There's been a lot of blame flying around recently. We have a recession - there has to be a scapegoat. And most of the blame has been targeted at the bankers.
Now, top bankers make up about 0.05% of the population, so they make an easy political target. Hedge fund managers are even easier to target.
But where is the politician who is willing to blame ordinary voters? Yet the speculative bubble of the housing market was not caused purely by estate agents, banks and building societies. It was caused by everyone who bought the idea of an ever-rising market, who bought a house for investment value rather than its use as a home, who borrowed more than they should to 'get on the ladder' - who got caught up in the frenzy.
And the fact that the savings ratio shot through the floor is not the fault of the bankers. It's the fault of everyone who, seeing their house price rising steadily, decided to live above their means. Private school for the kids, three cars, big house, holiday in the Caribbean - and all on a household income of £60,000? Really?
It was all unsustainable. But even the Guardian was putting £1,000 handbags in its style section. Reality check; the Guardian sells to social workers, teachers, council staff. I'd be surprised if its demographic shows significant numbers of people earning seven figure salaries.
The vilification of Northern Rock was particularly nasty. Northern Rock operated what was a perfectly valid business strategy - gaining market share by relaxing its loan criteria, and using wholesale funds to support a higher rate of growth than would have been possible had it used only its deposit base. It got it wrong, of course - the credit crunch meant it couldn't re-fund, and lower quality loans defaulted earlier than the higher quality borrowers at other banks; but getting it wrong is not actual proof of evil intent.
As long as we blame the bankers, there are going to be too many people looking forward to a resumption of the bear market - and wanting to get rich quick. The one thing that the cycle of boom and bust should have taught people is that getting rich quick runs the risk of getting poorer very quickly too... Until we stop blaming the bankers, we're not going to learn anything.
Sunday 3 May 2009
Thursday 5 March 2009
George Osborne doesn't get it
The Tory party promises an end to the 'money for nothing' culture.
I wonder where they have been for the last year. With 0.5% interest rates we are now in 'nothing for money' land.
The full impact of it hadn't struck me till I did the sums. Suppose I managed to save a million quid. Cash in the bank. Most of us would think that made us rich.
Except that if you tried to live off the income you would be making five grand a year. That's less than five hundred quid more than the state pension for a single person, which many believe is set at a poverty rate.
Now of course, as a millionaire you do have the option of dipping into your capital. (Mind you, most people who manage to save that much tend to be conservative with their money, and generally don't like the idea of touching their capital at all.) And most people with that much in assets probably have a mix of asset classes, not just cash accounts.
None the less, the figure shows just how difficult it is to get a return on assets at the moment.
And George Osborne tells us we all need to save for the future.
Exactly why? Sorry George - you'd like me to save a million quid so that I can live in poverty? And meanwhile you are bailing out middle class families with big borrowings for big houses and big cars and big school fees? Meanwhile you are supporting interest rate cuts to 'get business moving' which mean that if I do save anything, I won't get a return on it?
This isn't just a Tory thing. All the political parties are currently showing a disconnect between what they tell us we need to do, and their actual economic policy. The Labour party for instance tells us to save more, then reduces VAT to encourage us to spend it instead.
These guys really need to take a course in behavioural finance.
I wonder where they have been for the last year. With 0.5% interest rates we are now in 'nothing for money' land.
The full impact of it hadn't struck me till I did the sums. Suppose I managed to save a million quid. Cash in the bank. Most of us would think that made us rich.
Except that if you tried to live off the income you would be making five grand a year. That's less than five hundred quid more than the state pension for a single person, which many believe is set at a poverty rate.
Now of course, as a millionaire you do have the option of dipping into your capital. (Mind you, most people who manage to save that much tend to be conservative with their money, and generally don't like the idea of touching their capital at all.) And most people with that much in assets probably have a mix of asset classes, not just cash accounts.
None the less, the figure shows just how difficult it is to get a return on assets at the moment.
And George Osborne tells us we all need to save for the future.
Exactly why? Sorry George - you'd like me to save a million quid so that I can live in poverty? And meanwhile you are bailing out middle class families with big borrowings for big houses and big cars and big school fees? Meanwhile you are supporting interest rate cuts to 'get business moving' which mean that if I do save anything, I won't get a return on it?
This isn't just a Tory thing. All the political parties are currently showing a disconnect between what they tell us we need to do, and their actual economic policy. The Labour party for instance tells us to save more, then reduces VAT to encourage us to spend it instead.
These guys really need to take a course in behavioural finance.
Monday 23 February 2009
Degrees of credit
There's nothing the mainstream press hates more than Wikipedia.
Every so often there's a column in the Times which says: shock, horror, probe, not everything you find on Wikipedia is true.
Wikipedia is written by amateurs! They are rubbish! They are unprofessional, biased, and tell lies!
As one of Wikipedia's many contributors, I find that really quite offensive. I contribute on matters that I do know about and quite often spend some time checking sources before writing. Many of the other people I know who contribute to Wikipedia are scholars, journalists, or practitioners (eg investment bankers) who believe in 'giving something back' in terms of pro bono work.
Admittedly, they are probably contributing to a post on Robert Herrick, Wagner's Die Feen, cosmatesque marble work or the Black-Scholes formula, and probably not to one about Britney Spears.
Yes, there are problems on Wikipedia. But let's look at how it addresses them.
Hm. Like the Lancet, which was responsible for deeply flawed research on MMR jabs being published.
What is Wikipedia if not a peer-reviewed publication? It's just the definition of 'peers' that is different.
And quis custodiet ipsos custodes in the matter of peer reviewing?
(Let's remember that it was professional, accredited, peer-reviewed psychologists and psychotherapists in the 1950s and 1960s USA who defined homosexuality as a disease. Not just that - women who did not conform to feminine stereotypes were often 'treated' for their 'gender misalignment'. From today's perspective that looks like a mumbo-jumbo rationale for a full scale assault on the individual's human right to self-determination.)
I am still waiting for a mainstream journalist to point out the real truth of Wikipedia - which is that information cannot be polarised into 'good' and 'bad', but comes in an almost infinite number of degrees of creditworthiness. And that we should actually learn to interpret and evaluate information - not be encouraged to trust one source absolutely and distrust another.
Perhaps because, if we all learned to evaluate and interpret information, we might not trust what was in the newspapers...
For me, it's the fact that Wikipedia accepts its own fallibility, and signposts it by flagging up disputed terms and statements, that makes it such a potent force. (The only UK newspaper I can think of that does this is the Guardian, with its readers' editor. It's not a matter of 'corrections', right/wrong, as in other papers, but of 'How should we have reported this'... and it makes the assumption that readers are grown-ups with critical minds of their own.)
Every so often there's a column in the Times which says: shock, horror, probe, not everything you find on Wikipedia is true.
Wikipedia is written by amateurs! They are rubbish! They are unprofessional, biased, and tell lies!
As one of Wikipedia's many contributors, I find that really quite offensive. I contribute on matters that I do know about and quite often spend some time checking sources before writing. Many of the other people I know who contribute to Wikipedia are scholars, journalists, or practitioners (eg investment bankers) who believe in 'giving something back' in terms of pro bono work.
Admittedly, they are probably contributing to a post on Robert Herrick, Wagner's Die Feen, cosmatesque marble work or the Black-Scholes formula, and probably not to one about Britney Spears.
Yes, there are problems on Wikipedia. But let's look at how it addresses them.
- Requesting references, whether from news media, authoritative web sites, scholarly research, or other publications.
- 'Talk' pages. I actually believe in some ways Wikipedia does a better job than other media. On the question of Western Sahara, for instance, publications like the CIA world factbook will tell you who 'owns' Western Sahara. But the Wikipedia discussion page tells you what the issues are. There is no 'right' answer - in that way I believe Wikipedia represents the real world more fully than many more authoritative sources. (And anyway - if we can't trust Wikipedia, what makes you want to trust the CIA?!!)
- Continuous editing. Okay, that can descend to flame war. But at least it means errors can be addressed in real time - not next time the book goes into print in a couple of years' time.
Hm. Like the Lancet, which was responsible for deeply flawed research on MMR jabs being published.
What is Wikipedia if not a peer-reviewed publication? It's just the definition of 'peers' that is different.
And quis custodiet ipsos custodes in the matter of peer reviewing?
(Let's remember that it was professional, accredited, peer-reviewed psychologists and psychotherapists in the 1950s and 1960s USA who defined homosexuality as a disease. Not just that - women who did not conform to feminine stereotypes were often 'treated' for their 'gender misalignment'. From today's perspective that looks like a mumbo-jumbo rationale for a full scale assault on the individual's human right to self-determination.)
I am still waiting for a mainstream journalist to point out the real truth of Wikipedia - which is that information cannot be polarised into 'good' and 'bad', but comes in an almost infinite number of degrees of creditworthiness. And that we should actually learn to interpret and evaluate information - not be encouraged to trust one source absolutely and distrust another.
Perhaps because, if we all learned to evaluate and interpret information, we might not trust what was in the newspapers...
For me, it's the fact that Wikipedia accepts its own fallibility, and signposts it by flagging up disputed terms and statements, that makes it such a potent force. (The only UK newspaper I can think of that does this is the Guardian, with its readers' editor. It's not a matter of 'corrections', right/wrong, as in other papers, but of 'How should we have reported this'... and it makes the assumption that readers are grown-ups with critical minds of their own.)
Docx
This wretched format is really a massive step backwards for Microsoft.
First of all, it crashes Open Office. I am not going to invest in a £350 software package to read two or three documents a month, so I tell people; if it's not RTF or TXT, I'm not touching it.
Secondly, it's not even compatible with other versions of Microsoft Office. Now that is really dumb.
Suppose I have 1000 employees and I give 50 of them new computers, with the new version of Office. Either
(1) they all have to turn OFF the default option for saving documents, which is docx, so that other employees can actually read what they are writing, or
(2) I have to spend thousands getting new software for the other 950 staff.
In either case it's going to be a PITA, which does not stand for an oval shaped type of bread that goes with doner kebabs.
I've noticed an increasing number of publications now saying that they will only accept RTF or a specific flavour of DOC file - they are actually specifying 'Microsoft Word 97' or whatever.
Which means RTF is practically becoming the default. And 'Microsoft Word' is no longer a gold standard.
Microsoft has managed to destroy its own currency. That is not clever.
First of all, it crashes Open Office. I am not going to invest in a £350 software package to read two or three documents a month, so I tell people; if it's not RTF or TXT, I'm not touching it.
Secondly, it's not even compatible with other versions of Microsoft Office. Now that is really dumb.
Suppose I have 1000 employees and I give 50 of them new computers, with the new version of Office. Either
(1) they all have to turn OFF the default option for saving documents, which is docx, so that other employees can actually read what they are writing, or
(2) I have to spend thousands getting new software for the other 950 staff.
In either case it's going to be a PITA, which does not stand for an oval shaped type of bread that goes with doner kebabs.
I've noticed an increasing number of publications now saying that they will only accept RTF or a specific flavour of DOC file - they are actually specifying 'Microsoft Word 97' or whatever.
Which means RTF is practically becoming the default. And 'Microsoft Word' is no longer a gold standard.
Microsoft has managed to destroy its own currency. That is not clever.
Tuesday 10 February 2009
Overpay? A misselling scandal in the making
I've been told a number of mortgage lenders are advising borrowers to use the low interest rates they're getting to make overpayments on their mortgages.
Normally, I'd say fine - it will reduce the total interest paid (though are all these lenders calculating the monthly payment on a daily basis, or will they apply the proceeds only at the end of the year?).
But in the current economic climate, householders with small equity and small savings should avoid it.
If you lose your job, I doubt the bank will take 'but I overpaid last month' as an excuse for missing a payment. Borrowers could lose the house - AND the overpayments.
Far, far better to put the difference in a savings account, even at minimal rates of interest. At least then, if redundancy does come, there's a few months' mortgage payment in the pot.
I almost wonder whether non-personalised, general advice to repay constitutes a misselling scandal in the making.
Normally, I'd say fine - it will reduce the total interest paid (though are all these lenders calculating the monthly payment on a daily basis, or will they apply the proceeds only at the end of the year?).
But in the current economic climate, householders with small equity and small savings should avoid it.
If you lose your job, I doubt the bank will take 'but I overpaid last month' as an excuse for missing a payment. Borrowers could lose the house - AND the overpayments.
Far, far better to put the difference in a savings account, even at minimal rates of interest. At least then, if redundancy does come, there's a few months' mortgage payment in the pot.
I almost wonder whether non-personalised, general advice to repay constitutes a misselling scandal in the making.
Why do so few people understand markets?
There's an awful lot of comment in the papers and elsewhere at the moment that demonstrates how many people who are quite economically literate still don't understand markets and the way that they behave.
For instance, a number of commentators have noticed that 'affordability' criteria according to the house price / income ratio have now got back to 'normal' historical levels. Therefore, they suggest, the housing market will now stabilise.
Now, I reckon there are several things wrong with this assumption anyway.
Excretory product of the bovine herd!*
Benjamin Graham got it right when he invented 'Mr Market', the manic depressive. Markets will always tend to overreact. In a boom, property investment trusts will trade at a premium to their net assets on the basis that 'they'll be worth more next year', and houses will be gazumped. In a bust, the market overreacts in the other direction - trading every stock as if it's about to go bust, buying assets at a huge discount (because 'they might still go down'). It's like an elastic band - as every schoolkid knows, if you extend an elastic band over your forefinger and stretch it, it doesn't 'stabilise' once you release the pressure!
The housing market will not stabilise in an orderly way because houses reach their 'right' value. It is likely to overshoot considerably on the downside. Until I see houses selling on a house price to income ratio that is much less than that prevailing during most rising markets - that is in the lowest quartile previously achieved - I will not be putting funds into that market.
On the other hand, 70% discounts on commercial property stocks are making me feel modestly bullish. That discounts a further 35% fall in values this year. It will still be important to pick the right portfolios - outside the City and without too high a retail component - but I'm feeling that things might not get a lot worse. I see Hammerson is raising a rights issue, too - usually a sign of the bottom of the trough. And the yields on commercial property compare very well with other sectors - most of the true 'defensives' have been heavily overbought - so it may be time to diversify back into commercial property. (I sold all my property shares in 2005 and 2006 - a bit early, but better early than never!)
By the way, can I have a little rant about the way the words 'property market' have come to be interchangeable with 'housing market'? It is as if a major national newspaper used the word 'people' to mean only men, or 'stock market' to mean only banking shares. The property market includes office space, land, industrial buildings, and retail - which seem hardly ever to be reported on. A 12% fall in the housing market needs to be compared with a greater fall in the property market as a whole - 30% plus, according to most, already, with many trusts and property stocks trading at a 70% discount to net assets.
* bullshit
For instance, a number of commentators have noticed that 'affordability' criteria according to the house price / income ratio have now got back to 'normal' historical levels. Therefore, they suggest, the housing market will now stabilise.
Now, I reckon there are several things wrong with this assumption anyway.
- If I'm a first time buyer but I don't have a 25% deposit, the house price to income ratio might tell me I can afford to buy a house, but I can't get a mortgage.
- If I'm afraid that I'm going to lose my job, I don't care about the house price / income ratio - what I care about is the worry that the 'income' bit might turn out to be nowt rather than owt. Look at consumer confidence indices and they do not tell you that everything is going to be hunky dory.
Excretory product of the bovine herd!*
Benjamin Graham got it right when he invented 'Mr Market', the manic depressive. Markets will always tend to overreact. In a boom, property investment trusts will trade at a premium to their net assets on the basis that 'they'll be worth more next year', and houses will be gazumped. In a bust, the market overreacts in the other direction - trading every stock as if it's about to go bust, buying assets at a huge discount (because 'they might still go down'). It's like an elastic band - as every schoolkid knows, if you extend an elastic band over your forefinger and stretch it, it doesn't 'stabilise' once you release the pressure!
The housing market will not stabilise in an orderly way because houses reach their 'right' value. It is likely to overshoot considerably on the downside. Until I see houses selling on a house price to income ratio that is much less than that prevailing during most rising markets - that is in the lowest quartile previously achieved - I will not be putting funds into that market.
On the other hand, 70% discounts on commercial property stocks are making me feel modestly bullish. That discounts a further 35% fall in values this year. It will still be important to pick the right portfolios - outside the City and without too high a retail component - but I'm feeling that things might not get a lot worse. I see Hammerson is raising a rights issue, too - usually a sign of the bottom of the trough. And the yields on commercial property compare very well with other sectors - most of the true 'defensives' have been heavily overbought - so it may be time to diversify back into commercial property. (I sold all my property shares in 2005 and 2006 - a bit early, but better early than never!)
By the way, can I have a little rant about the way the words 'property market' have come to be interchangeable with 'housing market'? It is as if a major national newspaper used the word 'people' to mean only men, or 'stock market' to mean only banking shares. The property market includes office space, land, industrial buildings, and retail - which seem hardly ever to be reported on. A 12% fall in the housing market needs to be compared with a greater fall in the property market as a whole - 30% plus, according to most, already, with many trusts and property stocks trading at a 70% discount to net assets.
* bullshit
Thursday 5 February 2009
Bond Bears
I've held off from the temptation to buy corporate bond funds, despite the appealing 7-9% yields and recommendations from people whose recommendations I normally trust, like Mark Dampier at Hargreaves Lansdown.
Now I tend to be a bit ahead of the market in my timing. So it was that I lost my money when in 2005 I made a bet against house prices, in the shape of a covered warrant. So it was that I had to sit through six months of inactivity when I called the bottom of the tech market just a tad early. Yet again, I'm sitting watching other people make money...
My worry is that UK bond funds look good right now, with low inflation and low interest rates. But can low interest rates last?
Let me state the bear case briefly.
Now I tend to be a bit ahead of the market in my timing. So it was that I lost my money when in 2005 I made a bet against house prices, in the shape of a covered warrant. So it was that I had to sit through six months of inactivity when I called the bottom of the tech market just a tad early. Yet again, I'm sitting watching other people make money...
My worry is that UK bond funds look good right now, with low inflation and low interest rates. But can low interest rates last?
Let me state the bear case briefly.
- Low sterling has reduced the euro value of our money. So far the press has talked incessantly about how European holidays will cost more. They're missing the real elephant in the room - imports from Europe. French Golden Delicious, Dutch tomatoes, German software will all cost more. That puts pressure on inflation. (Incidentally I'm amazed how inflation is continuing to hold up despite the fact that mortgage costs have fallen dramatically and energy prices are headed downwards. There is some real cost pressure there already, and the sterling impact hasn't been felt yet.) We are importing inflation. Not a good thing to be doing.
- Increased government borrowing requirement will lead to increased gilts issuance as well as a perception of higher risk. If the government wants to fund more, riskier debt, it's going to have to increase the amount it's willing to pay for it - in other words, it will have to pay a higher interest rate. That's the case in the US as well. Most of the arguments I've seen for buying corporate bond funds focus on the spread between government debt and corporates. But the bulls' assumption is that corporate rates will come down (and consequently the price of the bonds will rise). I fear it's more likely that government rates will rise.
Tuesday 3 February 2009
Tech companies - a quicker death
If you doubted that this is a real recession, unlike the stock market mini-crash of 2001-2, one thing should change your mind.
In 2001-2, despite the high levels of competition and failure to create revenue, tech companies kept staggering along as long as they could. There was continued investment in online from 'bricks and mortar' businesses. And while valuations fell, many online businesses continued to see high growth - and gradually extricated themselves from the red ink.
This time round the thousand flowers are not being given time to bloom. Scoopt has just closed. That was the site that provided amateur photographers with a chance to sell their snaps as photojournalism. Great idea - citizen journalism meets business smarts - but didn't work. Quickly and effectively closed down.
HeadlineProperty, a service that distributed PR around property journalists, has also closed. Needless to say the property market is hardly easy right now; a number of clients have not renewed accounts, and the service has become unprofitable. Centaur Publishing launched it on Feb 15, 2007, so it has been slaughtered before it gets to two years old.
I wouldn't mind betting on consolidation and closures among some of the Web 2.0 businesses, either. The winners will be polarised - either huge all-encompassing networks like Facebook, or really, really niche ones, together with those like Last FM that have a special appeal, something they do that others don't. LinkedIn might survive; eCademy might not.
In media, I don't think we're seeing increased integration between print and online media for any idealistic reasons. It's purely a matter of cost cutting. No one can afford to produce separate content for separate media any more. We'll see more of this, I am certain.
But it's going to be very difficult for online businesses to survive on their own. The knives are out.
In 2001-2, despite the high levels of competition and failure to create revenue, tech companies kept staggering along as long as they could. There was continued investment in online from 'bricks and mortar' businesses. And while valuations fell, many online businesses continued to see high growth - and gradually extricated themselves from the red ink.
This time round the thousand flowers are not being given time to bloom. Scoopt has just closed. That was the site that provided amateur photographers with a chance to sell their snaps as photojournalism. Great idea - citizen journalism meets business smarts - but didn't work. Quickly and effectively closed down.
HeadlineProperty, a service that distributed PR around property journalists, has also closed. Needless to say the property market is hardly easy right now; a number of clients have not renewed accounts, and the service has become unprofitable. Centaur Publishing launched it on Feb 15, 2007, so it has been slaughtered before it gets to two years old.
I wouldn't mind betting on consolidation and closures among some of the Web 2.0 businesses, either. The winners will be polarised - either huge all-encompassing networks like Facebook, or really, really niche ones, together with those like Last FM that have a special appeal, something they do that others don't. LinkedIn might survive; eCademy might not.
In media, I don't think we're seeing increased integration between print and online media for any idealistic reasons. It's purely a matter of cost cutting. No one can afford to produce separate content for separate media any more. We'll see more of this, I am certain.
But it's going to be very difficult for online businesses to survive on their own. The knives are out.
Thursday 22 January 2009
The moral effect of bailing out borrowers
I worked for fifteen years in the City to make enough to retire in my forties.
That's not a huge amount. I never got a mega bonus. I earned a bit more than middle managers in British Telecom, but often not much. But by dint of moving out of London and living fairly carefully, I've managed to go freelance and run my life the way I want to, without having to earn a wage.
Now I could of course have done what Gordon Brown seems to want us to. I could have said: This is not enough. I NEED a bigger house in a posher area. I NEED a bigger car. I NEED a second house and I even need to pay £3.50 for a pint of Greene King IPA. So I'll borrow, and I'll carry on working till I'm 68, so that I can reflate the economy, and when the chickens come home to roost, I'll depend on the government to stop the banks repossessing my house. And you know? It would have worked.
We had an unsustainable boom. Now, the concern is how do we make it happen again.
The problem is the moral hazard of rewarding stupidity. If we bail out the borrowers - if we insist that mortgage rates must be lowered to help the borrowers - if we insist that the banks must lend to businesses on the brink of going under - what are we doing? We're saying - spend, spend, spend, the government will sort out the bill.
Conversely what we're saving to savers is simple. Don't bother.
So Gordon Brown, you are on notice.
I am going to spend my savings. I am not going to work. I am going off on holiday. Saving the British economy is not my business.
I am not going to earn money, because I don't need to. I am not going to lend my money to banks at 1% and then pay tax on that to bring my total income to about half a percent. I am not going to stick money into the stock market.
No, I'm going to spend it having a good time. Having a good time at cheap prices. And having a good time somewhere else, because in the UK it rains, it snows, it's cold, the hotels are too expensive and the service economy doesn't have any service left in it.
And just try to bloody tax me on the income I'm not making.
Now this is an extreme attitude and actually as editors and PR people know I'm continuing to write articles, and I have a novel coming out this spring, and I haven't given up entirely. But if every saver in the UK is now feeling like this - and I think many of them are - how are we going to increase the savings ratio? Which is one of the major structural changes that needs to be made in the economy if it is to recover on a long term basis.
We have reached the point at which no one thinks it is worth saving.
Well, there's something wrong with that strategy, isn't there? When you punish the savers and then you tell them they ought to save, which of those policies is real and which is moonshine?
That's not a huge amount. I never got a mega bonus. I earned a bit more than middle managers in British Telecom, but often not much. But by dint of moving out of London and living fairly carefully, I've managed to go freelance and run my life the way I want to, without having to earn a wage.
Now I could of course have done what Gordon Brown seems to want us to. I could have said: This is not enough. I NEED a bigger house in a posher area. I NEED a bigger car. I NEED a second house and I even need to pay £3.50 for a pint of Greene King IPA. So I'll borrow, and I'll carry on working till I'm 68, so that I can reflate the economy, and when the chickens come home to roost, I'll depend on the government to stop the banks repossessing my house. And you know? It would have worked.
We had an unsustainable boom. Now, the concern is how do we make it happen again.
The problem is the moral hazard of rewarding stupidity. If we bail out the borrowers - if we insist that mortgage rates must be lowered to help the borrowers - if we insist that the banks must lend to businesses on the brink of going under - what are we doing? We're saying - spend, spend, spend, the government will sort out the bill.
Conversely what we're saving to savers is simple. Don't bother.
So Gordon Brown, you are on notice.
I am going to spend my savings. I am not going to work. I am going off on holiday. Saving the British economy is not my business.
I am not going to earn money, because I don't need to. I am not going to lend my money to banks at 1% and then pay tax on that to bring my total income to about half a percent. I am not going to stick money into the stock market.
No, I'm going to spend it having a good time. Having a good time at cheap prices. And having a good time somewhere else, because in the UK it rains, it snows, it's cold, the hotels are too expensive and the service economy doesn't have any service left in it.
And just try to bloody tax me on the income I'm not making.
Now this is an extreme attitude and actually as editors and PR people know I'm continuing to write articles, and I have a novel coming out this spring, and I haven't given up entirely. But if every saver in the UK is now feeling like this - and I think many of them are - how are we going to increase the savings ratio? Which is one of the major structural changes that needs to be made in the economy if it is to recover on a long term basis.
We have reached the point at which no one thinks it is worth saving.
- after Equitable Life, the stock market collapse, and the collapse of a number of occupational pension schemes, who trusts pensions as a savings vehicle? Besides, if you are one of the lower quartile of private pension savers, there's evidence that suggests you will be worse off, because means testing means you will only have managed to replace the minimum income guarantee - effectively you've paid for something you would have got anyway.
- after the 2001 tech collapse and now the 2008 stock market collapse, no one trusts the stock market with their savings.
- and now we have banks collapsing, and property prices collapsing. Which leaves tins of baked beans as possibly the only alternative to keeping your cash under the mattress.
- Worst of all, why bother putting money in a bank to get a measly 1%?
Well, there's something wrong with that strategy, isn't there? When you punish the savers and then you tell them they ought to save, which of those policies is real and which is moonshine?
Saturday 17 January 2009
Independent still doesn't get the web
I tried to put a comment on an Independent article today.
It required me to create an account.
It required an email address "so we can send you important information."
No opt-out. No definition of what is important information.
Some people for instance think it is important that I should know about their willingness to marry me. Mainly Russian women.
Some people think it is incredibly important that I have access to the important information of where to buy the cheapest Viagra.
And some people want to send me interesting adverts for ski holidays. Oh, that was the Daily Telegraph.
For the record; I hate snow, don't ski, and have no desire to sit in a chalet with a load of Daily Telegraph readers.
The Independent also states that "by law" I am "required" to give my date of birth.
What law? Is the Independent now a pornography site?
By the way, this is a newspaper whose journalists frequently write about issues such as, er, liberty, freedom of information, why we shouldn't have a national citizen database, and why we shouldn't have identity cards.
Well, would some of the journalists like to try talking to their database administrators?
It required me to create an account.
It required an email address "so we can send you important information."
No opt-out. No definition of what is important information.
Some people for instance think it is important that I should know about their willingness to marry me. Mainly Russian women.
Some people think it is incredibly important that I have access to the important information of where to buy the cheapest Viagra.
And some people want to send me interesting adverts for ski holidays. Oh, that was the Daily Telegraph.
For the record; I hate snow, don't ski, and have no desire to sit in a chalet with a load of Daily Telegraph readers.
The Independent also states that "by law" I am "required" to give my date of birth.
What law? Is the Independent now a pornography site?
By the way, this is a newspaper whose journalists frequently write about issues such as, er, liberty, freedom of information, why we shouldn't have a national citizen database, and why we shouldn't have identity cards.
Well, would some of the journalists like to try talking to their database administrators?
Tuesday 6 January 2009
Interest rates and savings
I can't help thinking that everybody is trying to solve the wrong problem.
We have an economy with several structural issues. Most of these arise out of an asset price bubble that has now definitely burst. Let's summarise the two main problems.
Try the next one. Dear Mr Banker, you do not want to lend money to Mr Not Very Gainfully Employed, a self-certifying self-employed man with previous bad debt, on a house that is worth 15% less than it was last year and will probably be worth another 15% less this time next year.
I tell you what. Instead of charging him 7%, why don't you give him a 2% tracker mortgage. There! Doesn't that make it all worth your while?
This economy actually needs high interest rates to solve the structural problems. Instead of which, we have low interest rates driven by the politically perceived need to restate the bull market 'com'era, dov'era'. And low interest rates which, by the way, keep driving sterling down. (As a Brit living half the time in France, I've certainly noticed it.)
I can't help thinking we'll see interest rates up again - and I suspect, when it happens, it will be very sudden.
We have an economy with several structural issues. Most of these arise out of an asset price bubble that has now definitely burst. Let's summarise the two main problems.
- The savings ratio is way too low to support investment. Households have incurred huge levels of debt.
- Banks see high risk, and are disinclined to lend.
Try the next one. Dear Mr Banker, you do not want to lend money to Mr Not Very Gainfully Employed, a self-certifying self-employed man with previous bad debt, on a house that is worth 15% less than it was last year and will probably be worth another 15% less this time next year.
I tell you what. Instead of charging him 7%, why don't you give him a 2% tracker mortgage. There! Doesn't that make it all worth your while?
This economy actually needs high interest rates to solve the structural problems. Instead of which, we have low interest rates driven by the politically perceived need to restate the bull market 'com'era, dov'era'. And low interest rates which, by the way, keep driving sterling down. (As a Brit living half the time in France, I've certainly noticed it.)
I can't help thinking we'll see interest rates up again - and I suspect, when it happens, it will be very sudden.
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