Snapshots was a big fan of the Welsh alternative rock band the Manic Street Preachers at university.

Their hit single “If You Tolerate This Your Children Will Be Next” and the song’s line “If I can shoot rabbits/I can shoot fascists” come from the Spanish Civil War that Welsh volunteers surprisingly fought in.  We highlight this only to illustrate how deeply emotive politics is.

As investors we do not get involved in politics other than to try and assess their economic and market implications.

European Parallels

The economic growth and earnings picture in Europe remains positive  but the political situation is still fluid. Angela Merkel is forming a coalition government from a weakened position. Emmanuel Macron’s popularity has fallen since the elections. They will both have to contend with a growing (but still small) anti-immigration bloc that will be joined by Austria’s “wunderwuzzi” chancellor. In Italy, three of the four largest political parties are proposing parallel currencies to operate alongside the Euro and give the country a much needed fiscal boost.

We highlight these issues because Europe still needs to push ahead with significant reforms to address them. The need has been alleviated by Quantitative Easing and a strong global macro backdrop but they remain on the horizon. As such we think it is prudent to run peripheral exposures at more cautious levels.


Another accounting standard which becomes effective in 2018 is IFRS15 which deals with revenue recognition from contracts. It is particularly relevant for IT companies who have subscription contracts.

Under this accounting standard, revenues need to be apportioned to the relevant year that they relate to (for multi-year contracts). However, leverage metrics are calculated from a pro-forma EBITDA which allows day one recognition of the contract value. This can allow some tech companies to significantly flatter their leverage ratios whilst they are growing. We have said before that, as credit cycles mature, accounting can become more aggressive and you have to run harder on the proverbial treadmill when making credit assessments to keep up with some of the tricks companies employ.

Snapshots is on half term break next week and normal service will commence again in November


Asif Godall
Co-Chief Investment Officer