ALEX BRUMMER: The ‘elite’ of Davos who are always wrong in the big decisions
ALEX BRUMMER: You can trust the Davos economic ‘elite’ to be wrong when it comes to the big market calls
Is the Davos elite finally getting the message? This year’s late-spring meeting will be without the twin pillars of American finance: the indispensable Jamie Dimon of JP Morgan and the world’s largest investor, Larry Fink of BlackRock.
This is a bit like celebrating the 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 globalization and how cryptocurrencies are here to stay.
Longtime Davos watchers can be sure that whatever the consensus of this self-selected elite is, 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 globalization and how cryptocurrencies are here to stay.
On the eve of the great financial crisis of 2007-2009, the idea that the banking system was facing an existential event, having loaded its balance sheets with worthless structured debt built on rotten American mortgages, received little attention.
The smartest 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 derivatives spread risk was terribly wrong.
What actually happened was that a series of financial creations broke out that required a global bailout.
The consequences in the form of new inflation are already being experienced.
In 2017, opinion leaders at Davos swooned at the presence of China’s now-paramount leader Xi Jinping as the new true voice of globalization. What has happened since then?
President Xi has taken the padding out of democracy in Hong Kong. He has relegated China’s new-age businessman Jack Ma to outer obscurity, stifled free markets and threatened Taiwan with military overflights.
Now he is helping to keep President Putin afloat in Russia. None of this was predicted as enamored bosses and parts of the Western liberal media swooned in his presence.
When Davos founder Klaus Schwab chaired events in January 2020 after Covid-19 unsettled China, the global pandemic and economic shutdown were low on 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, comes from China.
So what do we do with the notion that globalization is over?
What is certainly true is that the two great bursts of economic growth in 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 Organization to China in this century – were great generators of growth
What the coronavirus and the Ukraine war have taught us is that the ‘just-in-time’ economy, when countries and companies operate without a safety net, is over.
Centrica, which gave up gas storage in 2017 at Rough off the east coast, is now in favor of the renovation. Germany is looking to the Middle East for energy supplies.
The United States has relocated some production from China, and so on. But the idea that the world’s most global companies, from Unilever to Volkswagen, are lifting the drawbridge of world trade is a fantasy. Steps will be taken to make the West less dependent on Russia and other rogue states.
The other big embarrassment at Davos is the presence in large numbers of what Reuters describes as the “crypto crowd.” This includes a bitcoin pizza stand on a high street dominated by cryptocurrency firms.
After $800 billion in crypto market losses in May, this looks a lot like the last cocktail on the Titanic.
You can trust Davos to lose or miss vital market calls.
Crocodile tears from Michael Lewis, the boss of German-owned energy giant E.On (no, not the genius author behind The Big Short) on the possibility that one in five UK households could end up in energy poverty this year as a result of increased fuel bills.
The E.On boss failed to acknowledge how his company made the situation across Europe more difficult by refusing to keep its nuclear plants running.
Furthermore, he failed to acknowledge that there is now a glut of liquefied natural gas in the UK and that wholesale prices have plummeted.
If E.On and other big energy companies were really concerned about consumers, they should be thinking about how some of the profit could be transferred, easing the upward pressure on the price cap.
This is how competitive markets should work.