Beware the bond bubble
THE Dow Jones index hit an all-time high last night, and that is all thanks to Donald Trump. Or rather, that is what he would have us think. In the past five weeks he has tweeted at least a dozen times to that effect.
Here’s a good one, on August 1: ‘Stock Market could hit all-time high (again) 22,000 today. Was 18,000 only 6 months ago on Election Day. Mainstream media seldom mentions!’
Well, we are mentioning it now. Having just come back from a week in Washington, I do think there is an extraordinary contrast between the ebullience of the financial markets and the pessimism of the political commentators.
The explanation, insofar as there is one, is that US share prices are responding to strong corporate results and continuing solid growth in employment. And not just the US, for this is a worldwide phenomenon.
According to Reuters, of the nearly 1,000 companies in the MSCI World Index that have reported their profits, 67pc have beaten expectations. After all, the FTSE 100 index is within half a percentage point of its all-time high, and I don’t think even Trump would claim credit for that.
What is real is the political paralysis in Washington. Congress broke up last week and the president departed for his 17-day holiday without there being a single significant piece of legislation enacted this year.
The president has also filled only a tiny fraction of the jobs in the White House and major agencies that he needs to run his administration. He can pull the levers but there is nothing attached at the other end.
If you are an optimist, maybe that is all to the good. If you are going to have a capricious president, maybe better also to have an ineffective one. That seems to be the over-riding view of the business community.
If you are a pessimist, though, you would focus on what happens historically to bull runs on the stock market, such as the one we are seeing now.
The S&P 500 index is trading at 18 times expected earnings, compared to its ten-year average of 14. And what did Donald Trump think of the markets when he was just a presidential candidate? On August 9, 2016, he told Fox News: ‘If rates go up, you’re going to see something that’s not pretty. It’s all a big bubble.’
If it was a big bubble then, it is surely a bigger one now. But of course it may carry on inflating for a while yet.
Price of creativity
CONTENT is king in the digital universe, but where do you go to find it? For Netflix, the answer is Glasgow.
This is a story in three parts. It is about the extraordinary achievement of Mark Millar, who started drawing comics at school but was nudged towards economics, which he studied at Glasgow University, before dropping out when his father died and he was unable to pay his living expenses.
We don’t yet have numbers on the price Netflix paid for his creative genius but he would have been pushed to do as well as an economist. It is a story about the way in which creativity sprouts up in Britain in an endless but unpredictable stream. Five of the top-ten bestselling fiction authors of all time are British, with Agatha Christie at number one, just ahead of William Shakespeare (JK Rowling is number nine).
And it is a story about the way in which new electronic media groups are moving from being the channel by which people watch content to creating the stuff themselves.
Netflix leads with shows such as House Of Cards and The Crown, but Amazon has bought the services of Jeremy Clarkson, and Apple has said it wants to create its own content.
And new media has money on a scale that legacy producers such as the BBC and ITV can barely dream about.
Dame Helen
A WORD about the sad news of the death of Dame Helen Alexander.
She is rightly being praised for her work at The Economist, and as the first woman to chair the CBI. She had all the qualities of successful business people, but for those of us who knew her there was something else. She was thoroughly honourable, decent and nice. The room brightened a bit when you chatted with her.
We surely need more women in boardrooms, but we need more nice people too.