FT Weekend Thoughts, Crypto, Inflation, Covid and China not speaking to the US Defence Secretary


23 May

This and previous notes can be found at found at Sub Stack Asian Market Sense
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FRONT PAGE
Soriot lashes out at ‘armchair generals’ attacking AstraZeneca
• Chief says vaccine has future • Boosters show promise in lab • EU procurement at fault. An interview to put his view on the matter.
It may be that there is a lack of news but the article is run in the Companies & Markets section too

Pope’s austerity drive draws protests from Vatican staff bitter over pay cuts
Vatican employees have complained to Pope Francis about labour inequality, low morale and pay cuts as the world’s smallest city state is sucked into the global debate on the future of work sparked by the pandemic.

INSIDE
Poor nations lose out as Indian export ban chokes vaccine supply to Covax
The global jab effort has been left with a big shortfall, jeopardising Africa’s immunisation plans.
The big concern to investors is that until global inoculations are complete the potential for virus remain high and with it the chance of a global surge.

G7 countries agree to end international funding of coal
A dramatic move but whilst banning coal they failed to come up with aid for developing countries that would be reliant on coal for their power needs.
It is surely essential if we are to reduce depndancy on coal to provide the means so that poor nations can afford the more expensive alternatives otherwise they are likely to revert back to coal.
Also read Instability of power generation hampers Europe’s efforts to wean itself off coal
Instability of power generation hampers Europe’s efforts to wean itself off coal’  
An interesting read, gas prices are rising in part due to the rise in price of carbon allowances. ‘High gas and high carbon allowance charges are, perversely, creating economic support for utilities, in particular in Germany, to increase use of remaining coal-fired power plants.’
Removing dependance on coal is not going to be as easy as just making government statements and there are going to be cost implications. Another factor adding to the inflation arguement.

Lagarde plays down concerns over inflationary pressures
She joins the Fed and supports the line that the inflationary pressures currently being seen are temporary and that as European data this week clearly showed inflation pressures building. ‘“Demand for goods and services is surging at the sharpest rate for 15 years across the eurozone as the region continues to reopen from Covid-related restrictions,” said Chris Williamson, chief business economist at IHS Markit.’
Obviously some of the inflation will be temporary but interwoven with that will be permanent inflationary pressures too. Labour will also be a key issue with borders closed due to covid and a lot of migrant labourers unwilling to travel because of covid.

If you have not already listened to it I recommend the debate between Russell Napier and Gary Shilling on inflation vs deflation. It is available free of ERI-C.com; if you need help finding it just email me.

Free eggs and rap music help speed up China’s jabs rollout.
Having seemingly controlled the initial outbreak of covid so well, once it had admitted it China now faces the problem of getting people vaccinated. Falling reported cases make the issue less pressing. So the Chinese and others are reverting to bribery to encourage people to get vaccinated.
China has also ‘benefitted’ from a recent outbreak with the media playing up the fact that those infected had not been vaccinated.
At present Beijing does not see a problem in vaccinated its own population and exporting vaccine to other countries.

Also interesting was on Friday Dr Gottlieb a former FDA chief saying the summer could mean less covid cases in the US, but I think applicably globally; warning weather, volentary social distancing and the fact that a proportion of unvaccinated Americans have been previously infected and recovered.

It’s a interesting point but I wonder if we can be really sure that those infected with the initial virus are fully protected against the latest mutations or future ones.
Worth also reading New Yorkers are defying advice and keeping their masks on  by Gillian Tett.  Along with We will be lost if we panic at every Covid mutation  By Camilla Cavendish.

Beijing snubs Pentagon requests for high-level military talks
A worrying state of affairs that Beijing is actively resisting contact considering the increased activity in the Asia Pacific region.
US defence secretary Austin , who has made three requests to speak to General Xu Qiliang, was going to to attended the June Shangri-La defence forum at which he might have met Chinese defence minister Wei Fenghe. But the event has been cancelled due to covid.

The article notes that there is some diplomacy involved and that a with the Chinsese Defence Secretary rather that General Xu would have been a slight as Austin is the fourth ranking US cabinet ministry and General Xu out ranks Wei.

My worry, as I wrote yesterday, is that China is increasingly mis judging international opinion on a number of issues (Indian confrontation, covid investigation, Xinjiang and sanctions on EU ministers, South China sea and the Philippines). This stand-off with the US following the outburst in Alaska has all the hallmarks of continued Wolf Warrier diplomacy that is not conducive to world peace.
Art struggles to break free of crackdown
Looks at the state of the art world in Hong Kong and the increased pressure from pro-China figures in Hong Kong over what is acceptable art. An interesting read.
It is unfortunate the some groups are seeking to use the national security law for their own ends as it highlights the vagueness with which the law has been constructed. It demonstrates that whilst Beijing can say it is just about National Security the fact that Carrie Lam said in a statement that her officials would be “extra cautious” to ensure all the exhibits in an art exhibition were lawful raises question about how art can threaten national security?
It concludes ‘For many of those exhibiting at Art Basel, the clampdown has left an imprint. Kwok Mang-ho, a 73-year-old artist who performed in Tiananmen Square a year after the massacre, said artists in Hong Kong today were sometimes required to “control themselves”, adding: “I did many crazy things when I was young . . . [Now] I do the right thing at the right time — that’s the survival technique.”
Art and the world is a poorer place as a result.

Biden proposes global tax rate of at least 15%
White House backs down from original target of 21% as it seeks support for plan
Another sign of compromise from the Biden team which is encouraging. Also the tax would be based on sales rather than physical presence. It notes that the US Treasury would prefer a higher rate but that 15% should be floor.

Obituary
Scientist who created the Post-it note by chance
Spencer Silver Chemist and inventor 1941-2021
An interesting read; his original aim was a super-strong adhesive, he ‘earned 37 patents and won awards including the 1998 American Chemical Society Award for Creative Invention, according to the company. He was inducted into the National Inventors Hall of Fame and the Minnesota Science & Technology Hall of Fame.’

Editorial
Better preparing the world for next pandemic
Reform of WHO and a new framework of laws and institutions needed.
The annual meeting of the WHO starts Monday reform is required.
It concludes ‘Whether big economies will be ready to hand such powers to a body they cannot control will be a test of the extent to which the pandemic rekindled multilateralism. The urgency is clear. Another animal virus could jump the species barrier tomorrow. As the experts said last week: we have been warned.’
A good read in reality no one has come out well from the pandemic but there is a chance that next time we could all come out better.

LEX Digital currencies: control experiment  Looks at the control element behind central bank digital currencies (CBDC); that being a big reason for the PBOC disliking crypto. It also notes that whilst crypto is different to CBDC the size of crypto couuld influence the sway that Central banks have  incontrolling the money supply.
Concludes ‘Imagine a world where a central bank can decline to fund an obese citizen’s burger purchase or nix loan advances to a radical bookshop. Cryptocurrencies were inspired partly by libertarianism. Ironically, this has provoked a quest by central bankers for a form of fiat money with even greater potential for social control.’

Canadian bitcoin ETFs issue volatility warnings over digital currency turmoil
Key being that the CME briefly stopped trading due to curbs meant to control large swings in markets. That actually impacted on the ability of exchange traded bitcoin futures EFTs to trade too. An interesting read, I doubt that it will deter interest.
Interesting quote “I’m hoping this has opened the eyes of the retail investing public to understanding how volatile this asset class is,” from Steve Hawkins, chief executive of Horizons ETFs.
It does make you wonder whether some investors are properly informed but equally whether they care.
Also read Bitcoin’s design tarnishes its value as money
Makes the point that as bitcoin becomes more valuable people are less inclined to spend it. Key quote ‘a maxim usually attributed to Thomas Gresham, a 16th century English merchant and adviser to the Crown: poor-quality money drives high-quality money out of circulation. Why would you spend something that is becoming more valuable?’
Bitcoin like the Fed has at its heart a code and that determines how useful bitcoin or US dollars really are. An interesting read.

Online Edition has Bitcoin turmoil seeps into traditional financial markets
US stock-index and oil futures pull back as cryptocurrency prices plunge this week. Looks at how moves in bitcoin are impacting the main stream markets, like government bonds, futures and currencies.
‘One theory is that if bitcoin prices were to nosedive, that could be a meaningful blow to household finances for retail investors, chipping away at the narrative that the buoyant consumer can continue to prop up stock markets.
In addition, some funds and family offices have put money into cryptocurrencies, triggering a surge of interest among investment banks seeking to facilitate demand. On the margins, a large crypto drop could also dent the market’s appetite for risky bets.
The counterpoint is that a boom in crypto trading has coincided with a drop in volumes on stock trading platforms favoured by have-a-go day traders. Any large and sustained crypto fall could therefore prove to be a trigger for a pick-up in riskier parts of the stock market if those retail investors were to return to stocks.’
Like it or not crypto has to now be taken into account.

OPINION
Cryptocurrency holders take on central banks at their peril
By Katie Martin
Looks at the increased pressure on crypto this week; it looks almost like a co-ordinated attack by Central banks; first the PBOC and followed up by the ECB, Fed and even the US Treasury and IRS. The BoE had already earlier in May already dismissed crypto. One wonders if the had also been chatting about central bank digital coins because the Fed, who has up to now, not entertained the idea said it would publish a discussion paper on a digital coin.
She views followers as a community but seems to think they are separate from the rest of society; she says ‘in part because of their anarchic nature — their isolation from big government, big banking and big monetary policy.’ I doubt the hedge fund managers or banks that are promoting crypto trading would see themselves that way.
She makes the point that just as they say don’t fight the Fed that currently you shouldn’s fight Musk; although she sees his tenure as more short term than the Feds.
I think she is generalising to much just as Tech is more than Facebook so crypto is more than bitcoin. Many cryptos are linked to blockchain and so to write off all crypto is wrong.
Equally I think that if you are prepared to accept digital currencies then the step to crypto is a small one.
Like many I have traded crypto made and lost money but its a trading medium and like other trading mediums parts of it have more substance than others.
She concludes by saying ‘If and when central banks and regulators do assume control, it will probably bite a chunk out of the value of cryptocurrencies and leave some holders with substantial losses. But anyone left out of pocket will not be able to complain that they were not warned.’
The same can be said for everything we trade; remember ‘Caveat emptor’

COMPANIES & MARKETS
EY audit failings on Wirecard laid bare in ‘dynamite’ report
• ‘Shortcomings’ in lead-up to collapse • Reliance on scant data from Asia unit
More on the scandal; looks at a ‘confidential’ report from the German Parliament.
It notes ‘Under German law, it is illegal to leak such classified material to the press but the media face no restrictions in reporting on it.’ It would appear somebody doesn’t like EY!

Australia miners mutiny over BHP’s late-night drinking ban
BHP is facing a revolt at its mining camps in Australia after a ban on late-night drinking sessions prompted a clash with unions and accusations that staff were “being treated like children”.
It would certainly seen excessive and lacking in thought. I would have breathalysers would have been a better option. Worth watching the outcome.

SoftBank’s first female director exits in board shake-up
Looks at the moves at Softbank, losing ‘Yuko Kawamoto, a prominent corporate governance expert who is also the company’s first female director, will remove one of the most outspoken voices on SoftBank’s board’. She is going to ‘become commissioner of the National Personnel Authority’. She left a departing note on the company website which said ‘“One of the challenges is that although the direction, speed, ideas and energy are all considered great, sometimes the rules and systems are not checked in time to make decisions. She added the biggest challenge for the group is “to design a succession plan”.
She was appointed last year after pressure from Elliot and others to strengthen corporate govenance after the WeWork debacle. Many have said that the decision making process is too Son focused and lacks critical examination. Her leaving is likely to raise those concerns again.
The other departure is ‘vice-chair Ron Fisher, one of Son’s longest-serving advisers who oversaw much of SoftBank’s $10bn-plus investment in WeWork, will also step down after 26 years at the company.’ He survived the WeWork debacle despite having been instrumental in the deal.
It notes that ‘Pending approval in June, SoftBank will have five non-executive directors including new members Kenneth Siegel, head of the M&A team in Japan at law firm Morrison & Foerster, and Keiko Erikawa, female chair of entertainment group Koei Tecmo Holdings.’
I still worry about the amount of power that Son has over investment decisions; it will be interesting to see how the shareholders react.

Rising bond yields test ECB’s magic powers on tapering
Bank faces task of unwinding stimulus without triggering rapid rise in borrowing costs
Nice quote ‘“It is a magician’s trick,” said Paul Diggle, deputy chief economist at Aberdeen Standard Investments. “If Lagarde can manage the communications by being very reassuring then maybe she can avoid this being called a tapering and causing the sell-off to deepen.”’
An interesting read and no doubt the Fed will be watching events very carefully as it considers what actions it may need to take.
Attacks on the pay of top-performing CEOs can backfire

By Tom Braithwaite
A good read; executive pay bashing is in focus under ESG. Makes the point that investor groups shouldn’t be focused on the salary figure but on whether the recepient is adding more than that in value to shareholders.
‘It is one thing to fight soft incentive targets or the sort of goalpost shifting that made it easier for General Electric chief executive Larry Culp to earn a $47m bonus. But investors are bothering too much about pay at high-performing companies. They are also increasingly complaining about the “quantum”, a word designed to confer scientific precision on a squidgy sentiment: “It feels high!”’
He illustrates his point with a some good examples a good one being
‘Smith & Nephew lost a chief executive in 2019 who wanted to be paid on par with his US peers. The UK medical devices company’s shares fell 9 per cent on the day Namal Nawana’s departure was announced — a £1.4bn plunge that comfortably outstrips any pay demand he might have made. They are still 17 per cent lower.’
He concludes ‘Of course there is excessive CEO pay. But it often lies outside the eye-catching numbers or plans. It is those who deliver mediocre performance year in year out with a high-six or low-seven figure package that is just low enough to keep the pitchforks at bay. In other words, people very much like many fund managers themselves.’
As Jesus said ‘let him without sin cast the first stone’

Oatly’s cereal entrepreneur prepares for Wall Street test
Looks at Toni Petersson and his company.

Succession efforts at JPMorgan and M Stanley proceed at languid pace
Respective bosses Dimon and Gorman elevate potential heirs but look set to stay put for years

Liberty Global seeks to unlock value of property assets via Digital Colony link
An interesting read about monetising digital infrastructure. This time data centres. It is certainly an area of interest for a lot of property funds.

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