Archive for the 'Business' Category

George Osborne’s Conservative Conference Speech

As GO took to the stage, he left a dramatic 3 second pause to start. Was he lost for words? Would these words have any substance?

Our politicians are obsessed with the past as a slate to wipe our mistakes and Osborne’s speech started with the ‘failures’ of the current government as a checklist. But the use of statistics merely serves to illustrate that one can read, not that one has the cognitive skills to analyse the issues, design a strategy and implement a successful solution. This speech was directed to the party faithful and the biggest unscripted cheer was a reduction of quango specialists second guessing locally elected officials. I’ll believe that when I see it. The Conservatives invented this tactic in the eighties to counter free spending Labour councils.

But we wanted a message to the nation. The Shadow Chancellor reiterated policy statements made over the last year: a reduction in MPs numbers, a 5% cut in MPs pay, a pay ceiling equivalent to the PM’s salary, loss of child trusts to middle income families, retention of the 50% tax rate but nothing new and no tangible theme. There was no reference to the raising of VAT and this will come. Perhaps the fiscal task we face is too onerous to have an economic dream, but once the Augean stables have been cleansed, where is the ideology?

Osborne is often described as a lightweight (amongst many comments, some borne out of inverse class snobbery).  His detractors will have found little to add here in these 33 minutes but nor would his supporters.


UK Public Spending – a business viewpoint

I am at the excellent Global Leader Summit being hosted by London Business School.

Among the many interesting topics is a discussion on the down turn and its perceived length. It’s clear through overt discussions that the UK public finances are being seen as a key (if not the key) to future growth. Jeremy Darroch of Sky in particular pointed to the extent which the UK public sector permeates the UK economy (a point which is almost saturation in some geographical areas). This view was expanded by Paul Polman of Unilever who also pointed to the need for increased saving by the consumers.

Public Spending is a tightrope which must be tightened but if pulled too tight will kill off any greenshoots of recovery (illusory or otherwise). It is therefore with regret that our government have sought to use the uncertain economic climate as an excuse for ‘smoke and mirrors’ speeches and not firm figures.

Bank of England Cuts Rate to 1.5%

The answer has to be why?

Will the 0.5% encourage business or mortgage lending any further? Will mortgage holders find their payments signicantly lower? Will credit card holders find their painful repayments eased. The link between monetary activity and bank lending is no more. A political gesture made by those without the tools, brains or balls to remedy the situation.

Balancing our budgets

I’ve edited a piece from John Maudlin which is US centric but with a few omissions, oh so relevant for the embattled UK taxpayer.

  • Shouldn’t the consumer, after decades of over-consumption, be allowed to digest the over-indebtedness and save, rather than be encouraged to take risk?
  • Shouldn’t companies, no matter what state they reside in from a political point of view, if run poorly, be allowed to fail or forced to restructure?
  • Should taxpayer money be used to make up for the mishaps at financial institutions or should we allow them to wallow in their own mistakes?
  • Shouldn’t free markets be free?
  • When did post war concensus near communism return our shores?
  • How do we choose who is rescued and who loses?
  • Shouldn’t we place blame on the politicians, bureaucrats and other “decision makers” and put skilled people in place that know how to run the businesses?
  • Is anyone else thinking that the blind attempt by the government to maintain mortgage lending at 2007 levels is sheer blind panic driven by political grandstanding or sheer ignorance of finance and economics.

    I noted that house prices are back at their long term levels. Good. However they are liable to fall further before returning to the norm if past experience is anything to go by. Even better. Mortgage holders and lenders need to learn that cheap money is not cheap forever and a primary property is a home not an asset!

    UK inflation rate falls to 4.1%

    Today’s news that UK inflation fell from 4.5% to 4.1  with an RPI of 3% leaves us staring at a clear and present danger of stagflation. The fall in prices is really on the back of oil prices (do not be deceived by those sale prices). The table below of oil prices required to balance the relevant country’s budget, provided by Dennis Gartman (vie the excellent John Maudlin Weekly e-letter), suggests that OPEC will try to maintain a higher price than currently, leaving battling inflation and a downturn.

    Price of Oil Needed to Balance Budget

    The old pistols held only 6 bullets and the developed world is fast running out of their monetary policy bullets. Did we shoot our bolt too soon?  What was the point of the VAT decrease except to increase Government borrowing? No effect on business, no effect on consumers. A shoddy deceitful piece of transparent Government publicity which leaves you the taxpayer and your children paying tomorrow.

    I envisage a scenario where a Conservative government is forced to act like that of the ’79-’83 government in reducing the defecit and ‘cutting’ spending. It’s not pleasant but the only successful policy for the next government (of whatever hue) is a certain route to electoral defeat. the alternative is to pretend (like the 70s) that all is well whilst we slowly bankrupt ourselves.

    Who do we blame? Partially the government but it’s a 50:50 split with us, the general public who’ve turned a blind eye to the fact that extra jam today must be paid for tomorrow. We did it for the last ten years and we’ll compound the error by voting out any party who attempts a degree of financial discipline.

    At this time of year, it is traditional to infuse an element of optimism. My one hope is that we all wake up and smell the roses (or at least the swing voters)  as my fears are too many to mention.

    Night Said Fred

    As Sir Fred departs the scene one can only view his career with RBS as a microcosm of our financial times. Like Icarus he flew too close to the sun, replacing a well run, austere Scottish retail bank with a laissez fair institution with global ambitions.

    I am loath to praise our government for their actions because it could and should have been done at least two weeks earlier, and like congratulating the drowning man for accepting the offer of assistance, what alternative was there? Independent economists had been calling for this action for some time, and sprinkled with some political actions: no dividends, the heads of those responsible, it remains the best action that could be taken. Since this crisis began, the UK banks have consistenly lied to anyone who would listen. Minimal exposure to the US housing crisis we were told, mark to market values were still good. Yet each quarter from 2007 brought us further downgrades. It is for this reason why heads must roll and bonuses for MDs and above must be curtailed for every institution who brings its Dickensian begging bowl out.

    I am somewhat annoyed with the response by the Conservatives. They were consistently slow in their response, merely adopting a ‘united front’ approach, arguing that they would work with the Government. I realise that nationalisation (and that’s what it is) is a bitter pill to swallow, but these are not ordinary times. It is vital to ensure that this does not happen at the same scale again which means, punishing the executives, through resignations, and bonus cuts, and punishing the shareholders through dilution and no dividend. The shareholder via the institutions clearly need to take a closer look at their holdings. Did Enron and WorldCom not teach us that a story too good to be true is just that?

    If the Scandinavian and Japanese crises of the last century tell us anything, it’s that we’re in for a painful recesssion. The best we can hope for is that 2010 will bring us new hope, and that this, if not the end, is at least the beginning of the end.

    David Cameron on Radio 4

    Evan Davis was trying to land a blow on DC but DC held firm.
    It started with an attempt to make DC admit that we would have to raise taxes and/or cut spending. DC quite rightly concentrated on the big picture.
    There followed an attempt to undermine the right’s raison d’etre whereby capitalism has been undermined and socialism is the best way, you know the drill. But DC kept to the script being somewhat smart after the fact, claiming parliamentary unity at this time of crisis whilst landing the odd party political blow.
    Again ED tried to corral DC on tax but he evaded and stayed calm. Since taxes will probably have to be raised before he gets to power, it was the approach that I would recommend. Who needs newspaper headlines of ‘Tories to raise taxes’ when Gordon will have to do it for you (by stealth or otherwise)?
    Moving on to spending, DC was well versed on where he could cut spending on advertising, consultancy fees, I’d cards etc. ED again tried to admit that this was impossible to to guarantee from the outside.
    DC was overall very competent, rightly pointing out that the Great Depression was caused by the actions after the banking crisis and that is something that globally we must concentrate one. One can’t help but feel that John Humphreys would have been a much better opponent, in his smug comfortable leftie kind of way,  but you can only beat the opponent opposite you.
    In summary DC had a good appraisal of his brief, kept his cool, and stayed focused. However there will be far harder tests to come.

    This has all blown the Conservatives’ economic planning out of the water. I have to agree with their policy of keeping their head down whilst emitting the odd sniping remark. On can’t publish a revamped policy today which will be turn apart by tomorrow’s crisis. it is the advantage of the opposition to have thinking time, the advantage of the government to show they have experience and can cope, the been there done it attitude.

    One hopes that the calls for tax cuts can now be put to bed, and that a sustainable tax and spend model for the medium term can be forged out of this crisis. This is an opportunity for the Tories to shape economic policy for years to come regardless of who is in power. It is however an extremely onerous task

    June 2018
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