Day One of 2018

The US dollar continues to lose ground in value compared to the Sterling. The rate of these two currencies, often referred to as “cable” or “the cable”, because it was the first information transmitted over the first transatlantic cable in the late 19^th century, is, like the relationship between all currency pairs, a statement of faith and confidence in the currencies one relative to the other. In our case the market is quite clear in its sentiment that the GBP and its economy is in a relatively stronger position than the perception is of the US economy. Currencies are the stock certificates of economic zones. They represent a “share” or more precisely what one “share” i.e. dollar, will buy in the rest of that economy. When faith goes up in the economic zone, just like when it goes up in the perception of a corporation and therefore its stock, its price rises. The price of a stock is denominated in the currency of the market where it transacts, usually the local currency. The currency of an economic zone is denominated, by definition, in the currency of another economic zone. Sterling stronger than dollar. Buy sterling, sell dollar.

OK, so we couldn’t resist the use of the sensitive word in relation to an airline. Nonetheless, tasteless adverbs notwithstanding, the price of the stock was falling rapidly this day and looks like it will continue to do so. Our research indicates that the planned merger between the German flag carrier and its bargain basement competitor, Air Berlin, will not be approved by the European regulatory authorities on monopoly grounds. Too bad for both firms as the deal would have strengthened both sets of corporate owners, as the rise in Lufthansa’s stock price since the announced merger clearly reflects. The European monopoly authorities, contrary to their American cousins, do not embrace monopoly power in the same way as the Americans have in the last half century. There was a time when the Americans placed severe restrictions on their goliath monopolies, but that was after those monopolies, called trusts, formed in the late 19^th and early twentieth centuries and had grown entirely abusive and restrictive of trade. Recall the Sherman Anti-trust act to understand how the Americans felt then about monopoly market power. Not so today. Unlike the Europeans who feel that in principle conglomeration and concentration in a sector is by definition unwelcome, the Americans feel (in these days) that the concentration of market power can and often is desirable and usually benign in its presence. After all the shareholders surely are not hurt by near monopolies in the market. So how bad could they be? Lufthansa, um, what shall we say? Falling? Taking a dive? You chose the adverb. Your choice should indicate selling.