Italian referendum: End of the world Version 3.0

FIRST, Brexit was going to tip the British economy into immediate and devastating recession and send global share markets spiralling. Didn’t happen, writes Terry McCrann.

The Italians joined their fellow “deplorables” in the US and the UK.

FIRST, Brexit was going to tip the British economy into immediate and devastating recession and send global share markets spiralling. Didn’t happen.

Indeed, the one sustained consequence of the British vote was to send the pound down sharply. This led to even more hysterical “expert” commentary that this would shred confidence inside and about Britain.

That is, until the (old fashioned proverbial) penny dropped: hang on, that’s precisely what every country and every central bank has been trying to engineer, a lower currency to make their economies more competitive, and the Brits have actually if indirectly and unintentionally done it!

Then came End-of-the-World Version 2.0: the election of Donald Trump. This was going to trigger Global Financial Crisis Version 2.0.

Once again, it took a while, but that same old penny dropped again. Whether or not a president Trump will succeed in “making America great again”, his big-spending tax-cutting (proposed) policies and even more the expectation of them will likely prove “great again” for Wall St.

This “penny dropping” was probably aided by the realisation that the very same “experts” who were predicting that a president Trump would be so disastrous were the very same ones that told us we couldn’t possibly ever get a president Trump.

Whereas the “penny dropping” over Brexit took a day or two, we got to actually see investor attitudes swing 180 degrees through the course of a trading day in New York. Before trading opened on the day after the election, Wall St was headed for an 800-point fall; on the day it actually ended in positive territory and hasn’t looked back since.

So, we got to End-of-the-World Version 3.0 yesterday: the Italians joining their fellow “deplorables” in the US and the UK and not voting as their betters had instructed them. Again, this is supposed to send the whole world over multiple cliffs.

The half-life for frenzied irrationality seemed to have shortened yet again. It took investors 24-36 hours in London to “hysteria-detox” after Brexit; less than 12 hours to do that in New York after “Trumpit”; global markets essentially yawned after the Italian vote.

On one level, “Italian PM resigns” is not exactly a headline to shock. More substantively, the vote loss didn’t even remotely approach consequentially the Brexit vote.

It wasn’t remotely like a vote to take Italy out of the European Union or even the euro; just a vote on limiting the powers of the Italian Senate and shifting some responsibilities from regional governments to the national one.

So we didn’t even see markets that were open stumble much. Our market was down a little under 1 per cent, but as much for both broader and Aussie-specific reasons.

As I wrote this, European markets were heading for only a normal-trading sort of drop and Wall St was heading to yet another record high.

Just like Brexit — and the opposite of what happened with Trumpit — the one continuing consequence of the Italian Job might be a lower euro.

And as that’s precisely what the European Central Bank has been trying to engineer, its chairman the usually inscrutable Mario Draghi — as the name suggests a compatriot of the departing Italian PM Matteo Renzi, and like him a classic lifetime European technocrat — might break into an uncharacteristic grin.

This might also partly explain the relatively muted market response. Further explanation would probably also flow from those two earlier unfulfilled hysterias: We’ve been down this path before.

Or, as Oscar Wilde could have written: one unfulfilled hysteria might be considered misfortune; two looks like carelessness; but three? Why, that might politely suggest “inexpert experts”; or, to favour accuracy over politeness, mindless collective stupidity.

SOMEWHAT ironically and counterintuitively, I would suggest that Version 3.0 of 2016’s End-of-the-World is though, actually, potentially the most potent.

No, it’s just as certain not to immediately trigger any sort of meltdown as Versions 1.0 and 2.0. And indeed it is the only one of the three to leave politics in the relevant country essentially unchanged; indeed literally unchanged. So the PM’s resigned; been there before.

It does join with Brexit and Trumpit in the “deplorables” rejecting their betters. But more specifically, Italy is the ‘hot pivot’ of disastrously inept ECB actions: the “European Bank Bailout that Wasn’t” and the zero rate-money printing stimulus that has made it all so much worse.

All three were a direct clash between the deplorables and their betters; but only the Italian clash is both real-world consequential and negative in the medium term. Indeed Brexit and Trumpit will both prove consequential and positive.

In a broader sense, the ripples from the Italian vote build on the other two, precisely because Italy remains locked in both the EU and the euro. In a sense, both groups have to keep on doubling down on their — in the case of the European institutions, their catastrophe-building centralisation; in the case of Italy, its inability to break free — disastrous dead-ends.

So the markets yawning yesterday might have been the right rebuttal to the experts, in the terms in which they thundered the End-of-the-World. But at the same time, that reason might have missed the strengthening in the real threat: End-of-the-World Version 4.0.

$7 BILLION IS JUST TOO CHEAP

THE $7 billion Hong Kong bid for some of our key infrastructure assets should be a much bigger wake-up call than the Italian vote. Basically, if they want to buy, we shouldn’t be selling.

No, I’m not arguing that they shouldn’t be allowed to buy: Li Ka-shing would be as good and arguably a better owner than Duet’s current shareholders or indeed competing buyers. It’s all about selling our future too cheaply.

There are two intersecting dynamics. They are what price we sell existing quality income-generating infrastructure assets for; and what is in the process of happening to the cost of capital to build much needed new infrastructure.

First, any price we get for major assets is too low; and not too low by factors of, say, 20 or 30 per cent, but indeed unknown and unknowable multiples of that.

There are two sides to this: the tens of trillions of global investible dollars looking for positive returns, and the unique appeal of those income-generating assets in the Australian economy, again in the global context.

What should be both a warning signal and a guide is what’s happened to Australian property prices — for residential and for broadacre agricultural — over the past few years. Is there anyone who doesn’t understand that in selling two, three years ago, they sold for a song? Let’s not do it again with some of the best infrastructure assets in the world.

The other intersecting dynamic is that the cost of building new infrastructure is about to accelerate sharply and continuously, with rising long-term global interest rates.

And who will pay the bill? Why, consumers of that infrastructure: you. And you’ll also end up paying more to use the built infrastructure that’s been sold into overseas ownership.

To stress, this is not a circle-the-wagons little Australia, or knock-back the Chinese, line of argument; much more simply, to argue against selling our assets for a mess of quick-profit potage.

Originally published as Italian referendum: End of the world Version 3.0