Market Thinking

making sense of the narrative

Life in the fast (Zil) Lane

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The enduring image for many of the hypocrisy of the ruling elite in the Soviet Union was the Zil lane – the fact that Politburo members were whisked in Zil limousines past the ‘peasants’ stuck in the very traffic jams that were the consequences of the ‘elite’s’ own planning failures was the defining expression of ‘Us versus them’. Search for the term and you will find many more up to date references such as this one from the 2012 Olympics where special lanes in London were cordoned off for athletes (understandable) and ‘VIPs’ (much less so). For those with short memories it is thus a reminder that the British Government (indeed all governments) are experts at elevating their own status where at all possible. Similar issues are starting to rankle now with Covid restrictions being increasingly ‘flexible’ so long as you are part of ‘the elite’.

Soviet style: a Zil limousine in Moscow, where lanes were cleared to ease its progress - Londoners won’t take kindly to Zil lanes at the Olympics

But it isn’t only Ministers escaping the restrictions being imposed on the rest of the population. The other aspect of the ruling elite – the Merchant and Financier class- are also doing so, basically by throwing their share of the Magic Money Tree at the problem. Private Equity, Private Credit = Private Jet, Private Transfer and Private Yacht. We will look at the tensions this is creating in another post, but for now, the fact that these two elements of the “Elite” control so much of the spending power is an important point for investors.

Would I like a yacht? Oh, how I would not!

Who wants to be a millionaire? Frank SInatra and Celeste Holm, High Society

According to Zero/Hedge and Bloomberg, the answer to Fred Schwed’s question about “Where are the Customers’ (Super) Yachts is that they are mainly hanging around the Med and the Aegean. Defined as Yachts over 150ft, the largest number are off the coast of Italy and Greece – where we can personally attest to have recently come across several ‘nests’ of them moored up off Mykonos, Paros and Naxos – although sadly only as spectators.

Bloomberg have a nice map, showing where they all are and where that magic Money Tree largesse is being recycled.

Bloomberg/ZeroHedge

But to fully answer Fred’s question, if they are the Customers’ yachts, then who are they the customers of? Private Wealth managers clearly – the last decade under QE has been very kind to those with capital and to those that help allocate it. Also real estate brokers, one thing very clear on the super-pretty island of Paros is that the rich of Europe took advantage of the Greek Financial Crisis to invest heavily in island real estate, plus of coure yacht brokers. When Klaus Schwab and the men of Davos declare in their video that

You’ll Own Nothing

they probably weren’t (at least explicitly) thinking about the fact that most of the customers won’t actually own the yachts they are sat on, rather that they will charter them, just as they probably don’t own the private jet that flew them out to join the yacht. They will however own the financial assets that are collecting the rents from the real economy as well as the (low cost) leverage underpinning them. The physical assets will mainly be owned through corporate structures that offset running costs and real estate and other taxes against profits and doubtless be made partially available to the political elites in the Zil lanes to ensure these tax breaks remain intact.

Just as we look to invest in the companies providing the ‘picks and shovels’ in the extractive industries, so we should look to those ‘extracting’ this new found wealth from the ‘Yacht People’. As well as all the associated ‘rental agents’ in the quoted sector, Luxury goods companies are obviously benefitting (LVMH at all time highs) and here there is increasing evidence of the ‘Crazy Rich Asian’ behaviours of the super-rich rentiers of Singapore and Hong Kong spreading to the ‘west’. This is not good in our view, nor is it sustainable and we will look at this in more detail in subsequent posts, but for now we should follow the wise words of Bank Robber Willie Sutton, who when asked why he robbed banks said simply “Because that’s where the money is!”.

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