One certainty about life, in addition to Keynes' death and taxes, is that everything changes. And no more so than in the financial environment. For a while everybody was fixated by the problems surrounding the US, then Greece, then concern moved to the PIGS, oh, and let's not forget Europe's banks. In between, we've had to worry about China and whether its economy would crash-land or have a soft landing, as economists like to say.
After months of watching Europe repeatedly march towards the cliff face only to pull back at the last moment, it's now the fiscal cliff in the US that is the source of current uncertainty. Morgan Stanley's Joachim Fels has attracted some attention with his latest Sunday Start piece entitled What Next in the Global Economy.
He observes that China's economy appears to have stabilised. In addition to being the official view in Beijing, it also received some "bottom-up support" from the cautious optimism expressed by the 270 companies and 1,800 investors that turned up to Morgan Stanley's 11th Annual Asia Pacific Summit recently.
He says Europe "rightly or wrongly" is no longer seen as a systemic risk as a result of the European Central Bank's backstop. However, "… many investors have now turned to the US fiscal cliff as the next big thing that could get in the way", adding that the most likely scenario for that is "a patch with a promise followed by a plan".
Somewhat alarmingly, he says the economy may "have to go over the cliff first before the patch is put in place". This is the risk, he says, that equity markets have started to focus on in the last few days. While President Obama will shortly set about trying to hammer out a compromise, Fels says, "I won't be holding my breath."
My big fat Greek coffin
In an interesting aside in his Sunday Start note, Morgan Stanley's Fels reports that during his recent trip to Beijing, "a very senior Chinese official" told him that he thought a Greek exit from the euro might be necessary to make the rest of Europe do what's necessary to save the euro. To emphasise his point, the official quoted an old Chinese saying: "People will not cry until they see the coffin."
A carrot for your thoughts
Staying with today's economic gloom theme, we have come across an intriguing story from Spain about a theatre director's creative approach to getting round the country's new austerity measures, which include higher sales taxes on practically everything, including theatre tickets.
Quim Marcé, director of the local theatre in the small town of Bescanó in northeastern Spain, thought his 300-seat theatre was doomed following the 21 per cent rise in the tax on theatre tickets, NPR reports. Looking out of his window at farmland, he had a brainwave. Instead of selling tickets to his shows, he would sell carrots.
His idea was to charge €13 (HK$128) for a carrot, which is very expensive but let people into the theatre for free. As a result, he paid a 4 per cent tax on carrots rather than the new 21 per cent tax. This wheeze has attracted some attention in Spain and the media has dubbed it the Carrot Rebellion. The theatre has been packed as a result of the publicity.
Although he consulted a lawyer and has the support of the mayor, Marcé is worried that the government will make it illegal to sell carrots at theatres. In which case, he says, he will sell tomatoes instead.
A Goldman moment
A number of senior executives at Goldman Sachs will be on tenterhooks today in anticipation of the offer of a lifetime – a Goldman partnership. These are only offered every two years and there will only be around 85 this year who will be duly anointed across the group’s organisation.
A partnership offers no little prestige, considerable wealth and, for only the very few, the possibility of joining the higher reaches of the US government. However, as Financial News reports, the workload can be horrendous.
While you might think it is hard work becoming a partner, that is nothing compared to living the life of one. One talked of leaving Goldman for a rival firm because he was unable to attend to the needs of his family. Describing the change he said, “It was like the Cub Scouts versus the Special Forces.” We are not unfortunately told the name of the other bank.
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