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Danger: Thin Ice

U.K. Government struggling to survive


It will be something of a political Houdini act if the minority U.K. Government manages to survive until the Parliamentary summer recess which begins on July 21st.


Yesterday’s Queen’s Speech which marked the opening of the new session was delivered in a sombre fashion and was thin in policy objectives as was pointed out by the Leader of the Opposition in the subsequent debate. He commented that there was not sufficient proposed legislation for a single year let alone two. Since Brexit will be in full swing next year, there will be no fresh legislation announced to allow Parliament to prepare fully for the departure from the EU.


So far, the foreign exchange market has taken the political turmoil in its stride. This is surprising given that BoE Governor, Mark Carney, has placed himself firmly in the “no-hike” camp, stagflation is a looming concern and the less said about politics the better.


Any deal with the Democratic Unionist Party is apparently “some weeks away” so there is still an opportunity for mischief making for the opposition before the recess.


Sterling broke the 1.2600 level yesterday for the first time in two months but remains supported with traders “cautiously pessimistic”. It bounced a little but remains in a shallow downtrend.


Even doubters marvel at Draghi’s economic miracle.


Who was it who said that nineteen into one doesn’t go, that one size doesn’t fit all and that the single currency “experiment” was doomed to failure?


Oh yes, that was me, so it’s humble pie for breakfast lunch and dinner as a seismic shift in my attitude has led me to accept that Mario Draghi can walk on water.


To have steered the Eurozone economy through the roughest part of the financial crisis whilst maintaining stability across such a diverse group of economies each managing their own fiscal affairs is miraculous. I still cannot accept that the motives behind the single currency are purely economic but you cannot “study what’s on the mantelpiece when you are stoking the fire”.


Persuading traditional high inflation high interest rate countries like Italy and Spain to accept monetary responsibility or profligate economies like Greece and Cyprus to live within tight fiscal boundaries has been an achievement worthy of immense credit.


Enough grovelling, where do we go from here. It may be that the severity of the situation was what sharpened the minds of the nineteen and as things improve the old attitudes will return. I am reminded of the LTCM bailout when, once the package had been put in place, one of the partners asked, “does this mean we can pay our bonus now?”


OPEC won’t be mourned.


The way oil has fallen in price over the past couple of months has been unmistakable evidence of the possibly life-threatening malaise that has infected OPEC.


The scourge of the U.S. in the 1970’s, OPEC came close to bringing “The Great Satan” (as the Iranians like to call America) to its knees. The 1973 oil crisis began in October of that year when the members of the OPEC proclaimed an oil embargo. The embargo occurred in response to United States’ support for Israel during the Yom Kippur War. There were five original members of OPEC; Saudi Arabia, Iran, Iraq, Kuwait and Venezuela. Since Venezuela was the only non-Arab member, it went along with the others demands.


The advent of more sophisticated exploration technology, production from shale and more recently, President Trumps more gung-ho attitude to exploration in the Gulf of Mexico have been nails in the coffin of OPEC.


Unable to control supply and demand that has been variable, subject to the economic development taking place in China, OPEC’s influence is on the wane.

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