Submitted by Bill Blain of Mint Partners
BoE's Grand Plan, ESG and Air France calling Macron's Bluff
Its Bank of England day tomorrow and you just got to wonder if it’s all going according to Mark Carney’s Grand Plan. Since his mumble-swerve on rate hikes because of weaker economic data 3 weeks ago – which prompted lots of hair pulling, unreliable boyfriend comments, and bafflement on what the BOE can do - the pound has crashed through the floor versus the dollar and wobbled badly on the Euro. Well done Mr Carney – it’s the most effective way to keep the currency down and the UK competitive!
While the UK is already in enough trouble from the Tories ability to turn a simple goodbye Europe into a Brexit political clusterf**k of monumental proportions.. (OK, I’m being flippant, but Brexit really doesn’t matter….) what’s not to like about weaker sterling – unless you were planning a holiday abroad? In the absence of any monetary policy tools left in the box – cos you can’t cut rates when they’ve already been cut to nada (unless you are Japan or Switzerland, and the UK clearly is not) - then currency games are the only way.
So get over the “disappointment” of no hike tomorrow and get on with it.. Although, its worth wondering what it means for the UK’s place in this “Macro Aligned Synchronised Global Recovery..” Or is it another sign the global recovery is stalling…? (More than a few of my clients will call and ask “what economic recovery???”) – One day they may erect a monument to central banks and carve into it: “They created a desert and called it peace…”
Elsewhere, it’s a perverse world where stocks rally on the US versus the rest of the World re Iran. Its’ certainly bad news for the Iranians – the Yooropeens and Theresa Might can bleat about it being unfair, but no sane investor or rational business is going to risk a single penny on Iran. The ESG implications are just too painful to contemplate…
Environmental, Social and Governance is a key theme for all investors these days – these are all serious issues. Good governance is a critical one – explaining why so much of the world lives in kleptocratically driven poverty, but I do wonder if it can go to far? As an occasional speaker on the conference circuit, my email has slipped into the conference organisers’ email lists. I am somewhat bemused by the number of ESG seminars, conferences, and other “events” I’m now getting invited to attend.
They deal with every aspect of ESG. From the prickly issues of green bonds, social debt and such like. I’m sure its all terribly laudable, but the number of people with ESG on their business cards seems to be multiplying as fast as compliance officers did in the 2000s. Is that a good or bad thing. I better say “good” before someone hauls me off for a lecture on social responsibility and inclusiveness…
Air France – opportunity? A 17% crash in the equity, and the price of its bonds have crumbled some 6 points in the recent days. Are you willing to take the bet Macron will blink in his efforts to enforce French labour reform, and bail them out? The government are playing tough, say no, and suggest the airline could even disappear.
Air France staff are revolting. They are demanding higher pay, and when they’re unhappy they literally rip the shirts from their managers back. In recent weeks the Airline’s survivability has come into focus as strikes raise questions on its survivability, and it struggles with low profitability and rising fuel costs, employees that are relatively over-paid, a weak balance sheet, and a mindset that it’s still a state entity (the French government owns 14.3%). While BA (part of IAG) is still notionally a flag carrier, it feels like a struggling budget airline these days and has cut is cloth/costs accordingly.
The government has already said it won’t bail-out them out, but that’s probably more than just an element of Gaulic posturing. As Ryan-Air proved last year, being tough on staff-terms can backfire very badly – when its pilots starting working-to-rule and accepting better paid jobs elsewhere, Ryan-Air was profoundly embarrassed.
Of course, it’s not just pilots that need paid – but there is a global shortage of pilots that is going to impact all airline cost bases. Its probably in the interest of any airline to ensure its staff relations are solid. Happy planes are better planes..
The issue with airlines is they are businesses – not assets. A far more interesting and renumerative way to invest in Air Travel is via aircraft or airports on an asset backed basis! 8% plus yields with an element of asset risk, or how about A+ equivalent rating on senior risk on airframes? Who you going to call to learn more..? And on that blatant marketing of some positions… back to the day job.