Blain’s Morning Porridge – Dec 3rd 2019

Blain’s Morning Porridge  – December 3rd 2019

“Bonjoooouuuur, ya cheese-eating surrender monkeys!”

Not that I would ever impose anything illegal, but over the Christmas slowdown I shall be quietly buying up used Petrol Lorries (or trucks as our transatlantic cousins call them), from across the US. I will then be carefully cleaning them and installing fridges inside the tanks. I shall make my fortune smuggling Champagne, Brie, Camembert, Livarot and my personal favourite, and perhaps smelliest French Cheese, Pont-l’eveque across the USA.  We will be setting up a depot in Canada – I can’t tell you where in case Seal Team 6 come visiting… I know the USA is full of Cheese fans – and they will pay through the nose for their daily hit. They could also go to my favourite Cheese Shop.

Meanwhile, as Les Mis the Musical closes down, we are buying up the costumes to outfit a gang of charming street urchins to sell iPhones and Netflix subscriptions on dodgy street corners across Europe. Only Belgians find Euro-cartoons funny…

Yesterday’s news the Americans are going to slap $2.4 bln of 100% tariffs on French comestibles in retaliation for a tax on digital revenues is about the most sensible start to a trade war since the War of Jenkins’ Ear.  (Look it up for yourself..)  Stock markets are not reacting well to a full-scale all out trade war betwixt Europe and the US. (I have zero problem with the Yanks putting tariffs on Scotch Whisky – if they want to deny themselves the ambrosial nectar of the gods – then more of it for me!)

The fact T’rump also slammed taxes on Brazilian and Argentine steel hints at a more aggressive/less predictable US trade approach. Global markets are likely to remain as unbalanced and frothy as the Presidents mood. $2.6 bln of cheese tariffs might not sound much compared to the $156 bln T’rump is threatening on China if a trade agreement is not signed this week – but it’s just as significant in terms of sentiment.

The Orange Wig lashing out at Europe even as he is in London for the Nato summit is the strongest hint yet there is no deal with China in the offing. T’rump has lost that one.. so he needs to find someone else to bully. I would love to be the proverbial fly on the wall when Macron meets T’rump later today.

Digital taxation is a difficult area. There have been efforts to agree a multilateral approach to Digital Tax via the OECD – although it’s unlikely T’rump will agree anything agreed in Paris! It makes sense to tax Tech company profits based on who is actually buying their goods – rather then where they book the trade. Booking does not equal whete it is produced.. that is the problem.. Where is a stream of electronic pixels produced?

It’s a travesty Tech companies like Amazon, Apple, Facebook and Google pay nothing, but can book all their profits made in Europe through an easy-pay tax advantaged company based in Ireland (which benefits from jobs in return for low taxes), and forward the profits through offshore accounts in the Caymans..

However, the part to get angry about is the offshore bit – which looks like tax avoidance. The fact these companies produce something – a digital product in Ireland to sell everywhere else is something to take up with the Irish. (As I said yesterday, Europe is going to throw Ireland under the 139 Bus..) A better answer be to produce and tax domestically in every European jurisdiction – why not?

But, a tax on revenues establishes a very dangerous precedent – revenue is not profit. It’s just very easy to collect taxes on revenues. If it was normal – then a host of low margin companies around the world will get spanked.

I suspect that rather than all out trade war, a pragmatic solution to Digital Taxation will be found – but in the interim, if you are trapped and cheeseless in America… give me a shout.. I’ve got some superb Rochefort to shift..

Worth Reading on Cheese Wars:

FT – US Proposes 100% on French Cheese over Digital Tax

BBerg – How European Digital Taxes hit US Tech


Sorry for short-comment this morning. I am working from home after driving to station to catch a train up to London, but it was manic. No chance of even getting on a train, let alone facing the challenge of standing for 100 minutes in cattle class. Our swift inter-city train is now a rambling packed commuter misery trap stopping at every stop. My ticker can do without it.  If Boris wants my vote, all he needs to do it get on the TV and promise us the train drivers will be “dealt” with.

It’s amazing how less than 1000 train drivers are making the lives of millions miserable in the run up to Christmas. The dispute is basically Luddite. New Tech means trains are safer and the guards are happy to be reassigned to providing better customer service as train managers. No one will be sacked or lose any income. The guards, and I have now spoken to a few, like it. The train drivers don’t – they want the guards subservient to them as safety checkers rather than in customer care.

The sooner we design trains that don’t need drivers – and sack the lot of them – the better.

Five things to read this morning:

BBerg – Europe Set to Overhaul its Entire Economy In Green Deal Push

FT – Tourists help fuel risk EM bond market sales

FT – Europe First; How Brussels is retooling industrial policy

WSJ – The Water Wars that defined the American West are heading East

Express – UK Election Mapped – Tory win inevitable

Out of time.. and going to try and do my day job…

Bill Blain

Shard Capital