So what do we really mean by default?
After a week when we have been through another political charade around the sovereign debt issues, there at last seems to be a realisation that something is going to have to give. The term default is obviously unacceptable to the authorities, but it of course can take many forms. Actual default implies an aggressive ‘can’t pay, won’t pay!’ attitude. The reality will be an adjustment and rescheduling of the debt over an extended period of time. However, defaults come in other colours as well.
These could include devaluation of the currency and of course the erosion to the value of the debt via inflation. On that basis one could argue that by devaluing the dollar so much, the US has already in effect defaulted on its creditors. Equally the UK is achieving the same; with real inflation around 5% we are eroding around £24bn of debt each year.
Of course, no one would suggest that such actions are a deliberate policy of default on our obligations, but it underlines that this is not such a black and white, right and wrong subject. The key issue is that the problem of the debt lies not with the nations themselves, but with those that hold the debt – and that of course is the banks.
Thus the ECB has to play a careful game of stringing out the story, so that those banks most deeply affected by any such rescheduling have sufficient time to take the necessary action of shoring up their balance sheets. So when is this restructuring likely to occur? The key may be at the next round of German elections, and once they are out of the way and assuming that Mrs Merkel has retained power, then surgery could commence.
However, the UK must not be too smug and merely see this as a Euro zone issue. The UK is also on the hook with its banks holding such paper; especially the like of RBS - its Ulster Bank subsidiary is deeply mired in Irish debt.
After a recent operation on my leg, I now find myself part of the commodities market as the proud holder of some significant metal positions – albeit all held internally.
Externally, if ever there was a totem for the excessive enthusiasm in the commodity market, it has to be the floating of the giant Glencore commodity combine on the London market. This just adds to the already significant weighting within the FTSE 100 of the oil, mining and extractive industries. The rise in demand has been real; however, the increase in interest and subsequent trading by private investors makes me nervous. There is no such thing as a one way bet and I fear private investors may be enticed into a sector that has already sucked in vast sums of investment. Last week’s volatility in metals should be a warning for us all, not just in terms of prices but also in terms of the corporate governance of some of these companies.
I would also like to have some more comfort from seeing greater transparency in Glencore’s operations and track record, and I am always concerned when members of the board are family members of the local ruling family or elite.
And finally............it’s often referred to as the lucky country – well maybe, depending on what you think of this survey reported by Reuters. Strange as it may seem, not all young Australian men want more sex. According to a survey of Australian men, 12 percent between the ages of 16 and 24 said they wanted less sex - the highest proportion of any age group.
A team of researchers from around Australia surveyed some 4,300 heterosexual men and 4,400 women between the ages of 16 and 64.
Only 31 percent of men in that age group said they wanted more sex, the lowest of any other age group as well.
They said "it may well be that they are being overwhelmed by girls of much the same age who are madly in love and very keen. It also takes men of that age about a year or longer to commit to a relationship."
More predictably, the survey found that 57 percent of men between 35 and 44 wanted more sex compared with only 28 percent of women, while 14 percent of women said they wanted less.
Half of men aged 55 to 64 wanted more sex, while only 27 percent of women in the same age group felt the same.
"The evolutionary explanation is women are only keen on sex when they can conceive. A social explanation is a whole lot of stuff, including time, pressure, tiredness.”
"I mean, sex is a leisure activity after all."
Why do I think I am living in the wrong country?
Have a good week.
Justin A. Urquhart Stewart Director Seven Investment Management Limited
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