Monyy Property Finance Blog

We Need the Hydrogen Age; Urgent

If you ever needed a portent of doom take a look at Volvo and its 3rd quarter 2008 orders for its trucks; down from 41,970 1 year ago to a mere 115 – that’s right 115, and for the whole of Europe. The environmental lobby must be rejoicing as the decent back to the stone age of zero production it so craves gathers momentum.

Just look around at the mayhem as we shed just 0.5% in GDP. Job losses, asset values plummeting, emerging economies failing, more people starving and with much more yet to come. Now imagine the outcomes when GDP falls by a further 1 – 2%, then Europe generally, North America, the Asian tigers. Are you ready for this pain; is this what we want, or is the environmentalist utopia just a bit too much to stomach?

The challenge of climate change cannot be met by reducing demand from 6 billion people all wanting food, shelter, energy and transport. This hoped-for outcome is environmentalist nonsense.

We all need to wake up to the fact that increased demand for all the basic human needs will continue to grow and grow, and grow. Get used to it. No-one can be content at the outcomes for the world’s populations as capitalism falters. The answer has to be found in sustainable demand, but that’s not going to happen by putting corn oil in your car, and growing your own vegetables. It’s going to come from a technological shift to a new age; the hydrogen age.

All governmnets need to do is to co-ordinate a policy shift to hydrogen and away from a carbon economy. Necessity has always been the mother of invention so put the world’s genius on notice that the party’s over in 2020 – no more carbon output. Zero. Make the shift profitable and watch what the world does in response.

169,000 New Jobless; How Many From the Public Sector?

Our politicos are all now scrabbling around looking for the elixir of growth as recession bites and confidence continues to fall. Latest jobless figures showed a further 169,000 people are now out of work.

The government wants to bring forward planned capital projects to keep work flowing and people in jobs. I agree with this. The Tories want to give SME 1% off NI for 6 months, and a VAT boost to cash flow by allowing firms to pay 6 months late. I don’t agree with this – it’s mere tinkering. We don’t yet know what the Liberals propose, so ‘no comment’.

The really ‘big idea’ that no one dares to mention, but is absolutely necessary, is the public sector needs to be cut back dramatically. How many of the 169,000 new jobless came from the public sector I wonder? I’m willing to bet a large sum it was less than 100 people; let me be generous and say less than 1000. The public sector remains largely immune from recession. It continues to consume masses of cash and resources we no longer have. Where are the bold political moves we need to cut the public sector back to affordable and sustainable levels?

This country needs a new contract between the wealth creating sector of the economy and the wealth consuming sector of the economy. And that new contract needs to include a ceiling, a level of GNP beyond which it is agreed that the balance between wealth creation and consumption should not go. I’m going to suggest a range of 30% - 35% of GNP as the target size of the public sector. In much the same way as the Bank of England targets an inflation range, the National Audit Office should be the regulator of government growth and spending up to this ceiling and no higher.

Curbing the public sector and cutting it back to these suggested levels would cause initial contortions, job losses, distress and howls of complaint from those affected and from those with vested interests in the sector. But in the same way the private sector is forced to cope with the same contortions, the public sector must now be forced to do likewise. No excuses.

With this new contract in place, a few short years from now would see a new Britain; completely re-engineered for more competitive times. And boy, do we need that, and fast. The dynamic economies of the East are just the start of a new age; twenty years from now Africa will be next. Britain is like an ageing heavyweight boxer grown fat on past success, but who, with some rigourous gym work could regain his crown again.

So, this is the direction of travel that the country now needs in thse recessionary times. A leader made of spirit, guts and steel backbone needs to emerge to reset the country within the paradigm we all now battle under. Where is he, or she? Certainly no-one known to us fits the bill. No-one inside any one of the three main parties that’s for sure. Reform of the scale I’m suggesting can only come from the outside and must be imposed on the established political class against its collective will. This needs a new political force, one unclouded and untarnished by any past or present political allegiances. And yes, such a force will need deep pockets to run for office, £30m perhaps, but that’s mere bagatelle when you consider Britain’s long term prosperity is now absolutely at stake. There are rich individuals in Britain to whom such a sum is easily affordable.

Let’s then all of us look forlornly to the horizon; enter the dragon?

Now See the Perils of Prediction

My prediction that the Footsie would rise by 7% today Monday October 6th has been met by a fall of nearly 7% instead. Pow!

Rational judgement of the fundamentals failed miserably to predict the market’s fear of gathering contagion throughout Europe. The market is now literally besieged with fear. The sky is falling in. Now see the perils of prediction.

It’s a lesson well-learned for all who forget – no one can forsee the future. the future is unknowable. The next 5 minutes is unknowable. Planning for a future you may not have is an exercise in pure hope, nothing more. Never believe anyone who purports to know what will happen next, no matter how ‘expert’ or how ‘experienced’. If you insist on punting your money on the stock exchange, or into property, or any other asset class, please recognise you are taking a complete calculated gamble in which you will either be right or wrong – in time. You don’t know which it will be, or when it will be. So never try to convince yourself that you can see into the future.

Your investment is a guess, nothing more or less; an act of faith that others can manage your money better than you, or the market is ‘bound’ to do this or that.

Your house is for living in, it’s not your retirement fund.

A Timely Prediction For All To Ponder

Fear and greed. These are the two forces that drive human investment. Investors lurch from one to the other emotion as the herd instinct dictates. A few ‘contrarian bravehearts’ invest in the opposite direction to the herd hoping to have better guessed the rise and fall. It’s all a game. Life’s a game. And there’s always a reason to wale when there are more losers than winners because the players don’t like those outcomes. They prefer a game where it appears the odds of winning exceed the odds of losing.

Well here’s a prediction. On Monday, October 6th, 2008 at around 8am GMT when the London Stock Exchange opens the Footsie will rise rapidly – at the close it will up 7% in the day. By Friday close the index will have risen 10%+ on Monday’s opening. Then, for the next 12 months it will bounce along within a 100 point range either side. It will all feel normal, a little more predictable, and we’ll all feel safe again. At last more players of the game will make money rather than lose it. Join in if you feel either fear or greed; there’s a profit somewhere to be had.

By then, at the end of that normal year, data from the world economies will start to show either recession, no growth or slow growth for several quarters and we’ll finally begin to realise that a new era of ‘stand still’ economics is with us. And it will be with us for a very long time. That’s when the size and cost of the public sector will suddenly loom into view like some sort of meteor crashing toward Earth. Politicians will suddenly see that the public sector is out of control, sclerotic, unaffordable and unjustifiable. They will see that their expectation that it should continue to grow in size and cost cannot be maintained; and many cuts will need to be made to avoid deep and lasting recession.

This will be the landscape of the next general election in Britain.

Have a guess which political party will see that risk in all its gory detail and promise to erase the threat if only you’ll elect them? That’s right. None of them. Still fancy a punt?

We Greedy Little Humans…….

‘Innocent bystanders’ is the phrase on regulator’s lips right now. That’s you and me. People who had nothing to do with this financial meltdown but who will be suffering its consequences nevertheless. The criteria for saving a failed institution or letting it go to bust is the sheer size of ‘innocent bystanders’ that will get hurt. So in the case of Lehman Bros there are no ‘innocent bystanders’ because it wasn’t a deposit taking institution, but rather a sophisticated investor pit of squirming greed, so it has been allowed to fail.

But it’s going to be a different case when it comes to the insurance mega-giant AIG. If this goes down it will be a Hiroshima style nuclear bomb with ‘innocent bystanders’ piled high on the streets of major towns and cities around the world. So it wont go down; politicians the world over know they simply will not get re-elected if they let it, and that’s what they care about. Millions will be glad that they are so self centred.

But is this really the right thing to do? Let’s not forget we operate a capitalist system; markets rule and governments regulate. When government’s regulatory systems fail allowing markets to abuse their power and influence, shouldn’t this failure be allowed to play out in order to give all of us a severe lesson in capitalist economics? And then we rebuild it, as we will, but perhaps in a better form. To borrow an eco-friendly term, in a more sustainable form. Perhaps one where growth at all costs is not the driving force.

Isn’t our world wide obsession with growth at all costs the root cause of all this chaos? Isn’t this an opportunity to break away from that ethos? Aren’t we all trying to save the planet rather than consume it into extinction? Where’s it written that our economy has to grow every quarter?

What a load of old bunkum that is. Just as if we greedy little humans are going to buy into that Disneyesque vision. We want more, want it all, want it now, and always will. That’s why our species dominates the planet. We’re aggressive, demand driven, avaricious consumers with appetites that can never be satiated. Whatever happens to our financial system over the coming months it will not involve global meltdown. Nor will it involve re-writing the global rule book. All that will happen is the blood will be mopped up, asset values will fall back to proper affordable levels (hallelujah) a couple a old chapters will be torn out of the book a few new ones added- and off we’ll all go again. Chastened for now, but soon back on the quest for more, more, more. Let the games begin.

Chocolate Bar Politics

Did you notice how Nick Clegg, Leader of the Lib Dems recently re-branded his party as tax cutting?

Not so long ago they were promising to raise specific taxes for education and other things, and that didn’t get them very far with the general electorate, although, to be fair to them, they ended up running a few more Councils and gained a few seats in parliament. But no real breakthrough.

So what do we get? Another re-branding this time trying a tax cutting wrapper. Hail the new chocolate bar for the consumers; this time with nuts in!

New Labour began this craze, swiftly follwed by the now cuddly Tories who were always on the side of the poor and down trodden as we all know, so the oh so slow Lib dems couldn’t be left behind. Clegg was on Radio 4 Today programme trying to deliver his parties message when it quickly unravelled into a melted chocolate bar after all. His headline grabbing £20 billion of tax cuts soon became a few million that might be left over after their spending plans that might end up back in the pockets of those from whom it was first taken. I simply can’t chew this brand of chocolate bar politics any longer. Can you?

Let’s be honest with one another here. You, I and all the politicians are all just trying to survive our own life. We want to stay in our jobs, pay our mortgages, go on holiday, buy things the kids want and need, keep the home fires burning. Our primary motive is self first. So let’s not be surprised when our politicians relaunch themselves occasionally in a desperate bid to stay relevant and on that oh so sweet gravy train they all ride.

OK, we wont be surprised then; but that doesn’t mean to say we have to allow them to survive. They need to earn their survival just like the rest of us. When your employer has to cut back and make redundancies in a falling economy you’ll not notice much pain being felt amongst the ruling classes. They’ll all carry on pontificating and feeling our pain. Even the larger public sector in general stays insulated and soldiers on.

Sine something like half the working population is in the public sector hidden deep inside its all pervasive tentacles that reach everywhere you look and touch, there will plenty of you reading this saying amen to that and thank you God. But, in the same way that our financial markets are in meltdown, our wealth creating economy will soon join it under the burden of the wealth consuming public sector before too much longer. mark my words; a public sector consuming 40% of GDP with more and more people retiring early is the next pack of cards to tumble.

And not a single main stream political party has the gumption or intention of doing anything about it. Why? Because you simply wont buy that new brand of chocolate bar so it wont be made. That is, until 10 years from now when the countries arteries are all clogged up (remember the ‘sick man of Europe jibe?) and hardly anything works well, we’ll all be screaming for that new choco fix. Happy eating until then.

PM Gordon’s In a World of His Own

What baffles me is why the general taxpayer should prop up special interest groups like mortgage holders or would-be first time buyers.

We’ve now had a 1-year stamp duty holiday announced for property buyers up to £175,000. Does anyone other Gordon Brown think this is a great idea? Anyone?

Apparently, the PM’s package of measures is worth about £1 billion against a market GDP of £4 trillion, which is like a single fly swat on a fast moving truck’s windscreen; absolutley unnoticeable. If he can’t think of anything better to do with our tax than that he is more bereft of original ideas than I first thought.

Naturally, I wouldn’t be cynical enough to suggest it was mere window dressing to boost his flagging polls, or designed to take out the sting in the forthcoming conference season; oh no, not me sir.

The point about markets is that they find their own level – eventually. There’s alawys pain and sorrow along that corrective route for a few, but better that than the long-term pain of the many. Markets are imperfect of course, and often get out of sync, as capitalists we all know this, and are forced to accept it. But politicians live in the white heat of do-something-now media and special interest cries of doom and so cannot resist the urge to meddle. And it’s the meddling that all wrong. if instead of meddling they had the leadership and vision to make the bold corrective moves that adjust the markets more quickly, that would be welcomed. Take a look at the US swashbuckling approach to Freddie and Fannie to see how it should be done.

Sadly we are led by the timid with no prospect of anyone better in the wings. Hold on for a depressing 12 months ahead, but like I’ve said before, spend what you can afford because it’s no use saving it; if you do we’ll be boarding up GB Plc. By way of example setting, I’ve just bought a £44,000 car which will keep people in work, the wheels turning, the pumps pumping and the tax coffers tinkling. Happy shopping to you all.

And it all comes tumbling down

Well we’ve finally talked ourselves into recession, and not just here in the UK it seems. Every financial market in the world is in turmoil. Commentators, journalists, soothsayers, ex chairman of this or that bank, ex politcians of this or that government department have conspired together with their own version of doom mongering to kick the legs from under the table of the world economy.

Now I’m not suggesting that there are no real problems out there; patently, there are. Nor am I saying they are not very substantial; again, they are. What I’m criticising is that there is zero appetite for publishing the other side of the story, which in simple terms is

1. there is still a huge amount of business being done, and
2. there is vastly more business ready to be done so let’s just get on with it

Because news is made from bad news and rarely from good it becomes inevitable that our global fall is faster and deeper than it needs to be – a massive over reaction is guaranteed. The only brake on this free fall is the counter argument I mention above delivered by government departments, opposition parties, and ministers around the world . Yet they remain either silent or whimpish at best. Instead of a co-ordinated, defiant, bullish, aggressive raft of good news and alternative strategies they stand idly by and allow the media its feeding frenzy. Shame on all their houses.

We get the quality of political leaders we deserve, and it seems this bunch of powerless observers turns out to be exactly what we deserve. As if this were not worrying enough, the opposition parties, those who aspire to replace the ruling class, are equally whet. We increasingly get the message that politicians are no more powerful than you or I when it comes to solving or responding to the really big global issues. We’ve created a monster, in this case called credit/debt we simply can’t find a way to control.

In the absence of political power to influence or resolve this credit crisis, what should we each do in response to the chill wind blowing? Here’s a few ideas:

1. Keep spending, but don’t increase borrowing or debt.
2. Don’t save, spend.
3. If you ignore this advise and insist on more debt, never let it go beyond 60% of your assets; ever.
4. If you ignore this constraint and demand still higher gearing in your quest for growth and wealth then expect to lose it all in some future financial debacle that no one will be able to control.
5. If you ignore this prediction you’re clearly a maverick chancer who is willing to accept the unpredictable outcome whatever it may be. If you and your banker go down in flames the rest of us wont even feel the heat – as long as we’ve each followed points 1 -3.