Confidence

Return of the State-Owned Enterprise

Image result for state owned enterprises

A new investor to Japan once asked CM how to categorise corporate behaviour in the land of the rising sun. CM replied, “Japan is not capitalism with warts, but socialism with beauty spots.

Latest reports confirm the Bank of Japan (BoJ) has now become a top 10 shareholder in almost 50% of listed stocks. In a sense, we have a trend which threatens to turn Japan’s largest businesses into quasi-state-owned enterprises (SoE) by the back door. The BoJ now owns $250bn of listed Japanese equities. It is the top shareholder in household Japanese brands such as Omron, Nidec and Fanuc. At current investment rates, the BoJ is set to own $400bn worth of the market by 2020-end.

The original reason for this move was to boost the ETF market and hope that Mrs Watanabe would pocket her winnings and splurge them at Mitsukoshi Department Store to increase consumption. Sadly all she has done is stuff it under the futon.

Although the government has been very public about the drive for good corporate governance, a stewardship code that drives to unwind cross-shareholdings, improve liquidity and lift returns, sadly the BoJ essentially reverses free-float and confounds the ability of companies to be attractive investments. What will happen if one day the BoJ announces it needs to pare its balance sheet back or that its holdings become too noticeable? These stocks will crater and Mrs Watanabe will become even more gun shy.

We shouldn’t forget that behind the walls of the BoJ, there is discussion to buy all $10 trillion of outstanding Japanese Government Bonds (JGBs) and convert them into zero-coupon perpetual bonds with a mild administration fee to legitimise the asset. Global markets won’t take nicely to wiping out 2 years worth of GDP with a printing press. Such a reckless experiment has yet to hit the Japanese Diet for discussion because such a move will require legislation to approve it. If it happens, the inflation the BoJ has now given up on will turn into a tsunami.

2020 presidential election campaign funding not even close

So the fundraising for the 2020 residential election moves on in earnest in America. It seems Trump has received $30m in Q1 2019 alone. Bernie Sanders has collected $18m and Kamala Harris $12m since her bid to run in January 2019. Elizabeth Warren has $4m in the campaign kitty and Beto O’Rourke $9.4m.

For a man so hated, many seem willing to throw their cash in the ring to support his re-election bid. The Republican National Committee has raised another $46m. The large number of donations it received seem to be driven off the back of the outcome of the Mueller report which announced no crimes committed.

Could it be the deplorables, who apparently have no money, want to put Mr Trump back in charge in 2020? Or maybe a broader section of Americans are tired of the non-stop drone in the media and tuned out to Democrats who seem more interested in opposing Trump on everything rather than put forward a proper campaign based on alternative policies.

Populist Finns Party set to more than double number of seats

The nationalist, anti-immigrant and eurosceptic Finns Party is set to grow seats from 17 in 2015 to 38 in today’s election, or represent around 17% of parliament. The party election video is an interesting one to say the least.

Whatever one’s personal views on populism, in Europe it is the fastest growing segment in politics. With 118m Europeans below the poverty line, 50% higher than 2007 is it any wonder the citizens of many member states have had enough of EU control. Finland has only 15.7% (up from 12.6% in 2007) poverty as a percentage vs 22.4% (16% in 2007) in the EU-28 but that is enough to trigger the ice cold welfare state to revolt.

Mrs May, do you understand more EU members don’t want to be held captive by Brussels?

One reason Boston Globe hasn’t won a Pulitzer since 2016

At what point do mainstream media outlets reach peak Trump Derangement Syndrome (TDS)? When will editorial departments seek common sense? The Boston Globe pulled down an opinion article that suggested waiters tamper with Trump officials’ food. Apart from encouraging staff to breach food safety laws, they show themselves to be juvenile in the extreme. Journalistic integrity? Hardly.

If the liberal left media truly believe they represent mainstream America in moral and societal values, which all of the crazy Trump supporters need to follow, tampering with food is not a great benchmark.

If you want a laugh, take a look at the Boston Globe’s stated values! What a surprise it hasn’t won a Pulitzer since 2016!

Carlos Ghosn speaks out against 忖度

In what is usually the reserve of Hollywood films, Nissan’s Carlos Ghosn has released a video on the basis he was rearrested. He eloquently puts forward his case on why he wants a fair trial. He said he always wanted to preserve the independence of Nissan as a brand despite wanting to move alliance talks forward to a merger but he was backstabbed along the way.

Japan may wish to crow about how it is dedicating itself to best practice corporate governance but the manner in which Ghosn was thrown under the bus certainly raises many red flags. It wasn’t so long ago that the board of Olympus staged a coup against then CEO Michael Woodford when he discovered all of the shady deals and offshore bank accounts. While the updated corporate governance code is a step in the right direction, far too many companies are unwilling to embrace the spirit of it. Filing documents with the exchange are done in ways to say that “we comply”. If you delve into the relationships, one company had an independent director who received 20% of revenue from the board he now sat. So much for conflict of interest.

Nissan’s performance was suffering. Ghosn said that “autonomy” is not a given for the brand. This is where “le cost killer’s” business style clearly rubbed the local management the wrong way. For a man who helped save the company from bankruptcy how quickly they forget his two decades of a turnaround when they feel the company is in a safe enough position to stall for time.  The reputation is in the mud.

忖度 (sontaku) sums up Ghosn’s problems. Several years ago the fanfare of the Corporate Governance Code was thrust into the faces of the international investment community that Japan Inc was changing. After visiting multiple staff inside the Financial Services Agency and the Tokyo Stock Exchange there was absolutely no pulse of proactively to be seen anywhere. Even CM’s slight nudge to get the FSA to tap the shoulder of the TSE to suggest listed corporates provide English language materials to encourage more transparency for foreign investors was met with the response, “it might help if you spoke directly to the Deputy PM & Minister of Finance Taro Aso.” Not a word of a lie. Knowing CM’s task was impossible, they were satisfied to brush it aside with that level of enthusiasm. i.e. we won’t lift a finger until told to do so.

To infinity and beyond?

Several days before Enron went belly up, Goldman Sachs released a research report on the company titled, “As good as it gets“. Grandiose statements are often precursors to calamity.

When Barrons publishes articles with “The bull market has no expiration date” start running for the hills. Sounds like Barrons has channeled Buzz Lightyear from Toy Story who said, “to infinity and beyond.”

What happened to Greenspan’s “irrational exuberance“?

Remember his godlike status was such that markets would hang on his every word forcing him to eventually utter,

I know you think you understand what you thought I said but I’m not sure you realize that what you heard is not what I meant!”

Maybe Barrons forgot that Buzz also said, “this isn’t flying! It’s falling with style.” Unfortunately there will be no grace when this bubble pops.

Thanks to SM007 for the flag.

Scheer to Trudeau – “Get on with it”

Canadian Opposition Leader Andrew Scheer has told PM Justin Trudeau to “get on with it” with regards to threatening to sue over the SNC-Lavalin PMO scandal. Scheer has accused the PM of interfering with the investigation carried out by the Independent Prosecution Service.

Scheer said

“I stand by every single criticism I have made of Justin Trudeau’s behaviour in this scandal. If Trudeau intends to sue me, if he believes he has a case against me, he should get on with it…

…Why do I welcome Justin Trudeau’s lawsuit? 1) Because he will finally be forced to testify under oath. 2) He will not be able to shut down the proceedings like he has in Parliament. Canadians will finally get the answers they deserve.

In the latest April CBC poll, the Conservatives under Scheer are at 36.2% and Trudeau’s Liberals at 31.7%. In November, it was 31.3% and 37.7% respectively. A slight reversal in fortune.

Trudeau is a darling of the left. Sadly his legacy is a disaster. From telling Canadians that returning ISIS fighters could be rehabilitated by reciting poetry and haiku, to dressing up in local garb on a visit to India (to the point where Indian officials said most don’t wear such clothing), wearing Star Wars socks, introducing compelled speech legislation and meddling with the ethics committee over his holidays with Aga Khan, Trudeau has proved completely out of his depth. His speech in front of the UNGA exposed his unpopularity as did waving to an empty airfield.

The peoplekind of Canada surely have buyers remorse. Luckily a general election is not far away.