On reading Adam Fergusson's "When Money Dies", an account of the German hyperinflation of 1923: Part 1

I am obliged to "Jesse" for publishing via Scribd the text of this book, which first appeared in 1975 and has just been reprinted. As the printed version is 288 pages in length and many readers are pressed for time, I shall attempt a hurried and necessarily partial and imperfect summary of some of the main points:

Chapter One
Paper currency became legal tender in Germany in 1910. When the Great War broke out, the right to exchange Reichsmark notes for gold was suspended. From 1915-1917, the financing of the war was through borrowing, not taxation.

The truth of economic affairs was hidden from the people: the stock markets were closed and foreign exchange rates not published. By the end of the war, standards of living had halved, but many had attributed price rises to shortages cause by war and profiteering.

There were factors other than monetary in the multiple crises that hit the country. After the war, stability was undermined by a militaristic Right that refused to accept responsibility for defeat, and a revolutionary Left inspired and sponsored by the recent events in Russia. A coalition government was formed, with overwhelming popular support, to resist both extremes.

Germany's postwar economy was hit by the loss of her African colonies plus c. 14% of her prewar sovereign territory and the other reparations and unfair trade terms demanded by vengeful victors. Economically crippled, and facing the consequences of 1.6 million dead and 3.5 million other casualties, Germany also had to cope with over 250,000 newly-unemployed soldiers.

Pre-1914, a British pound was worth 20 marks; by December 1918, it was worth 43 marks; by December 1919, 185 marks.

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Will rising interest rates crash the market?

This item may seem to be UK-based, but essentially the situation is much the same on the other side of the Atlantic. It's a story, not about domestic mortgages but about the sleeping bear of the bond market:

The UK's Daily Telegraph reports comments by MPC member Paul Fisher that homeowners should steel themselves for an increase in interest rates, with an ultimate target of 5% (currently the Bank of England's lending rate is 0.5%).

This would be a two-edged sword. It would combat inflation and begin to reward savers; but it would also worsen conditions for business, by reducing the consumer's disposable income and raising the cost of commercial finance (which is already hard to get, particularly for smaller businesses).

The effect on the stockmarket would be negative, as higher costs and lower turnover would squeeze profits; and debt-fuelled share speculation would become more expensive and so riskier for the investment banks, who might give up looking for a bigger fool and race for the emergency exit.

However, there is no timescale given for this process and the article says that the market expectation is that the rate will rise to only 2% within the next two years.

I think Mr Fisher's statement, ostensibly warning borrowers to tighten their belts, is actually intended to be overheard by the bond market, trying to reassure the latter that it won't be ripped-off by inflation.

I also think it's a tactic characteristic of the previous government, namely to make a tentative policy announcement in order to gauge reactions and trim sails accordingly. It's come from a source that can later be spun as having been a personal view or at most, merely a long-term aspiration of the Monetary Policy Committee.

There are dangers in this type of nebulous news management. To me, it's a sign of the real weakness of our current economic position. And if the bond market thinks it's being bluffed because the government hasn't a clue how to proceed, it may decide to call for a show of the cards. Then the rate rise would come, in a quick and uncontrolled way, triggering a crisis that would end in deep recession, or some combination of default and currency devaluation.

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.

Christmas shopping in the British Aisles

Earthquake in Cumbria

There was a minor earth tremor in north-east England yesterday as reported here.

It reminds me of the spoof charity appeal email I received from a Dudley-born friend after the quake there in 2002. It is, as they say, a classic and is preserved on this site. We Brits are never more comfortable than when mocking ourselves. The following is the closest to my memory of the original, though it's been reworked since with regional variations:

At 00:54 on Monday 23 September an earthquake measuring 4.8 on the Richter scale hit Dudley, UK causing untold disruption and distress -

* Many were woken well before their giro arrived
* Several priceless collections of mementoes from the Balearics and Spanish Costas were damaged
* Three acres of historic and scientifically significant litter were disturbed
* Thousands are confused and bewildered, trying to come to terms with the fact that something interesting has happened in Dudley

One resident, Donna-Marie Dutton, a 17 year old mother-of-three said "It was such a shock, little Chantal-Leanne came running into my bedroom crying. My youngest two, Tyler-Morgan and Megan-Storm slept through it. I was still shaking when I was watching Trisha the next morning."

Apparently though, looting did carry on as normal.

The British Red Cross have so far managed to ship 4000 crates of Sunny Delight to the area to help the stricken masses.

Rescue workers are still searching through the rubble and have found large quantities of personal belongings including benefit books and jewellery from Elizabeth Duke at Argos.

HOW YOU CAN HELP

* £2 buys chips, scraps and blue pop for a family of four
* £10 can take a family to Stourport for the day, where children can play on an unspoiled canal bank among the national collection of stinging nettles
* 22p buys a biro for filling in a spurious compensation claim

PLEASE ACT NOW

Simply email us by return with your credit card details and we'll do the rest!

If you prefer to donate cash, there are collection points available at your local branches of Argos, Iceland and Clinton Cards.

Bank of America to be hit by Wikileaks

As I relayed here on 1 December, Julian Assange hinted at revelations about a major US bank. Now, according to the London Times, (htp: EPJ) he confirms it's BoA. He's going to be releasing much material next month and if its management is "responsive" there "will be resignations".

Journalists like to hint at causative connections - Yahoo News says "Shares in Bank of America have fallen amid speculation that it was a WikiLeaks target" - but in fact according to Yahoo Finance itself, BoA's shares have been trending down since mid-April and have actually risen slightly in the last week. Perhaps Assange appeals to the chip-on-the-shoulder Robin Hood element in the powerless scribe's psyche.

Men reveal their ambitions in their persons, but their souls in their writing. Assange set out his agenda in a couple of essays several years ago, and if you read with attention they tell us plenty about him. If you'd like to know a little more about how he thinks, I've recently done a little piece here.

That's not to say I trust banks any more. If there were no depositor insurance, I'd have my stash (accompanied by their ATM withdrawal slips) in my workplace locker or something similar. I started to do this when the banking crisis was on, and it seems the Irish are doing it now.

Buy your popcorn and sit down for the bank show overture in January. And, if Seeking Alpha commenter "Savelife" is to be believed, the whole investment and economic Ring Cycle drama over the course of 2011. Maybe it'll be best not to have a front seat.

Disclosure: None.

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.

More on Barnes & Noble - a contrarian view

Phil Wahba's article in ABC News / Money points out (a) that Borders outlets overlap substantially with B&N and (b) the leases on Borders stores are long, which suggests they could go out of business first - leaving a cannibal boost for B&N.

We should also remember that in addition to the high street presence, B&N have 637 college stores. Blackwell's has done famously meeting the text needs of generations of Oxford University students and I'd have thought the college connection will continue to be much to B&N's advantage.

Further, the Nook Color is getting favourable reviews e.g. here and here , and this says they expect a million sales by year end.

I don't tip shares - but I'll keep an eye out for B&N news and wouldn't be surprised if the shorters get a surprise in 2011.

Disclosure: None.

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.

Barnes & Noble not finished

In February this year, investment analysts Stansberry and Associates recommended short-selling booksellers Barnes & Noble (BKS). Less than 5 years ago, the share price stood at $46.25; on Friday it was at $14.30. More recently, Stansberry has explained how doomed B&N are, what with their debts and the impact of new technological alternatives.

I sometimes wonder what American business could achieve if all - or even half - the talent that went into stock trading and analysis, finance, banking and law were diverted into actually making things and running businesses.

"Retail is detail", so the adage goes. Please bear with me for an anecdote: I recently idled away some time on a little sim game by Armor Games called "Coffee Shop". You have a sidewalk coffee stand and only one product. All you can change is the recipe, your inventory and the price. Simple enough, and after setting these parameters and running the simulation I ended with a few tens of dollars profit. Isn't business easy?

Then I looked at the high scores - several were over a thousand. What I hadn't thought to do was change the variables according to the forecast weather. So instead of trying not to go broke, I doubled the price, strengthened the mixture and multiplied my final score.

That was without being able to increase my range of products, investing in advertising and marketing, researching locations etc. Macdonald's does, and has turned a hot meat sandwich into a global empire.

So imagine if Barnes & Noble were a sim game and someone let you see the high score beforehand - let's say a mere 13% compound annual growth, which would beat their previous high within 10 years. If you knew for certain it could be done - had been done - don't you think you might find a way?

According to this 2007 article in the Washington Post, Americans read on average 4 books a year. Yet in still-poor, workaholic China the average is 7 - and 25% have read an e-book.

Books increase mental power. Stalin and Mao were huge readers, which helped them dominate their unfortunate fellow man. On "The Long March", Mao was carried about in a litter as he continued to stock his mind with his reading; in his case, it should've been called "The Long Carry". 50 years ago, President Kennedy was concerned that US rates of literacy and scientific learning were falling behind those of Communist competitors; we need to re-visit this issue as our youngsters give themselves eyestrain with PCs, partial hearing loss from cranked-up iPods and repetitive strain injury from thumbing their DSs.

You could argue that B&N aren't done yet. They may have come late to the e-book party, but their Nook e-reader has been out for a year and done well - Amazon are now in the position of playing catchup with a 3G version of Kindle (which I've just bought) - and we've yet to see the impact of the new Nook Color.

That's not to say that the dead tree press is finished, either. Allowing for the 25% of Americans who don't read books at all, the per capita read is 7 books a year and B&N's 1,352 stores therefore have a potential customer base of maybe 150,000 adult readers each. One extra book per year = 14% growth.

There's also the fact that we read products in different ways. I'm enchanted with my Kindle, which I can glance at as I drink my tea without the cover flipping over and losing my place; but although it is good at marching you through a novel, it's not so good for the skimming, riffling through and back-and-forthing I do when I read a newpaper or magazine. It's great if I know what I want to find and download; it's not so great at the serendipitous finds you make browsing through a good shop. And it doesn't serve me a coffee, a doughnut and a pleasant smile.

Did paperback kill hardback? The car, the bicycle? The movies, radio? TV, the movies? No: but the market developed, and some of those that made their money in one invested most profitably in the next (remember when IBM made comptometers? Nor do I).

When I say invested, I mean got involved. It's all very well quoting the debt load, the tight margins and all, but perhaps you'd agree with me that the real driver of success or failure is quality of management. Here in the UK, Philip Green (now Sir Philip) took over the failing BHS store chain 10 years ago, grew it an estimated 600% and built an empire. Short, stocky, shirtsleeves rolled up, he got his hands dirty and a billion-plus (sterling) into his wife's Monaco account.

When America (and even more so, poor benighted Britain) gets back to minding the store, instead of boosting its executive perks and playing beggar-my-neighbour with fellow short-term investors, the country will get back on its feet. Don't play the funeral march just yet.

DISCLOSURE: Not trading. 100% in cash.

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.