Daily Note – A portrait of an entrepreneur


Bloomsday: A Joycean injection of creativity needed in the EU

Middle East: Iraqi government forces launch a fight-back

United Kingdom: First rate hike in 2014

United States: Consumer confidence slows in June

Oil: Chinese are stockpiling.


Good morning and Happy Bloomsday

Today is Bloomsday.

This day in 1904 James Joyce’s hero in Ulysses, Leopold Bloom set out, traipsing around Dublin. The city today will be full of Joyceans reciting texts and generally acting the maggot. I will join them later on down in Sandycove, but I’d like to draw your attention to a little known fact about Joyce the artist – he was also an entrepreneur.

I considered this last night in “Brussels South Airport” as Ryanair called my flight I had been at a reunion dinner for my old University, The College of Europe in Bruges. This is a college designed to produce the graduates who will drive the European project forward.

These are lovely people, clever, intelligent and well read, but what struck me was that I was practically the only self-employed person there. Most worked in the European bureaucracy, building the Europe of the future, yet none took any risk, employed people or understood what it is like to be in business. This is the problem in Europe. There are not enough entrepreneurs and without entrepreneurs you don’t have economic dynamism or creativity.

But the interesting thing about the entrepreneur is that they come in all shapes and sizes, and this brings me to James Joyce in Treiste just over one hundred years ago.

Trieste is an unusual place. It is an Italian city with Austrian habits. Rather than the typically Italian names, such as Totti, Fusco or Scappaticci, Triestine cafes have names such as Elsmansberger, Hinterseer and Bergdorff.

Coffee is served with the obligatory Central European glass of water. The architecture is pure mitteleuropa – pastel shades and stark columns. Wienerschnitzel competes with pasta on local menus.

One of the most interesting buildings is the old stock exchange, echoing the city’s mercantile past. In its heyday, Trieste was the Austro-Hungarian Empire’s main port. It was a bustling centre of trade, commerce and speculation.

And it was here, in September 1909, that Eva Joyce, James’s younger sister, suggested to Jim that there was money in cinemas. For a city of 400,000, Trieste had loads of cinemas. In contrast, there wasn’t even one in Ireland.

Joyce was sold. He knew four local businessmen (with typically ambiguous and non-Italian Triestine surnames: Messrs Rebez, Caris, Machnich and Novak) who were making good money in cinemas and theatres. His sales pitch began.

“I know a city of 500,000 inhabitants where there is not a single cinema.” Where is it?

Joyce didn’t give his secret away at first. He then produced a map of Ireland and pointed to Dublin, then Cork and finally Belfast – not one cinema among them – and close to a million people. Spreading his arms wildly over the whole territory like a demented general, Joyce persuaded the businessmen that if they moved quickly, the entire country was theirs for the taking.

They agreed instantly. Joyce had his venture capitalists. But what was in it for the original entrepreneur, James Joyce? As he had no capital, he negotiated 10 per cent for himself. Today, this capital would have been known in the jargon as `sweat equity’.

Joyce set off in October 1909. By December the Volta cinema was open on Mary Street in Dublin, with Joyce as proprietor, Novak as manager and an unknown Italian on the projector.

The Evening Telegraph covered the Volta’s opening night on December 20: “James Joyce, who is in charge, has worked apparently indefatigably and deserves to be congratulated on the success of the inaugural exhibition.”

Two other ventures captivated Joyce at this time. The first was a plan to import skyrockets into Trieste, and the second (which would become enormously successful for subsequent Irish entrepreneurs) was to import Irish tweeds into Italy. Both projects were dropped and the Volta folded, but all three episodes reveal a portrait of the artist as a young entrepreneur.

Joyce, arguably our finest and definitely our most celebrated writer, saw no contradiction between artist and entrepreneur. Rather they are complementary and at their root the artist and the entrepreneur are similar. A fine business brain is as interested, irreverent, creative and alert as a fine artistic mind.

The artist sees himself as outside the mainstream. So too does the entrepreneur. Both celebrate the individual over the collective. Both regard security with a certain distance.

There is a striking similarity about their worldview. Both regard the rest of society’s obsession with certainty and security as bizarre. Neither can bear the idea of working for someone else for a wage.

The very thought of taking orders from a bureaucrat strikes fear in both. Working is about creating, beating the competition and expressing themselves, not about pointless committees, political games and promotion.

In the end, artists and entrepreneurs are the only people in society who do not retire. They rarely become jaded or washed up.

Europe needs to foster these people, give them a chance and free them up to express themselves, come up with new products and flourish creatively. If it fails to do this, no amount of QE is going to make any long-term difference to the Continent.

Now in markets, equities reversed their recent selloff Friday and end higher with almost all sectors in the black. With the FOMC later this week, it will be interesting to see if the market can hold its gains if we start pricing a slightly more hawkish Fed.  Friday was dominated by talk about what the BOE/Carney statements mean for the Fed.

USD was stronger pretty much across the board Friday but GBP was the main story on the back of the hawkish comments from Carney. UK interest rate expectations were about 20bps higher (see chart below) and GBP was up +0.3% on Friday (an 0,75% since his comments late Thursday). We tested the key $1.70 level against the USD without being able to, as yet, break it.

Elsewhere in the currency world, there was a re-emergence of emerging market weakness with both the Turkish Lira and Rouble stumbling.

Treasuries had a volatile session on Friday following the Carney headlines. 5 year notes traded as high as 1.74% before closing the day at 1.70%. Remember once one central bank burst the bubble of “unlimited liquidity forever” it could have an effect around the globe.

We experienced that last year when the Fed moved to “taper” its QE program and we could see it here with the BoE.

Finally on Friday we noted, for those market participants who feel deflation is still a danger for the US economy, cattle futures surged to an all-time high in Chicago as US cattle herd fell to a 63-year low and peak summer barbeque season approaches. (See YTD chart below)

Figure 1: United States Cattle Futures

Chart 1 16 June

Iraqi government forces launch a fight-back

Iraqi government forces, backed by Shia Muslim and Kurdish militias, are reportedly holding back an advance by Sunni militants north of Baghdad. A number of towns have been retaken from the rebels, but they still control the key cities of Tikrit and Mosul.

I will limit my comments on the Middle East today and come back in a bit more detail in the next few days. Suffice to say, the threat of the maps of the Middle East being permanently redrawn becomes more likely by the week.

Iraq’s most senior Shia cleric, Grand Ayatollah Ali al-Sistani, has issued a call to arms to fellow Shia, and there are reports that thousands have already joined militias. A US aircraft carrier has been deployed to the Gulf in response to the escalating violence and there are reports that government forces are building up in the city of Samarra, apparently preparing for a counter-offensive designed to drive rebels out of Saddam Hussein’s hometown, Tikrit, to the north.

The BBC’s experienced correspondent John Simpson says:

Since Thursday, the idea that Shia fighters, Shia volunteers should come forward and back the army up has restored a certain amount of balance here. Of course, you could say that’s a problem for the future of this country, if one religious group is setting out to fight another one – and that blatantly. But that is something else, something for the future. For the moment it seems that there is a bit of a sense that things are settling down.”

As you can see from the map below, this is a very fluid situation.

Figure 2: ISIS activity

Chart 2_Map 16 June

United Kingdom: Market pulls the first rate hike in 2014

Bank of England head Carney’s warning that a hike in interest rates “could happen sooner than the market expects” has lead the market to revise its expectations for interest rates over the next year. The first hike is now expected to come before the end of the year as opposed to Q2 of 2015. Carney emphasized that there was “no pre-set course. The ultimate decision will be data-driven”.

Figure 3: United Kingdom Interest Rate Expectations

Chart 3 16 June

The world of permanently low interest rates of 0.5% cannot last forever. As the Bank of England becomes the first major central bank to announce rate hikes since the financial crisis of 2007-2008, expect others to follow suit – apart from the ECB of course.

Figure 4: United Kingdom vs Eurozone Interest Rate Expectations

Chart 4 16 June

The one investment this year we had a strong view on but didn’t act on was Euro/GBP, we had been waiting for an entry level closer to €0.8450, to get long GBP. We remain of the view that GBP will strengthen against the Euro. We’ll wait for a level to enter.

United States: Consumer confidence slows in June

Table 1 16 JuneUniversity of Michigan consumer sentiment moved down a bit to 81.2 in June (vs. consensus 83.0), from 81.9 in May. Despite the modest pullback over the past two months, the level of consumer sentiment remains at the high (See chart below).

Figure 5: University of Michigan Consumer Confidence

Chart 5 16 June

Iraq tension drives crude oil higher as China continues to stockpile

It’s not just the Middle East crisis that is impacting on the oil price, according to Bloomberg, China is buying more than 600,000 barrels of crude a day above what they need as they stockpile oil for emergency use.

As part of a plan that began in 2000 they want to have 100 days of supplies and have been constructing storage in various locations to store the oil. While official records of stock levels are hard to come by, the China National Petroleum Corp estimated that they held around 141m barrels at the end of 2013.

The buying is adding further upward pressure on Brent prices (see chart below). Brent oil is oil produced primarily from the North Sea and Africa.

Figure 6: Brent Crude Oil Prices

Chart 6 16 June

Table 2 16 June

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