereigns front loading 2020 funding plans.
Which should maybe get us thinking about the big risks of 2020. I reckon its going to be bonds. What’s the likely trigger? A misstep by central bankers? An outbreak of Italian bond flu?
This week’s German economic data is likely to show the economy slowing to its weakest level since 2013 – begging the question why? Everyone cites how Germany is un-prepared for the end of the Auto-Era, the growing irrelevance of its unrivalled skills in machine tooling and complex engineering, or its consumption potential. Despite pretty much full employment – why is Germany such an economic disappointment?
Maybe it’s just something about the way countries functions. Investors used to love Dull, Boring and Predictable as a mantra. That’s certainly still true in bonds – if I lend money I want to be pretty damn sure I am going to get my money back. And that promotes a certain investment and political mindset – which should be ringing bells on the back of some of the news this morning:
· In France, Macron will likely give concessions to revolting French workers and agree not to raise the retirement age to 64 in return for watered down pensions reform.
· In the UK, Radio 4 was talking to a pensions consultant about the Rail pensions scheme describing it in very unflattering terms, while a blunt union boss was explaining there is nothing wrong with the fund, except a political agenda to switch final salary schemes to personal pensions, thus robbing workers of their “rights”.
Therein lies the challenge – how many nations can continue to reward their bloated nomenklaturasof bureaucrats and state services with final salary schemes paid for by tax-payers responsible for their own pensions provision? It’s a variation on how dull, boring, predictable becomes a problem.
There is the story the UK will be spending £1.10 of every £1.00 collected in taxes on pensions for state employees by 2030. I might have told the story before about a health manager I met complaining their pension was a mere £150,000… they had no idea what size of pension pot they’d have had to save for that, and considered it a right after their service to the state! I’ve heard much the same from lifers in a well-known UK bank: it’s their payback for years of pointless unrewarded drudgery – my expectations of a healthy return from their stock doesn’t figure much in their work life balance.
I’m not arguing against pensions – definitely not – but about the incipient bureaucratic creep they have become part of. I’m wondering just how much more attention should we pay to sovereign ratings in terms of not only their pension obligations, but the influence of the bureaucracy/pension complex in society? To say that parts of Europe are heading for bust without pension reform would be a No Sh*t Sherlock moment.
Where the primary reason for an employee to take a job is pension security rather than economic opportunity – you have to ponder what the upside in that business or country is.
Bill Blain is a well-known City of London commentator, and has 35 years’ market experience as an investment banker. He currently is Strategist at Shard Capital, a London-based boutique.
Republished from the Morning Porridge by permission.
President Donald J. Trump waves as he disembarks Marine One at Joint Base Andrews, Md. Thursday, Jan. 9, 2020, and is escorted to Air Force One by U.S. Air Force personnel. (Official White House Photo by Tia Dufour). Public domain.