May 2017

March seems a long time ago. The topic then was all about Trump and the triggering of Article 50. Acres of newsprint reported every move, every Tweet from the White House. However, the attention span and the fascination with the new President seems to be dying down. He hasn’t changed and continues to broadcast a constant stream of often random thoughts as they spring to mind.

Capitol Hill is beginning to come to terms with the new President and is pushing his
primary objectives of tax reform and infrastructure spending further and further
ahead. The Trump technique, however, has benefits and his current world tour could
have some really good results in breaking some of the world’s political log-jams, there
is a big ‘if’. All his good work could be undone by a gratuitous comment.

On the economic front, the US is chugging along pretty well, all things considered.
Unemployment continues to decline, wages are creeping up, and corporate profits are
holding up – to the surprise of many economic forecasters.

In the UK, the Prime Minister sprung a completely unexpected election. On analysis,
it was called for understandable reasons, however, it was a brave move. The Prime
Minister’s negotiating position with Brussels was being undermined by the House of
Lords and by the ‘Remainers’ from all parties who could actually work together to put
trip-wires in the path of the negotiations with Brussels. Without a clear majority of
‘Leave’ MPs, Mrs May’s position was both publicly being undermined and technically
undermined by suggestions that various stages of the negotiations should be referred
back to the House of Commons, giving Brussels the opportunity to make the
negotiations hopelessly tortuous.

Brussels has already laid down some impossible preconditions such as the demand
that a severance payment should be agreed before the terms of the disengagement are
agreed. This is a bizarre position when one considers that the financial demands are
by no means clearly legally sustainable, and the detail of the disengagement will in
some areas have a major impact on any financial obligations.

A general election, however, is a massive undertaking called in a period when local
elections were already being run and the Prime Minister’s political team had no time,
and had not even been contemplating, drawing up a manifesto. While it’s relatively
easy for the opposition parties to throw together a wish-list of a manifesto, where they
know there is very little chance of gaining power; for the party in power, with a Prime
Minister of limited political experience, who herself less than a year ago had not
anticipated becoming Prime Minister, it is more difficult. The consequence has been
a rushed and confused Conservative manifesto which has to some extent damaged her

While Mrs May has a reputation for taking advice and being good at studying her
briefs, she has very little experience outside the rather narrow field of the Home Office.
With virtually no knowledge of the City, commerce and industry, and limited contacts
in these areas, it was going to be difficult at short notice to formulate good policies.
One also has to bear in mind the enormous pressure she is under from the backlog of
legislation left by the previous Prime Minister, not to mention the Brexit negotiations.
One can only hope that at the election she will get a clear working majority, as a
coalition going into Brexit would be a recipe for disaster.

Europe has come through its first hurdle of the year with France ducking, for the
moment anyway, a Le Pen government. If, however, President Macron cannot get his
reform policies to work, there is a danger that an even more disenchanted French
population might elect Le Pen next time around.

The good news is that Europe as a whole is improving economically. While
unemployment is unacceptably high, in most European countries it is going down
slowly. Mrs Merkel, the political and economic anchor of Europe, seems to be
recovering politically from her immigration policy debacle.

Asia on the whole is also doing well, in spite of China’s tightening and deliberate
slowing of its economy, there is steady but slow growth. Here the interesting
development is President Xi’s pan-Asian economic policy, which is throwing up some
resistance. China is beginning to have to learn the difficulties of international
engagement and how wielding economic power can create unforeseen backlashes.
The murderous attack on a Manchester young people’s concert, apparently by an
Islamic terrorist, is a stark reminder that terrorism is likely to be the major problem
of the next decade or so. Ever tightening physical security is a recipe for strangling
major cities. It is an oddity that there is little objection to physical police barriers and
vehicle movement restrictions, and yet liberal forces raise howls of objection to
security forces intercepts on electronic traffic.

I think we can go into the summer feeling sanguine about the world economy, while
being aware that there is an impending crisis if and when interest rates rise, which will
cause a great deal of wealth destruction as people who are holding “safe” bonds
discover the relationship between interest rate and capital value.

Damon de Laszlo
23rd May 2017