The Twelve Days of Christmas

11 mins. to read
The Twelve Days of Christmas

If you ever wondered what that Christmas song really means, look no further. It’s the moment to look back over the momentous year gone by and to prepare for the even more tumultuous one about to dawn. Some amuses bouches for hungry investors, accompanied by a glass of effervescent speculation.

A partridge in a pear-shaped tree

Many people have been rather unkind to Mark Carney, Governor of the Bank of England, over the course of 2016. Though I was never amongst those who gracelessly suggested he should “go home”. After all, I believe in closer ties between Britain and Canada.

But, along with many commentators, I think the UK base rate cut from 0.5 percent to 0.25 percent on 04 August in the wake of the Brexit referendum was entirely unjustified. It was a late manifestation of Project Fear. This move looks even more maladroit given the Fed’s 0.25 percent rate hike on 14 December.

One of the most illuminating articles on monetary economics that I read this year was in these pages, written by my colleague, Felipe R. Costa. It is a challenging read for non-economists; but Felipe convincingly explained why all of the QE-style central bank interventions have been bound to fail in their ostensive objective of stimulating demand. Why? Because they increase the velocity of circulation of money in the financial sector.

If Felipe is right – and I am persuaded that he is – the entire priestly caste of central bankers (as I have called them) are birds nesting in a pear-shaped tree. Shortly, I intend to explain why fiscal policy (determined by finance ministries) and monetary policy (determined by central banks) will come into conflict with one another in 2017 with important consequences for financial markets.

By the way, partridges are medium-sized non-migratory gamebirds, with a wide native distribution, though rare in Canada. They make ideal targets on frosty shoots.

Two turtle doves

The pope, Papa Francisco, who has just celebrated his 80th birthday, looks bored. He will resign soon. There will be, for the first time, an exclusive club of ex-popes in Rome: two turtle doves. An African pope will succeed him, and will be acclaimed. That will be good for African self-esteem. I’ll be telling some good news stories about Africa next year. And don’t underestimate the power of a charismatic pope to change the global mood: remember John-Paul II who, with Reagan and Thatcher, was instrumental in winning the Cold War.

Three French hens

Or rather two French cocks and one hen. These being Manuel Valls, who is most likely to be the candidate of the Parti Socialiste, Francois Fillon, the candidate of the centre-right Republican Party, and Marine Le Pen of the Front National. It used to be said that only elderly bald men could be Président de la République. Evidently that is about to change.

Four calling birds

CANZUK is, as I have explained in these pages, the proposed trading alliance between Canada, Australia, the United Kingdom and New Zealand. These countries share a common language, a common head of state, very similar common law-based legal systems and fundamentally similar parliamentary democracies.

They are also amazingly entrepreneurial and enjoy higher rates of employment than the OECD average. They would have joined up post-1945 if the Americans had not intervened to cripple the (as was) British Empire and if Britain’s class of Sir Humphreys had not been so slavishly Francophile.

But times change. A movement to promote freedom of movement between the CANZUK countries has attracted hundreds of thousands of signatures on the internet.

Five gold rings

If you have been a regular reader of these pages over the course of this year, one of our salient themes has been the case for gold. Gold retains its value in uncertain times when stocks and other financial assets are falling in value, and also when inflation picks up. It is an excellent way to allocate surplus cash on which the return now is zero.

But, yes, I admit, it has not performed as well as we had expected, not least in view of the recent US rate hike.

Once reason to renew our interest in gold for 2017 is the following. The World Gold Council in early December announced a new Sharia gold standard. This permits Islamic investors to use gold as collateral in counterparty transactions. Expect more interest in gold from the Gulf.

Six geese a-laying

This must be the much reduced Labour shadow cabinet under Mr Corbyn. Only, unfortunately, their eggs are anything but gold. To be outflanked by the Lib Dems these days is quite something.

Seven black swans a-swimming

There is a lot of nonsense talked about black swan events – by their very nature, they are not predictable. But allow me to share seven of 2017’s more memorable headlines (in no chronological order).

1) Angela Merkel to quit (Evening Standard). It is becoming less likely that Frau Merkel will survive the year. She will be challenged by members of her own party, the CDU/CSU, which has been in power since 2005. Who might replace her? I offer one thought: the Catholic, gay CDU politician, Jens Spahn. He has expressed doubts about the wisdom of Frau Merkel’s immigration policy. Germany could do much worse.

2) House of Representatives votes for Trump impeachment. (The Times). Try as he might to put Hillary behind bars, it is the Donald who is most likely to have infringed the law in an egregious way that will one day bring the Washington establishment down upon his head.

3) Check-mate for Juncker. (Daily Express). Monsieur Fillon, if he wins, will demand President J-C Juncker’s head in a dramatic gesture to show that he is a European reformer. If Mme Le Pen wins, then M Juncker, like a defeated samurai, will commit seppuku.

4) It’s Meltdown! (Daily Mail). What could this be about? The collapse of the Italian (and thus the European) banking system? It is quite conceivable that there will be a systemic banking crisis in Europe next year.

The Euro was supposed to bring convergence; instead it has instigated the divergence of the north and the south. If and when Italy leaves the Euro she will take the other olive belt victims of this misconceived currency union with her. There will be convulsions, and the existential crisis that is Europe will deepen.

5) (As I predicted in a recent video) The European Spring continues (Guardian). I’m not saying that 28/28 EU governments will change next year. My latest guestimate is 17/28. This will put further downward pressure on the Euro. Put 26 March in your diary – the date of the Dutch elections. That’s when it will begin.

6) Chinese and US warships exchange fire in South China Sea. (Telegraph). Even before the President-Elect is inaugurated, tensions are already building in this strategically sensitive region.

7) Syrian Civil War comes to official end. (Probably the FT, this one). In a speech to the Russian Duma in Moscow, President Bashar al-Assad thanks President Putin and Russia for steadfast support against “terrorism”. He excoriates the West for its “scheming and covert interventions” which have cost Syria a million lives.

Eight maids a-milking

According to North Korea’s Ministry of People’s Information, dairy production targets for 2017 have already been exceeded – three-fold. No milk maids were available for comment.

Nine Ladies Dancing

The ladies are taking over. True, Hillary was sent packing this year, but there has probably never been a time when so many nations have been ruled by women.

In the UK we are now under Mrs May, our second female PM. But she is just one woman in a growing club. There is, of course, Frau Merkel (for now); and there is Beata Szydło (Poland, since 2015); Aung San Suu Kyi in Myanmar (another Oxfordian); Erna Solberg (Norway, since 2013); and Sheikh Hasina (Bangladesh, since 2009). Dalia Grybauskeitė has been President of Lithuania since 2009. Saara Kuugongelwa has been PM of Namibia since 2015.

That makes eight currently. But next year, France, where there are still relatively few women in the boardroom, may have the ninth alpha-female in charge.

Countries which have female leaders, by demonstrating they are open to all talents, are more investible than those which have never had a woman in charge.

I wish I could say that corporations with female CEOs exhibit better share price performance. But, sadly, after Carly Fiorina (CEO of Hewlett Packard (NYSE:HPE) – stock price down 50 percent on her watch) and Harriet Green (Thomas Cook (LON:TCG)) that would be difficult to prove.

There are currently just four female CEOs in the Fortune-500 leading companies. The largest company to be headed by a woman today is General Motors (Mary Barra).

I expect that soon someone will demonstrate a correlation between increasing female board membership and share price performance; but we are not there yet.

Ten pipers piping

We don’t talk enough about Scotland in these pages. In May 2015 the Scottish electorate sent 56 SNP MPs to Westminster. (The Tories, Labour and the Lib Dems each gained just one seat). Since then, at least ten senior SNATS have been in some way incommoded.

Natalie McGarry (Glasgow East) was charged with fraud last year and resigned the SNP whip. She is still technically a Westminster MP but has not been seen there for many moons.

Five SNP MPs have had their House of Commons credit cards suspended for misuse[i]. Stewart Hosie (Dundee East) had to step down as deputy in Westminster.

As I write, SNP MP Michelle Thompson (Edinburgh West) is being investigated by Scottish prosecutors into allegations of mortgage fraud; while Tasmina Ahmed-Sheikh (Ochill and South Perthshire) is facing a bankruptcy hearing.

Meanwhile, back in Edinburgh, Scottish Transport Minister Humza Yousaf was found to be driving without insurance – but refused to resign. (It’s not as if he’s had any luck with Scotland’s trains, either.)

Unemployment has been rising this year in Scotland even as it falls in the rest of the UK. The Scottish NHS is facing increasing criticism as Scottish hospitals fail to achieve cancer targets. Standards in Scottish schools have been falling relative to other parts of the UK. The Scottish government has refused to take up powers over welfare payments that were accorded by Westminster. One in eight of Scottish shops are boarded up. Next year Scots will pay higher taxes than citizens in other parts of the UK.

Support for separation from the UK appears to be on the wane. A petition was even launched last autumn to abolish the Scottish parliament altogether.

Ms Sturgeon is losing popularity – her obsession with Brexit (for which she has no constitutional responsibility) may have backfired. It looks like 2017 will be the year that IndyRef2 is taken off the menu. That will be good for Scottish business and the UK overall.

Eleven lords a-leaping

The eleven law lords of the UK Supreme Court are sitting down to turkey in a Brexit sauce this year. They will have to opine in early January on the constitutional question of whether Prime Minister May (“the Crown”) has the right to initiate Brexit by “triggering” Article 50, or whether Mrs May needs parliament’s approval first.

Of course the Supreme Court – itself a constitutional concoction of the Blair government – is not supreme since, so long as we are a member state of the EU, it is subservient to the European Court of Justice (ECJ) in Brussels.

Moreover, huge swathes of UK legislation may not currently be repealed as such repeal would of itself be in breach of the Human Rights Act – another Blair-era ball-and-chain around the nation’s ankle.

Yet, despite the fact that all eleven of their lordships are almost certainly Remain-inclined, I believe that the Government will win the case. This is because the overwhelming body of English (sorry, British – there are distinctions but let’s not go there now) case law favours the Government’s appeal.

The Supreme Court is bound to opine on the basis of English case law, even if that exposes them to a further appeal by Ms Gina Miller and her backers to the ECJ. But, in any case, by the time the case gets there, the Brexit train will already have left the station.

And if the Government loses – so what? The House of Commons will probably do Mrs May’s bidding – she has already called the Europhiles bluff in a vote on 07 December. As for the Lords – turkeys don’t normally vote for Christmas, though you never know.

Twelve Drummers Drumming

Just consider twelve corporations which did not exist twelve Christmases ago. Facebook (NASDAQ:FB), Twitter (NYSE:TWTR), YouTube, Uber, Airbnb, Snapchat, Instagram, DeepMind, Fitbit (NYSE:FIT), Spotify, Dropbox, WhatsApp. Where would we be without them now? What would the kids do on a wet December afternoon?

Can we possibly imagine another twelve such life-changing companies emerging in the next decade of driverless cars, data mining in health care, machine learning, gene-splicing, immunotherapy and artificial intelligence (all themes I have written about this year)?

Yes, we can.

Look out for our January magazine. In the meantime, a very merry Christmas, and a prosperous New Year 2017 to all our readers!

[i] See:

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