FT Weekend KPMG & leadership, Yellen & G7, Aussie on Google, Commodities, Mao's forbidden truths


14 Feb

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Investors pump record $58bn into global stocks over past week. Tech funds saw a record net inflows of $5.4b in the week to Wednesday according to EPFR.'The US had the lion’s share of overall stock inflows, at $36.3bn. Investors also piled $13.1bn into global bond funds while pulling $10.6bn from their cash piles.’BofA noted that about 63 per cent of assets under management at its private bank, which serves wealthier clients, was now allocated to stocks — an all-time high.  Whilst the authorities worry about retail investors diving into GameStop no one seems to be worried about the momentum of money into equites and especially tech… but that makes for a market.

KPMG’s UK chair quits after criticising staff for ‘moaning’ about the pandemic
Bill Michael has been forced to quit as chairman of KPMG UK days after telling staff to “stop moaning” about their work conditions during the pandemic.'Michael split opinion within the firm, winning loyalty among many for his no-nonsense approach and strong-handed leadership after a series of accounting scandals and ahead of sweeping audit reform in the UK. But these qualities also led to criticism from staff who saw his approach as old-fashioned and abrasive — and out of step with efforts being made within the City to create a more inclusive environment.’
A reflection of changing attitudes and the right style at the right time. Demonstrated the need for managers to adapt the circumstances. Good managers know that.When I started officer training in the Royal Navy we were taught that good leadership recognised that there was always a balance between the three main areas of work; the task, the team and the individual. It was illustrated in three circles

Graphic see bottom of page.


When everything is going well you are in the white zone, where they equally intersect and have equal importance. But there are times when the task or the team or the individual may be more important than the whole and a vast range of stages in between. Managers need to recognise the situation and adapt to the most important needs. It is all the more important when times are difficult.

Yellen flags US reset to multilateralism. Treasury secretary urges continued support for global economy over crisis.  At her first G7 meeting as US Treasury Secretary she signalled the new administration was back to multilateralism giving encouragement that in addition to finance the US was looking for agreement on other issues too; like climate, digital taxes, relief for poor nations and more.She also stressed the need for continued economic support ‘The time to go big is now’.Whilst it encouraging to see continued stimulus for the recovery it does in my view mean that we are likely to see inflation sooner rather than later.

Read also Bundesbank chief signals tighter policy if inflation keeps rising 
Key is that the expansionary policies currently in place inflation is likely. Whilst Weidmann is one of the most conservative ‘hawks’ at the ECB his comments indicate that policymakers are aware that and thinking about how tightening policies should be applied post pandemic. Weidmann is expecting headline CPI above 3% by the year end.

Fed tests banks’ response to 55% plunge in equities Looks at the scenarios that the Fed will use in the annual stress tests which are used to determine how much banks can payout to their shareholders.  The tests are for the most part using more extreme circumstances than the Sept tests and probably indicates that the Fed is more worried about the current market levels; the only one mentioned in the article that has eased is unemployment.  This round of stress tests will assume 10.75% unemployment vs 12.5% last September.  The current rate of unemployment is 6.3%.  
Banks are keen to be able to return more money to shareholders on the basis of good results but the Fed remains cautious about bank funding. I think that the banks did learn the lessons from the Financial crisis and have changed their trading model to reflect the new regulatory environment, so that they hold less risk. But the Fed is obviously still cautious.

Australia blazes trail as watchdogs start cutting Big Tech down to size. Law to reset Google’s terms of trade with news media would erode pillars that helped it thrive.  Looks at the proposed law changes that could significantly impact Google’s business model. The Australian proposal would set many new precedents; forcing Google, Facebook and others to pay publishers for links to content and also forcing the platforms to give notice of significant changes to the algorithm’s that are behind the search engines. Google sees such a significant impact that it has threatened to withdraw from Australia.  It would mean that paying for the news goes from being discretionary to regulated.
The proposal being for a ‘final offer’ system where each side puts forward its proposal and an arbitrator picks which one will be used. The key being that it will give media groups more leverage, especially as they could collectively bargain.
Whatever is finally decide will be closely watched by other countries; Canada, UK and EU and all looking at making changes. It highlights that Microsoft was urging the US for follow Australia’s lead. Whilst it would impact its own Bing Search it obviously estimates that it will impact Google more. Microsoft said it was prepared to share more with publishers. Google is worried that the changes could mean it ends up making payments for other content too which again would hurt its business model. Also that it would mean some parties would get early sight of changes to its algorithm changes and those would fundamentally change the basis of the internet.
Historically Google has benefitted from showing snippets of news but it has been difficult for publishers to quantify the value. Additionally Google has tended to carry out secretive negotiation with publishers.
It could still exit Australia which would again hurt the publishers and a lot of small business owners who rely to it to direct traffic to their websites. Some worry that the big publishers will come out more favourably than small ones. What is clear is that content has value and users of that content will come under increasing pressure to pay for it. That will impact the bottom line for Google and others going forward and may make the already stretched valuations more uncertain.

Tokyo Olympics chief resigns over sexist comments. As expected but more importantly it may mark a change in the establishment over gender equality and possibly more.  On Saturday the local press reported that Seiko Hashimoto, minister for the Tokyo Olympic and Paralympic Games, appeared to be a promising candidate for the new president of the Tokyo Organizing Committee for the Olympic and Paralympic Games.

L’Oréal predicts 1920s-style beauty boom after lockdowns. Comment was made during the results conference call.  Its Q4 results showed strong sales driven by Chinese shoppers and a surge in E commerce; which off-set the disruption to its normal business.  It also shows a growing shift of business to the east. China is now its second largest market by revenue; up 27% YoY.  
It is difficult to imagine that there is going to be a huge recovery if only because the covid pandemic is unlikely to end anytime soon and many are warning that it will herald a wider change in society. More likely will be the trend of increased skin care products like lotions off-setting the decrease in lipstick sales.
Read also Growth is priced in but there are good reasons for doubt. After large market moves some are beginning to worry.  What if mass vaccinations take longer, to the virus mutates more rapidly.  Also what if the consumer post pandemic doesn’t go out and spend their cash pile but becomes more circumspect.  That would also have implications for inflation and the reflation trade.
It notes wisely that we just don’t know what will happen.
Personally I do think we will get inflation due to the large amount of stimulus that has been and is being provided. But I also think a lot of consumers, especially the lower paid, have been hit very hard and will be more cautious, not least because some low paid jobs are just not coming back anytime soon. For those with money they have been spending anyway; upgrading the home office, the home and the garden. They are probably enjoying life and when normality returns they may spend more on going out but I don’t think many will be rushing to binge on shopping. They know they can shop perfectly well from home.

Commodities rally raises hopes of new bull run. There have been an increasing number of articles recently about the another commodity run. Michael Mackenzie sets out that prices are being pushed higher by the expectation of a post pandemic recovery in 2021.  Oil and Copper along with a number fo other precious metals like Palladium have rallied strongly.  Whilst short of the levels seen in the super cycle in 2008 they are elevated.  
'At present, the bull case for commodities has a tailwind from the apparent willingness of governments and central banks to atone for their fiscal austerity and early tightening of monetary policy in the wake of the 2008 financial crisis.’
Notes that there are some like Larry Summers who are warning the dangers but the consensus seems to be that governments will spend.Some commodities are benefitting from the changes in the auto sector to Electric vehicles along with the general trend to greener energy sources +VE copper, nickel, silver, platinum, palladium etc.
Projects to mine these commodities can take lead times of anywhere from four to ten years and so supply constraints may be tested by aggressive spending.
Another good point is that commodities do well in times of inflation, when owning real assets is a benefit. Key being that current equity valuations mean there could be disappointments, low yielding bonds offer no inflation hedge but commodities would. But picking the right ones is key; it suggests ‘green' linked. The fact that commodities tend to be more volatile than other asset classes means that you don’t need a lot of exposure to provide a good hedge.

For Interest 
Myanmar’s youth holds the country’s future in its hands By Thant Myint-U he is the author most recently of ‘The Hidden History of Burma: Race, Capitalism and the Crisis of Democracy in the 21st Century’
Looks at the current situation in Myanamr. Notes that it is not on the verge of democracy but possibly revolutions change following the collapse of the pact between the army and Aung San Suu Kyi. Which way it will go is up in the air. He sets out the the problem is from the past of gerontocracy and focus on the elections and constitution. Says the youth of today are a new era, they are better connected to the wider world and more tech savvy. But they will need all their skills to 'craft a progressive agenda across ethnic lines, centred on inequality and development as well as peace and justice. They will need to reshape society as well as restructure the state. Myanmar’s young people have inherited terrible legacies. They should reject them. The future is now rightly in their hands.’
An interesting read, the fact that there are protests in Russia, Thailand and Myanmar is probably a worry to China too. Hong Kong’s SCMP on Saturday ran an article 'China’s GDP ‘paradox’:' which looks at why young Chinese despair about future prospects despite rapid economic growth. Leaders I think are going to have to pay more attention to society’s youth who are not growing up following the way’s of their parents. They have a wider access to information but not necessarily the same acceptance of following what they are told in the way their parents did. In a world of increasingly aged leaders that could be a problem.

Forbidden truths in Mao’s China. The World Turned Upside Down: A History of the Chinese Cultural Revolution by Yang Jisheng, translated by Stacy Mosher and Guo Jian
Yang Jisheng’s formidable account of the Cultural Revolution is an act of breathtaking courage — and won’t be read where it matters most. By Rana Mitter
Concludes 'Read this book to be reminded about one of China’s darkest periods, and to mourn that so much of its modern history is still, ironically and tragically, best told outside the country’s own borders. While Yang still lives in Beijing, the Chinese original of this book could only be published in Hong Kong. It will be a profound test of that city’s freedoms to make sure that it remains available there.'

Big money swaps taxing New York for the warmer welcome of Palm Beach by John Dizard. Looks at how rich investment managers are moving from New York to Palm Beach, one reason being the tax breaks.  As New York proposes more taxes on the rich the rich are moving out.  They are being followed by their favourite restaurants too.  Underlines that modern business is a lot more flexible than it used to be and keen to avoid an additional taxes.

FT BIG READ. FINANCE Is bitcoin going mainstream?
Many investors still treat the cryptocurrency as a frivolous sideshow. But its adoption by Elon Musk, BNY Mellon and Mastercard suggests it is slowly gaining acceptance by some as an alternative asset class.
It has had a recent spike due to Elon Musk’s Telsa interest but that was building on a rising trend of acceptance over the past few years. But it is still controversial. An interesting read.

An escape to the ‘old normal’
Maldives | Wealthy visitors seeking ‘no-mask’ breaks are driving a rapid recovery, with some islands busier than pre-pandemic. By John O’CeallaighYou have to arrive with a negative PCR test and are tested again at the hotel but as long as the results of your PCR test arrive clear the next morning you are free to roam mask free. Does make a lot of sense and maybe the new normal for holidaying.


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