CITY AND SUBURBAN
Martini time it's my moment of madness and Lamont's unhappy hour
CHRISTOPHER FILDES
The two-dollar martini has brushed against my lips like an angel's kiss. At tea- time on Monday the magic figure flashed up on the screen: £1 = $2. It was my signal to fly the Atlantic and lap up martinis while such a mad exchange rate lasted — but it lasted no more than a moment, to leave the pound bobbing tantalisingly at $1.99. Judg- ing by this week's trade figures, others can hear the siren call. A surge in imports, at a time of deep recession and flat demand, tells its own story. If there is one thing madder than a two-dollar exchange rate for sterling, it is the idea that the rate needs to be bolstered by dearer money. That was the spectre confronting Norman Lamont on his return from Tuscany. If only he had yielded to temptation and stayed on to make his own olive oil! Now (so he must be musing) all his home thoughts from abroad are coming true, all the things that could go wrong have started to happen — in Frank- furt the squareheads won't budge, in Paris the polls are running against Maastricht, and in London, if he hasn't got an old-fash- ioned sterling crisis, he is quite close enough for discomfort. He is under pres- sure to raise interest rates, when every indi- cator he has and every spark of common- sense must tell him what the stock market is telling him — that it would be the quick way to make matters worse. Debt and dear money got us into recession and have kept us there, falsifying every Treasury forecast and blighting every hope.
A resigning matter
NOW WHAT? The Chancellor must try to stick it out for three weeks. Then the French vote on Maastricht will be relayed to the world's finance ministers, who (as it happens) will all be in Washington for the International Monetary Fund meeting. A `Non' vote would test Europe's exchange rates and might easily blow them apart. Mr Lamont would find himself in a poker game, playing for high stakes with moder- ate cards and not too many chips. He has gone out of his way to promise that, what- ever other countries may do with their cur- rencies, he will not budge on sterling bound by hoops of steel to the mark at 2.95 and now set against the dollar at an incredi- ble $2. How he must wish he had taken my advice, tying sterling to the dollar and not to the mark, relishing dollar-based interest
rates of 3 or 4 per cent! He is committed, though, and I take him to have made this a resigning matter. It is 25 years since a Chancellor went down with his currency.
Money with menaces
IN MARKETS as disturbed as these, rumours abound. Some are self-serving, some are far-fetched, some have a certain plausibility. So I was alarmed to be told that the Mafia had located the Chancellor's holiday retreat and taken him captive. They had then rung up the Treasury and asked for £20 million to keep him. If so, their bluff was called.
Buller rides again
THE WORLD'S central banks, marching as to war in the currency markets, now appear to be commanded by General Sir Redvers Buller. That genial champagne- swigger liked to march out against the Boers with great ostentation and minimal tactical surprise. He would take up a for- ward position and wait for the enemy to run away. When they didn't, but instead opened fire, he would retreat to base, tak- ing his casualties with him. Still, better a Buller than a Haig, fighting battles of attri- tion at frightful cost on fixed lines. There are limits to the central banks' capacity to impose their will on markets. They do best from ambush — catching the markets over- extended or turning a retreat into a rout. They do worst when dug in to defend fixed exchange rates. 'Hard pounding', as Harold Wilson said, fatuously identifying with the Iron Duke in defence of sterling — 'let us see who can pound longest.' As a rule, the other side can. The advantage of surprise has crossed the lines. The central banks' position is exposed, and their opponents can challenge it when and where they choose. Governments are then reminded that they have three ways of influencing exchange rates, and that central bank inter- vention is unlikely to work for long on its own. After that, they can change interest rates, or they can change their economic policies. Or they can try all three. They are also reminded that markets test their reso- lution by making them do something that they would much rather not do.
Under the Aegis
PEOPLE of nervous dispositions should not buy shares in advertising agencies. Nor, come to think of it, should anybody else. Their affairs do not seem to work out for the benefit of their nominal owners. To the row of burst balloons headed by Saatchi, WPP and Shandwick we can now add Aegis, whose shares have imploded from 242p a year ago and 120p in June to a mod- est 30p. Described as the world's largest group of media buyers, Aegis is moving its office from London to Paris. The prospect (Aegis asserts) so upset the chairman, Peter Scott, that he has resigned, taking a cheque for £2 million with him. This has left Aegis rather short of cash, so it is raising some more from a Mr Gross and his friends, who will wind up with 42 per cent of the compa- ny. Other shareholders might have hoped that this would trigger an offer to take them out. No such luck. Their board informs them that, when Aegis's senior manage- ment moves from London to Paris, the company will move out of the Takeover Panel's jurisdiction and will no longer be bound by its rules. By Parisian rules, then? No; 'as Aegis is incorporated in England, it is understood that the French takeover rules will not apply.' Classy, that. Share- holders might have taken warning when, this year, Aegis received that well-known sell signal, the Queen's Award for Exports — but they were not to know that their company would export itself.
Toeing the line
I FIND City opinion divided on John Bryan. Some argue that the Duchess of York's financial adviser has exceeded the bounds of self-regulation. Others more robustly maintain that he can have done no more than financial advisers usually do to their clients .
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