A HARD RAIN

WHEN WILL MARKETS RESPOND?

Everything is in the end politics; it just takes a long route on occasion and rather like a frog in water, markets take time to realize that the pleasant feeling of warmth is a prelude to being boiled alive. We are well into the boiling phase, but how long before it all registers and an escape is finally attempted?

The purpose of politics seems ultimately to take an individual’s wealth and the fruits of their labour and give it firstly to the friends and allies of the confiscatory state and then use the remainder to buy votes. That bit does not ever really change, whoever is in charge.

So how does that truism impact markets on each side of the pond? Well, traditionally the UK state has been far greedier and done far more harm to the economy, than the US state has, which is why both GDP per capita is far worse than the US, and the FTSE has failed to rise, even in nominal terms, in two decades. Add back inflation and investing in UK PLC has been a long-term wealth destroyer. It enjoys that characteristic with the rest of Europe. As we have long said, lift the lid on any sensible UK pension fund, and you will find a lot of Apples inside.

In general, and this too is a platitude, well run dictatorships, especially those with access to world markets, do far better still, hence the rise of China. Of course, “well run” and “dictatorship” seldom sit well together, but nor do “populist” and “well run”. In general markets are not greatly in favour of either populists or dictators, feeling the rule of law is not something either care that much about. But by implication neither are voters now too fussed about laws either.

LONDON OR WALL STREET FOR THE REST OF 21? - THE BIGGER PICTURE

So, the investing question is whether the US, despite being increasingly under the control of the populist wing of the Democratic Party, is a better bet than the UK? Or do we have the capacity to process a bigger picture?

Source : IMF - link to page

And of course, we need to ask whether China is better than both. So far, the US is finding Biden to be no worse than the populist wing of the Republican Party, and the UK is feeling rather baffled, given Boris constantly talks right but acts left.

Put like that our current sentiment, that Biden will cause more damage than Boris, is at the least contentious. So, we should look for the good in Boris and the bad in Biden, to help justify that call. Not an easy balance, but what makes it easier is the relative valuations. In particular of tech, where the US has moved ahead massively, so a lot of the question can almost be reduced to asking if Tesla is worth it? Or if it is, what is the motivating force to make it still more overpriced?

Boris seems to be trapped by the doctors and his inability to fathom numbers, into driving us into a permanent state of fear and welfare dependency, which will keep the UK steadily in long term decline. If he can break free of that populist vice, we might have a slim chance.

The omens are mixed, banning travel to Portugal (again) looks like the familiar science trap, but of course might be a reaction to the EU also banning wider travel from the UK to the EU just before that. Given our relations with the EU, that oddly seems more likely (if childish).

By contrast the US is now operating near normally, a stark contrast, as we remain in de facto lockdown, tied up in fiddly, unpredictable, illogical restrictions.

CULTURE WARS AS INDICATORS OF INVESTOR SENTIMENT

Both the Queen’s Speech setting out the legislative agenda for the year and the visit of Viktor Orban, the Hungarian premier, may have been light on substance (they were), but boy were they heavy with Tory symbolism, coming hard on the heels of the local election wins.

Much of that proposed legislation was to placate the grass roots, I seriously doubt laws on de-platforming (of both the living and the stone hewn) will make much difference, but the Conservative base feels it is high time the left got some mild resistance, in cultural matters. There has been very little of that for the last two decades.

I suppose the brutal bashing of Bashir is in the same category, although from my own experience a BBC journalist who did not lie and cheat their way to a non-existent story, would have been the truer rarity. Although in that they differ little from the rest of their breed, but defenestrations at the National Gallery and revolt at the National Trust, have been a long time coming and indicate a new degree of solidity and confidence. This is long overdue since Blair assiduously stuffed placemen into those organisations. Neither Cameron nor May did much about them, having their focus on higher things, it transpires.

Does it matter? Well not really, to markets, but it is a counter to the reckless spending, and the chilling clarity with which Boris famously expressed his view on business during Brexit, so is a straw in the wind. Maybe other things will change.

DEFUND THE DOLLAR?

What of Biden, well so far the US markets have taken slow comfort from the slender political majority, he holds, but the view is creeping in, that he really is going for broke, he is happy to unleash inflation, almost keen to do so, that letting Wall Street blow itself up, in the meme stock nonsense, and suppressing interest rates (which is vital if you are borrowing so much) and as a result trashing the dollar, is all fine, all part of the plan. Note the recent measures by China to prevent their currency appreciating too fast and by Putin (of all people) complaining at dollar fragility. Others may not attack it yet, but it increasingly looks like US policy.

Much of that perhaps matters little to Wall Street immediately; inflation makes you own real assets, bonds are now utter rubbish and so far, very little of US individual wealth is invested abroad. So, Wall Street almost inevitably drives itself up and that’s a hard tiger to dismount.

But it maybe matters more to us Europeans, who need to both believe that US overvaluations will persist and critically that the dollar will not weaken further.

Graph from this source.

So, in the end politics do matter, not now, not today, but how these contrasting styles evolve over the rest of the year, will be very important to how currencies and markets respond.

Getting it right for the second half involves a big call, this year, as it did last.

Flat markets are not always still markets.        

Charles Gillams

Monogram Capital Management Ltd     

06.06.21


YELLOW BRICK ROAD

The recent elections in the UK probably result in a mildly stronger position for Boris in his Merkel persona, his Christian Democrat (CDU) disguise, so the fiscally left wing, culturally right-wing hybrid, that seems popular; but other than disasters averted, the poll achieves little more. For all the noise about the Hartlepool by-election, we are talking very small numbers, with a 40% turnout in a seat already slightly subscale due to depopulation and industrial decline. It has no resulting impact on the governing majority. Indeed, but for the Brexit Party, it would have been Tory already, so it really says nothing about the right-wing vote. The Tory Party is still miles from representing a majority view, but as long as the left is divided and the right united, that will persist.

Nor do I see much of interest in the council elections: a good result for the Tories in building on an already strong performance last time, which shifts the middle third of councils around in the quagmires of NOC or No Overall Control. This morass, like the bilges on a boat, washes left or right depending on the political tide. But with staff (and councillors) aware that only a few seats can shift them in or out of the NOC swamp, its impact is not great, particularly where they have elections three years out of four. These permanently transient councils tend to be run more for themselves than anything tedious like ideology or providing decent local services.

Neither Mayors nor Police Commissioners have any major power. Sadiq Khan, freshly back in office, faces a central government happy to call in his local plan (on housing) and impose central government representatives on his transport authority, thereby strapping one hand behind his back, in both his areas of real influence. Meanwhile London policing remains ultimately under Home Office control, so like the other areas is just for political grandstanding, not real service delivery. Policing in London also seems an enduring disaster: where it is needed, it is not wanted, where it is wanted, it is not needed.

Reading the Party Runes

So, what of Kier Starmer? Well, it also tells us little about his Cameron-lite policy of avoiding controversy, avoiding spending on fights he can neither win nor cares about, and ensuring he controls everything in the party. That policy is seemingly intact. The Corbyn wing will continue to spout for the microphones on demand, but matter little. The key issue is whether the big funders will want to have a go at winning the 2024 election. I think they will, but should they decide it too is lost, Starmer has a problem. If the party’s money bags decide he can’t win, he won’t.

For Boris it is at the least an endorsement of his recent COVID strategy, and that higher taxation to pay for the incredible spending splurge, has yet to impinge on voters’ minds. So, it permits him to carry on, but perhaps recover more of a strategic view, after the recent wallpaper storms? Does it make exiting COVID lockdowns any easier? Well, it should, but hard to tell if it will. Does it validate the extreme turn green? Not really, the Greens still did better in terms of new seats won, than either the Labour or Lib Dems, and are still advancing (from a very low base).

I am not sure if the Lib Dems expected much, they have Keir’s problem of irrelevance tied to being pro-European, when the EU is behaving more oddly than ever. So roughly holding their ground was fine. Indeed, they polled way ahead (17%) of national election ratings (which are more like 7%), but not over the magic 20% required to hit much power.    

Those Strange US Job Numbers

Which brings us to the real shock from last week, the weird US jobs numbers on Friday. We have long said that how and if labour markets clear after the great lockdown experiment, is the vital economic issue. The problem never was the banks (so last crisis) nor the ability to borrow to sling money down the giant hole dug by the virus. Both are easy. But once you have smashed the economic system, does it regrow, like a lizard’s tail or simply start to rot and decay?

Many of us would have avoided the deep wound in the first place, but now the experiment has been started it must conclude. So, what did happen to slash monthly US job creation from expectations of a million to just a quarter of that? The instant reaction that it meant inflation has gone and so bonds were fine, was as instant reactions often are, garbage.

The bull or ‘Biden’ case is that as they have the right medicine, it just needs a bigger dose, or to take it for longer. Seems credible; labour force stats are notoriously volatile, some of the job losses came from manufacturing, where supply shortages are biting, but that’s transient. Some seem to indicate a mismatch of jobs to vacancies, hopefully also transitory.

Encouragingly, a spike in wage inflation and hourly rates indicated plenty of demand for workers.

Yet, slamming the brakes on, shutting the economy down and paying millions of people not to work, might have brutally destroyed the delicate economic system. Thousands of small firms, where the bulk of employment is created, have just gone. The complex prior system of sales, working capital, scheduling, delivering, inventory, payment has been eliminated. Sure, the people still exist, so do the premises, but the invisible mass, the self-directing hive, is lost: no map, no honey, no queen.

From the US bureau of labor statistics website

Bigger firms are also planning to work differently, perhaps needing less labour.

Once you stop working and get paid to be idle, and indeed have limited ways to spend your money, it feels easier to stay in bed, study Python, redecorate the house, or whatever, but not get back on the treadmill. Indeed, in a lot of cases, once you step off, stepping back on is hard and also downright counter intuitive. Sure, your old boss wants you back, but do you want the old boss back? Worth a look round at least? As the title song puts it, “there’s plenty like me to be found”.

Well, we still go with the bull case.

However, the bear one is not trivial. If you can’t get labour markets to clear, welfare will be embedded, as will high unemployment, deficits and unrest. It remains the most critical feature, worldwide of the recovery, and several questions about it remain as well, including the need to keep new bank lending elevated, cheap, available. Expanding needs cash, contracting creates it.

The oddity to us then remains, that if the liquidity barrage really does work, why should it work better in the US than elsewhere?

And if it works the same for all, don’t US markets then look rather expensive?

Charles Gillams

Monogram Capital Management Ltd        


What doesn’t sink me makes me stronger

First published on 20 December 2020

A strange old year winds down, with proof once more of the exceptional power of suggestion and the great strength of cohesion.

Tired Markets, Bullish Investors

So what now? Clearly markets are tired, we have the odd position that investors are almost universally bullish on next year, that fund managers report unusually low uninvested cash, and yet it still feels like there’s no great power behind the mainstream markets. Indeed, over much of the developed world after the November vaccine/Biden sudden jump in markets, not that much has happened overall, a slow grind higher at best.

We see that lull as temporary, reflecting the month or so of pain and uncertainty before the onset of spring. Yet if anything we ourselves also want a little more liquidity, driven in part, by our awareness that markets are always thin and unstable going into the year end, so we can see little to be gained by jumping in this week.

Typically positions for 2021 will be taken in mid-January, once we have a reasonable steer on how 2020 ended. Not that that matters greatly either, neither of the next two quarters (or indeed the last two) will be in any way normal, Q1 2021 will be heavily influenced by COVID, but 2021 Q2 will see it fade very fast in the sunlight. Lots of scope for extreme volatility in that switch around.

But then, why rush in?

A lot could still go wrong. We assume Brexit disputes are just typical posturing for the crowd, but given those involved, maybe that’s brave. We assume the vaccines will work, which is one of the key points in this whole saga. Indeed, almost everything has been conjecture and spin, with the virus seeming to come and go regardless of our frantic efforts and illusions. It has been barely possible to discern cause and effect for all our demented jumping about. However, the vaccine is going to be at last a single, vital, fixed data point.

By late January if we (and the markets) are right, the most vulnerable will have been given a 95% effective shot, excess mortality should tumble, indeed you should almost be able to watch the vaccine defences build week by week, as ICU’s empty. The rush to start vaccination, played far better by the UK (a rare event it is true) was all about getting the vulnerable sheltered before the very worst of the winter. In that case this epidemic is over, and the fearsome fangs will have been drawn in a few weeks. 

So, in that case, why dive in now, if waiting a short while answers that most fundamental question. Besides nearly everything looks too good to be true. Our own returns are clearly too good, typically they have been double figures for most managers, even our low volatility products are (depending of course on the next week) going to end up there, which is truly exceptional for a good year. For a year in which economic growth has been halted for so much of the time, it is downright amazing.

Overbought?

We have already (in the VT-GTRF) shifted into slightly higher risk areas, such as Listed Private Equity, where we see good value. But we are reluctant to go much deeper just yet. Every emerging market that feels half credible is already at a twelve month high, and frankly the data from those is even less reliable than ours. All the Wall Street overbought signals are flashing red. There is clearly too much speculative cash racing about looking for a home, be it DoorDash or those irrepressible SPACs.

Government debt is in an elegant swallow dive onto the zero axis, you are getting very little return to lend to some odd places.

So, we will enjoy some pensive digestion after the feast, if we are somehow wrong to the upside, we almost don’t care, what’s better than best? Being wrong to the downside, seems the graver error.

Echoes of the Weimar

We started with a quote from one of the trio of great Weimar philosophers; now there is a history to conjure with. In a year when democracy seemed set to topple, when there are indeed no facts only interpretations and when it became government policy globally to stoke up inflation to destroy the value of money and create negative interest rates, Weimar has many echoes. Throwing in its capture by a communist dictatorship and assault by ideological zealots, leading to near terminal decline, means comparisons just get too spooky.     

So, to leave you with one of the Weimar trio, as you head into whatever glee Boris has left with you, “Man muss noch Chaos in sich haben, um einen tanzenden Stern gebaren zu konnen”.

That is, we all need, in whatever we do, a bit of luck, inspiration or indeed plain chaos to pick up the inspiration to move on to better things.

We wish you well for Christmas and the New Year.

We will return to the fray on the 10th January, no wiser, but we will hopefully know more.

Charles Gillams


MUST THE POOR BE CLEAN?

First posted on 10th January 2021

Attempting to comment on the last few weeks seems largely futile, save perhaps for the apocryphal remark attributed to Chinese premier Chou En Lai, that ‘it is too early to tell’, when asked about the impact of the French Revolution.

We suspect the markets are a little too relaxed about the assumption that Biden will spend furiously, effectively and in a way to spark inflation, but without any significant extra taxation or regulation. Lost in the exuberant desire by the market (and voters) for yet more debt are those inevitable downsides. While clearly the amount of speculative froth in the US market, is a clear warning of disaster to come; it never ends well when valuations get this daft.

As for these shores, it is not clear why it is almost mid-January, before the blindingly obvious need to vastly ramp up vaccination rates, for drugs that were available weeks ago, has only just penetrated Boris’s head. We are all rather immune to his elastic grasp of promised numbers now. Like the Relief of Khartoum, I suspect they will have dithered into disaster. Vaccines by the barge load will be coming in, just after COVID has over-run our defences.

It is reassuring to learn that the seven days a week NHS so touted by David Cameron, still remains a distant hope. And indeed, that this is not so much of a crisis, that vaccinating people on a Sunday can be contemplated. Over the next fourteen weeks that will cost a further fortnight of unforgivable delay. Luckily for the government, the EU is even more hidebound and inflexible, so we can claim a comparative victory.

Environmental, Social and Governance – an active conscience at work?

So, to a wider issue, the dear old ESG (Environmental Social Governance) standards to which all fund managers must now adhere. This seems to be largely (well intentioned) greenwash, it will not surprise you to hear. But we do have to start somewhere. JP Morgan have conveniently set out a simple guide on this, around whose elastic edges they must invest. We will shortly clamber through this.

The risk in ESG cuts several ways. From a market view, the damage comes from the familiar “buyers and sellers” equilibrium, which means every buyer needs a seller and vice versa; where the impact is profound.

Assume that most big liquid stocks grow into their positions over a decade or more, and therefore once in an institutional portfolio, they will also hang about in it for many years, think IBM or GE. Now suddenly condense that holding period into a far shorter span to dis-invest and you will blow the subtle price balance apart. By the same token, a company typical grows, acquires, improves over decades, just as companies like Apple and Microsoft have, plugging away and expanding. Now what happens if the demand for all the buyers of a decade or more, are suddenly packed into a few months? Again, that delicate price balance is destroyed.          

So, you can then easily model remarkable over or under valuations, based not on any core worth but on supply and demand. Now there is a whole new world of pain from this, if you get what is called “common ownership” which is the phenomenon of a trio of giant asset managers, who own 20% plus of the S&P 500 between them. So, if those asset giants decide to switch course, the volume of stock unleashed (or indeed acquired) will clearly be far beyond the market’s power to react in a balanced way.

The Democrats are already nervous about this feature, and may well look harder at it, although probably after a nasty market crash, of course, not before, when it might actually help.

ESG In Action

So, in JP Morgan’s definition, what is ESG? What does the “E” constitute? Carbon pollution and emissions, environmental regulations and adherence, climate change policies, sustainable sourcing of materials, recycling, renewable energy use, waste and waste management. Seems OK. Under the S we have to look at human rights, diversity, health and safety, product safety, employee management, employee well-being, commitment to communities. Fine too. While finally G is Board structure, effectiveness, diversity and independence, executive pay and pay criteria, shareholder rights, financial reporting and accounting standards and finally a catch all of how the business is run.  

So, it has become quite a narrow definition, although a little less so on the environmental side. It favours businesses that are not vertically integrated, those that just skim the last bit of others production. No direct mention of water or indeed of total consumption, in that part of the guidance for instance. Other areas also justify that late-stage business model, a focus on employees, but not workforces, on low skill workforces too (which are easy for diversity targets), no actual production (helps a lot on health and safety, to have no machinery), while ESG advisors love the soft option of ‘commitment to communities’, a couple of village halls and a sponsored half marathon and you are there. It is completely silent on fair tax.

Indeed, you can almost see this definition leaning into the big distribution, tax avoiding, gig economy US firms and most strikingly into fin tech. Maybe ESG is the after all the revenge of the bankers?

There are some traps in the G section, Board diversity and effectiveness are easy enough to fix, that’s what chairs of audit and remuneration committees and indeed HR directors are for, while Board effectiveness is always assessed by consultants they themselves appoint, we have seen some right turkeys ‘assessed’ as absolutely fine.

Independence used to mean something, but Cadbury et al have made that vacuous box ticking just related to tenure. Pay is sorted by a very low (or zero, for high grade virtue) basic salary and generous yet soft bonus targets, with personal targets again a great loophole. Mine are to try to do a good job (and yes, we have seen that actually used). I can certainly meet that before the year even starts. As long as you don’t set pay upsides too eye wateringly high, most things on remuneration still get nodded through.

A hollow laugh then follows for shareholder rights, with so many of the big tech stocks having odd voting structures. Financial reporting? Well, “adjusted” profits allow pretty much everything on that side now. Some conspicuous angst over valuation of goodwill or deferred tax or lease accounting, none of which have any impact on cashflow, also apparently counts for good accounting compliance.

So, the ideal ESG business would be something like PayPal, Visa, Verisign, Alphabet, Autodesk, Charles Schwab, in short fintech is simply delightful as it has no factories and makes nothing. Distribution is not too far behind. All cracking market performers too.

Is ESG then just convenient ‘tagging’?

Now that gets us back to “common ownership”, if enough big managers decide that’s the way to invest in what they like already, but they now simply tag it as sustainable, then there is a rush into those same stocks, which as we know then go up, more buyers than sellers time again. Magic, you have created both a market outperformer and an ESG winner and yet not stepped an inch beyond your comfort zone.

Well, each of those listed stocks above do indeed feature in the top ten of our very own sustainable fund holding, what a surprise! That also gives us performance, and we know exactly what our holders hire us for. Get enough buyers in line and any stock can be made to shoot up like a rocket. 

While just as ESG has been a perfect template for the overvalued US tech stocks and the cleverly presented top slices of the real economy, investment in that part of the globe where the 30% of the poorest people on earth live, has also dropped remorselessly this decade, helped down, by yes, ESG.

Just like the Victorians, we seem to believe that the poor must be clean to be helped, both literally to enter the workhouse, and figuratively to justify our assistance. If you ain’t clean, free of drugs and vices, and suitably docile, you are simply not the deserving poor.

So, we reject those dirty countries whose firms make up 5% of the world’s listed profits, but only 1% of investable assets. In other words, we are all 80% underweight in those so-called Frontier markets, you can guess where the compensating overweight is, of course.

Many such holdings are rejected because they run vertically integrated, job creating, people hiring, output generating, dividend paying businesses which are exactly those that are so despised by the neo colonialists on ESG committees, because they are both poor, and not yet clean. Only sinners that have repented can be helped, we do remain Victorian at heart. While their output, once sanitised by distance, can happily be the base for clean, ESG compliant, fintech services or advertising.    

When judgment is made to look like virtue

There are few better tools of subjugation than denial of access to capital and banking services, there are few better ways to keep colonies in check than protectionism, preferably founded on opaque, subjective rules. Just ask the British Raj about those devices.

Somehow that awareness has now crept into how the ‘ghetto’ poor are to be treated, but not into how the poor are treated globally. Yet we also know that the one remorselessly feeds into the other.

ESG has become a means of protectionism, of restricting access to capital for the poorest economies, but also a path to destabilizing our own equity markets, piling on volatility, mis-allocating capital. Well, you can’t fault good intentions, but as Boris so often demonstrates, good outcomes are not quite the same.

What the global poor need, is a shot in the arm from unfettered capital markets and an end to protectionism.

Keep an eye on what Biden achieves, with his “summit of democracies”, as colonies, much like ghettos, always adore being preached to with evangelical fervour about their own morality, especially by a country with such a vibrant, exuberant, healthy democracy.

Charles Gillams

Monogram Capital Management Ltd


Some Big Calls

First posted on 7th February 2021

US Markets: The ‘no-Trump’ response

We may learn a little about markets from the curious absence of Trump.

We had been confidently told that without him the US stock markets would fold, and as US markets collapse, these days so do global ones. Indeed, not just relying on the US, has become the fund management challenge of the last decade.

Well, he went, admittedly in a two-stage collapse, but he and the Republicans are out of office, yet the apparent upset in Georgia passed with barely a market ripple. Markets just went on up, unconcerned. Now some of that is their appetite for short term debt fueled spending, which even if you know makes little sense, it is folly to stand in the way of.

But beyond it, higher taxes and lower growth must be the consequence, if you are buying stocks on a 6 times multiple of earning the next two years matter a lot, but when buying them on the current S&P 500 forecast of 25.35 times earnings, that implies those later high tax years must surely be in the equation too.

Has the market priced in the downside?

So, what seems to have happened, is the downside of future years has been calmly offset against the short-term gains of a stimulus package: is that logical? It seems unlikely, if nothing else a big corporate tax rise is due, to notionally pay for it all, plus a fair slice of traditional “stick it to the rich” revenge legislation.

The assumption seems to be that the winners in the higher consumption aisle will be neatly offset by those who suffer from the new regulations. We are less sure and do feel the ultimate impact will inevitably be lower US growth.

Of course, tech might solve all, but then it is very richly valued already. It might solve the growth problem, but could still be loss making for investors, at these levels.

That is not to say that Biden put on a poor show in his advocating a “go big” package, he did it lucidly and with passion, a good speech. 

For all that, when a new leader arrives and confidently asserts lots of economists (but notably not including The Economist this week) think he’s doing the right thing, it means trouble ahead. While his near certainty that the US would consequently be back to full employment by Christmas was touching, but absurd. The excess stimulus might get growth back to pre-pandemic levels, but that’s really not the same as employment.

The China issue remains big.

Another really big asset allocation call:

We are hearing ever more gruesome tales about East Turkmenistan, following on from decades of horrors from Tibet, both sovereign states seized by China in the political chaos after WWII.

If you see them like the other nations seized by Mao’s fellow imperialist Stalin, at much the same time, you will understand the repression. Although as ever with China, with a big dose of racism, against the 7% of their population who are not ethnically Han Chinese, plus of Communism, which still stands against any form of religion, be it Buddhist (Tibet) or Islam.

Will Biden care more or less than Trump about human rights? Well obviously, he will care more, as something is more than nothing. But will he be more effective than Trump, indeed do the Chinese find an unpredictable enemy with a penchant for sudden tariffs, harder to deal with, than a believer in the international order and gentle fireside chats?

Well here cynicism prevails: these are nations caught between empires, like Poland was for centuries; any tension in the international order will always see a land grab by their bigger neighbours.

I also believe Biden will find the proposed attacks on American consumption through both higher taxes and the removal of cheap energy and labour, can perhaps withstand also keeping Trump’s price rising tariffs in place.  As notably he has done just that, to date. Indeed, he seems to be out-Trumping Trump on Federal procurement and protectionism.

But I still don’t think cutting China out of global trade, however barbarous their actions have been, is a runner. I think the vile abuses of power can go on, just as the EU has already handed a free pass to China’s torture chambers to plough on, by agreeing a new trade deal with no human rights teeth. So, in time, realpolitik will triumph with Biden.

It was I suppose nice to see China (after a pause for thought) suggesting locking up elected politicians in Burma, after the Army grew tired of holding all the cards, but getting no thanks for it, was a poor move. But there was a long enough pause to just tell the junta they didn’t mean it and were really rather pleased. A little more discord, more repression of the ‘tribal’ areas along their shared border, more sanctions to exploit, a few less pesky journalists, all are very much in China’s interest.

So, I see a curious dichotomy, in the Han Chinese areas, Tesla car plants, Apple phone stores, Starbucks a plenty, for a sophisticated technologically advanced middle class, will all thrive. While the minority non-Han areas will be pillaged for resources and labour and if they are good, be re-settled and re-educated and polished up for tourists. A bit like California in the 19th Century. So perhaps Xi is right, only China can split China, but then history suggests, it will, one day.

But not any time soon; you can take a moral position on Chinese racism, or an economic one on Chinese dynamism, but I am fairly sure the market will easily favour the majority.

This of course does create another ESG contradiction, the US high flyers rely on selling to the Han Chinese but are keen to exploit minority Chinese labour forces and natural resources. We can look forward to a great deal of sophistication in somehow disconnecting the two.

Efficacy of the Astra Zeneca / Oxford vaccine

Finally, I should mention the battering the EU and even perhaps the Euro (at a nine month low) has taken from the principled resistance to fudging the data exhibited by German scientists. The scientists are right, the evidence base for efficacy in the over 55 age group is indeed absent. Excitable politicians, including the normally precise Macron, have said it means it is ineffective, which it does not, only that proof is lacking.

Now that is presumably in part to cover the arrogant and inflexible EU procurement process, so full of checks and balances it strangles itself.

Boris’s vaccination stance

While Boris (faced with the same data) decided to wing it, correctly seeing that to save the NHS and his own electoral chances in May, he would rather give a potentially useless but harmless jab to millions of elderly disease vectors, than talk about due process. For once his disdain for the experts paid off.

The opposition in the meantime pleaded for a longer deprivation of our liberty by a longer pointless lockdown. Thank you for that suggestion.

Call it luck, if you will, but Boris has spent a long time practicing that ex tempore talent.

Proof might have been lacking, but it looked a jolly good bet.   It sure was.

Charles Gillams

Monogram Capital Management Ltd