Wednesday, January 06, 2010
Propaganda time
There's a passage in Evelyn Waugh's comic novel Scoop where gentleman nature columnist William Boot, sent on foreign assignment owing to an administrative mix-up, receives instructions from his newspaper's owner:
LORD COPPER PERSONALLY REQUIRES VICTORIES STOP ON RECEIPT OF THIS CABLE VICTORY STOP CONTINUE CABLING VICTORIES UNTIL FURTHER NOTICE STOP
I was reminded of this today when I heard (via Classic FM) the cheery news that Marks & Spencer has enjoyed an increase in like-for-like sales over the last three-month period. As far as I know, "like-for-like" just means sales turnover in monetary terms, and it's perfectly possible to achieve this if you offer deep discounts, which is what they were doing before Christmas ("3 for 2" on clothes and Christmas gifts, for example). It keeps the show on the road, but it's bound to affect profits - though you may be able to disguise that impact if you mix it up with savings from property sales (27 stores) and redundancies (1,200).
Not that we got that contextualisation on the radio, of course. We are becoming skeptical news consumers, like Russians in the days when they said "v Pravde net izvestiy, v Izvestiyakh net pravdy" (In the Truth there is no news, and in the News there is no truth). It's a shame that we can't rely on mainstream news media, because when forced to the blogosphere to find out what's going on, we discover that not everyone who approaches you in a tatty coat tied together with rope is an Old Testament prophet.
But there's also plenty of stuff from more respectable sources, too. Michael Panzner ( who provides a great scan-and-select service for the economics newsfollower) directs us to this column by Morgan Stanley expert Stephen Roach. Brief highlights:
1. Only about half of an estimated $3.4 trillion in asset losses have been officially written off so far, according to the IMF.
2. The slowdown is worldwide, so other nations are unlikely to take up the slack.
3. The American consumer is not able or willing to resume spending as before.
4. 45% of China's economic activity is in "fixed investment" (building roads, factories etc) and there is a risk that they may be creating a lot of "white elephants".
Money is still changing hands here, but Roach says this is "fueled by a temporary boost from the inventory cycle", i.e. vendors are flogging-off surplus stock at bargain prices - which is why I've cited the feelgood M&S article above. After that, I think, comes cool reality - maybe continued lower prices, but also lower wages, lower profits, higher unemployment and an increase in bankruptcies.
Roach estimates a 40% chance of a "double dip" global recession this year. He also fears that economic stimulus will not be withdrawn quickly enough when a recovery comes, so possibly yet another bubble will be created. Another risk, in his view, is that the US will seek to protect domestic industry against Chinese imports; this could threaten the financial arrangements between the two countries, weaken the dollar and raise inflation.
Is it really not possible for radio and TV news to give a rounder picture of reality?
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
LORD COPPER PERSONALLY REQUIRES VICTORIES STOP ON RECEIPT OF THIS CABLE VICTORY STOP CONTINUE CABLING VICTORIES UNTIL FURTHER NOTICE STOP
I was reminded of this today when I heard (via Classic FM) the cheery news that Marks & Spencer has enjoyed an increase in like-for-like sales over the last three-month period. As far as I know, "like-for-like" just means sales turnover in monetary terms, and it's perfectly possible to achieve this if you offer deep discounts, which is what they were doing before Christmas ("3 for 2" on clothes and Christmas gifts, for example). It keeps the show on the road, but it's bound to affect profits - though you may be able to disguise that impact if you mix it up with savings from property sales (27 stores) and redundancies (1,200).
Not that we got that contextualisation on the radio, of course. We are becoming skeptical news consumers, like Russians in the days when they said "v Pravde net izvestiy, v Izvestiyakh net pravdy" (In the Truth there is no news, and in the News there is no truth). It's a shame that we can't rely on mainstream news media, because when forced to the blogosphere to find out what's going on, we discover that not everyone who approaches you in a tatty coat tied together with rope is an Old Testament prophet.
But there's also plenty of stuff from more respectable sources, too. Michael Panzner ( who provides a great scan-and-select service for the economics newsfollower) directs us to this column by Morgan Stanley expert Stephen Roach. Brief highlights:
1. Only about half of an estimated $3.4 trillion in asset losses have been officially written off so far, according to the IMF.
2. The slowdown is worldwide, so other nations are unlikely to take up the slack.
3. The American consumer is not able or willing to resume spending as before.
4. 45% of China's economic activity is in "fixed investment" (building roads, factories etc) and there is a risk that they may be creating a lot of "white elephants".
Money is still changing hands here, but Roach says this is "fueled by a temporary boost from the inventory cycle", i.e. vendors are flogging-off surplus stock at bargain prices - which is why I've cited the feelgood M&S article above. After that, I think, comes cool reality - maybe continued lower prices, but also lower wages, lower profits, higher unemployment and an increase in bankruptcies.
Roach estimates a 40% chance of a "double dip" global recession this year. He also fears that economic stimulus will not be withdrawn quickly enough when a recovery comes, so possibly yet another bubble will be created. Another risk, in his view, is that the US will seek to protect domestic industry against Chinese imports; this could threaten the financial arrangements between the two countries, weaken the dollar and raise inflation.
Is it really not possible for radio and TV news to give a rounder picture of reality?
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Tuesday, January 05, 2010
Money fund or mattress?
When I first started in financial services, Albany Life (now Canada Life) had a reassuringly-named "Guaranteed Money Fund"; some time ago, this was quietly rebranded "Money Fund" (see page 19 of this brochure).
It's a sign of the times. Money market funds are supposed to be rock-solid - only one ever failed to return 100 cents in the dollar between 1971 and late 2008. But when Lehman Brothers collapsed in September 2008, it caused losses to a large and venerable US money market fund called The Reserve Primary Fund, which owned some Lehman debt. Initially, the loss was not great - Lehman debt represented only 1% of Reserve Primary's total assets - but there was a one-hour window in which investors could get their cash out at 100 cents on the dollar. Naturally, big investment companies, watching their computer screens, were in the best position to know what was going on and act accordingly. So they jumped out of Reserve Primary, in such volume that the Lehman debt was now worth 3% of the remaining (much shrunken) assets.
For the safety-conscious, there is hardly anything more disturbing than discovering that something you trust in completely is not entirely reliable. So a panic started, with investors exiting money funds generally, until the United States government said it would guarantee such funds. At least, it would guarantee those funds that agreed to pay an insurance premium to the government; and only investments made on or before 19th September 2008.
Now the rules on money funds are to be reviewed and understandably, it raises deep suspicions. In this recent post, Tyler Durden looks at a proposal to suspend your right to realize your money market investment, in a time of exceptional turbulence. Of course, that is exactly the time that you would wish to get out, and given the experience of September 2008 it would not be surprising to find that the institutional investors had already moved out before the suspension came into force.
It is important, because according to Durden's article about a third of all mutual funds' (the US equivalent of the UK's unit trusts) assets are in money market funds, and according to this Wikipedia article one-third of all money market funds are held by private investors. So the fear is that Joe Public would be left holding the baby if there should be a run on money market funds.
I think the fear is overdone. The measures discussed by Durden (see the paragraphs re "Recommendation 3") are clearly intended to make mutual fund investment into the money market safer, and less exciting in terms of gains; those funds that try to achieve better returns with higher risk are to be clearly identified and segregated, with tighter regulation plus provisions for emergency backing from central bankers. And removing promises re withdrawal on demand lessens the chances of a panic, by moderating expectations - it's like those commercial property funds that warn the investor that there could be a delay of up to 6 months if he/she wants to cash out.
Besides, even 97 cents in the dollar is a good return, when stocks have, at some points, lost as much as 50% of their value (e.g. between the end of 1999 and the summer of 2003).
A wider issue is the preferential treatment given to one class of investor over another. If The Reserve Primary Fund had cut its realizable value to 99 cents on the dollar immediately and for everybody, it might have prevented the panic, which was at least partly due to not wishing to be the last one left holding the worthless asset.
Nevertheless, there is always the question of what happens if you need money in a hurry. Argentine citizens were caught out in the "corralito" of December 2001, when banks froze accounts for initially a 90-day period (with the right to draw small amounts for day-to-day expenditure). The Argentine peso had previously been pegged to the US dollar, and after de-linking lost almost three-quarters of its exchange value by June the following year.
The real story, then, is the need for (a) emergency cash, in a form you can get at when you do really need it; and (b) for investors, a watchful eye on exchange rates, particularly in the light of economic problems because of out-of-control debt.
On the latter point, it's worth noting that the rot has already set in: the British pound has lost about 25% against the Euro in the last 3 years alone (and about 17% against the dollar, in the same period). A professional investor I read, called Warren Pollock, recently opined that the pound should eventually trade at around US $1.38, which means a further fall of 14%. Both currencies have lost against the Euro; but quite a few members of the European Monetary Union now have severe economic problems and it is not impossible that the dollar may enjoy a (relative) resurgence, not so much because of America's strength as because of others' weaknesses becoming better understood.
Currency speculation is for the high-rollers; but some ready money is a good thing to have, especially if inflation is not burning up its value. Maybe not under the mattress, though; as the Times reported in October 2008, sales of safes in the UK have soared in the crisis - as they did when Japan entered its long recession, years earlier.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
It's a sign of the times. Money market funds are supposed to be rock-solid - only one ever failed to return 100 cents in the dollar between 1971 and late 2008. But when Lehman Brothers collapsed in September 2008, it caused losses to a large and venerable US money market fund called The Reserve Primary Fund, which owned some Lehman debt. Initially, the loss was not great - Lehman debt represented only 1% of Reserve Primary's total assets - but there was a one-hour window in which investors could get their cash out at 100 cents on the dollar. Naturally, big investment companies, watching their computer screens, were in the best position to know what was going on and act accordingly. So they jumped out of Reserve Primary, in such volume that the Lehman debt was now worth 3% of the remaining (much shrunken) assets.
For the safety-conscious, there is hardly anything more disturbing than discovering that something you trust in completely is not entirely reliable. So a panic started, with investors exiting money funds generally, until the United States government said it would guarantee such funds. At least, it would guarantee those funds that agreed to pay an insurance premium to the government; and only investments made on or before 19th September 2008.
Now the rules on money funds are to be reviewed and understandably, it raises deep suspicions. In this recent post, Tyler Durden looks at a proposal to suspend your right to realize your money market investment, in a time of exceptional turbulence. Of course, that is exactly the time that you would wish to get out, and given the experience of September 2008 it would not be surprising to find that the institutional investors had already moved out before the suspension came into force.
It is important, because according to Durden's article about a third of all mutual funds' (the US equivalent of the UK's unit trusts) assets are in money market funds, and according to this Wikipedia article one-third of all money market funds are held by private investors. So the fear is that Joe Public would be left holding the baby if there should be a run on money market funds.
I think the fear is overdone. The measures discussed by Durden (see the paragraphs re "Recommendation 3") are clearly intended to make mutual fund investment into the money market safer, and less exciting in terms of gains; those funds that try to achieve better returns with higher risk are to be clearly identified and segregated, with tighter regulation plus provisions for emergency backing from central bankers. And removing promises re withdrawal on demand lessens the chances of a panic, by moderating expectations - it's like those commercial property funds that warn the investor that there could be a delay of up to 6 months if he/she wants to cash out.
Besides, even 97 cents in the dollar is a good return, when stocks have, at some points, lost as much as 50% of their value (e.g. between the end of 1999 and the summer of 2003).
A wider issue is the preferential treatment given to one class of investor over another. If The Reserve Primary Fund had cut its realizable value to 99 cents on the dollar immediately and for everybody, it might have prevented the panic, which was at least partly due to not wishing to be the last one left holding the worthless asset.
Nevertheless, there is always the question of what happens if you need money in a hurry. Argentine citizens were caught out in the "corralito" of December 2001, when banks froze accounts for initially a 90-day period (with the right to draw small amounts for day-to-day expenditure). The Argentine peso had previously been pegged to the US dollar, and after de-linking lost almost three-quarters of its exchange value by June the following year.
The real story, then, is the need for (a) emergency cash, in a form you can get at when you do really need it; and (b) for investors, a watchful eye on exchange rates, particularly in the light of economic problems because of out-of-control debt.
On the latter point, it's worth noting that the rot has already set in: the British pound has lost about 25% against the Euro in the last 3 years alone (and about 17% against the dollar, in the same period). A professional investor I read, called Warren Pollock, recently opined that the pound should eventually trade at around US $1.38, which means a further fall of 14%. Both currencies have lost against the Euro; but quite a few members of the European Monetary Union now have severe economic problems and it is not impossible that the dollar may enjoy a (relative) resurgence, not so much because of America's strength as because of others' weaknesses becoming better understood.
Currency speculation is for the high-rollers; but some ready money is a good thing to have, especially if inflation is not burning up its value. Maybe not under the mattress, though; as the Times reported in October 2008, sales of safes in the UK have soared in the crisis - as they did when Japan entered its long recession, years earlier.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Sunday, January 03, 2010
China, Tibet, Arunachal Pradesh: the giant stirs
I don't know how I can have missed it, but Peter Hitchens reminds us today: Britain has given Tibet to China, thanks to Foreign Secretary David Miliband. Hitchens suggests it's something to do with the credit crunch and the price of China's support for the IMF.
China is struggling to provide for its people, and needs (among other things) wood, water and minerals. Tibet is a valuable source of such resources; but after floods caused by deforestation, and ice melts because of industrial activity, China has begun to consider sustainability and is working to undo some of the damage. The Chinese don't need finger-wagging from pseudo-religious green zealots: this is a matter of survival, and the undemocratic nature of their political structure may allow them to make longer-term, and therefore more successful plans.
Nevertheless, one suspects that unlike here in the Mrs-Jellyby-like UK, but like in most other sanely-led countries, China operates on the principle "look after our nation first, and worry about the rest of the world after that". So despite the protests of Free Tibet and others, that, sadly, is that.
But diplomacy to foster better treatment of ethnic Tibetans might have had more success if we hadn't given away such a powerful bargaining point, all in one go. There is a Japanese saying I read in one of James Clavell's novels: "give fish soup, but never the fish". I think we are represented by a boyish amateur.
You may say, if I'm so in favour of our minding our own business, why bother with Tibet? My answer is that we should be trying to encourage our future master to be kinder to his servants.
Besides, giving way on the Tibet question implicitly undermines our position on the 1913/1914 Simla Accord, which also established the border between India and China, which leads us to the next item on the land acquisition list: the province of Arunachal Pradesh, on which I commented in April 2008. The Dalai Lama clearly understands the implications as His Holiness visited the province last November - much to China's annoyance (here, also). Interestingly, it now seems difficult to access the Dalai Lama's own newspage on this story - another Chinese cyber-attack, or a diplomatic self-censorship?
Anyhow, these are more straws in the wind.
China is struggling to provide for its people, and needs (among other things) wood, water and minerals. Tibet is a valuable source of such resources; but after floods caused by deforestation, and ice melts because of industrial activity, China has begun to consider sustainability and is working to undo some of the damage. The Chinese don't need finger-wagging from pseudo-religious green zealots: this is a matter of survival, and the undemocratic nature of their political structure may allow them to make longer-term, and therefore more successful plans.
Nevertheless, one suspects that unlike here in the Mrs-Jellyby-like UK, but like in most other sanely-led countries, China operates on the principle "look after our nation first, and worry about the rest of the world after that". So despite the protests of Free Tibet and others, that, sadly, is that.
But diplomacy to foster better treatment of ethnic Tibetans might have had more success if we hadn't given away such a powerful bargaining point, all in one go. There is a Japanese saying I read in one of James Clavell's novels: "give fish soup, but never the fish". I think we are represented by a boyish amateur.
You may say, if I'm so in favour of our minding our own business, why bother with Tibet? My answer is that we should be trying to encourage our future master to be kinder to his servants.
Besides, giving way on the Tibet question implicitly undermines our position on the 1913/1914 Simla Accord, which also established the border between India and China, which leads us to the next item on the land acquisition list: the province of Arunachal Pradesh, on which I commented in April 2008. The Dalai Lama clearly understands the implications as His Holiness visited the province last November - much to China's annoyance (here, also). Interestingly, it now seems difficult to access the Dalai Lama's own newspage on this story - another Chinese cyber-attack, or a diplomatic self-censorship?
Anyhow, these are more straws in the wind.
Saturday, January 02, 2010
Starve the beast
I don't know if there's anything similar in the UK, but if this takes off the system would indeed change. Move Your Money website here.
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