Monday 21/01/19

  1. In MACROECONOMIC NEWS, we see side-effects of the US government shutdown and Brexit as well as their combined knock-on effects on Davos
  2. In UK HIGH STREET NEWS, Mike Ashley circles HMV and Patisserie Valerie awaits its fate
  3. In INDIVIDUAL COMPANY NEWS, Huawei outlines the consequences of the global sport of Huawei-bashing
  4. In OTHER NEWS, I bring you stress relief for students. For more details, read on…



So we see who’s benefiting from the US shutdown, what could be next for Brexit and the many absences from Davos…

Pawnshops and payday lenders surge on US government shutdown (Financial Times, Nicole Bullock) shows who is actually benefiting at the moment from the longest ever government shutdown. The current impasse on Trump’s plans to build the wall on the border with Mexico has meant that hundreds of thousands of government employees and contractors haven’t been paid. Shares in short-term lender World Acceptance and pawnshop EZ Corp have risen by 22% and 20% since the shutdown started a month ago as a result. Shares in Lending Tree, a consumer-loans portal, are up by a whopping 42% in the same time period, but given that 78% of American workers live pay cheque to pay cheque, according to a 2017 study by CareerBuilder. and that almost half of American families could not cover a $400 emergency expense without borrowing or selling something, according to another survey by the Federal Reserve – it is hardly a surprising state of affairs. Some banks are offering to defer mortgage payments or small loans, but they seem to be reluctant to go all out to help these people who’ve done nothing wrong. * SO WHAT? * I know this isn’t strictly a macroeconomic story, but I thought I’d mention it here because it is a macroeconomic event that has had immediate consequences. It just seems crazy that Trump going into a huff about a wall that is probably going to get torn down when he eventually leaves office is affecting so many people in a very real way – right now. Still, it just goes to show that one person’s nightmare is another person’s profit – and the pawnshop and payday lenders are getting a nice little bump in demand – plus a potential introduction to a broader client base for the future.

Meanwhile, back home, Theresa May on Brexit collision course with MPs (Financial Times, Henry Mance) shows that May is really up against it as MPs bay for a Plan B given her massive defeat last week on her original agreement. How the Brexit options would affect the economy (Financial Times, Chris Giles and Delphine Strauss) looks at the various possible options and consequences. No deal would mean higher costs due to tariffs at the UK-EU border and restrictions on trade in services as well as an 80% drop in the number of EU migrants. Estimates say that after 15 years, the economy would shrink by 9.1% versus the size it would have been remaining within the EU. A Canada-style trade deal, the option that most Brexiteers favour, would avoid tariffs and some non-tariff barriers but many hurdles would remain – particularly with the Irish border issue. Estimates say the economy would be 6.3% smaller in 15 years with this option. A customs union with alignment on goods regulations was what May’s agreement was alluding to, would have meant the UK could maintain an infrastructure-free border with Ireland along with minimal disruption at the Dover-Calais border. The main disadvantage of this option is that Britain wouldn’t be able to have substantive deals with other countries. Estimates say that this option would mean the economy shrinking by 2.2% in 15 years versus staying in the EU. The Norway+ model, which means that we would remain in the EU single market and customs union but leave its political structure. Britain would not be able to set its own migration or regulatory regimes, which would be the main price of going for this

option. Estimates suggest this would be neutral on the economy versus leaving the EU over a 15 year period. Remain in the EU after a second referendum would remove the immediate uncertainty but actually holding a second referendum would subdue economic activity in the short term. Consensus among economists both within and outside the government suggests that abandoning Brexit would lead to more rapid growth in both the short term and over time. * SO WHAT? * FWIW, I think that, until we get any kind of certainty – whatever that may be – the UK economy will stagnate because no-one is going to want to invest. I think that businesses have done their best to accommodate different outcomes to the best of their ability, but they just want to know what the upshot of all this is going to be on a practical basis so they can move forward. Political impasse can be crippling and the pressure to come up with something concrete is going to increase as the days go by. Generally speaking, I believe that holding another election is a pointless exercise that will create even more uncertainty (if that’s possible!) AND delay things even further. Most of the other options above don’t look likely to gain a majority backing as things currently stand and so the least bad option from the above is to hold a second referendum. That way, the politicians can say that “the people have spoken” and get on with it – either way. If we vote to remain, I think there will be a big economic rebound for both the UK and Europe and if we vote to leave I think that the UK and Europe will slide into recession, with the added spice of Europe potentially falling apart as internal divisions widen.

I referred to this before, but one of the consequences of Brexit uncertainty is resulting in Storage costs soar as Brexit stockpiling leads to shortage of warehouse space (The Guardian, Sarah Butler) as 75% of UK warehouse owners say that their space is full and that storage costs have shot up by 25% in the last three months, according to the latest stats from the UK Warehousing Association (UKWA). A survey by the Association shows that 85% fielded Brexit-related inquiries and about 75% were unable to take on more business from new customers. UKWA chief exec Peter Ward said that “We are facing a perfect storm in the warehousing and logistics industry” because, on the one hand, demand is increasing (especially from online retailers) due to Brexit. On the other hand, from the warehousing point of view, the supply of new warehousing space has slowed down because urban land has been prioritised for homebuilding and staffing is becoming an issue as workers from eastern Europe continue to abandon the UK – all of which has contributed to the cost of providing the space. * SO WHAT? * Warehousing companies will be making a ton of money at the moment and will continue to do so at least until the uncertainty subsides.

All of the current macro difficulties have meant that a lot of the leaders of the world’s major economies won’t be in attendance at the World Economic Forum in Davos as per Domestic crises force world leaders to skip Davos (Financial Times, Chris Giles and Andrew Edgecliffe-Johnson) which says that Trump pulled out more than a week ago as he’s grappling with the government shutdown, Theresa May won’t be donning her snowboarding attire as she’s dealing with Brexit, France’s President Macron is still dealing with the gilets jaunes, and neither President Xi Jinping of China nor India’s Narendra Modi will be in attendance. * SO WHAT? * It seems to me that whatever is discussed there will have no bite at all as the world’s main players won’t be there, so it’ll all be more of an academic exercise than it normally is.



Mike Ashley looks like he wants to add to his “Retail Bag of Cr@p” with HMV and Patisserie Valerie’s future continues to look shaky…

Ashley circles HMV in fresh move to add to his empire (Daily Telegraph, Ashley Armstrong, Lucy Burton and Jack Torrance) shows that the canny Sports Direct chief Mike Ashley is looking to bag a bargain in the January sales as it turns out that he’s in proper talks to buy the business out of administration, having lodged a formal offer last week. * SO WHAT? * Well Ashley certainly likes a bargain, but you do wonder if he’s going to bite off more than he can chew given that his House of Fraser acquisition isn’t going that well and that he’ll potentially be in the running to buy Debenhams. If he DOES buy HMV and Debenhams

however, he will have bought them for rock bottom prices and will actually end up with a lot of major prime real estate space and brands/infrastructure. In theory, he could cherry-pick all the best bits, collect rent as a landlord for the bits he doesn’t want and cut the fat off the rest. All joking aside about his penchant for buying cr@p, if he played it right he could have some of the ingredients to make something really special – or he could just sell bits off at a massive profit if he wants to see a quicker return. It’s going to be really interesting to see what he does.

Patisserie waits to hear if trading can go on (The Times, Tabby Kinder) chronicles the ongoing debacle at Patisserie Valerie as the company is to be told today if it will be able to continue trading as talks between its chairman, Luke Johnson, and the company’s banks are to come to a head regarding the extension or not of loan facilities. Tough times for the employees and nervy times for shareholders who bought into the deeply discounted £15.7m placing in October.



Huawei gets gloomy…

Further to the bashing the company is getting from all sides, Huawei chief warns of job losses amid 5G security concerns (Financial Times, Kathrin Hille) is hardly surprising as founder and chief exec Ren Zhengfei acknowledged that forecasts will have to be revised given

the massive moves made by whole countries against the involvement of his company in their 5G expansion programmes. Things sound ominous for his workers as he said that “Things went too smoothly for us in the last 30 years. We were in a phase of strategic expansion, our organisation expanded in a destructive way. We have to review carefully if all geographical subsidiaries are efficient…In order to achieve overall victory, we need to conduct some organisational streamlining”. Sounds like a lot of imminent job losses…



And finally, in other news…

I thought I’d leave you with an unusual idea from Bristol University today in Students offered bubble wrap to help calm their nerves (Metro, Richard Hartley-Parkinson Hmm. Something tells me that won’t quite be enough for most people…

Some of today’s market, commodity & currency moves (as at 0829rs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq *DAX *CAC-40 *Nikkei **Shanghai **
6,968 (+1.95%)24,706 (+1.38%)2,671 (+1.32%)7,15711,206 (+2.63%)4,876 (+1.70%)20,719 (+0.26%)2,611 (+0.56%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)