In James Cameron’s ‘Titanic’, Jack (Leonardo Di Caprio) perished while Rose (Kate Winslet) survived. However, when Coutts hit an iceberg, the roles were reversed. BBC business hack Simon Jack remains in post while Dame Alison Rose was effectively forced to resign, despite Nat West’s hapless chairman, Sir Howard Davies, expressing initial confidence in her. I don’t know what’s worse, the CEO of a bank discussing a customer’s financial affairs with anyone (let alone a journalist) or a chairman not recognising that such appalling judgement should move the situation way beyond resignation territory; dismissal being the only appropriate response.
But that’s the thing with the modern developed world. Nobody ever has to take responsibility for their actions and everything is PR. The veracity of Coutts’ public utterances (pre Rose’s defenestration) reminded me of Harry Markle’s spokesperson’s response to a “relentless pursuit lasting more than 2 hours” in a “near catastrophic” car chase. Mmmm …… remember the thrilling car chase in Steve McQueen’s classic 1968 ‘Bullitt’? It went on for miles and lasted about 10 minutes. Maybe the Markles were filming a remake only their version had ‘sh’ inserted in the middle of the title? How do you manage 2 hours …. in midtown Manhattan? I suppose we should just be relieved that a pursuit lasting that long did not result in catastrophe and that eventually the paparazzi managed to escape, unscathed.
Talking of PR, I had to laugh at U.S. Treasury Secretary, Janet Yellen’s response to Fitch downgrading its rating on U.S. Government debt to AA+ from AAA. Yellen spouted “it was arbitrary and outdated. Fitch’s decision does not change what Americans, investors and people know all around the world: that Treasury Securities remain the world’s pre-eminent safe and liquid asset and that the American economy is fundamentally strong”. Fitch’s statement explained ‘the rating downgrade of the U.S. reflects the expected fiscal deterioration over the next 3 years, a high and growing general government debt burden and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers over the last 2 decades that has manifested in repeated debt limit standoffs and last minute resolutions.’
Fitch was really firing a warning shot across the U.S.’s metaphorical bow. It is pointing out that permanent deficits are not sustainable and that lenders would be wise to note it. Of course, the U.S. will always repay its debts. It has a printing press (it’s a little warm at present) but that’s the whole point of Fitch’s argument; nominal repayment is not in doubt but what the real value of redeemed Treasuries might be is an entirely different matter. Federal government debt now stands well above $30 trillion and according to Bank of America estimates, based upon Congressional Budget Office projections, U.S. government debt will rise by more than $5 bn every day for the next decade.
Would Yellen have described Fitch’s intervention as “arbitrary and outdated” if it had upgraded U.S. debt? I suspect not. In reality, the U.S.’s behaviour is not dissimilar to many Western nations. Endless deficits and not a sniff of a balanced budget, no matter how far one looks into the future. This would be serious stuff for any nation but the U.S. has the supreme privilege of issuing the world’s de facto reserve currency. Its profligacy merely emboldens those nations attempting to supplant U.S. dollar hegemony by reducing/eliminating dollar settlement. China and Russia are in the vanguard of this but there are plenty of others who’d happily join it. The reality is that it’s an impossibility to print and spend your way to prosperity. If it were, Zimbabwe would resemble Switzerland.
The value of investments and any income from them can go down as well as up and you may not get back the amount originally invested.
This material should not be considered as advice or an investment recommendation. Investors should seek advice from an authorised financial adviser prior to making investment decisions.
John Newsome can be contacted on 01423 705123 or john.newsome@williams-im.com. Williams Investment Management LLP is authorised and regulated by the Financial Conduct Authority.
