Saudi: Feels Like a Classic Scenario

Did We Say 'Gas and Power Prices Up' ?  Oh yes we did.

But it looks as though we ain't seen nothing yet.  Live by the drone, die by the drone: and bombing Saudi oil facilities, whether by Yeminis or Iranian proxies, is the stuff of classic scenarios for it All Kicking Off.

Several major economies on the brink of recession ... China widely felt to be a lot less robust than they'd be keen to have you know ... Europe thoroughly distracted ... Hong Kong in turmoil ... wars and rumours of wars ...

Yes, a classic scenario.  Hold onto your hats. 

ND

Oil price:  instant reaction

What is the City doing whilst the the politiciams blunder?

I have been amazed this week as the sheer level of stupidity shown by some commentators on the left. Bad enough that they have long flung around phrases like 'Disaster Capitalism' - which can mean anything but overall just is a slang way of saying capitlists = bad people.


But in recent days they have cottoned on to the concept that hedge funds might short positions that will be at risk in a hard Brexit. Obvious things like shorting the Pound or backing the FTSE to fall. This is not evil and it is not willing a hard brexit - it is gambling their hunch will pay off in that scenario. Plus of course, another fund or investor is on the other side of the trade betting the exact opposite. Both won't be right and one will win and one will lose - there is literally no political element to this. So the Angela Eagle level conspiracy is jus the most baseless and ignorant nonsense possible.....and the remainers say the leavers are the uneducated and stupid ones.


Additionally, after ND added in his tuppence yesterday on the Energy market, I thought I would add in a summary of anecdata taken from many of my recent meetings in the City and West End.


The property market is in a bind, the resi market is vey weak at the top end and has been since the stamp duty rises of 2015. Many units in central London are coming to market with very few buyers, but also not yet the huge drops in price that would stimulate real demand - the issue being the cost of building was likely above the now demanded sale price - so profit warnings ahead for these developers. Luckily for the UK economy, most of those parted with their money for these developments are wealthy foreign wealth funds or high net worth families who eventually can and will take the losses. However, as with all markets, construction has dropped off in response so now with much reduced supply pipeline as compared to recent years it is likely that the market will start to move up again in the next few months and years - Brexit or not.


In the commercial market, there is a good reminder that Brexit is not everything. A wave of money rushed our of Hong Kong as problems there meant capital fled to traditional safe haves - even French Chateau's have been selling. There are a plethora of fund launches into fine wines and art - things that Asian investors are often very keen on, despite the risks. Money flows are also helped by Sterling weakness as assets are cheap. however, commercial markets are very toppy price wise and a sharp drop is expected- perhaps the Sterling fall means in reality this has already hit, but us domestics don't see it!


With cheap assets comes deals, so lawyers and bankers are busy. Cheap interest rates mean firms can refinance and high levels of foreign investment means lawyers and investment bankers have deals to do. There are not may quiet offices in the City with people panicking over Brexit. They just want it done one way or other (revoke very popular as ever). one area of worry is that Luxembourg will eat the market share of European funds work as London and the Crown dependencies struggle with uncertatinty.


So, against the usual talking down of everything thanks to our universally useless political class, the economy seems OK. Which is why is it not surprising to see high employment and wage growth against this background. What is different I outside of services, where manufacturing has had to stockpile and hoard resources due to the uncertainty and construction is weak, as per above. Overall I think IF we can either Brexit or not and reduce the uncertainty we may even pull off avoiding a recession for another year or two yet, driven by the continued funnel of Foreign Direct Investment into the economy.

Back in the Real World, part 247: Big Energy News

In amongst the constitutional carnage, I just thought we should register a couple of big goings-on in the energy world.

1.  Price-rises ahoy

The wholesale markets in gas and power have responded instantly (particularly in the forwards) to three big European news items of the last two days:

• Admission by EDF they have discovered welding problems and other issues in the reactors of "several" of their French nukes.  My spies tell me it's 20 out of their total 58 in France.  If they have to fix this in short order - and the French nuclear regulator is surprisingly independent and stern - the price of electricity for the whole of Europe will rise steeply
• Europe's original and biggest (by far) gas field of the modern era, Groningen in the Netherlands, is having its output severly reduced with premature closure altogether in 2022.  This is because of the increasingly damaging earthquakes being caused by the gigantic scale of operations there over 50 years.  Groningen is a true monster, even by global standards, and the bedrock of north European gas supply for half a century.  Impact on price is pretty obvious ...
• On top of these two physical problems, a man-made issue: Poland has won a court case limiting Gazprom's access to an important gas pipeline, which in turn will limit their ability to utilise their Nord Stream 2 system which is designed to outflank their previous dependancy on Ukraine as an export route.  A bit involved, I know - but that, too, is causing prices to rise!   

2.  GE the new Enron?

GE is going under.  That's what someone thinks. “GE’s $38bn in accounting fraud amounts to over 40% of GE’s market capitalization, making it far more serious than either the Enron or WorldCom accounting frauds.” 

Oooh-errrr ...

ND

So, Farewell Mr Speaker ...

With apologies to Victor Hugo, Herbert Kretzmer and the entire case of Les Mis ...

Speaker of the House, preening little prick,
Has us almost hankering for Gorbals Mick
Cocky little Berc, nasty piece of work,
Turns a shade of purple as he goes berserk 
Shouting out his 'Order! Order!'
Making us endure his spouse
God knows how we’ve lasted, suffering this bastard in the House!

Bullying the staff, quite beyond the pale
Running up expenses on a monstrous scale
Quick to take affront, pompous little runt
Napoleonic complex and a lifelong chump
Always had his list of favourites –
Neutrality is up the creek
Sycophancy’s best so - grovel if you want to speak!

Cut a little slack, cut a little dash
Can’t control his missus when she’s on the lash
Cunning little brain, thinks he knows a bit
“Champion of Parliament” and lifelong shit
“Keeper of the constitution”-
Trying now to make us laugh?
Worst of all the Speakers, that’ll be his epitaph!

ND

Prorogation - the art of doing nothin'

So the winding road of Brexit continues. One thing strikes me is Donald Tusk saying when May asked for an extension last time, please don't waste this time - he knew, of course he knew, we all did.


But anyway, the news that Boris has had enough of the Remain Parliament and wants it gone today is understandable, after all they have certainly had enough of him (yet oddly don't want an election).


The weirder side effect is it makes is very unlikely, unless Boris get his way today with a vote for an election, that we can have an election before the end of November. In turn, with cold winter and darkness, I even wonder whether an election in 2019 will happen. Perhaps the Remain parliament will just be content to let Boris sit there, unable to do anything without their bidding now that they control the Speakership too.


So Boris, to the dismay of the EU, will have to do nothing. Now in business, doing nothing can often be the sensible choice. If there is no way ahead or the timing of markets is not quite right, the best policy is not to do anything. Customer unhappy but we can't improve the service? best keep quiet for as long as possible until they moan? Over-charging for services or product but customer happy to pay - best just leave it? Key internal project needs delivering but everyone is busy on revenue generation (if only..), again maybe another time...


In general, consciously doing nothing can be a very considered and sensible strategy. Even in the case of Brexit, the EU have more or less done this. Allowed the UK to define irreconcilable red lines, throw in a backstop hand grande and wait. Wait for 3 years in fact without doing anything except a bit of whistling.


And to date, they are winning with this strategy of not really doing a lot. So, will Boris' version also work - the landscape may change and he maybe banking on a French Non - which will all but guarantee the Remain Parliament votes through May's deal at the end of October.

The rise of the Populists.

There was once a right wing party that did rather well in the polls. Coming from nowhere, they managed to do very well in a series of local elections. So well, that the usual labor-conservative parties took real fright at this new upstart's influence. And both began pursuing an agenda to contain the new populist party. Rather than on tackling the causes of that populism.






The leader of this new right of centre party was a very charismatic leader. Good speaker. Good showman. He had taken over as leader from a very ineffective bunch who had been peddling their various grievances for years. Immigration. Foreign influences. Bankers. Bureaucrats. 
 The new guy turfed the old dullards out and went on a rabble rousing tour of the country. Drumming up support with just a few, simple messages. 

The nation had been through a massive financial crash. Some had lost much. Many had lost some. And austerity had been dragging on and on. Cuts to all manner of public services had made everyone poorer than they had been. And prospects were not looking good. 

The existing political parties were balanced against each other. A hard left communist party had taken hold on the left. Against a more central, one-nation, liberal-social-democratic-middle-grounders, on the other. The moderate left was losing to the far left. The moderate right, moved too far to the soggy-middle, and allowed a large area on its right flank for another party to develop.

No one side could gain a comprehensive majority large enough to enact any even vaguely controversial legislation.  Any that was tried was challenged through the courts by special interest groups and rich financiers. 

Protests were everywhere. All the time. About anything at all. Newspapers and media took sides and banged their supporters drums loudly. The European community looked on in bafflement, despair, and with more than a little fear. They had populists of their own to contend with. 
 When the leader of the country asked the Europeans for help and assistance, amending some binding laws, to see off the Our Country First group, they met with little sympathy and even less assistance.

 Inevitably, the centre grouping fell from power in yet another election that was as inconclusive as any that had gone on before. The far left made a lot of progress at some expense of the far right. The middle grouping had even less support than before. 

A sizeable number of Conservatives supported moving more to the right. Embracing some of the populists aims. At the same time there was a limited resurgence of Liberal parties. 
 Both far left and far right support was declining. People were becoming tired of constant protest and disruption,. Strikes and pickets and marches. The language of politics had become one of intolerance and aggression.

The weak centre party limped on, and for a time no one was really in charge. 

Parliament allowed a very dangerous precedent, by overruling convention and procedure, and issuing their own, enourmously powerful, unchangeable, undemocratic, decrees. 
 This gave a huge and unrepresentative amount of power, to just a very few key individuals.

 Eventually the leading industrialists, bankers and business leaders said they just wanted certainty. They had long been trying to keep the bad for business far right or far left out. Now they just wanted an end to it all. Their inability to make decisions, due to the volatile politics, was having real, and severe, economic impacts. They put aside differences and demanded some stability. From wherever it might come.

In a by-election, the populist party put on a massive show. It was an area they expected to do well. But recently they had been losing vote share. Falling quite rapidly in the polls, to the new, more right of centre, minority government. 
They were determined to throw everything into the effort in an attempt to show they were still a major player. Still a significant force, and actually rising in popularity.

They spent so much money, that their treasurer was beside himself. Almost suffering a breakdown with still weeks to go before voting. 
 The party was bankrupt, twice over. And yet it was still holding large arena events and had aircraft flying banners overhead. Full on rallies of enthusiastic supporters and lots of paid for media coverage. The treasurer and many senior party figures were seriously worried that this stunt, rather than propelling them into mainstream politics, would mean their extinction. They had gone from high percentage of votes to almost none, many times before.  

In the event, the party did only a bit better than they had done previously. It took skillful use of the media and a selective interpretation of the results to give the impression that they had done much better, than they actually had. This didn't help the nerves of the parties financial people.
 The leader tried to reassure them all would be well again. The election was very near. The gamble on the biggest prize of all, was only weeks away. 

They were unconvinced.

So in the end Hitler simply told all his team to keep spending. Not to let up. The illusion of wealth, strength and support was just as powerful as actual strength, wealth and support.

He told them the obvious truth of Do Or Die politics. Explained the one chance strategy in the simplest of terms.

"Keep spending. Spend even more! Because if we lose, then it won't matter. And if we win, then it won't matter."





 

* Hitler had an enourmous fight with his missus right before the 1932 election. Eva Braun attempted suicide. His dealings with women had led to suicides of his niece and would of Unity Mitford. The old dog had a women problem.

*The German Conservatives tried to deal with Gregor Strasser, a Nazi. He was to have taken over from Hitler. Strasser was a sort of Gove figure. He could be in either, or all camps, simultaneously.
Strasser  said of Johnson, Hitler, "He is a congenital liar."
He wrote of Hitler's chief strategist and spinner, Goebbels, as being a clubfoot. "And I tell you..he..is the worst of them all. This is Satan in human form." 

*Strasser was killed during the purge of 1934. Shot by the SA and left to bleed to death in a cell.

* The Nazis lost votes in November 1932, overall. 34 seats lost. The violence had become endemic. But the politicians were convinced that the Nazis had that much popular support that they must be included in any government. They hoped they could be controlled. In 1933 the Nazis gained a huge new number of seats. 192. But still a long way short of a majority. It was Corbyn type of win. And probably their high water mark, if events hadn't taken them further.
The 1933 elections were the last multi-party election in Germany. There would not be one again for 57 years.

*Why did you morph from Farage to Johnson in this narrative? I was going for a cabaret end scene vibe.

 https://www.youtube.com/watch?v=tzBTqLy7gkY

* Am I saying Johnson/Farage have Nazi/Facist, tendencies and methods? NO. 

*Was the rise of the Nazis hugely accelerated and assisted by the infighting. Disunity. Weakness. Despair, uncompromising positions, and ineffectiveness of the existing politicians and structures of 1930s Germany? YES.

And the most dangerous long term development for Germany was the government giving emergency powers to itself, long before Hitler took over. These powers allowed the parliament to bypass itself. Rule by decree.

 Does Bercow realise, a hostile to the EU, Speaker, can just as easily bend the rules to deliver what a pro-EU parliament does not want?

One step forward, three back...but to where?

What an amazing week! I can honestly say the fireworks have exceeded my expectations of sheer insanity on the part of what passes for our political elite (and media).


No wonder they are afraid of an election, by any measure we should replace 100% of MP's at the next election. None deserve to keep their jobs, if it was a corporate business unit , the unit would be shut down and abandoned with a big of a write-off to the value of the group.


However, Boris has taken a bad turn after his initial success of the Prorogation, he of course would have known the parliament and rebels were going to beat him. But to me it seems he thought Corbyn would go for an election. Instead in a really bizarre move, the opposition are content to oppose when there is no Government.


For his own side, I am less convinced of the aggression against his own MP's. He expected to lose a few MP's but through cack-handed management has now lost over 20. meaning he can't win any votes in Parliament again - after all, they are not going to vote for an election knowing that it ends their careers as they can no longer be Conservative candidates.


For Remainia, things appear to be going well. I am not so sure here either. Nobody I speak to is happy with the can-kicking and far more people were up for Boris sorting it one way or t'other. Remainia would do well to revoke Article 50 pre any election as that would make people think about having to 're-start' Brexit rather than just continue it. The idea that somehow they are being noble in hobbling the Government, demanding and extension and refusing an election is errant.


So I see both sides very badly holed at the moment, enter Farage perhaps? Predictions at the moment seem to age at lightspeed so are futile.

Is Anyone Surprised?

Yesterday evening's events must surely have been entirely predictable to those in the know - particularly since the vote wasn't even close.  So, the Plan is unfolding.

I trust ...  

ND

Scorecard

The EC assume Parliament can steer the Britannia back to Brussels, and they'll not lift a finger until this has been tried.  So today marks the end of the phoney war (UK theatre).  What has Team Boris achieved up until this point?

1.  Some rather obvious stuff:  boosting Tory morale; obtaining the (fairly usual) honeymoon bounce in the polls; and presumably carrying out more concrete no-deal prep than Hammond allowed to happen in the forgoing three years.  All quite useful as far as it goes, but none of it sufficient to carry the day**

2.  Taken control of the agenda to the maximum extent possible (given that Grieve et al will have their day, one way or the other); made all the running; herded the opposition parties onto ground of Cummings' choosing; depressed a lot of lefties, and reinforced people's generally bad impression of Corbyn

Now it gets interesting ...

3.  Signalled from Day 1 that there's confidence aplenty on the GE front, making Corbyn shifty on the subject as Labour MPs hum and haw.

4.  Substantially neutered Corbyn's "unicorns for everyone" GE strategy (which did rather better than the Tories imagined it would in 2017)

5.  Signalled that the Gloves are Off (proroguing Parliament, firing Spads, hint at de-selection) 

On 3, it's not precisely clear whom Brenda from Bristol will blame for a forthcoming GE.  But Bren is exactly the kind of voter Cummings excels in reading, so we may guess he's got that one covered.  Heaven alone knows where the unicorn bidding war will go (4): but Cummings is pretty shrewd on the headlines he wants (crime, NHS, schools) and has staked them out early.  However, I don't see a decisive move on / from Farage (yet): and the Celtic Fringe aspects don't seem at all under control.  Extremely interesting that an 'Irish Unity' march in Glasgow caused rioting ... the fish-woman may have more on her hands than she'd realised.

Finally ...

6.  Gone a long way to get the benefits of what is often termed the "Israeli Nuclear Strategy", i.e. - yeah, but they really are mad enough to do it.

Gets even more interesting from here.

ND
_____________________
** of course, Boris' definition of "carrying the day" is something that many Brexiteers are deeply suspicious about.

Monday Morning Quick views

None of us know what will happen this week, the kids have gone back to school but do the Blazers still fit? did we push it not buying them new shoes when they were a bit moaney about the size? whose turn is it to steal little Jonnie's lunch money?


However, finally I feel the can-kicking will end. Boris has rightly decided that he will die on the battlefield or win the Crown against the Pretender.


So what do we think...will he be Prime Minister by Friday - and by that I mean with a Government under him not hanging on avoiding seeing the Queen in a Brown-ian motion.




What are everybody's bets?

Brexit Aftermath: Printing Money, or Taxes?

I notice that recently (just before the tactical nuke went off) a bright spark amongst the Graun writers opined that there was not much for it than for Labour to "pivot to Revoke" (everyone has to 'pivot' these days - so much more delicate than U-turning or just plain changing your mind: and a lot more dignified than flip-flopping.)  This is in keeping with Polly Toynbee declaring 'civil war', as she has done in her bid to beat Owen Jones in the hyper-ventilation stakes. 

So, as the armies head off doggedly to Philippi, we are left to wonder about post-Brexit strategy - notwithstanding our musings earlier in the week as to whether Cummings/Johnson even has one, beyond a GE at any rate.

Aside from dealing with short term issues and civil commotion of various sorts (not so easily brushed aside in reality, I well realise) the question will surely arise: to print money, or to tax?  Nations have been perennially been confronted with this issue in times of War (Polly's coinage, not mine) and its aftermath.  It seems to me that (a) there is a very strong anti-tax camp within the Tories (rather like 18th & 19th century America, in fact - they always printed money); (b) Keynsian spending is getting a new lease of life in several quarters; and (c) even McDonnell hasn't sounded too bullish on tax, and the Corbyn-Left are toying with something called Modern Monetary Theory which seems to absolve them of the need to do anything so atavistic as smashing the rich with a supertax.

I freely admit to knowing nothing about macro-economc theory (even as I reckon to know quite a bit about practical micro-economics).  But I well recall how our good host Mr CU predicted Quantitative Easing last time around (and, for good measure, the £/$ collapse from 2.10).  

What do the highly knowledgeable, or even the more modest, C@W readers reckon (i) Boris / Javid; and (ii) McDonnell have up their sleeves for us, in the event they have their hands on the levers of power next year?

ND