26 May 2020

Despite the fact that the UK government appears, like Gilbert’s Duke of Plaza-Toro*, to be leading from behind, I suppose that this fearful fog of indecision will eventually dissipate and some kind of hobbled phoenix will stumble out of the smoking ashes of the economy. In passing, I would like to bestow their share of responsibility on the political opposition, including the trade unions, who constantly urge caution and demand something called “safety” for all, in the calculated knowledge that the worse the economic consequences of lockdown, the worse for the government.  Can they really be that cynical? Oh yes. THE DAMAGE DONE But whether you believe that lockdown was a) catastrophically late or b) completely unnecessary, (and history may one day deliver a verdict but you won’t find it on Twitter this afternoon), a vast amount of economic damage has been done. And the longer paralysis continues, the worse it will be.  And given that the government is now a follower of international decisions rather than a decision maker itself, we must look at the US, Germany, France (!), Sweden and pretty much anywhere else you care to name to see how our future might look.   Donald Trump has an election to win in November. (Ladbrokes still has him as the marginal favourite, which seems surprising). Naturally, he is desperate to get America back to work and, as his son says, make it great again, again. Whether you think he is gambling with people’s lives or trying to save them from destitution actually doesn’t matter. What matters is what has already happened.  The US unemployment rate jumped from 3.5% in February to 4.4% in March to 14.7% in April. That’s 23 million Americans out of work. But it will be more than that. The total of initial unemployment claims is at nearly 39 million by the end of last week. That looks like an unemployment rate closer to 25%, an utterly unimaginable number.  If it turns out that “it’s the economy, stupid” then Trump’s Thanksgiving turkey is cooked unless there is a near-magical recovery. Whatever you think of Trump, and there is no need to say or even think it out loud, a...

14 Nov 2019

On 9 November, Prof. Brian Cox who is a professor of particle physics and a TV and radio presenter responded to the news that credit rating Moody’s downgraded the outlook for the UK’s debt with this Tweet: “Neither Labour nor the Conservatives will be able to borrow all the money they are pledging if international investors take fright.” Pausing only to note that anyone who relied on Moody’s credit ratings probably got wiped out years ago, Prof. Cox’s view does not seem outrageously controversial to me. Yet he was buried by a landslide of comments such as: “Don’t you just love it when experts step out of their areas of expertise and talk bollocks.” In essence the message is that if Brian Cox thinks that interest rates might rise, then he must be an economic dumbo. But the important point is not whether the professor is a financial simpleton or not but that the crowd is so emphatically behind a view that would quite recently have been unthinkable. Groupthink now knows that interest rates will never rise and that governments can borrow whatever they like. Happy days. And talking of financial simpletons, Donald Trump keeps criticising the Federal Reserve because other countries have negative interest rates on their government debt.  “Give me some of that. Give me some of that money. I want some of that money. Our Federal Reserve doesn’t let us do it.” Source: Speech to the Economic Club of New York 12 November 2019 The remarkable fact is that Brian Cox is regarded as the one who “doesn’t get it” whereas President Trump thinks that he is espousing “the new normal”. HOW DID WE GET HERE? How did we get here and what happens if the consensus is as wrong as usual? “I am concerned that this emerging anti-austerity consensus, driven as it is by the desire for perceived “fair” outcomes, could get messy. Meddling is in the air. An outbreak of doing the wrong thing cannot be far off.” Source: CrowKnows “Prepare to turn left” I wrote that exactly two years ago in the post “Prepare to turn left”. It is surely time to follow up because the steering wheel...

5 Aug 2019

There seems to be common agreement among first world liberals that we live in unusually difficult times. In my view this a case of “people like us” on steroids. Populism (possibly explained here) has caused great discomfort to people who have grown up feeling pleased with themselves and their kind. Watching them explain their troubles to some of the 29 million people who live in the Dehli region of India, a country with annual GDP per capita of $2,000, would perhaps make great reality TV (note to self – pitch that to someone). But we should resist the temptation to be judgemental if we can (though clearly most of us can’t). Instead I would like to suggest an exercise that can be summed up as “exactly whose problem is this?” When people annoy or upset us we want it to be their problem. We are implicitly saying that they should take responsibility and do something about it. Sometimes, if they ignore us we will get increasingly stressed and suddenly it’s our problem. “YOUR BEHAVIOUR IS UPSETTING ME” It boils down to this: what is the driver of the sentence “Your behaviour is upsetting me”. Is it your behaviour or my being upset? Her are two examples: Malodorous Malcom has a personal hygiene problem. He must be told. Smug Simon and Suzi are blissfully (nauseatingly) in love and don’t seem to want to hang out with any of their old friends. They are starting to alienate people. I think it is pretty clear that Malcolm needs to own the problem, with the support of your helpful advice. If he refuses to acknowledge that no one will stand downwind of him he will soon discover that he loses friends. In the case of the smug lovebirds, it is highly likely that your alienation is a price that they will readily pay in return for the indulgence of their mutual obsession. All you can do is to smile and nod and secretly pray for a traumatic break up. When we are upset we want to blame and we often lose sight of where accountability actually lies. But rational thought can help us decide whether we need to...

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?...

4 Jan 2018

For the third successive quarter, the markets were mysteriously calm. Long term government bond yields barely stirred again. Bunds yielded 0.44% in September and they yield 0.44% today. The range, if that word applies, of gilts has been almost as tight. The UK stock markets slow-marched upwards in step in Q4: FTSE 100 +4.4%, FTSE 250 +4.5%, FTSE All Share +4.4%. It would seem that behind the blizzard of infantile stories about Bitcoin and Brexit, there were no events of substance.  The US has been much more exciting. The Dow Jones Industrial Average rose by 24% last year and by 10% in Q4 alone. Almost all the reporting in the UK mocks Donald Trump and strains to suggest that he is incompetent and dangerous. Given that Trump campaigned on the basis that “good people don’t go into government” it is, to put it mildly, understandable that many people are keen, not to say desperate, to see him fail. It may turn out to be the only major legislation that he ever delivers but the tax reform is certainly a thing and the stock market seems to like it. Cutting the corporate tax rate from 35% to 21% is clearly beneficial for business and has been naturally portrayed as Trump helping out his true personal constituency but it is interesting that the balancing reduction of allowances is causing some huge short term hits in reported earnings ($5 billion for Goldman Sachs alone).    As soon as the bill was passed a raft of companies announced immediate $1000 cash bonuses for every employee. This looked suspiciously coordinated but I don’t suppose the 200,000 AT&T or 100,000 Comcast recipients mind. And the US consumer has been in celebratory mood with spending over the holiday period up by around 5%. The overall effect of the tax cuts has been reported as if they are a straight transfer of money from the poor to the rich. This is a question of whether you think that the lower taxes will promote economic growth (the classical capitalist view) or whether you think that they will merely drain government coffers (a more left wing attitude of course). The undeniable fact that individual...