Stranger than fiction

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It is a well-known axiom that stock markets hate uncertainty. Yet despite four years of political uncertainty in the UK, the FTSE 100 Index hit a new high of 7547 on May 26, 2017. That’s because a less well-known fact is that markets climb so-called ‘walls of worry’. It is why Warren Buffett claims to be greedy when others are fearful and fearful when others are greedy. It’s reverse human psychology.

Moving from markets to media, the newest trend in ad land is that of management consultants snapping up advertising agencies – such as Accenture buying Karmarama – in order to set themselves apart from competitors and to get closer to the end user through experiential marketing. It’s the reversal of an old trend last seen in the 80s when Saatchi & Saatchi – then the world’s largest advertising network – was busy acquiring Gartner and Petersen, established international consultants to create a one-stop shop. Plus ça change.

Another similarly interesting reversal is media owner Vivendi acquiring the 40% of advertising and marketing services group Havas that it did not already own. In 1989, Havas itself was buying outdoor media owner MAI (formerly known as Mills & Allen International), now part of the global JC Decaux OOH (out of home) empire. Back to the (French) future.

When my mother was a young woman in the 1940s, most newlywed couples had a family home, but few people had a family car. Now it’s the reverse, everybody has a car – thanks to PCP (personal contract plan), which some say is the next US sub-prime crisis waiting to happen – but few own homes. The average age of a first time homeowner in the UK is now 37, yet interest rates are the lowest in history. So what’s the problem? It’s near-impossible to amass a deposit, of course, so there’s no point in pricing something cheaply, if it’s not actually available.

Talking of cars, Uber, the tech disruptor whose business model is based on the so-called ‘gig’ economy, has launched a driverless car service. This inevitably means heavy capital expenditure, and yet the firm is loss-making even based on short-term contractors using their own cars in return for flexible working hours and no health or holiday benefits. An about turn? Or maybe a U-turn?

On the subject of business models, here’s one that defies common sense and logic. Snap Inc, owner of Snapchat, floated on the New York Stock Exchange in March 2017 with a prospectus that highlighted that it may never make a profit, and that all voting rights rested with its founders, even if they chose to leave the company. Yet, it opened at a huge 44% premium to the offer price, which valued it at $33bn. This endorsed the old adage that: on the West Coast, it’s all about vision; the East Coast, turnover; and in London, profit. Snap, crackle and pop…

Back to reflecting on Uber, which is still in the news for its treatment of its female employees. Interesting to note that the Saudi Arabian Public Investment Fund made a $3.5bn investment in Uber in December 2015 – the single largest investment ever made in a private company; and yet women are not allowed to drive in Saudi Arabia. 

Which brings us elegantly to US President Donald Trump and his first foreign trip as the leader of the free world. And where did he choose to go? Why, to the Kingdom of Saudi Arabia – a dictatorship that holds back the rights of women, and from where 15 of the 19 9/11 hijackers who blew up the World Trade Center are said to have come. A heroic exercise in hypocrisy, since he spent most of his election campaign denouncing the Kingdom and then, immediately on becoming president, banning Muslims from entering the US.

Yet the hypocrisy was equally shared with his royal hosts. Saudi sees itself as the birthplace of Islam and home to the two most holy mosques of Mecca and Medina – and yet Trump was welcomed with all the fanfare of a close and trusted ally. No surprise then, during Trump’s visit, that Saudi’s Public Investment Fund announced its intention to invest $20bn in a new $40bn Blackstone US infrastructure fund – and that’s before Saudi’s Aramco almost certainly makes its initial public offering on the New York Stock Exchange. Business is business. Trump is Trump. 

Lorna Tilbian is executive plc director and head of media at Numis Securities