28 Sep 2022

The rapidly falling pound sterling is, according to the opposition coalition of political and media commentators, proof that confidence in the three week old Truss administration is fading away. There are certainly plenty of economists saying that the chancellor’s tax cuts will not stimulate growth and that, whatever, it’s all not fair. The Bank of England is probably wondering whether to raise the bank rate to defend sterling, though it will also be nervous that any indications of panic will make things worse. The gilts market is anyway taking the decision out of its hands. Two year government paper yields 4%. The Bank of England does not command the rates at which actual transactions take place in the real world. I suggest that the Bank continues its policy of pretending to be a cork in a jacuzzi. I have written many (many) times about the remarkable growth of UK government borrowing and how the costs were artificially disguised by the QE through which the Bank of England, as an agent of the Treasury, purchased gilts in the open market while the same Bank of England sold new gilts on behalf of the same Treasury. It really was as circular as that. It must be time to quote Lewis Carroll. “But it’s no use now,” thought poor Alice, “to pretend to be two people! Why, there’s hardly enough of me left to make one respectable person!” While QE was still in operation (until the end of last year) there was an implicit market agreement to see no folly, hear no folly and speak no folly. The wonder is not that the gilts market is being yanked back to reality now but that it spent so many years in a hallucinogenic stupor. The Bank of England bought £445 billion of gilts to smooth over the fallout from the subprime crisis and Brexit and a further £450 billion to fund lockdown. Due to the fact that it drove prices up and paid top dollar it lost £112 billion on its transactions (a hundred billion here, a hundred billion there – whatever) which means, to be clear, that it lost that money on our behalf. And, to be...

24 Jan 2021

Change is inevitable and continuous. It is the journey of human life. We can try to preserve what matters to us – our fitness, for instance – but change has an unbeatable ally – time. In the end, change is both inevitable and fatal. For that reason, the promise that change can be controlled is very seductive. Convincing us that this promise is deliverable attracts those who would exercise political or financial power over us.  POLITICS AND CHANGE Some politicians and campaigners pledge to deliver change as an improvement – others to block or reverse it where they see it as bad for us. In each case they are almost certainly over promising by implying that controlling change is in their power.  Nonetheless, at times the public has an appetite for the idea that a government can deliver destiny. Then, perhaps, disillusion sets in. There certainly appears to be a cycle by which the message of change becomes more and then less popular. In the UK 1959 election the incumbent Conservatives campaigned on the slogan “Life is better with the Conservatives, don’t let Labour ruin it”, often summarised as “You’ve never had it so good!”. The voters agreed. But the change hounds, who can come from left or right, were back in the game in 1964. The Labour manifesto was titled “The New Britain” and its leader Harold Wilson became associated with the phrase “The white heat of technology”. In 1970 Labour was expected to win for the third time in a row and was by now warning against change. “Now Britain’s Strong – Let’s Make it Great to Live In” failed to make the grade, even against a pretty bland Conservative party (slogan “A better tomorrow”). In 1979 the Conservatives were undeniably the party of change with the famous “Labour isn’t working” poster.  Fast forward to 1997 and the Conservative were in full change denial again. Their slogan was “New Labour, New Danger” and they were obliterated by Tony Blair and his campaign song “Things Can Only Get Better”. For a while politicians like Blair and Barack Obama sold change as something progressive. The implicit message was that we are all sinners who...

2 Jan 2021

The European bond markets signalled nothing other than the expectation that cheap or free money is expected to be available sine die. German 10 year yields slipped from -0.50% to -0.57% implying that an extended “oven ready” depression awaits Europe. UK 10 year gilt yields loitered at 0.2%. Only the US, with a rise from 0.7% to 0.9% hinted at any future sign of life as we knew it. It was a much more cheerful quarter in the equity markets. The FTSE rose by 10%, the All Share by 12% and the domestic orientated FTSE 250 by a fairly whopping 18%. This left the FTSE down 15% for the year as a whole, the All Share -13% and the FTSE 250 just -6%.  Despite the obvious fact that the lockdown fanatics are apparently delighted to keep the economy on life support and regret only that we have not shut down sooner, harder or for longer, the stock market is eagerly anticipating a reviving spending spree. Those who find this almost morally objectionable should remember that share markets always try to discount everything as quickly as possible. The FTSE 250 that turned out to be the brightest spot of the year melted by 31% in Q1. I just checked to see what I wrote at the end of Q1: The sight of a self-inflicted depression is unprecedented outside of wartime. It is worth bearing two points in mind: 1) you can’t buy bargains without cash and 2) remember to look down rather than up. Up will look after itself. Eventually. Obviously I could have been more bullish but I did spend plenty of cash while looking down. And I would re-emphasise that up takes care of itself. Stock markets always want to go up. In December we discovered that the UK’s regulatory agency was the fastest in the world to approve the first vaccine and repeated the trick at the end of the month with the Oxford university product. I suppose that this proves how keen or desperate the country is to escape the pandemic. Other nations are more cautious about cutting corners on their regulation processes.  So although the number of people who have...

28 Dec 2020

This is a personal record to help me understand how and when this shitstorm blew up and if anything of importance was missed by me (or anybody else) that should or could have been anticipated. Most of the material comes from my email in and out boxes and has not been edited. I should say that the virus itself has never particularly concerned me. I think that there are broadly two kinds of fear, both of which we all experience to varying degrees. There is the fear caused by specific and known danger in the face of which some people try to hold their nerve and respond as rationally as they can. Dorothy Parker glamourised this kind of courage by attributing to Hemingway the phrase “grace under pressure”. And there is fear of the unknown which has a tendency to induce panic and paralysis. I make no claim to be courageous but I have a certain amount of contempt for fear of the unknown, though in the UK it appears to have gripped a majority of the population. The trigger word for these people is “uncertainty” as in “markets/investors/businesses hate uncertainty”.  It seems to me that the more that is known about Covid-19 the less frightening it is. It also appears that for some reason the government, its public servants and most of the media tend to promote fear and to suppress reassuring news lest it leads to complacency and (can I really be using this word?) disobedience. As an investor, as I have written elsewhere, uncertainty is to be welcomed because it causes assets to be mispriced. The problem, as 2020 has demonstrated, is that it sometimes takes extraordinary imagination to see it. Thursday 23 January  The Foreign Office advised against non-essential travel to Wuhan province. I cannot seriously suggest that I could have interpreted that as a harbinger of what was to come.  Wednesday 29 January  BA halted all flights to mainland China. At the same time, there were reports that the virus had definitely arrived in Lombardy in Italy. This is the point when it seemed real to those of us living in Europe and if I am hard on myself...

20 Apr 2020

Just as I failed to forecast the 30% fall in stock markets, I also never expected the reaction to Covid-19 to begin to diverge along traditional political lines. Life is just one bloody surprise after another these days. It turns out that people on the right, among whom for this exercise I number myself (though see below) think that national lockdown and uniform loss of personal liberty is a dangerous and irrational reaction to a pandemic that primarily targets the old and medically vulnerable. The economic cost is probably both huge and beyond the understanding of the people who are taking medically-driven decisions. People on the left are more likely to worship the NHS and to think that protecting it is worth any cost. They think that complaining about job losses and more trivial inconveniences is in extremely bad taste and that “we’re all in it together” is the right spirit. Though we’re not all in it together because the virus discriminates against some groups that the left favours, including, of course, frontline medical workers and ethnic minorities. The numbers say that the real victims of viral discrimination are the elderly and particularly elderly men. Unfortunately their care is not funded by the NHS and even a 99 year old man walking around and around his garden is not raising money for them. These are not groups that appeal much to the left because, on average, they tend to vote the wrong way. Remember the calls for a second Brexit referendum in 2019 because it was felt that enough Leave voters might have died to reverse the decision? These are all relatively (I use that word carefully) mainstream views. Criticisms of China and the WHO, though contentious, fall under the same heading. But there are plenty of extreme conspiracy theories. Round up the usual suspects. “Since the beginning of the COVID-19 pandemic, there has been a significant rise in accusations that Jews, as individuals and as a collective, are behind the spread of the virus or are directly profiting from it.” Moshe Kantor, president of the European Jewish Congress. Some people seem to think Covid-19 is our punishment for screwing with God’s planet, which...

18 Oct 2019

This is a follow up to “The crumbling social contract”, written in March 2017. A government that is answerable to the people who elected it has a critical peacetime power that depends entirely on its perceived legitimacy. The power to impose taxes. Where would all those generous spending promises come from if they didn’t have the right to confiscate our money? The UK Parliament’s obligation to pass all taxes into law was conceived as part of the 1689 Bill of Rights which constrained the power of the monarch (James II). The quid pro quo was that the populace would give their consent to be taxed. In practice this means that the people have to believe that the parliament represents them. The slogan “no taxation without representation” is associated with the American Revolution. The colonists objected to paying taxes to the British government which seemed to them, and which was subsequently to become, a foreign power. The debate over the 2016 EU referendum was sometimes claimed (by those who wanted to leave) to be a similar question. They take our money and spend it without consulting us very much. The slogan that helped to win the day was “Take back control”. I think that most of the British public were not particularly concerned about the money. Didn’t Mrs Thatcher get us a rebate once? The attempt by the Remain campaign to turn the referendum into an economic debate, though it continues to this day, was a failure. LOOTERS Recently, though, our MPs have been daring themselves to reinterpret the meaning of democratic representation. They are like looters in the aftermath of a riot. Someone else broke the windows. Surely reaching through and nicking something isn’t such a big crime? If I don’t, someone else will. Some have merely abandoned or if you prefer reinterpreted the manifestos on which their parties stood in 2017. Others have actually changed sides and not one has taken the honourable course of offering themselves back to their voters in a by-election. Every conceivable legal chance has been taken to force through, block, delay or reverse the result of the referendum. No doubt our MPs would say that all’s fair in...

28 Aug 2019

Anyone who cares to investigate can discover that the equities that you probably own directly or through your pension scheme are equitable only with each other. Benjamin Graham, the so-called father of modern investing, called them “common shares” which is a better clue. When a company is wound up this typically means that it has run out of money and run out of people who will lend or give it more cash. Equities represent any surplus assets that are left when all other creditors have been paid off. Every other creditor ranks above the owners of the common shares. First are secured creditors like banks or bondholders who have lent money on fixed terms. If the company defaults on those terms it can be forced into formal insolvency, though sometimes the secured creditors will accept equity in return for a further cash injection, if they judge that their best chance of getting their money back in the end is to keep the business going. In those circumstances they will be issued shares on such favourable terms that existing equity investors are diluted to the point of worthlessness. This is happening now in the case of Thomas Cook. After secured creditors have been paid in full, anything left goes to so-called preferential creditors, including employees, and then to the luckless trade creditors and HMRC. You can infer that common shareholders will usually be completely wiped out. Unsurprisingly, people who invest in equities very rarely think about the risk of insolvency and losing all their money. We all dream of the day when the theoretical value of those surplus assets explodes upwards. Bond holders may get their money plus interest back but as Benjamin Graham pointed out many decades ago, common stocks have “a far better record than bonds over the long term past”. It has widely been accepted as a fact that equities are the answer for a long term investor. Cautious share owners look for sustainable dividends that can rise as the company grows; the more optimistic hope for rising share prices as well. Those are the two elements that drive the long-term performance of common stocks observed by Graham. But stock market investors...

2 Jul 2019

Falling bond yields continued everywhere in Q2. US 10 year yields are now just over 2%, UK at 0.86% and Germany at a record low of -0.3%. In the report on Q1 I wrote: “Perhaps by the end of Q2 we will be able to guess what people were worrying about.” The short answer appears to be world trade. President Trump believes that holds all the cards and, ignoring the fact that he doesn’t seem to know or care that import tariffs are a tax on his own citizens, he is not far wrong. His hostility to China is well known. Some people suspect that he next wants to turn his fire on the EU which to him essentially means Germany. Of course by implication it could also mean the UK. Assuming that Donald Trump is capable of deferring a threat, it might just be that he is waiting for the UK’s exit from the EU before firing his cannons. In the 29 quarters since the start of 2013, the average quarter-on-quarter GDP growth in the US has been 0.59%, in the UK 0.46%, in Germany 0.34% and in the euro countries (the EU 19) just 0.27%. It appears that some combination of factors – demographics, the ECB, the euro itself, the EU’s insular anti-trade practices – has produced an era of disturbingly low growth in the EU and hence the lowest, deadest interest rates since the invention of money. Many people these days are spooked by “uncertainty”. They needn’t worry. There is nothing on the horizon to rouse the economies of Europe from their slumber. When I hear endless warnings about what will happen to the UK economy when or if it separates from the EU (three and a half years of “project fear” so far – keep it up, guys) I don’t know whether to laugh or guffaw. The UK stock market indices rose by 1.9% in the quarter. They are down by 3-6% over the last year and around 1% higher compared to two years ago. So it has been hard going. There is little easy money to be made and those who try too hard can easily come a cropper....

21 Mar 2019

In my round-up of Q4 2018 I mentioned three risks that I intended to keep an eye on. Here are three really bad things that could happen in 2019 or preferably later. 1) London house prices fall by 20% rapidly or 40% gradually (or both) 2) A major issuer of government debt suffers a catastrophic collapse in confidence or actually defaults (will the person who said “China” see me afterwards?) 3) A neo-Marxist garden gnome becomes Prime Minister of Great Britain. Numbers 2) and 3) remain of great interest but now I want to update myself on the developing story of property prices. Two observations are becoming quite well known: the apparent insanity of new high rise apartments shooting up all over Zone 2 London and the decline in turnover of the traditional property market. FLIPPERING HELL The FT had a good article on 20 February entitled “London’s property ‘flippers’ forced to sell at a loss”. Flippers are speculators who buy flats off-plan before construction has begun. It seems that they are often individuals either originating from or actually still living in Asia. They are probably rather ignorant about what they have agreed to buy. According to the FT, someone lost £770,000 buying and selling an uncompleted apartment in One Blackfriars, a monstrous glass eyesore (obviously that’s just my unsophisticated opinion) towering over the Thames (which has surely been punished enough). “In 2014, 21 per cent of resales in recently completed developments were sold at a discount, according to property research company LonRes. Last year that number had more than trebled, to 67 per cent. At the same time, the size of discounts has ballooned. From an average of 2.2 per cent in 2014, to 13.1 per cent last year.” To be brutally frank, most Londoners just find these stories of burnt speculative fingers quite satisfying. Some might say that it’s payback for despoiling our historic city with your greed and ignorance. Others might suggest that this attitude is somewhat hypocritical, given that mutual self congratulation about how much everyone had made on their houses was the backbone of London dinner parties for about three decades. PENSION PURGATORY Over those years many representatives of...

5 Jan 2019

Over the first nine months of 2018, the UK stock market was barely changed. In Q4 the world’s obsession with uncertainty overtook it. Trump took on China again, Trump took on the Fed, Congress took on Trump, the ECB took on Italy, the Conservative party took on Theresa May, everyone took on Saudi Arabia and the oil price took fright. While a falling oil price is sometimes considered broadly beneficial to the world economy, it is currently identified as a harbinger of global recession. The FTSE 100 fell by 10.7% in Q4, the 250 by 13.9% and the All Share by 13.1%. The rule that in nervous times investors favour large international shares (i.e. the FTSE 100) overall held good, though not on a scale to promote rejoicing or relief. For roughly the 17th time since the financial crisis the fear of impending inflation faded away. The underlying assumption that we are living in long-term deflationary times held good again. Government bond yields have duly subsided again. The US ten year yield has slipped from 3.0% to 2.6%, the UK 10 year gilt yield is now c.1.2% as opposed to 1.5% three months ago. It is times such as this (when the Japanese stock market’s daily change is one of the news headlines on the Today programme) that it is most important to remember our (or my) basic investment rules. Sharp and extensive falls in the price of classes of assets are caused only by the forced capitulation of unwilling and unhappy sellers. Great market collapses are invariably accompanied by the realisation that something that everyone took for granted is no longer true. Black Monday in 1987 was, with hindsight, a financial services event. Stockbrokers, fuelled by American money following Big Bang, were being paid more than bank directors had earned only a few years before. It was the time of Loadsamoney (Harry Enfield), Money (Martin Amis) and Serious Money (Caryl Churchill) and I am prepared to say without embarrassment that it was bloody marvellous to be part of when you were in your mid twenties. But when it was over you knew it was over. When the DotCom bubble burst in 2000 it...

Characterised by such slogans such as “sell in May and go away”, the third quarter of any financial year is often expected to be cautious. This year saw a mild confirmation of that view – the main UK indices in Q3 fell by +/- 2% compared to Q3; year on year there was an increase of around 2% leaving shares year-to-date down marginally (-0.25%). This is something of a relief in view of the political noise that irritates us on a daily basis but we should note that the US S&P is +8.5% year-to-date.  Whether it is the combination of tax cuts and trade deals or something else, the US is showing either where we could be going or what we are missing, depending on your view. US government bond yields are still inching rather than exploding upwards. US 10 year treasuries are now hovering just above 3% and 10 year gilts are just above 1.50%. These started the year at 2.4% and 1.2% respectively. Perhaps this is a trend. But we should not forget that although there are plenty of Britons who remember inflation, it is 25 years since it was last a problem. I think that wage inflation is worth keeping an eye on but there again it seems that so many of today’s new jobs are relatively unskilled – the more that technology leaps ahead the more we seem to need people who can drive a car or ride a bicycle. When pricing power reaches sellers of that kind of labour then inflation might be off to the races. At the end of the quarter there was another bout of panic about Italy being rebellious against the decrees of the EU/ECB. The premium of 10 year Italian yields over Bunds is climbing. If it continues it will politically disruptive in Europe and could conceivably affect the Brexit deal, though whether it would make the EU negotiators more conciliatory or more obstinate is anyone’s...

10 Aug 2018

A little more than three years ago I wrote in defence of the word “scepticism”. I said that scepticism, which was once habitually paired with the word “healthy”, was having its meaning changed pejoratively to imply that a sceptic was a borderline fanatic who was in denial of the consensus agreed by all enlightened liberals. But scepticism is essential to successful investment and it might do people some good to employ it on other occasions. Something similar but opposite has happened to the word “liar”. It seems that everyone with whom some people disagree is called a liar. It has turned into a playground taunt, an insult tossed off casually without thought as to its actual implications. I will explain at the end why this really matters. Let me insist, if I dare, on two conditions that must be satisfied if someone is to be convicted of lying. First, what they say must be false and second, they must have a reasonable expectation that it is false. According to these criteria it is a very strong accusation to make. In the House of Commons to accuse another member of lying is considered unparliamentary language and the words must be withdrawn. Of course, in a trivial way, most of us lie routinely every day. For this reason the phrase “white lie” was invented. The film “Liar Liar” is about the hilarious chaos that ensues when a lawyer is forced to tell the truth for twenty four hours. Saki’s story of Tobermory the talking cat, written nearly a century earlier, was based on similar comic consequences: as was  William’s Truthful Christmas by Richmal Compton (1925).  By and large, it is considered better to be kind than truthful in personal relationships. “What can I do, what can I do? Much of what you say is true, I know that you see through me, But there’s no tenderness beneath your honesty.” Paul Simon (Tenderness) The very existence of white lies alerts us to the fact that darker lies are serious stuff. People go to prison for perjuring themselves in court and the reason that they tend to receive custodial sentences (up to seven years) is that the law...

5 Jul 2018

In Q1 the main UK indexes fell by between 6% and 8%. In Q2, they rose by 7% to 8%. The chart of the first six months is a “V” or perhaps a two-fingered salute to all the financial commentators who claim knowledge of the future. Bond yields again did almost nothing.   I have written elsewhere about the prevailing mood that seems to try to put a pessimistic spin on everything. As a result I would imagine that most people would be amazed to know that shares were so strong in Q2. How could they be in the turmoil of the imminent collapse of international trade, courtesy of the hardball tactics of Mr Trump and M Barnier, l’homme who loves to say “non”? The sole purpose of trade rules is to prevent trade from taking place and that these two gentlemen are both happy to use that threat as what I suppose we must call a negotiating tactic, if we could only tell what it is that they are trying to negotiate. Never mind that. The stock market doesn’t seem very concerned about it. Last quarter I listed thirteen everyday UK shares with markedly high dividend yields. Unsurprisingly, in view of the market performance, you would have done quite nicely if you had bought them. Not a single one of them went bust between April and June, I am pleased to say and the shares of none of them declined. It is better to look at valuations and to ask what they are telling us than to listen to what commentators are actually telling us. How about the yields on government bonds? I have said that there was little change in Q2 (despite innumerable predictions of falling prices) but are there trends and what do the absolute levels tell us? Germany is the benchmark bond for the EU. The ECB will continue its asset buying programme until the end of this year. It is still boosting asset prices by its own version of QE, implying that the crisis that started in 2008 continues. A year ago, 10 year Bunds yielded 0.5%. Now they yield 0.3%. Not many signs of imminent recovery there. Bond yields...

11 Jun 2018

When making investment decisions I try to employ pragmatism and to avoid behaving emotionally or irrationally. As a rule of thumb, most other words that end in “–ism” are not useful. Optimism, pessimism, idealism – these are all attitudes that we find appropriate or inspiring in our daily lives but when it comes to making decisions supposedly based on evidence, they load us with confirmation bias. I read a good piece about The Psychology of Money which points out no fewer than twenty common mistakes that can damage your wealth. One that I particularly liked was titled: “The seduction of pessimism in a world where optimism is the most reasonable stance”. Brexit, or the contemplation of it, appears to have plunged half of the UK into some kind of collective nervous breakdown. It is group-think of the most destructive kind and its victims wallow in anything that can be spun as bad news. Bluntly, they see pessimism as a virtuous scourging exercise because the people must pay for their sins. This is a phenomenon that is far from new. Gilbert & Sullivan wrote the Mikado in 1885. The song “As some day it may happen” is a “little list” of “society offenders” which reads rather oddly in 2018 (lady novelists?; seems harsh). But 133 years on, we are still very familiar with: “The idiot who praises, with enthusiastic tone, all centuries but this and every country but his own.” The current leader of the Labour Party, anyone? Moreover, anyone who is upbeat today is liable to be seen as deluded or laughable or even dangerous and fanatical.    The current President of the United States, anyone? In my report on Q4 2017, just after the Trump tax cuts had been implemented, I wrote that: Almost all the reporting in the UK mocks Donald Trump and strains to suggest that he is incompetent and dangerous. This remains mostly true though some people are beginning to contemplate the idea that Trump’s thoroughly unfashionable bullishness may be effective. He is bullish and he is demanding: put those two words together and you might come up with the word bullying – just how unfashionable can this man get?...

21 Dec 2017

The causes of the financial crisis have not been properly addressed. In particular, the perpetrators are widely and correctly seen as having got away with it. This, in my view, lies behind the populist behaviour that keeps giving us “anti-establishment” election results like Brexit, Trump and Corbyn. That’s the conclusion of this essay. Here are my arguments, looking at what happened in the US, the EU and the UK and the common failures of leadership in all three territories. WALL STREET AND THE FINANCIAL CRISIS I think we all know that the financial crisis involved junk debts being packaged by rogues as AAA and sold to idiots. Faults on both sides, no doubt. US officials are relatively good at hammering those considered dispensable. (Bernie Madoff was sentenced to 150 years at the age of 71. That showed him). But the biggest banks were considered “too big to fail”. They operated with an implicit guarantee that, no matter what, they would be bailed out by the state. This was extended to the claim that they were “too big to jail”. It has been said that it would be destabilizing to the financial system if the senior management of a major institution were taken on the “perp walk”, handcuffed in front of a global TV audience. At the same time, the alumni of US investment banks seem to penetrate government at the highest levels. The original bailout was presided over by the Treasury secretary Hank Paulson, once of Goldman Sachs. Also from a Goldman career is the current Treasury secretary, Steve Mnuchin (there are limits to President Trump’s populism). You can read plenty about Goldman Sachs here. US politicians who complain about the big banks tend to stand out because they are unusual. Bernie Saunders and Elizabeth Warren are portrayed as “progressive liberals” (that’s an insult in establishment parlance) and possibly anti-capitalist or un-American. It is estimated that the US banking lobby spends more than $100 million a year fighting attempts to regulate it.    In 2011 the Occupy Wall Street movement claimed to represent “the 99%” against income inequality and corporate influence. President Obama said perceptively that: “I think it expresses the frustrations the American...

14 Nov 2017

I have been on the town recently. Two weeks ago I went to see Reasons to be Cheerful, a brilliant play based around the music of Ian Dury. It is performed by the Graeae theatre company that featured in the 2012 Paralympics opening ceremony. I saw it when it was produced the first time in 2010 and eagerly returned for more. Ian Dury was to say the least an anti-establishment figure and by today’s standards not politically correct. I’m not sure whether he would have appreciated the fact that a new song was tacked on to the end of the show. “If it can’t be right then it must be wrong” has rather puerile lyrics that I don’t think Ian himself would have written (“Keep the funding flowing from a loving cup”). As the song was played and sung, pictures of various politicians with devil horns sprouting from their heads were flashed onto a screen: Mrs Thatch, natch, David Cameron and, oh look, Tony Blair. But I will let someone else summarise: “This new anti austerity song from Graeae and the Blockheads captures the current mood of the country. Its lyrics bring people together in a moment of shared experience to challenge the status quo.” Jeremy Corbyn, Leader of the Labour Party. There I was watching a play set in 1979 and suddenly the “mood of the country” in 2017 was sprung on me. How did that happen, I wondered. Last week I revisited 1979 for the second time by paying a 2079 price to see Squeeze at the Royal Albert Hall. And it happened again. In between Cool for Cats, Up the Junction and Labelled with Love, the band naturally played songs from their new album. These included Rough Ride which laments the lack of affordable housing in London and A&E which really challenges the status quo by calling for more funding for the NHS. Perhaps I should get out more but I was struck by the way in which the anti austerity message was offered on both occasions with such confidence, as if it were not a politically contentious message but almost a fact. Perhaps I live in a London bubble but...

2 Sep 2017

Who is in the room containing those who are supposedly negotiating the terms of Britain’s exit from the EU? We seem to have sent a team of men (mostly) who are used to attending meetings without trousers which is perhaps appropriate.  The Europeans are fielding another team of men (mostly) who are seemingly permanently “flabbergasted” and like to talk about the conditions for talks about talks. Were they to remove their trousers you can be sure that they would be wearing a second pair underneath. But what is that large white quadruped that keeps sticking its proboscis where it’s not wanted? It is the elephant in the room and its name is sadly not Donald the Tusk but Erich the Euro. Here is a picture of Erich, trumpeting towards his glorious target of parity with the pound (the chart runs from 2014 to this week – click to enlarge).   No one knows for sure why currencies move against other currencies. To listen to analysts and other commentators you might imagine that it is quite obvious, in retrospect if not in advance. This is largely tosh. The best answer is the one that I heard every day when I worked on the floor of the London stock exchange: “More buyers than sellers, mate”. THE REASON FOR CURRENCY MOVEMENTS IS UNCLEAR AND UNIMPORTANT Looking at the elephant picture it appears that there have been more buyers of euros than sellers. In 2015 there were more sellers than buyers. Remind me, why was that again? There just were! Okay, okay. I suppose that Brexit uncertainty and a slowing top-end property market (yes, they might be the same thing) have caused foreign investors to buy less sterling this year. You might just about persuade me that others have been buying euros in preparation for opening new offices in Budapest, Valletta and Clermont Ferrand. But currency movements have real effects, though they take time to play out. There has been a 40% increase in UK tourists to Greece this year (doubtless fuelled partly by aversion to Turkey – people prefer oppressed governments to oppressive ones, it seems). As I write, these tourists will be asking themselves why Greece...

28 Apr 2017

THE PARADOX OF SPENDTHRIFT AUSTERITY It may be stretching a point to say that any of the political parties in the forthcoming “snap” election will make interesting financial arguments but it does seem that the days of competitive spending pledges might be behind us. That would be a relief and at least we could say that the continuing nine year fallout from the financial crash was not for nothing. I will generalise by saying that opposition parties have a strategic problem. They would like to criticise the Conservatives for allowing government debt to rise from 76% to 90% of GDP during a number of years labelled as a period of “austerity” but they are also against austerity in principle and disinclined to criticise the Tories for pursuing it with insufficient discipline.    Yet it seems that calling for even more government borrowing is not regarded as an option for a party with serious ambitions to be elected. So the debate, if that is not too dignified a word, is turning towards where the burden of taxation should lie and whether the status quo is “unfair” (a word that we all remember well from the school playground). LET’S TALK ABOUT TAX We can all agree that tax evasion, which is illegal, is a bad thing. Unfortunately tax avoidance, which is not illegal, is frequently lumped together with evasion and cited as part of the evidence that some wealthy people or companies are not doing their share. It is certainly the case that some tax avoidance is morally dubious and some tax advisers come close to crossing legal lines. But much tax avoidance is the result of behaviour that has been encouraged by the government of the day. I avoided income tax by paying money into my pension. I was deliberately incentivised to do this. Children are encouraged to avoid tax by putting their savings into a Junior ISA. The fact is that you are unlikely to meet anyone who wants to pay more tax but it would be equally unusual to find a person who doesn’t think that someone else should. Just as the Labour party cannot afford to be a blunt advocate of public...

15 Mar 2017

THE LAND OF THE FREE-FROM-RESPONSIBILTY The Occupy protesters (what was it they were protesting about again?) used to chant “We are the 99%”. The 1% were portrayed as the selfish and/or crooked people who had appropriated most of the wealth. It is demonstrably easy to be part of the 99% – in fact, it’s darned hard not to be. Rarely had so many ever been against so few. The trouble with being part of a 99% majority is that it is difficult to be focused. Even the French revolutionaries of 1789, who had pretty much the same numbers on their side, could not agree on their objectives and ten years later succumbed to dictatorship (by a chap named Napoleon). But the recent UK budget, delivered by the harassed Chancellor, Philip Hammond, highlighted one point on which close to 99% of politicians, lobbyists and commentators are agreed. They all have limitless opinions about how public money should be spent but next to no constructive suggestions about how that spending should be funded. There is no responsibility for funding that is commensurate with the responsibility for spending. This seems unfair because the latter offers all the joys of patronage and moral superiority and the former, as Mr Hammond might agree, is like having toothache in a land of no dentists (whose absence is widely attributed to your own austerity policy).      I believe that most citizens are supportive of the idea that they should pay their fair share of taxes. But what weakens their support is any suggestion that the government is misusing their money, either by waste and incompetence or by channelling it to family and friends or by funding causes with which they do not agree. (The 2016 EU referendum ticked all those boxes for many people). There was a great experiment in California in the 1970s that showed what happens when people revolt against their social obligation to pay taxes. PROPOSITION 13 Essentially, Proposition 13, passed overwhelming in a referendum in 1978, imposed severe restrictions on the ability of local Californian politicians to raise taxes. Its genesis was the Howard Jarvis Taxpayers Association. The US has a history of taxing real estate that...

16 Jan 2017

Here are two pieces of great news for the citizens of relatively rich, relatively developed, relatively Western economies. Women can increasingly combine career and motherhood rather than having to choose between them: and improved healthcare (if not exercise and diet) mean that people on average are living to greater ages. Fifty years ago, the UK average birthrate per woman was 2.9 (over her fertile life, not per pregnancy, obviously). Now it is 1.8. No doubt this is down to a combination of reasons which you can work out for yourself. Given that medical science has not yet worked out how to allow men to give birth you might imagine, if the UK’s experience is typical, that in the long term the global population will decline, on the rough basis that each woman should on average have two babies to replace those falling off the perch at the far end of life’s journey. Were it not for the fertility of some African countries, where birthrates of >5 per woman are quite common, mankind might become an endangered species.  According to the World Bank, the average fertility of women in the world was 2.5 in 2016 and the necessary “replacement rate” is 2.1. So the human race looks as if it will walk on for a while. Yet the story for developed nations is quite different. BIRTH RATE IN DEVELOPED NATIONS – FLACCID France (2.0), the US (1.9) and the UK (1.8) are doing their best (all, note, countries with histories of racially diverse immigration). The EU, which only promotes immigration from within itself, is overall at just 1.6 and Germany (1.4), Italy (1.4) and Spain (1.3) are below average. China, just unwinding its one child policy, is at 1.6 and Japan, perhaps the world’s most notorious ageing nation, is at 1.4. But the populations of established nations like the US, Germany and the UK are certainly not declining yet. Instead we have decades ahead in which the population will continue to grow but will age significantly. This is important for all kinds of financial reasons, none of them good. The last time that the fertility rate in the UK was at the “replacement rate” of...