Trump and Macron fire Wall St

THE unlikely combination of the anti-globalist 70-year old Donald Trump and the very opposite in Emmanuel Macron have combined to boost Wall St and global share markets, writes Terry McCrann.

French presidential candidate Emmanuel Macron after the first round.

THE unlikely combination of the anti-globalist 70-year old Donald Trump and the very opposite in the 30s-something — and before recent weeks, never previously heard of — Emmanuel Macron have combined to boost Wall St and so share markets around the world.

Pre-open futures trading in Asia yesterday pointed to a big-to-huge day coming up on Wall St overnight, with all the major European markets — France, Germany and London — doing the same.

The momentum started overnight Friday with the announcement from President Trump that he would unveil his big tax-cutting plan this Wednesday (early Thursday morning our time).

Then overnight Sunday Macron won the first round of the French presidential election — if you can call getting 24 per cent of the vote a “win”.

Arguably even more importantly, Marine Le Pen finished second. Why importantly? Because it guaranteed — or at least, seemed to guarantee — that Macron would win the critical second voting round when he goes head-to-head against her.

All the other major candidates will line up against her as “impensable”.

That should deliver their votes to him. If he was facing a more conventional opponent, his victory wouldn’t be quite so assured.

Even so, I wouldn’t assume that it’s quite as certain as the “experts” and investors alike believe — given the broad voter disdain across all western countries with establishment parties and politicians and “politics as usual”.

Macron is in some respects an “anti-establishment” candidate like Le Pen or our Pauline Hanson or indeed Trump. He’s almost literally an overnight sensation, coming from nowhere. He’d never stood for election before. He did not run as the candidate of a major party. Indeed he was specifically working off the voter disdain for the candidates of the two major conventional parties.

But at core he is actually a fully-paid up member of the political, bureaucratic and business elite that has run France pretty much on a big-government bipartisan basis since the second world war.

He’s been all three — (minor, socialist) politician, senior civil servant and investment banker (in France, they all sort of merge). Most fundamentally he’s a graduate of the Ecole national d’administration, from which almost all French leaders, political, bureaucratic and business, have emerged. The key point about his likely win — or, certainly, of investors’ perceptions over the next two weeks that he will win — is that he promises “business as usual”.

That’s essentially what investors want out of Europe. Even though it means just kicking the can — actually, cans, plural — down the road. That makes it tomorrow’s problem. Just like Greece. Just like Italy.

In the European sense, a Macron in the Elysee (France’s White House) and another Eurocrat in Mario Draghi in the ECB keeping interest rates at zero will unite to keep the music playing very nicely thank you.

That though should be one big caution over the likely mini-bull market of the next week or so.

Markets are already “priced for perfection”. And by “perfection”, I do NOT mean priced for soundly based strongly performing economies, but for the “perfection” of near-zero global interest rates and central banks prepared to do anything to keep the asset (shares and property) bubbles bubbling.

THE “Trump factor” had added another layer. In the US investors had, well, invested big time in President Trump. His election in November has added something like $5-6 trillion to global share values.

The two big drivers were the expectation of a massive $US1 trillion infrastructure spend and big tax cuts — especially to business, but also to individuals. That drove Wall St and the rest of the world, including Australia, followed. This though had started to run out of steam over the past few weeks. You can only add so many trillions to share values on the expectation of something; at some point you have got to deliver and deliver big-time.

That’s why Friday’s announcement was so critical. It is also why it should flash a big warning light — especially after President Trump failed to deliver on his big promise to dismantle Obamacare.

Clearly investors want to believe that he will deliver. That belief combined neatly with the comfort of the “business-as-usual” outcome in France. But it sets up a series of discrete global share market phases.

The first will run through to Thursday morning when we get to see whether there’s any meat in the Trump package. Then we’ve got a week or more to the actual French election. After that reality will start to sink back in.

JUST THE SMARTEST BUNGLERS

UNUSUALLY, the “smartest guys” in their respective rooms — KKR’s on Wall St and Macquarie Bank’s in Martin Pl, Sydney — have continually bungled attempts to get into the Tatts game.

They bungled again yesterday with their latest play only working to “invite” the board of Tatts to deny the mainchancers access to Tatts’s internal data, and to stick with the proposed Tabcorp merger.

Because Tabcorp’s proposal was an essentially all-paper merger and because it faced competition issues, the door was wide open for the sort of financial engineering exercises that Macquarie and KKR excel at.

Yet they bungled their move in December, by unveiling an offer that simply lacked credibility. They offered $3.40 cash plus one share in a separated, refloated Tatts wagering business, which the duo claimed would be worth $1-$1.60.

Last week they admitted that the $1-$1.60 was a crock, when they came back with an all-cash offer of just 81c more, at $4.21. Worse, their offer would not allow Tatts to pay any dividends, even though regulatory approvals would likely push the offer’s completion and so payment well into 2018.

Now they’ve moved to rectify that mistake by saying Tatts could pay normal dividends in 2017-18. But, inexplicably, they’ve excluded a normal final dividend for 2016-17.

So, to sum up, they’ve unveiled an “offer” which is below both the Tatts share price ($4.45) and the value of the competing offer ($4.27) and by definition needs to be reduced by a further 8c (the lost Tatts final dividend).

In short, an invitation to the Tatts board to respond: no thanks.

The big bungle is in the wasted time. The duo needed to strike decisively while the Tabcorp merger was held up in regulatory uncertainty. December’s non-offer cost them more than four months.

The clock is ticking fast. Tab’s bold play to bypass the ACCC and go straight to the Competition Tribunal could prove decisive.

Originally published as Trump and Macron fire Wall St