ALEX BRUMMER: You can rely on the Davos economic ‘elite’ to get it wrong when it comes to the big market calls
Are the Davos elite finally getting the message? This year’s late spring gathering is without the twin pillars of US finance – the indispensable Jamie Dimon of JP Morgan and the world’s biggest investor Larry Fink of BlackRock.
This is a bit like holding Platinum Jubilee commemorations without the Queen. The emerging themes in the Swiss mountains so far are post-Covid and Ukraine forecasts of the end of globalisation and how crypto is here to stay.
Long-time Davos watchers can be certain that whatever the consensus of this self-selecting elite, it will invariably be wrong.
The emerging themes at this year’s World Economic Forum in Davos so far are post-Covid and Ukraine forecasts of the end of globalisation and how crypto is here to stay
On the eve of the great financial crisis of 2007-09, the idea that the banking system was facing an existential event, having loaded up balance sheets with worthless structured debt built on rotten US mortgages, barely received a look-in.
Smarter hedge funds had already spotted this fissure in global finance.
Former Fed chairman Alan Greenspan’s view that the planet was a safer place because derivative products spread risk proved fearfully wrong.
What actually happened was that a series of financial creations exploded, requiring a global bail-out.
The consequences in the shape of the new inflation are now being experienced.
In 2017, opinion leaders at Davos swooned in the presence of the now supreme Chinese leader Xi Jinping as the new true voice of globalisation. What has happened since?
President Xi has knocked the stuffing out of democracy in Hong Kong. He has consigned China’s new age entrepreneur Jack Ma to the outer darkness, clamped down on free markets and threatened Taiwan with military over-flights.
Now he is helping to keep President Putin afloat in Russia. None of this was predicted as besotted bosses and parts of the Western liberal media swooned in his presence.
When the founder of Davos, Klaus Schwab, presided over events in January 2020 after Covid-19 had disrupted China, global pandemic and economic shutdown was far down the list of risk factors facing the world economy.
This despite the fact that much of what we buy, from our clothes to our laptops, come from China.
So what do we make of the notion that globalisation is over?
What undoubtedly is true is that the two great bursts of economic growth of modern times – the jump in world trade in the period from the 1870s to the First World War, and the opening of the World Trade Organisation to China this century – were great generators of growth.
What the coronavirus and Ukraine war have taught us is that the ‘just in time’ economy, when countries and companies operate without a safety net, is over.
Centrica, having given up on gas storage in 2017 at Rough, off the east coast, is now in favour of refurbishment. Germany is looking to the near East for energy supplies.
The US has re-shored some production from China, and so on. But the notion that the world’s most global companies, from Unilever to Volkswagen, are pulling up the drawbridge on global trade is fantasy. Steps will be taken to make the West less dependent on Russia and other rogue states.
The other big embarrassment in Davos is the presence in big numbers of what Reuters describes as the ‘crypto crowd’. This includes a bitcoin pizza stall on a main street dominated by crypto-currency firms.
After the $800billion market losses in crypto in May, this very much looks like the last cocktail party on the Titanic.
You can rely on Davos to miss or get wrong the vital market calls.
Crocodile tears from Michael Lewis, the boss of German-owned power giant E.On (no, not the genius author behind The Big Short) over the possibility that one in five UK households could end up in energy poverty this year as a result of surging fuel bills.
There was no recognition by the E.On chief of how his firm made the situation across Europe more difficult by declining to keep its nuclear plants running.
Moreover, he failed to acknowledge that there is now a glut of liquefied natural gas in the UK and wholesale prices have fallen off a cliff.
If E.On and other big energy firms were genuinely worried about consumers, they should be thinking about how some of the benefit could be passed on, easing the upward pressure on the price cap.
That’s how competitive markets are meant to work.
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