As US citizens sat down to their Thanksgiving turkey last week they had much to be grateful for. Mem...
As US citizens sat down to their Thanksgiving turkey last week they had much to be grateful for. Memories of a horrible year of nasty wars, presidential scandals and other assorted political detritus are already fading as continued economic prosperity and growth hold out hope for a rosy future. The fairy tale goes on and on, with the only certainty being the longer it continues, the sooner it will end.
The US bull market now has a sort of dreadful fascination for investors this side of the pond. How do they do that? Why can't we do it? Can we have some crumbs from their table? The UK is managing a passable impression but while economic growth is getting going in continental Europe, the euro is struggling. A month ahead of its first birthday, the currency is at its lowest ever level against both the dollar and sterling. It has dropped 20% on the yen since launch.
Why? Third quarter GDP figures released this week from France and the Netherlands show a 1% increase. The growth and restructuring story in Europe has been a feature of fund marketing literature for months. But the problem is, while the growth might be there, the restructuring element is not Š or not yet. `In the past week investors have been treated to two classic examples of political intervention in the markets, of a magnitude which if they occurred in emerging markets would have the IMF growling a warning. Britain's Vodafone Airtouch made a hostile bid for Germany's Mannesmann AG (which has just swallowed up Britain's Orange network) and there were squeals of protest. Such a predatory style is not the German way, whine their executives. The Anglo-Saxon corporate model is not appropriate. Those old Saxons must be turning in their graves.
Then Phillip Holzmann AG, Germany's second largest construction company employing 70,000, begs to be rescued from insolvency. As if by magic, DM250m is rustled up from state coffers, part of a deal worth a hefty DM4.3bn cobbled together by 20 other banks. The package has yet to be approved by the European Commission but nobody seems to have any doubts it will go through. So much for the forces of the free market.
In the same week, France blocked Coca Cola's bid for Pernod Ricard's Orangina brand. The authorities and cornered management of these companies think they are doing their economies a favour by throwing lifelines to such floundering giants but the fallout has hit the euro badly. And unlike the boards of Mannesmann and Holzmann, the European Central Bank seems to care little that euro parity with the dollar looms once more.
ECB board member Domino Solans said categorically that the ECB would not intervene to support the currency. If it hadn't been Thanksgiving the euro would have been on the floor in moments. ECB president Wim Duisenberg is also unconcerned. The currency received more support from Japan's top finance man Haruhiko Kuroda, whose attempt to talk it up to help cover exposed Japanese institutional investors also failed.
Bundesbank veteran Otmar Issing, now ECB chief economist, tried to redirect investors' focus to the growth story rather than the euro slide. Central bankers, he added helpfully, should try to keep markets guessing. But it is the market that has the euro on the run. Even worse, nervous European investors are sending their assets to more grown-up markets such as the US and, yes, even Japan. Europe is still a great story. The market could still see a bull run in the new Millennium but only if the stockmen don't shoot the beast in the foot.
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Joined as head of strategy, multi asset, in June
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