Venice is the most romantic place on the planet bar none. It’s the sort of place that should be mandatory for anyone where the relationship is not on terra firma. If I was the boss of Relate ‘s charity arm I would hand the client a one-way budget airline ticket and a money back guarantee if romance is not rekindled. It is unquestionably the most vibrant city I’ve ever been too besting Hong Kong and New York and it’s definitely one up on most UK cities. The romance crosses generations and is nationality, creed and colour agnostic. It’s difficult even for the hardest heart not to be touched by at least a modicum of awe so magical is everything about it.
The environs are classy too. The church service we attended in the small town of Mirano 10 miles from Venice was a case in point. Several hundred years old, the church oozed atmosphere, the sense of occasion given added poignancy commemorating as it did the deaths of 300 countrymen and women in last week’s Perugia earthquake.
Italians “do” many things better than the median- expert painters and sculptors, the combination of wonderful frescoes, superb acoustics and a spellbinding rendition of Bach’s violin concerto in A minor was genuinely moving to churchgoers and secularists alike. Married to a Catholic and with children bearing vaguely Italian names I temporarily belonged to a timeless piece of Italian tradition, part of a scene played out at 25,000 churches across a country where even today 20m or one in three of the population attends the weekly service.
Expert building was the cornerstone of the success of Venice as the pre-eminent Mediterranean city state at the turn of the XIV century and craftsmanship extended to glass making, leather working and stonemasonry.
So successful have their descendants been that even today out of 193 members of the UN, Italy lies number five in the production of manufactured goods with an impressive $500bn sold in 2015.
The success of companies like BUGATTI and FERRARI, BENETTON and BUITONI, GUCCI and PRADA and LUXXOTICA and PININFARINA is well documented but it’s the lesser flagged names often in third and fourth generation guise that is testament to the strength of this backbone. Germany has its “Mittelstand” but Italy’s is as impressive, superb companies like FAEMA, glass bottling like ZIGNAGO VETRO marble miners like MAFFEI and electrical engineers like GEWISS and companies that laid the background to la dolce vita in the post war boom.
Unfortunately for Italy though this success is slowly being eroded by a public sector infrastructure of which any eastern European state pre 1989 would have been proud. On one bus to the city I counted three ticket inspectors and on one water taxi four.
Public debt now eats €1.30 of every €1 generated and the banking system is on the point of collapse with one in every five loans non performing. DEUTSCHE BANKis trading in the stock market at just 20% of the value of its net assets and as it braces for the iceberg dead ahead, holding as it does €100bn of Greek and Italian claims or 2x its nav the recap will be painful. The shares are down 85% in a decade, a striking statistic for Europe’s biggest bank by assets.
One way to extricate themselves from the debt spiral is to sell assets to the Chinese. CHEM CHINA bought PIRELLI for €7bn in 2015 (and has followed this by buying SYNGENTA for $50bn) and there is not one Italian blue chip company that does not count a Chinese shareholder as one of its top ten.
Chinese investment in western firms is becoming contentious though and last week’s block on the sale of New South Wales ‘s electricity supplier AUSGRIDfollowed hard on the heels of UK PM May’s postponement of the decision to go ahead with the construction of a new generation of nuclear plants agreed in principle between her predecessor, CGN and EDF at a cost of $60bn or £94 per kw hour, twice the market price.
The Americans too worry about China.
Jackson was founded in 1894 and is a town of 7,900. In several years of working for the Americans I only ever made it as far west as Chicago and my limited knowledge of Jackson comes from the Cash/Carter rendition of the song, which in any case probably refers to Jackson Tennessee not Wyoming though Cash never confirmed this.
In this mountain resort each year at this time this little backwater made famous by its fishing and skiing plays host to the most important central bankers’ gathering outside Davos.
However this year US central bankers are unsure of themselves. Half want to stick and half want to twist when they meet on 20 September, the last governors’ meeting before a contentious presidential election on 7 November.
The last time they twisted on 16 December 2015 the Chinese yuan went into meltdown and global markets into freefall.
They followed this up with more hawkish words in June and the Brits voted to leave the European Union causing further turmoil and heightened anxiety.
However, US narrow money M1 is rising at 10% a year and the most ardent sceptic of Friedman’s work would concede this is too quickly even if the bulk of the money is getting trapped in the banking system.
America has a productivity problem and when the cost of capital is determined by two guys named Bezos and Zuckerberg whose companies have been going for under a generation, while bridges fall down around you, it takes you four hours to get from Boston to New York on Amtrak and the less said about O’Hare the better, it’s problematic.
Coupled with this is the dire state of US politics with the election either of a raving lunatic or a socialist throwback. If America was a business it would be good for sure but the presidential election will test sorely the Buffet maxim that it’s better to have an incompetent run a great business than a genius a poor one.
In Asia the city of Hangzhou hosts the 11th G20 summit this weekend. Hangzhou sits at the head of Hangzhou Bay in eastern China 800 miles south east of Beijing and was one of the most important cities in the world for much of the 12th and 13th centuries, Venetian merchant Marco Polo describing it as 100 miles wide and renowned Moroccan explorer Ibn Battatu the greatest city on the face of the earth.
Today it has a population of 9m and a per capita GDP of $18,000 which if it were a country would make it into the top 50 on its own.
Hard on the heels of the G20 the 28th Asean summit is being held in Laos next week and will be attended by Modi and Obama whose intense diplomatic lobbying this year centres on Hanoi.
Tensions continue to rise in the south and East China seas as long standing enmities are stirred by a more assertive India and Obama cosies up to the Philippines and Vietnam, the former of whose rights to exploration have been upheld, admittedly by a court in Europe that Chinese ministers try so very hard not to be contemptuous of.
Astonishingly Vietnam itself is now the world’s eighth largest importer of arms and with defence spending in the region shortly to pass that of the US, growth is buoyant. The market’s first etf invested in quoted Chinese defence stocks has been launched. It consists of 72 Chinese companies and has already attracted over $1bn.
In civil engineering too there is activity. HANJIN SHIPPING, Korea’s largest operator went bust this week and shipping rates have promptly spiked 50% as retailers like Amazon rush to cover for the Christmas selling season by seeking alternative carriage options.
We are bullish on Asia and overweight in client portfolios. GDP growth is 5%+ allowing earnings growth in the high single digits. It’s a nice contrast to the various difficult issues of stagflation in the States and Europe and at least the political tension is borne out of growth.
Elsewhere we have been working hard on our asset allocation for Q4 and into 2017.
To protect clients’ assets against rising inflation is becoming the key objective for any asset manager.
Obvious routes have either closed (index linked, TIPS) or are bull markets that are established (gold, silver) so the investor needs to be cannier
Nevertheless we have a core weighting in gold/precious metals/energy and selected commodities, reits and infrastructure.
PAM funds’ performance is robust this year to date with the average Peterhouse managed fund to a UK sterling investor up 15% and the SF Peterhouse gold fund up over 100%.