Quotidian Investments Monthly Commentary – August 2016
This month has been relatively subdued, reflecting lower then normal trading volumes during the main summer holiday season. There have, however, been some points worth noting for their potential to move equity markets.
The first of these is the timing of a long-expected upward movement in US interest rates. Yet again market commentators in America are pushing the case that this change will be made at the September meeting of the Federal Reserve. We remain of the view that nothing will be done in advance of the US Presidential election and so December remains the most likely time for this well touted increase. Whatever the reality, an increase of 0.25% should not be much of a shock and is unlikely to have too dire an effect on equity valuations.
Of more immediate effect has been another politically motivated intrusion by the unlovely Hillary Clinton who, in the last week of August and entirely for electoral reasons, repeated her empty threat to control price increases by drug and biotech companies. The paucity of her assertion is obvious but it again had the short-term effect of an across-the-board markdown of 3% in the biotech and pharmaceutical sector. Economic reality will reassert itself shortly.
After ten years of strategic talks and three years of serious and detailed negotiations it was quietly announced by the German vice-chancellor over the last weekend of August that the mooted EU/US trade deal has finally collapsed. Perpetual disagreements between the two sides have killed off any prospect of a deal to establish the so-called Transatlantic Trade and Investment Partnership (TTIP) and so commercial traffic between these two blocs will continue under the aegis of World Trade Organisation rules (as has been the case for many years now).
Britain had been a major supporter of TTIP but with its impending departure and the ongoing impossibility of getting 27 disparate countries to agree on acceptable trading terms the talks have come to an impasse. France objected to opening up Europe’s farming and film industry to competition from the US whilst Germany opposed any potential undermining of labour and environmental standards. Similar EU negotiations with India and China over the past ten years have also ended in terminal deadlock. Sadly, the unilateral self-interest, protectionism and discrimination on which the EU is founded will continue to prevent its development as a credible economic unit.
It may be coincidental but the EU’s misguided attempt to impose a demand on Apple for ‘unpaid taxes’ may have been the straw which has finally broken America’s patience with what the US Treasury describe as the EU’s attempt to become a ‘supra-national tax authority’. It is quite clear that the EU has acted well beyond its powers in arriving at this invented ‘judgement’ and both Apple and the Irish Government will appeal the ‘ruling’. The EU’s logic and its controversial interpretation of international tax law is laughable in its idiocy and will only lead to years and years of unresolved legal argument.
On 31st August the FTSE 100 closed at 6781.51(a rise of+0.85%for the month of July and +8.64%forthe 2016 year to date). The mid-cap and small-cap indexes have not done as well thus far this year; however, the slow ones now will later be fast. By comparison, the Quotidian Fund’s valuation at the same date shows an uplift for the month of August of +0.91%and for the year to date the Fund is now – 8.89%. We continue to claw back the ground temporarily ceded during two substantial global market downturns earlier in the year and, with four months of the year remaining, I remain confident that we will be nicely into profit for 2016 by the year end.
Theodore Roosevelt once described America’s foreign and economic policy as “Speak softly and carry a big stick”. It obviously worked as the US has since established global financial hegemony.
The EU clearly prefers to use “Speak very loudly and carry a plasticine baguette” as their mantra. It doesn’t carry quite the same force and, fundamentally, it doesn’t work. Empty vessels.
The EU thus continues to prove itself to be a clueless, inefficient and fraudulent bureaucracy which works entirely and tirelessly for the benefit of its political elite who, in turn, have an infinite capacity to recite (or create) unenforceable rules. Strangely, those same rules are circumvented or ignored completely when political expediency and self-interest demands.
Wittingly or unwittingly it repeatedly continues to expose the central and fatal flaw in the entire charade. Its unelected technocrats like to act as if the EU has sovereign power over its individual member countries but, of course, this is far from the reality. In its unseemly rush in the early 1990’s to establish the Euro as its common currency its leaders failed completely to establish the necessary political and fiscal union as an essential prerequisite. The EU is thus holed beneath the waterline.
Much as they would like to believe it and much as they like to bluff, the EU has absolutely no legal right to interfere with a sovereign country like Ireland’s taxation policies and political choices. Hubris is inevitably followed by nemesis and persistent illegitimate acts of overbearing arrogance by its elite will ultimately (and thankfully) bring about the demise of the entire EU federalisation project.
On a positive note, the collapse of TTIP will have a beneficial implication for Britain in that, following Brexit, the UK will be free to negotiate a mutually beneficial trade agreement with the USA without any of the baggage that the EU brings with it. Such a deal will not take long to ratify.