Market Thinking

making sense of the narrative

Notes From the Road

This time last year, in a post entitled ‘Economics by Anecdote’, we noted a number of issues from a trip to Europe, from the high costs of shipping and labour shortages due to Covid to the intrusive bureaucracy around Covid and the general level of Government meddling in markets. The conclusion was that “As previously discussed, Europe has the opportunity of picking the best of China and the US, but risks picking the worst. Certainly this list of anecdotes suggests so at the moment. Hopefully it’s wrong.”

A year on, and with a lot else having happened in the interim (!) we nevertheless thought it worth an update. A road trip through France, Switzerland and Italy over the last few weeks threw up a few interesting observations (we think).

Teslas in France
  1. Coming from Hong Kong, Europe is blissfully Covid free – not free of Covid itself of course, just of the Canute like obsession that the health bureaucrats appeared to have with ‘Zero Covid’ only a year ago (and still have in HK). The one exception being Germany, where passengers arriving at the border after a two hour train journey were told to put masks on – presumably because their fellow passengers for the last few hundred miles were suddenly going to become either more infectious or more vulnerable? Our favourite discussion point with Americans in Europe – unlike last year, Europe is flooded with them, many of whom still wear masks – has been to point out that ‘if the holes in the mask are the equivalent in size to a football pitch, the virus would be the size of the football’.
  2. George W Bush famously once said that “the French have no word for entrepreneur”, well they certainly don’t appear to have one for ‘joie de vivre’ at the moment, whereas, by contrast, the Italians are certainly living ‘La Dolce Vita’. The cost of getting anything done in France, like the UK, is still very high due to lack of labour supply. With an economics hat on, we can’t help wondering if the lower prices and the greater enthusiasm are a function of no minimum wage in Italy?
  3. Italy is Cheap. While the weakness of the Euro against the $ – hitting Parity the day France went ‘En Vaccances’, July 14th – has meant that the whole of Europe appears to have been swamped by US tourists, Italy is nevertheless ‘good value’ against both France and the UK (Sterling has basically been flat against the Euro). A round of drinks for less than GBP10, including ‘apperativo’ snacks was the norm, even in some ‘high end’ places. France meanwhile is similar to the UK, on average 25-40% more, while Switzerland is still reassuringly expensive (Eur50 for an entrecote and chips at a nice, but not fancy, hotel restaurant. Two or three times the price it was in Italy. We passed.)
  4. Fuel is Cheap(er). The joys of Tesla driving meant no expensive fuel bills for us, but the price per litre in France and Italy is back to around GBP1.50 equivalent, compared to around GBP1.90 in UK – even as the UK supermarkets start to deliver a competitive round of cuts. Competition is going to return some prices back to ‘normal’, but clearly many UK companies are doing their best to extract as much ‘rent’ as they can in the short term. Here the Europeans have done better than the UK – as far as the consumer is concerned at least.
  5. Last year we noted the number of Non-Tesla electric cars had grown sharply and were having to queue for chargers. This year there were certainly more Teslas (we even had to queue at one time), but also important is that Tesla is starting to open up its Supercharger network to other brands in certain countries (UK and France for example). While this is good for the profitability of the energy network, in our view it is another dent in the attraction of owning a Tesla itself. We continue to believe that Tesla’s path is to become a utility, much as Vodafone did after the Go-Go mobile era of the late1990s. (For context, Vodafone’s share price fell 90% as a result).
  6. It’s very ‘hot’, but only the Brits and the Americans are blaming it on Global Warming. Europeans appear to realise that, just as heavy snow in winter is ‘weather, not climate’, so is hot weather in the summer. Indeed, most are more worried about the upcoming cold winter and the cost of fuel. The (largely unreported) protests by Dutch Farmers and the ongoing activities of the Gilet Jaunes also testify to the potential unrest over the next few months.
  7. The Green Leap Forward appears to have penetrated France. Remarkably, given its nuclear capabilities, France seems to have even more ‘unreliables’ in the form of Windfarms than last year. And given the hot weather is caused by a high off the Azores, there has been little wind, so almost none of them are working.
  8. Working from home has changed the way people holiday as well – particularly Americans. Famously required to ‘be seen in the office’ and with only a few days official Vacation, the reality had been a lot of long weekends – try finding anyone on Wall Street on a Friday in Summer for example – creating a series of weekend house commuter belts. Now, at least according to the many Americans we encountered in a large group attending a ‘Big Party’ in Italy (the principal reason for the road trip), the professional classes are ‘working from other people’s homes’, especially in Europe now that the $ is so strong. Something to watch.
  9. There are very few Asian tourists visible in Continental Europe. And presumably also obviously Russians. Will they return? Or will they discover new, more welcoming, places? Many in hospitality privately expressed concern about the Russo-phobia and increasingly the Sino-phobia in the western press having long term negative consequences for their businesses.
  10. Politically, few were talking about Ukraine. In France Macron is bruised from losing the lead in Parliament, while Italy has an election coming up for a new leader (as of course does the UK). The focus is on the Fuel crisis and few in Europe accept the Anglo/US view that it is all Putin’s fault.
  11. On return to the UK, it began to rain. Almost immediately. At least some things are reliable.

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