ECONOMIC SHUTDOWN! EMERGENCY!!

ECONOMIC SHUTDOWN! EMERGENCY!!

6 May 2020

Things are starting to get serious. The SAGE committee is vast and its remit is the virus and nothing but the virus. It has saved the NHS to the extent that the new Nightingale hospital near the O2 in London is shutting after four weeks. Job done except that most of the public is either scared out of its senses or, more worryingly, preferring a life of leisure on 80% wages. The government is now directly supporting more than half the adult population. Normally I would say that a minority of taxpayers is bearing the burden of the rest but that is nowhere near the truth. Taxpayers are being furloughed too. The printers are rolling and the government is set to borrow from itself. The question is, how long will people be able to live on these new government tokens (once known as sterling currency)? CURRENCY DEBASEMENT My son Leo has just written about the use of the first ancient coins. Greek traders who knew nothing of coinage were happy to use them, even though the gold/silver content was lower than natural bullion of the same weight. Leo was puzzled as to how items of lower intrinsic value continued to be accepted. My answer was that a coin’s real intrinsic value is the belief that if you accept it in return for a “real” good you will be able to pass it on to someone else in return for goods of the same value. But once that belief falters the coins will be swiftly debased. The debasement of our currency will manifest itself as inflation. If you weren’t an adult by the 1980s you will not remember a time when people bought assets today for fear that they would cost more tomorrow. I knew a couple in about 1985 who agreed to buy a small house off the King’s Rd. It was suddenly withdrawn from the market and re-listed at a £50k premium. To their credit, I guess, they did not blink and paid up at once. The US is issuing $3 trillion of debt this quarter. (That’s $9146 for every man, woman and child, or $11,363 for every adult). The US can get...

Grocers minced

Grocers minced

24 Mar 2014

“FTSE 100 sees supermarket shares shelved as Morrisons wages price war.” Last Thursday week (13 March), shares of William Morrison fell by 12% to 206p. They have fallen by 32% since their 2013 peak of 302p in September. In a show of empathy, Sainsbury’s shares were -8% and -26% from last year’s high and Tesco’s -4% and -23% respectively. The strategic announcement from Morrison has emphasised what we already knew – that discounters like Lidl and Aldi have been winning market share from the “Big 4” supermarkets (the other one, Asda, is a subsidiary of the US giant Walmart). This stock market fallout has delivered some shares that ostensibly now look cheap. As ever, the way to judge is to ask what the valuations tell us about the outlook for the businesses and to decide whether this view is realistic, optimistic or pessimistic. But first, some background. Due to the fact that we all go shopping, my observation is that people tend to overestimate the value of their own opinions about retailers. (This is true of many other topics: house prices, because we all live somewhere; climate chance, because we all notice the weather; healthcare, because we all get ill; bankers, because we all use banks.) On that basis, I must assume the same is true of me. So let’s get my prejudices out of the way. First, Lidl and Aldi are private companies from Germany. In my experience, which is somewhat out of date, shopping in Germany is a grim experience, evocative of Britain in the 1970s. If German retailers compete on scale and price, it is because they have nothing else. It is still the case that the collective German psyche has a horror of inflation (I have a 50 million mark note from the 1920s on my desk) and until 10 years ago, the law regulated prices and shop opening times in a way that suggested that shoppers needed to be protected from greedy retailers. The only Lidl outlet I know (in rural France) usually has just one member of staff on the checkout and the last time I was there (buying Chardonnay at less than €3 a bottle) the customer...