Channelling indirect divine intervention: Blog by Ric Lewis, CEO Tristan Capital Partners

In the second of a series of blogs for PropertyEU, Tristan Capital Partner's CEO Ric Lewis reflects on the intersections of life and work, the spiritual and actual worlds, and how divine intervention has helped slay the demons of deflation.

Most CEOs get used to having their people listen when they speak but I’m repeatedly reminded of how mundane my life is when I remember to listen carefully to other people’s thoughts and stories.

Just a few weeks ago in the early hours of a late spring day our COO confided in me that he had a daydream where he was in direct conversation with a Higher Being; THE Higher Being. Frankly, I was not surprised. This is the calibre of people we attract, right? So, our guy said that the HB had had some concerns over the state of the eurozone where the magic beans of economic growth had yet to germinate in the arid soil of centralised fiscal and monetary policy.

The good locals had been struggling, their mood was sullen and all talk of the future was muted and pessimistic. After a period of observation and much deliberation, the HB decided divine intervention was deserved, but indirect divine intervention; without the overt recognition most religious orders demand and confer. She just wanted to do her bit, quietly and effectively, like a good philanthropist. My kind of lady, I thought.

So HB moved her spirit among the special envoys she had chosen: politicians, central bankers and intergovernmental advisors who were entirely unaware of their important new role. She started by getting them to slash interest rates to zero, and even to impose the miracle of negative nominal rates. But the impact was muted. More support was clearly required.

Looking around the rest of the planet, she saw that another similarly challenged nation to the West, had deployed an old trick, managing to devalue its currency 25% against its major trading partners, almost without them noticing. 'That old game?' she laughed. 'It is extraordinary that it still works. No sweat. Let’s try it here too.'

The eurozone land began to look better, but the feel-good factor HB wanted wasn’t quite there. So she cast about for other things she could do to make her changes significant and palpable. She quickly halved the price of oil, and chucked in some hefty price cuts for other commodities as well. In quick succession, iron, oil, steel, timber and plastics, all took a belly hit.

Spectre of deflation
But that didn’t go quite to plan. The HB conceded she might still have underdone it, because the special envoys, to her disbelief, remained panicky about whether it was enough to ensure that the eurozone had really achieved enough velocity to escape the spectre of potential future deflation. She couldn’t just tell them she had it all under control. She would have to show them. So to calm things down, she got them to print a whole lot of paper money, enough to buy all sovereign bonds issued by all EU states over the preceding 18 months, and then some.

Now, that worked a treat. Finally some believers. But just to make sure of a positive outcome, she boosted current accounts, and the euro responded, gathering strength. Then she sat back. 'My work is done,' she told our man, who had been vigorously applauding the whole strategy, because some time ago he had suggested something similar to his mortal colleagues at work.

'So now what?' I asked, half-fearing that the attention of this omnipotent Higher Being would soon be claimed by other pressing issues, and all of her good work lost. 'What about those deflation demons and the market’s vigilant and constant worry about the future?' 'Be still, big man,' said our COO. 'HB’s magic is working. The demons are slain but the eurozone will take some time to realise it is alive and thriving, and so will everyone else.'

So here is our view: the region has survived the testing austerity programs which slashed 2% off GDP, and provoked political unrest. But growth, however weak and patchy, has returned. Europe has come a long way since 2009 when it was ill-equipped and unskilled in financial crisis management. It is now willing and able to act against risks ranging from commodity price volatility to sovereign debt default.

Stabilising asset prices are finally mitigating persistent deflation risks. Lower-priced goods and services are boosting real incomes and asset price reflation is accepted as a necessary part of full recovery. Real estate remains cheap relative to negative yielding bond market and it’s currently on offer with the benefit of the most accommodative monetary policy we’ve seen in our lifetimes.

Don’t yell it, whisper it, but 2016 may just surprise us on the upside. And the future may be somewhat brighter than it appears in that rear view looking side mirror we all keep checking.

Ric Lewis
CEO Tristan Capital Partners