A Ferrari IPO could mark the beginning of the end for the Obama bull run

US Outlook

Click to follow
The Independent Online

The Dow Jones average has not been a particularly accurate indicator of the overall wellbeing of the US economy since Nixon was president. Containing only 30 companies, the Dow is now less meaningful than half a dozen other indices. That doesn’t mean that its incredible bull run over the past six years is irrelevant, economically or politically.

Few people would have guessed that Barack Obama’s presidency would include the greatest Dow Jones run of all time – from a low of 7,062 in February 2009, just as he was inaugurated, to just over 18,000 at the moment. That is an annual return of about 24 per cent. No wonder hedge funds are struggling to match the market, and  no wonder so many contribute heavily to the Republicans.

Obama opponents would have you believe that the Dow is completely without meaning and its value has nothing to do with political economics. Politicians claim far more credit than is due when the markets rise, and take far more flak than is due when they fall. That said, if the Dow was standing at 2,000 rather than 18,000, it is likely that their views on its relevance would be slightly different.

But is the party over? This week’s slew of major US corporate results, from the likes of IBM, United Technologies and (shock horror) Apple, were less than inspiring.

So this strong equity market can’t, and won’t, go on for ever. Which in turn brings us to the announcement this week that Ferrari will be spun off from Fiat Chrysler, in an initial public offering, valuing the luxury sports car maker at something like €10bn (£7bn). The public part of the offering is limited to just 10 per cent of the stock, so scarcity alone should make it perform well (if not quite like an actual Ferrari). The remaining stock will be split between Fiat Chrysler shareholders and Piero Ferrari, offspring of founder Enzo and the luckiest chap on the planet.

Just to make life simple, Ferrari’s holding company will be based in the Netherlands, registered in the UK, pay taxes in Italy and trade in New York. Demand for the marque appears to be as strong as ever. According to Fiat, Ferrari earned €621m in the first quarter of 2015 and has close to €1bn in cash. This should come as no surprise – the sort of people who are in the market to buy a luxury sports car have done pretty well over the past few years.

As for the markets, there is always some sort of signal that the champagne is about to run out. In 2000, in the UK at least, it was the arrival of Lastminute.com. This time around, it could be the arrival of Ferrari, a symbol of excess if ever there was one. If nothing else, Ferrari is going to find life as a standalone public company an awful lot tougher than life as a spoiled trophy asset.

Creditors come to bury Caesar, not praise it

The saga surrounding perhaps the greatest name in casinos – no, not Donald Trump – looks like it is entering the last chance saloon. Thanks to a New York judge, sadly not named Brutus, creditors of Caesars Entertainment got approval to pursue the company for millions, perhaps billions. One final high-stakes game, perhaps.

If a 40 per cent decline in the share price is anything to go by, the fight is all but over, and the market rarely gets these things wrong. It will be a sad end, assuming, as looks likely, the entire company goes into bankruptcy rather than just the operating unit. The fight boils down to the company and Apollo Global Management, the private equity giant, on one side and a bunch of smaller hedge funds and private equity investors on  the other.

The former wants to further protect itself from creditors by re-negotiating its junior debt. The latter (not surprisingly) wants a bigger slice of the pie.

The Caesar name will forever be associated with the glory days of Don King’s boxing empire and Elvis Presley’s Vegas years (even if he mainly performed in other hotels).

The name is likely to carry on in some form, but perhaps it is for the best if it is put out of its misery. The stock has lost 80 per cent of its value in the past 18 months or so, and that’s a grim return, even by the standards of a visit to the casino.

New York’s Uber issue could fix itself

Bill de Blasio, New York’s Mayor, surprised many observers by backing down from a fight with Uber. Mr de Blasio had proposed a cap on the vehicles Uber can operate in the city, at least while data was assessed.

So, a victory for Travis Kalanick, Uber’s combative chief executive. This deal will result in Uber handing over its own analysis of traffic impact.

However, with battles on just about every front, Mr Kalanick should leave the bubbly on ice. Of greater importance are the battles being fought in courtrooms over the status of Uber drivers as employees or contractors.

Those battles will be where Uber’s future will be won or lost, at least in the sense of its ability to fire at will, to avoid the real costs of running its business, and those pesky taxi regulations. Maybe that’s why Bill de Blasio backed down: why fight on when someone else is going to win for you?