V or W ? I or D ?

Thinking back to 2008-9, two debates raged. A V-shaped recovery, or a W ? (or a U or an L ...) Inflation or deflation ?

And now we know. It's I for sure, and W (at best) - even if some persuaded themselves the first leg was a V.

I was never 100% certain about I/D: inflation was my first instinct (hence loading up with max NS&I tax-free index-linked); but never having studied economics I had no confident counter against the many who seemed to have strong arguments for D. Perhaps it would have been D had the authorities not been so smart as to helicopter in all that dosh.

But the V was never on, that much was clear.

Interestingly, oil is still comfortably in 3 figures. Can this last ? Everything hinges on China and India: more on this when time permits.

ND

The Global QE mess

China's Shanghai exchange, a weird place open only to domestic money, had gone up 89% this year, only to fall by 20% in recent days. A real rollercoaster, the UK is more sedate but still the market has gone u p over 33% in recent months. I am glad I had a lot of long positions.

I still do and if you want to know why, the answer is Quantitative Easing and the global mess of bail outs. Money has been pushed into the system by many countries around the world through a variety of means. This money has had not practical use in producing goods and services due to low demand.

Instead it has pushed up asset prices, virtually all of them. Everything is up, Gold should be down as the threat of collapse recedes and demand for gold collapses, but it is not. Oil is up again to what only very recently was considered a very high price indeed. Shares across the world market have made spectacular gains.

This is where all the new debt has gone, so if you were not invested you have missed it. All this has contributed to a better zeitgeist in August than many would have thought back in March.

However the real economy of the world is still in recession, albeit not the depressionary conditions of a few months ago. There is huge potential for a price unwind across all asset classes. The only thing to be in at that time are US Dollars as it will fly as a safe haven asset along with Yen.

Even if the unwind turns out to be mild, the effect of Government curbing their lending and re-selling their QE books to the market will depress growth for sometime. The UK is particularly badly placed here. it is going to be a boring and hard-working decade to 2020.

Friday happiness

CU rather snowed at work at the mo. That in itself is probably a good thing on balance.

Here is some more good news, evidence that China is coming out of a relative decline. Other key info is that their electricty needs are picking up and there seems to be a bottom in commodity and shipping prices.

The US looks like it will pass the Obama stimulation too. This may or may not be good for their long-term government finances, but for us in the UK with the US as a big export market a boost to their spending power can only be good.

So, at last some signs that things are not going to get worse and worse forever. Even better, France and Germany, those great lecturers on the failure of the Anglo-Saxon Capitalist model, are themseleves sinking into economic decline. It would take a heart of stone.....

Planting trees in the magic forest

The KPMG/SPSL Retail Think Tank (RTT) has unveiled its latest Retail Health Index (RHI) ratings for the quarter and its forecast for the next quarter (the essential Christmas quarter)

In a slightly odd statement they basically said "Its tough. Quarter three was not as bad as feared but quarter four will be much worse"
And then followed up with the slightly Lord of theRings “It’s important to state that despite the somewhat negative predictions, we are not harbingers of doom. Yes, some smaller, weaker, just plain unlucky or poorly financed retailers will fail in the coming weeks and months... and those that fail will not only ensure radical changes to our high streets, but leave fallow clearings in the retail forests where new ideas, new products and new retail gurus will flourish”.

Lucky us.

The dead wood under financed old style retailers will all die and new well funded slick,modern, professional powerhouses of modernity and consumer choice offering excellent service will take their place. But even the best retailers are having tough times.
At like-for-like levels there is a decline, which has been the case for six of the last seven months. Inflation is behind much of the growth in food, and this is the main driver of overall performance. The non-food sectors continue to suffer, with all apart from footwear showing like-for-like falls and furniture and electrical and luxury foods being the worst hit.

John Lewis has seen a decline in weekly sales by 7.6% This included a decline of 9.6% in electrical and home technology.
DSG International {the old Dixons chain.. and Currys PC world} has seen a 7% fall in like-for-like sales. Rumoured to need to close 200 stores back in January these latest figures aren't great news if quarter four is to be worse.
Sports Direct International group reported that trading conditions continued to be the hardest that they had faced in its history.. And took time out to buy up some 5% of shares in ailing rival JJB Sports. Sports Direct have shares in Blacks Leisure and JD already.

Will this mean some mergers of existing companies? One big sportswear and leisure chain?

JJD Sports International?
John Lebenhams department stores.
M&Ext fashion and homewares
TK Primatalan?
Is this what the retail think tank really means by "new retail gurus will flourish"?

What do we get for our recession

Continuing on a theme

Gordon Brown and the state has to spend the taxpayer's money on something. He neither knows nor can conceive of any other way of saving the economy. The New deal is coming. So given that at any moment all thoughts about restraining national debt are to be abandoned and the mother of all splurges is to be unleashed, what should the money actually be spent on? Equality advisers, firework officers and wheelie bin detectives are the usual non-jobs. But if we must spend, then isn't there something that we might actually need?

There could be 2+ million jobs required. We know Alistair Darling reads here.. {If only he was the real chancellor}. At the moment it appears to be windmills and loft insulation. The loft insulation not actually so silly.It is low cost, low tech and redundant trades people can be quickly re-trained and put back into work. But there must be something else. Something that, like cavity wall insulation, fits into the government's wider aspirations.

1]The refurbishment of schools has faltered badly. Construction was the first industry to feel the recession and those workers are the ideal ones to patch up the buildings, rubber mat the playgrounds, and expand the premises. Then move onto the armed service's homes that are a disgrace. Then the completion of the semi refurbished social housing stocks.
2] School diners has been something government is desperate to be associated with but has done very little to actively promote or even encourage. Spend a bit more and help the faltering pubs and restaurants get another string to the bow. Put kitchens back into schools linked to [1] above
3] Special Constables? With the police unable to cope with binge drinking and Home Office unable and unwilling to do anything about it, more 'officers' trained in basic policing? Able to help with Town Center policing and public dis-order.Some consider these Police as a waste of resources already.
4] Agriculture will suffer with the migrants going home. Some incentive to work the harvest next year? Another low skill area where people can be trained quickly
5] Or be smart for the future. What will tomorrows media studies graduates actually do? If money is being spent now, why not a full repayment of student loans for graduates who achieve their degrees in engineering or mathematics or medicine or whatever it is that we need? Won't help now, but will help for the future.
6] Job creation. Small business sheds workers very quickly in a downturn. Tax cuts or some sort of short term 'work grant' would keep more in work. Again, its wasteful, but the money is going to be spent anyway...
7] Future Lynx and a decent high lift capacity helicopter? A decent APC for the troops? New transport aircraft? All still waiting after years of delay from the government for the nod to go ahead.
8] There is no amount of money that couldn't be spent on the NHS. It would cheerfully swallow the bank bailout without even noticing. But there is a shortage of maternity units and midwives. Training and building needed.
9] Prison building... we could wait another decade or build some now.
10] Government funding for nursery schools would allow mother's to take those low paid jobs IF they earn more / hour than they paid in childcare costs. It sort of does it now, but only 2.5 hours/ day. What job can you get for 2.5 hours a day? Make it for 4 hours.

And..fibre-optic cables for our households.. motorway widening schemes .. old branch rail lines reopened if practical.. the military's falling recruitment due partly to pay....mining.. The estuary barrier power schemes if they have any legs.. the shocking waste of water through leaking pipes.. or maybe just for the social good the modernisation or even merging of libraries and post offices and day centres into efficient, modern, comfortable and pleasant places to go to. After all the money is going to be sent on something. Reopening all those recently closed swimming pools.
Or we could just build a giant email and telephone capturing database.

Your ideas and comments welcome as ever.

A real game of RISK!

I certainly enjoyed the odd game of Risk with my brothers when growing up. We all cheated so much it was hard to tell who had really won.

However today, we have a real game Risk taking place. Economic warfare is taking place across the world and there are some major causalities.

First we have Iceland, bankrupt and cap in hand to the Russians to try and keep going. Their assets seemingly confiscated in the UK to ensure our savers don't lose.

Next we have Pakistan, the rupee humbled and again the country brought the the point of default.

Who will be next? In most emerging economies, so long thought of as the new brave world, reality is coming home to bite. China may enter into a recession, Indonesia is again in trouble, Thailand is in both a political and economic mess. Even top performer Brazil has seen huge falls in its market and credit ratings. Russia has been forced to effectively close its markets (so much for my investor acumen...) for the past few weeks and they remain shut until 10th October.

But, for the comments, who is next? Will be it an emerging economy or will be it a more established Western one?

Who can name the dominoes?