A reader likens me to Dr Pangloss, the quack philosopher in Voltaire’s Candide who insisted that ‘all is for the best in the best of all possible worlds’ even after he was reduced to a syphilitic beggar. It’s true that I tend to regard positive indicators — a 22-year high in the BDO index of business expectations, a CBI statement that ‘we’re starting to see the right kind of growth’ — as a pattern of recovery, rather than a mirage in a minefield. But rest assured I’m also on constant alert for ‘black swans’, those change-making events that (so we learned from a more modern thinker, Nassim Nicholas Taleb) come out of the blue and have to be rationalised afterwards.
The January headline ‘Kiev in flames’ might fall into that category, for example, by signalling a dangerous new conflict zone. And I’m watching reports of forthcoming ‘stress tests’ on the capital adequacy of 124 European banks. The results won’t be announced until October, always a popular month for market turmoil. Intended to draw a final line under the financial crisis, they could have the unintended consequence of causing a new one if the findings are too shocking — or conversely if markets don’t believe the exercise has been sufficiently rigorous. New European bank regulator Danièle Nouy has already said that the weakest banks must be allowed to fail if the tests are to be credible, while one analyst of the sector, Davide Serra of Algebris Investments, predicts a €50 billion ‘capital black hole’, with particularly acute problems among German regional banks.
Reader, don’t say I didn’t warn you. And if I may say so, I think I was spot on last week about the ‘smokescreen’ of Barclays boss Antony Jenkins’s decision not to accept a bonus for himself this year. Sure enough, this week he declared a 10 per cent increase in bonuses for everyone else, chiefly on the investment banking side, despite a fall of almost a third in pre-tax profits and 7,000 UK job cuts. I once wrote a book about Barclays called Falling Eagle: I hope it never mutates into a black swan.
The old master
Speaking of quack philosophies, few scholars ever made sense of George Soros’s theory of ‘reflexivity’. It has to do with the interaction of reality and human perception based on imperfect information, and it has supposedly driven the Hungarian-American billionaire’s investment strategy since he first established his Quantum Fund in 1973. Rival market guru Barton Biggs of Morgan Stanley dismissed reflexivity as ‘all bull’, though he also called Soros himself ‘the master’ — and Quantum has just re–established itself as the most profitable hedge fund of all time, having made almost $40 billion for Soros and his co-investors over four decades and topped the 2013 performance table with a 22 per cent return.
The truth about Soros is that intuition and balls have surely contributed a lot more to his success than pseudoscience. Most famously, on Black Wednesday in 1992 he risked £10 billion and won an estimated £650 million on the belief that the pound would leave the European exchange-rate mechanism and fall against the deutschmark. ‘He would have bet more,’ one of his staff revealed, ‘but we just ran out of time.’
Now 83 and recently married for the third time, Soros retired from day-to-day market-watching to a more presidential role at Quantum some years ago. But he was also in the news for another reason this week, having allegedly been slapped by his 30-year-old ex-girlfriend, the South American soap actress Adriana Ferreyr, during a ‘palimony’ hearing. In more ways than one, there’s life in the old master yet.
Hands on
My Apple Macbook Pro had a heart attack last week. The episode was more stressful than my recent appendicitis, but provoked several thoughts about the consumer economy. The first was that, considering how much we now depend on personal electronic devices, the servicing of them is still a cottage industry, decades behind where it should be. In my part of the world, some Mac users swear by legendary Hull repairman ‘Ponytail Phil’, others trek over hill and dale to York or Scarborough whenever they have a problem. But if I can summon a British Gas boiler engineer, why isn’t British Gadgets waiting for my call?
So off I went to Scarborough, where a miracle worker set about retrieving my unbacked-up lifetime’s work. To kill time I popped into Sainsbury’s, curious to spot how departing chief executive Justin King has delivered 36 consecutive quarters of sales growth, overtaking Asda to grab second position behind fading Tesco. Groceries up-front, gleaming fish, spacious aisles, helpful staff, bargains that wink from the shelf rather than shout: there’s a palpable targeting of middle-class shoppers who demand a balance of quality and value. I liked the ticket that told me, ‘Your branded shop was £3.18 cheaper [than Asda or Tesco] here today.’
The 52-year-old King has been praised — by among others Archie Norman, his boss in a previous job at Asda — as a rare retailer capable of detail, strategy and communication all at the same time. He clearly has another career ahead and has been tipped to run gas giant Centrica, or Formula 1 motor racing, or to go into the House of Commons. The latter was an unhappy move for Norman, briefly a shadow minister — but I can’t help wondering what the application of King’s consumer science could do for the fading Conservative brand.
A rough-looking fellow with a ‘Hands On Car Wash’ trolley approached me in Sainsbury’s car park, and against my instincts I agreed to a £10 wash and wax. When I returned 45 minutes later, the car was sparkling but the man, clearly a perfectionist, was still searching the wheel arches for specks of grime. Eventually I told him to stop — and asked where he was from. ‘Bulgaria,’ he replied with a courtly bow. ‘Here one month.’ I wished him luck; maybe one day he’ll own a nationwide fleet of Hands On home computer repair vans.
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