Burger-nomics

** Burger-nomics ** 21st-25th June
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There are of course serious events taking place this week where world leaders gather to discuss the still stubbornly bad economy. They desperately seek a resolution that will ensure the viability of the current banking system and permit trust in sovereign debt for some years to come. The “Golden Rule” here? Well, he who has the gold - makes the rules. Watch for a number of well-sounding-bites-of-wisdom from the opposing US and Chinese delegations as the G8 followed by the G20 (wouldn’t want the others feeling left out now would we?) sit in Canada – my personal favourite this week “The economy is like water. Water does not boil at 99 degrees, but one extra centigrade can make a lot of difference” – classic stuff from China’s Confucius pedigree . Who says economics is not mired in science huh?

Our favourite scene of the geopolitical week? Easy come on! What better photo-op than Obama munching on a burger with Medvedev whilst sharing a portion of fries at “Ruth’s Hell Burger”? I’m sure there are many ways to break-the-ice between two leaders of quite-large nuclear arsenals (still pointed at one another) but here’s hoping Obama’s method doesn’t backfire with a nasty case of meat-poisoning. Lucky for Obama that they weren’t ordering a burger in Dubai from the always reliable waiting-staff, or they may have ended up with a resplendent specimen adorned with all the necessary trimmings but missing one vital ingredient – the patty itself! Yep, it recently did happen in one of Dubai’s swankier hotels, seriously. Obama’s critics will no doubt point to a soft-approach, fretting about concessions being made and the US appearing “weak” but others will agree that Obama’s personality is continuing to show the US is maturing as a super-power and recognising the importance of avoiding past mistakes that have proven costly and destructive. An open-minded-manner in approaching geopolitics must be a better way of doing things.

Even more impressive than the records broken at Wimbledon - with the longest match in history having been battled out over an incredible 70-68 games in the final set over a muscle-aching 12 hours - was the fact that not a single drop of rain managed to find its way onto any of the courts as the sun-shone down on a wonderfully dry collection of strawberry munching spectators. Some of the fun will have been dented by the UK’s announcement of a hike in VAT by 2.5% to 20% - less cream on top of those strawberries next year. Another surprise for England was of course their football team’s ability (term used loosely) to finally put some effort behind their professed “love-for-the-game” and string together one-or-two passes to bring about a goal. France’s failure to proceed to the knock-out stages was well deserved (karma can be a cruel mistress – just ask Thierry Henry’s hand) and the Bafana-Bafana brigade were able to achieve little more than an outpouring of supporter empathy by having the ignominious honour of being the first host nation to fail to make it to the second round. The fun in the world cup is really just getting going, and true political rivalries will now come into play with matches such as England vs Germany bringing out the worst in the British (and German to be honest) press. Some colourful headlines surely being read right now. Will Cameron and Merkel even shake hands at the end of the G20 or will they simply swap shirts? – ewwww, come to think of it, please just shake hands Angela.

China’s Move...
Currency markets have not exactly continued to jump up-and-down-with-joy after what seemed like an earth-shattering decision to allow a strengthening of the Renminbi. Initial euphoria at the top-of-the-week swiftly turned as dry as an over-cooked Chinese stir-fry – within 48 hours to be precise. As with most China official department announcements, the importance of last week’s significant financial alteration is only perceived by listening to what was not said. No clear direction or level was mentioned, and only an ambiguous desire to maintain “stability” of the strengthening economy’s path-to-success and possible transformation to a consumer society touted.

The move was of course timed to coincide with the aforementioned G20, but those more savvy investors and China-watchers out-there had known about the decision for some weeks. The real effect was a reinforcement of China’s assertion that she, and only she, will make such strategic decisions and will do so outside of the intense (and often economically unwarranted) pressure of the more protectionist US law-makers out there. Bowing to what many within China view as a currently beleaguered and dramatically tarnished corrupt-capitalist system, as opposed to China’s carefully controlled capitalist-ish-state, is not an option for the People’s Party. It did always say that it would do what was necessary at a time that it considered correct, so far there has been no deviation from this stated course.

The problem is that there are those in the US that really do believe all their woes stem from China’s cheap-manufacturing sector. How silly the media can be, but even worse is how utterly gullible a collection of people can be with minimal influence and exertion of nationalistic stereo-typical grievances – a mere five minutes of research on the subject by those very individuals seemingly against anything Chinese, would elicit an understanding of how intertwined the two economies are and just how exactly the US consumer has been able to purchase all those really necessary extra TVs-for-their-cars’-back-seats, not to mention the home-barbeques large-enough to cook for the entire USA football squad. The move by China is the first positioning of the chess-pieces for the longer-term plan.

China approaches policy with an exceptionally long-term (election-worry free) outlook. In fact, spend any time talking with those involved in the financial markets across Hong Kong and they will display a belief that developed capitalist nations execute policy based on short-term crowd-pleasing necessity, whilst those without the need to pander to lobby-groups and ensure a maximum number of votes, think more altruistically. Now, discussing whether a control-state-economy is really acting in the best interests of its people at all times takes us to a whole other conversation, but the crux of the issue is that China’s authorities are doing what they have planned all-along – crucially, the currency move will not only placate and quieten some of the more educated masses out there but begin the training of China’s own banks with the skills required to manage a truly floating currency – i.e. teaching the banks how to trade FX and deal with the consequences of an introduction of a number of new policy levers, not least interest rates. So the whole exercise is a training issue. One which the world needs more than many understand. Without a stable China over the next few difficult years, the rest of the developed world will have a much tougher time trying to rebalance their grotesquely inflated trade deficits.

Dead and loving it...
More impressive than the news this week of one million Chinese millionaires now spending merrily through a supposed equal-income communist system ,was that the prize for the largest generation of wealth (in one year) must be awarded to someone that had in fact been dead the entire time – that’s right, the white-gloved genius of pop music - and more controversial than those caught siphoning off oil from the US Gulf Coast to sell on as “diluted-Gasoline” – Michael Jackson himself. Sales of his albums and surrounding paraphernalia generated almost a $1bn in profit since his sad demise. Now that is what you call making money in your (rather permanent) sleep. Second highest revenue-generating “dead” musician? Many still eagerly await his messianic return. Elvis of course. He would have definitely known where Obama can munch on the best burgers to his heart-exploding content!