Why didn't you tell me?

Mint – Blain’s Morning Porridge

“Lo Pan appeared on the street? Wang Chi why didn’t you tell me?”

Oh dear. Very messy start to the week already - as I write the Shanghai is down 8%-plus.. Be very worried about China. Global market sentiment looks likely to give up the (slightly more) positive “vibe” since the apparent end of the current Greek crisis as China goes into full wobble mode again. Hoist the red banners and prepare for a long march back to glorious state-run economic success!

China stocks are crashing on domestic and global factors, but mainly because it’s a bursting bubble, and China retail now clearly sees it as such. The last buyer has already left the store. Unconvincing China data bring into direct focus doubts about the government’s ability to stem losses through legislation effectively outlawing selling, and ordering state agencies, pension funds and brokers to spend, spend, spend!

It ain’t working – and that’s got all kinds of negative connotations for the Middle Kingdom’s long-term transition and sustainability. If the government can’t persuade the workers the stock market is fine – just like the housing market and the environment is “fine” – then we’re maybe moments away from disaster. Any man knows “fine” is about the most dangerous word in the world.

On top of China’s domestic problems, we’ve got the ongoing negativity from global commodities, weak consumer demand and sentiment, poor economic data and the increasing prospects of a Fed (US Federal Reserve) hike. We’re seeing contagion from China stocks into Europe and maybe that’s how this all ends… with a whimper rather than a bang. Whatever happened to global recovery?

Now, I’m not sure this is connected, (US readers – sarcasm alert), but Amazon stock soared some 10% on Friday adding some US$50 billion to its market cap…. Stunning.. but that comes after it made a “larger than expected” profit of $92 million. That is not a typo. Amazon made $92 million profit. That’s a PE ratio of around 600! Apple has a PE of 14.4, yet it took a thumping last week? What a mess.

Meanwhile, back to Yoorp. The Europeans arrive this week to tell the Greeks how to run their country. By their country I’m really not sure if I mean the Greeks or the Europeans. Naturally, I remain very sceptical that any deal really means very much.

It’s a sweeping generalisation, but Europeans generally despair of us Brits. They are quite right: we just don't understand Europe and its drive for togetherness the same way they do. While we see arrays of inconsistencies, incompatibilities and reasons why it can't possibly work, our continental cousins ask why shouldn't it work?

They can't understand our bafflement and negativity when French premier Hollande calls for "more Europe rather than less", or our extreme mistrust and raised eyebrows when an Italian finance minster, Padoan, calls for European political union to save the single currency.

While they see the euro as a critical symbol of European statehood, we perceive it to be the tail wagging the European dog and that can only mean bad things.

When Hollande calls for closer union, he represents the deep desires of all Europe and gives voice and aspirations to Europe’s manifest destiny as the United States of Europe. Of course he doesn't.

And that's becoming increasingly clear. Here in the UK we're not very good Europeans and we’re naturally sceptical of anything these bally continentals get up to. But every European also has clear views about their place in Europe. There is no such thing as a homogenous European perspective. Some French and Italians definitely want more Europe because it suits their view and mood.

As we’ve seen through the Greek debacle the Germans generally have a more legalistic, financially led view – and are increasingly wondering what it’s worth. Increasingly we’re seeing other outsiders like Poland taking very pragmatic views with its comment it doesn’t expect to join the euro.

And therein lies the point about Europe’s future path.. despite the Brussels-ocracy, Europe remains a collection of loosely interlinked nations and tribes. No point worrying about the Italians calling for closer union. The big test is still to come when the Brits vote on a possible divorce..  

And there is nothing to worry about here in the UK. The UK recovery must be much stronger than I thought. Our car, which we normally buy on lease-type arrangement is up for renewal. I called our dealer in Southampton to say we were coming in and were bringing the cheque book. Marvellous they said. Yet when we arrived, we were told we’d face a two-hour wait to see a salesman – did we want a cup of coffee? Fortunately we discovered the nearby city of Portsmouth is still mired in recession, and the dealer there was just desperate to do a deal with us. Amazing…

  

Bill Blain

44 207 786 3877

44 7770 881033

[email protected]

[email protected]