The Footsie has soared through 7000! Another 30 points and we’ll be at record highs! The economy is in its rudest health for a generation and basking in the prospect of a rapid EU exit!
Don’t be fooled. The only reason shares are leaping is that the pound is tanking, boosting our exports and making profits earned overseas in dollars and euros more valuable in sterling.
And the pound is falling because the world’s investors reckon Britain’s prospects are worsening.
You can argue the toss about whether the markets are right or not, but you can’t deny the currency-equities connection.
Ah yes, you may say, but what about all these upbeat surveys on the economy? Manufacturers, service companies and builders are booming. True, but it’s worth remembering that we haven’t actually left the EU yet.
And, as Deutsche Bank economist George Buckley reminds us, surveys take a long time to react to shocks.
Britain’s banking crisis began in August 2007, yet the GDP data didn’t turn negative until the end of October 2008. The PMI surveys didn’t fall until April and May 2008.
I’m not saying Brexit will deliver anything like the shock of those awful days. Or that businesses haven’t proved surprisingly resilient to the referendum result. Their can-do optimism has been impressive, particularly in London, which has most to lose.
But we shouldn’t believe these fairytale markets. Put that champagne back on ice.
Slick talk, slack bank
Jamie Dimon is a charmer. In his youth, he approached a woman at a Harvard Business School party and said: “Hi, I’m Jamie; you’re going home with me tonight.” She did, and later became Mrs Dimon.
The trouble with charmers is that, sometimes, you have to take their words with a huge pinch of sodium chloride.
Today, Dimon declared “there’s no reason” Deutsche Bank can’t bounce back from its troubles.
Really? How about these: negative interest rates, lack of solvency, a sprawling, low-margin retail chain, Brexit, unknown derivatives losses, a Eurozone recession. Oh yes, and a looming, multibillion dollar fine from the US.
As with that Harvard chat-up line, Dimon is just talking his own book. No bank wants to see the European banking crisis that would result from Deutsche’s demise. Even the mighty JPMorgan would suffer.
Realistically, Deutsche won’t fail — Angela Merkel wouldn’t let it. But there are many reasons it could. Ignore Dimon’s attempts to persuade you otherwise.
SOURCE: Jim Armitage – Evening Standard
