Issue 205: 2019 06 06: Lens on the Week

06 June 2019

Lens on the Week

UK

TRUMP VISIT: Mr Trump arrived for a state visit to the UK on Monday with his family.  A state banquet was held in his honour.  Neither Jeremy Corbyn nor Sir Vince Cable attended, although Mr Corbyn subsequently sought and was refused a meeting.

Mr Trump has met with Jeremy Hunt and will make time for a meeting with Michael Gove.  Although he has expressed his admiration for Boris Johnson, who he knows,  the two men will not meet on this occasion.  Discussions with the government will cover climate change and the role of Huawei in the G5 rollout.

The President represented the US at the commemorations in Portsmouth to mark the 75th anniversary of the D Day landings which were also attended by the Queen.

ELECTION RACE: As the Tory leadership campaign gets going in earnest the candidates are working hard to accumulate parliamentary support.  According to The Times newspaper the score at the start of the week was as follows: Boris Johnson 35; Michael Gove 26; Jeremy Hunt 24; Dominc Raab 21; Sajid Javid 15.  By Wednesday, Mr Johnson had moved up to 40 putting him 14 ahead of Gove and Hunt.

Changes in the rules for choosing the two candidates to go forward to the membership mean that no one will take part in the contest without at least 8 endorsements, that after the first ballot those with less than 16 endorsements will be eliminated and that after the second ballot the threshold jumps to 32.  This should keep the number of ballots to a manageable level but it will be recalled that when Mrs May took over from Mr Cameron the process was very quick and involved no reference to the membership. Perhaps then it will not take too long for the party to make its choice.

CHANGE AGAIN: Change UK, the group of 11 MPs who have left the Labour and Conservative parties, has split following its dismal showing in the European elections.  Six out of the 11, including founder Chuka Umunna, have now formed their own grouping leaving ex-Tory Anna Soubry leading the remaining five.  Sir Vince Cable circles the fragmented party hungrily.

HUMAN RIGHTS: Jonathan Sumption, the retired Supreme Court Judge and distinguished historian who is reputed to be the cleverest man in England, has said that unless the European Court of Human Rights changes its approach we will have to leave it.  Giving a Reith lecture, Lord Sumption said that the Court had “transformed the convention from an expression of noble values, into something meaner.  It has become a template against which to assess most aspects of the domestic legal order including some highly disputable ones.”  Currently the government has no plans to withdraw from the Court’s jurisdiction.

International

EUROPE:  One week on, it’s clear that the aftermath of the EU Parliament elections has left the domestic politics of a number of European countries in some disarray.

In Germany, Andrea Nahles has resigned as the leader of the centre-left SPD following the party’s disastrous results in the election and subsequent plummeting polls.  This threatens to bring about the collapse of Angela Merkel’s already fragile coalition between the centre-right CDU and the SPD; with the resignation, many voices within the SPD have resumed their call to withdraw from the government and recover what they see as their natural position as opposition to the CDU.  The CDU itself did poorly in the elections; this, coupled with a number of unfortunate comments from her recently, has raised doubts about Annegret Kramp-Karrenbauer as party leader and Merkel’s successor.

In France, Laurent Wauquiez resigned as leader of the centre-right Republican party, following its disastrous results in the elections.  The party, which has been in decline since Francois Fillon’s fall from grace during the presidential elections two years ago, secured a mere 8% of the vote, losing moderate voters to President Macron’s La Republique en Marche and more extreme voters to Marine le Pen’s National Rally.

In Italy, the success of The League at the expense of their coalition partners Five Star has strengthened deputy prime minister Salvini’s hand in his power struggle with his fellow deputy prime minister Luigi di Maio.  Signor Maio appealed to his Five Star members to support him or sack him via an on-line ‘vote of (no) confidence’ this week.  Signor Salvini has been emboldened to pursue his confrontation with Brussels about the EU budget; his prime minister Guiseppe Conti threatened to resign if Salvini doesn’t behave himself over the budget and if the friction between the two parties didn’t cease.  Nevertheless, it’s thought that Salvini will be tempted to call for an early election in the hope that the League will win an outright majority and enable him form a government without coalition partners.

In Greece, the poor showing of Prime Minister Alexis Tsipras’s Syriza party against the conservative New Democrasy party in the EU elections caused Mr Tsipras to call a snap general election for next month.  He is likely to lose badly if the results of this week’s local elections are anything to go by; the conservatives were victorious in twelve of Greece’s thirteen regions.

Financial

STEEL YOURSELVES, AGAIN: The collapse of British Steel into receivership last week is getting messy; the Receiver is keeping the business operating on a short term basis whilst it looks for a buyer, and, surprise, surprise, one of the buyers circling the assets for sale is Greybull, the venture capital fund which owned the collapsed business.  It is said to be mainly interested in the subsidiaries in The Netherlands and in France. The latter ties up nicely with Greybull’s current advanced negotiations to buy a French steel furnace business which is to be jointly recapitalised by Greybull and the French government.  Those three assets would enable a self-contained business to be operated without the Scunthorpe long plant (it specialises in steel such as railway rail).  The UK unions are not surprisingly furious at this possibility, calling on the Receiver to refuse to deal with Greybull on any matters at all.  The Receiver cannot do that of course; it is his duty simply to get the best price.  Greybull has indignantly said that although it only paid £1 for the business when it bought it from Tata three years ago it has since pumped many millions into modernisation and operational losses.  Oh yes, says the unions, but that is secured on the business assets which puts Greybull well up the list to get paid out when the business is sold.  This one will run and run – unlike Scunthorpe.

THE OTHER END OF THE GARDEN:  It’s a very different business but liquidity is just as important. The in-aptly named Woodford Patient Capital (“WPC”) is run by Neil Woodford, for many years leading star amongst investment fund managers; but Mr Woodford’s reputation is sinking along with the value of WPC at the moment.  The problem is that Mr W has invested largely in businesses, some not publicly quoted, which have long-term growth prospects (hence the name of the fund; it is not for the in-and-out dealer)  but some of those are not doing so well at the moment, such as Purplebricks (on-line estate agent) which is encountering intense competition and a slow housing market, and Stobart whose bitter board room disputes have featured here.  Now some WPC investors are wondering if Mr Woodford has lost his touch and have asked for their money back – which has unnerved other investors – who want their money back.  Which the fund does not have in cash, or near cash.  So this week the fund had to suspend payments whilst it empties the piggy bank, looks down the back of the sofa, and takes some stuff to a City car boot sale.  Very embarrassing.

SLOW CAR RISING: And the third witch this week is our old favourite Tesla.  Although the Model 3 medium sized car is coming off the production in reasonable quantities (though still below the target 5,000 a month) the voices of disquiet are becoming louder.  Owners are increasingly making complaints about poor build quality and reliability (though the service back-up is said to be good, especially in urban America), but more seriously shareholders are increasingly wanting to get out (let’s hope WPC (above) is not a holder) as a move to profitability seems as far off as ever.  Last week saw a new report, by major analyst firm Sanford C. Bernstein & Co, which says that the Tesla business model is fundamentally flawed – costs are too high, their target markets too specialised, and the competition close behind and accelerating to overtake.  Tesla’s intention was to steal the market before the main stream car companies got there; too slow, chaps.

 

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