23 August 2018
Lens on the Week
UK
BREXIT: Here we all are again, streaming back from our holidays refreshed and relaxed to face the very problems which looked insoluble in August. And yet there are new twists. The Irish problem seems to have morphed from concerns about the border to concerns about electricity, with the Business Secretary, Greg Clark, in talks with the Irish government about how power will work on a no deal scenario. There is a change of pace too, with the new Brexit Secretary Dominic Raab scheduling continual negotiations over the next two months and the Government preparing briefings on a no deal outcome. Some of them are said to be being delayed because Mrs May has not had time to read them while on holiday. Believe that if you like but the truth must be that the Government has not found a way of dealing with these areas yet.
Chaos it no doubt is and a YouGov poll showing that 47% believe the decision to leave was wrong (against 41% who think it was right) indicates that the public is very concerned, but, as any deal-doer will tell you, this type of confusion is inevitable at this stage. What then should we expect to see over the next few weeks?
Clearly there will be more contingency planning as the parties seek to strengthen their negotiating positions by showing that if necessary they can walk away from the table. At the same time they will work hard to produce some sort of fix. Neither Barnier or May will want to go down as the politician who failed to agree a deal, taking on his or her shoulders responsibility for the consequences of failure. For them and their teams the prizes are for something “firm but fair” which can be claimed as a legacy or, in the case of Barnier, as a springboard to the next step in his political career. It may end up as an agreement with bits to be agreed later, but nothing at all? Surely not.
The other movement we can expect is from broader politics to detail, as changes in Mrs May’s team make themselves felt. Raab is more of a technician than Davies. Hunt is a better administrator than Boris. Greg Clark, bright as anything, seems to be steadily emerging as the fixer who the government brings in when it gets sticky. This is a team designed for detail and they are here to do a job. It can be no coincidence that the survivor of the Brexiteer trio of Davis, Johnson and Fox is Fox, the most thoughtful of the three.
What we won’t see is what is really going on. The papers will do their best, of course, but since they will only get information from those willing to speak to them the coverage will be highly distorted. For very good reasons the Government will keep public and parliament in the dark, leaving nation and markets to chew their fingernails until the great unveiling. It is then that we will discover whether the politicians have succeeded or failed.
WINDRUSH: The number of people who suffered as a result of the Windrush fiasco has been established at 164. Of these 72 were detained for up to 24 hours on entering the country but were then admitted. In 18 cases apologies are to be issued for detriment suffered when the right to be in the UK was not recognised. In the remaining 74, enquiries are still ongoing.
International
TRUMP: President Trump’s former campaign manager Paul Manafort was convicted of financial crimes in a court in Virginia and faces up to 240 years in jail. Trump’s former personal lawyer Michael Cohen struck a deal with prosecutors, alleging that Trump authorised him to pay off a woman in order to prevent her accusations from influencing the presidential election. Former CIA director John Brennan is threatening legal action against the president about Trump’s comments on twitter following the presidential decision to strip Brennan of his security clearance last week. Three hundred newspapers across the country joined together in a campaign to combat the threat to freedom of speech which they believe is posed by Trump’s attacks on the media. Former White House aide Omarosa Manigault Newman accused the president of being a racist and claims to have audio tapes to prove it. Trump’s lawyer Rudy Giuliani took us even further down the rabbit hole when he commented on the Mueller investigation: “Look, I’m not going to rush into having him [President Trump] testify so he gets trapped into perjury… No, it isn’t truth… Truth isn’t truth…” Further elaborations by both Mr Giuliani and President Tramp seemed to suggest (rather confusingly) that the comment was supposed to articulate their doubts that the investigation was capable of objectively discriminating between different versions of the truth (a difficult job surely made even more difficult when two different versions of the truth – would/wouldn’t – come from the same person). See comment Fallacy In Trumperland.
VENEZUELA: President Maduro’s government continues to struggle impotently with the hyperinflation of its own making; this week it chopped five zeros off the value of the country’s moribund currency, the bolivar. New lower-denomination banknotes were issued in a ‘strong bolivar’, a new virtual currency which is backed by the country’s oil reserves but has so far failed to convince global markets, virtual or otherwise. The IMF has forecast that inflation will reach 1,000,000% by the end of the year.
Venezuela’s oil reserves are the largest in the world, but President Maduro and his predecessor President Chavez failed to diversify the country’s economy when oil prices were high. Instead, their economic policies included: high spending; the crippling of private sector businesses; and controls on prices, foreign exchange and imports. Falling oil prices have consequently resulted in economic collapse, with hyperinflation rendering the currency worthless, massive budget deficits, food shortages, black market activity, and a huge exodus of citizens (millions of Venezuelans have fled to neighbouring countries in the last year). The regime has responded with cosmetic gestures such as chopping zeros off the currency, with aggravating gestures such as wage increases, and with cracking down on political opposition and media comment.
As if man-made disasters weren’t enough, the country was also hit by a natural disaster this week; a 7.3 magnitude earthquake shook the north east coast. There were injuries and damage in the city of Cumana, and people fled homes and offices in the capital Caracas. Tremors were felt as far away as Bogota, capital of neighbouring Colombia.
GREECE: The completion of the third and final bailout program means that Greece regained its economic independence this week. The bailout package – €289 billion – was the biggest ever. The accompanying austerity has resulted in the economy shrinking by a quarter, unemployment at 20%, and the emigration of half-a-million Greeks to other countries. Greece will still have to pay back the loans, and its creditors have insisted that it commit itself to the tough and possibly unrealistic targets of a primary budget surplus of 3.5% of GDP until 2022 and then of 2.2% until 2060.
Financial
GONE SHOPPING: Whilst the world was lying on the beach, Mike Ashley went shopping. And what he bought needed more than a tote bag to get it home. He bought House of Fraser, which went into receivership two weeks ago, but was quickly sold to Mr Ashley for £90m. Why would the owner of Sports Direct and other bargain based brands want to buy a failed middle market chain of department stores? Mr Ashley of course is not saying; he did not get where he is today by opening up his ideas to the world. And what has he actually bought? Well – he isn’t being forthcoming about that either. The HoF brand, obviously. Not the pension fund, not at the present time, that is a potential liability to be sorted out and will need some clarification before it can be. Not the 59 stores themselves – they were all leased and pay rent for the space they occupy. The stock in the stores will be Mr Ashley’s and if he keeps the chain running at least for now, and without too many summer sales, that in itself may enable him to recoup some of his £90m quite quickly. But he has the wage bill for around 15,000 staff, or their redundancy costs, and business rates to pay and heat and light and all the rest of it. So what might he be doing? The estate agents CBRE may know – they are preparing detailed plans on all the stores and there are clearly some valuable redevelopment opportunities if Mr Ashley can get hold of (say), the Oxford Street and the Victoria ones. Mr Ashley holds a lot of aces in this game – he will almost certainly have not yet taken on the leases but have a licence from the receiver, enabling him to walk away from leases if he does not get what he wants from landlords. Which might be to give up upper floors, to put Sports Direct in some, his other brands in others, and to operate, he says, a core as an upmarket retailer with a strong web presence. A “sort of Harrods” says Mr Ashley.
NOT GONE WALKING: Hostelworld, a downmarket rival to the highly successful but increasingly challenged Airbnb, has found itself struggling with hot weather and bothered accountants. The hot weather means that people are less keen to go on hiking holidays (“Wimps!” says the Shaw Sheet, reclining under the parasol) so the company’s speciality of providing online bookings for cheap and cheerful hostels and walking accommodation has been suffering from a lack of take up. At the same time the accountants have objected to Hostelworld’s practice of recognising profits when rooms are booked, rather than when they are occupied and paid for, and have forced a more conservative accounting policy. Revenue was thus down 9% in the first half year, to end June 2018, but profits halved, to £25m. The company hopes a mild and prolonged autumn might yet put things right in the second half.
FULLY OILED: Oil services group Wood, who took over Amec Foster Wheeler late last year is very pleased with progress – although integration costs were higher than expected driving the merged business to a first half loss of US$52m, everything else was good – turnover, adjusted profits, and projected savings from the merger were all significantly up – the latter is now estimated a remarkable $210m, a quarter higher than originally projected. Together with an oil industry that has seemingly recovered from poor performance and instability, that gives a very good outlook for the Aberdeen based business.
