It is Obvious

Chris Rick has got altogether too much to say

Archive for September, 2011


Posted by chrisrick13 on September 30, 2011

It is obvious: the phoney war is coming to an end

I have a house that I rent out for holidays.  One of the deals that I started some long time ago was that I would keep at that years price for anyone who booked or enquired in that year.  I am unable to judge the cost/profit of that.  Not many claim the discount but I have some people who have been coming back for 10 years.

I did it in a period of low inflation so it cost me little.  Then a couple of years ago deflation was suddenly on the horizon.  I had to reassure my repeat customers that I would adjust for that.  In the end there was little to do.  On some occasions I did reduce my prices a little.  Everyone was happy.

This year all the previous experiences have gone.  I have managed to keep my occupancy at about the average.  The cost?  The school holiday weeks have kept were they were last year.  Instead of filling each one a dozen times over I have just managed to fill them all.  (One week went empty but could have been filled were I not let down.)  The Christmas week has been booked all year but then cancelled last week.  The other weeks used to have a sliding scale up from the winter-week cost or down to it.  This year people enquire and at the same time make me a low offer.  Many of the weeks that I quote just do not get accepted.  I suspect that the school holiday weeks will stay close to were they were, all other weeks will revert to the very low winter price.  I am now moving to the place where I am only letting weeks so that my house manager at least makes an income.  I’m not making money.  Luckily it does not bother me.

So I have first hand experience that over the previous 14 years my letting was not affected by external events.  This year it is.  Remember, one is not a good sample.

It is obvious: the phoney war is coming to an end, expect a lot of casualties.

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Don’t start from here

Posted by chrisrick13 on September 29, 2011

It is obvious: we borrowed a lot of money

Why did we do it?  We ran up debt either personally or through voting in governments who were prepared to do it.  We did it because we could.

If the loan is taken out by a government it is supposed to be efficient at spending the money.  It is also supposed to be quick at doing it.

It also is good for the body count.  The hospital bought today saves lives today rather than in 10 years when the money to pay for it has been saved-up.  There is a negative body-count: fewer of them occur.  Trouble is that paying the interest also has a body count and this is a positive one at some time in the future.  Do they balance out?  No they don’t.  There is some inefficiency.  So building a hospital that you don’t have the money for to hand costs lives…eventually.

As an individual today I’m interested in saving my life now.  I don’t care that a few extra lives I don’t even know are lost some time in the future.  I’ll make that swap.

However there is a way round this.  If we keep expanding our economy – doing more – then we can keep on borrowing and save lives, putting off the positive body-count to some time in the future, a future that marches ahead of us.

When the time comes that we can no longer expand then we have to get back to a place that is sustainable.  In other words the body-count is always neutral but we have temporarily turned it negative by borrowing money and spending that money building hospitals.  Now it has to go back to neutrality which means not building the hospitals and having a positive body-count.

What we have to do is to break the cycle.  It costs lives and is painful.  A better course of action would have been to change the allocation of the money we have and stay solvent.  But we didn’t do that.

This is why I am so against Labour.  They are big on social justice and equality.  They achieve this ‘justness’ by borrowing money to build hospitals thus guaranteeing a bigger body-count when that count is viewed over the length of the loan.

Given that we are here now, how do we save lives into the future.  Alas the balancing lives, required to get to a neutral body-count, will be lost…and a few more.  Suppose though that with the life costing cuts we get rid of the deficit.  This is an altogether reasonable situation where the government, the builder of hospitals, spends less than it earns.  It means that each year it has some extra cash.  It can use that cash to decrease the loans it has taken out.  Next year it will have less interest to pay and more cash left over.  With the budget excess it can decide how much to use to continue to reduce the debt and how much to spend reducing the body-count.

Someone played at God deciding to have people alive today and dead later.  Someone will have to play God deciding to balance up the body-count now, because if they don’t God will do it for them.

It is obvious: we borrowed a lot of money and we really shouldn’t have.

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My house is my castle

Posted by chrisrick13 on September 28, 2011

It is obvious: you cannot treat your house like an asset as it is where you live

The Land Registry deals in solid numbers.  There is plenty of opportunity to misrepresent them but I don’t think that they do.  The only sleight of hand is that they deal in averages.  The average price of a house in the UK is £162,347 of which there are exactly none at that price.  No matter it will do.

That price is 2.6% lower than last year at the same time or about £4,330.  Generously assume that inflation has been at 5% and the real value of your house, should you sell and spend the money, has shrunk by nearly £12,500.  Assume that the running costs are about the same as renting somewhere then you are have missed out on interest.  So you are £3,000 worse off.  Living in your house has cost you £15,000 this year just gone.

It is obvious: you cannot treat your house like an asset as it is where you live.  That being the case, tell it to stop putting its hand into my bank account

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Whose turn is it

Posted by chrisrick13 on September 28, 2011

It is obvious: politics is a game

Isn’t that Mr Milliband a nice man?  Yesterday he was in the media a lot and came over as sincere, honest, passionate, caring.  I could go on but suffice to say his image makers had done a good job.  He has a problem though.  There is the socialist Labour party and the electable Labour party.  Alas, they barely touch let alone overlap.  Which one will he choose to lead?

He has other problems.  He got into power courtesy of the unions.  They will be calling in their favours over coming months.  He was far left in his views when he was younger: communist, trotskyist, workers revolutionary.  I am 60+ I know how much your views change over time.  His views will be little different despite what he may try to intimate.

There are others.  Governments operate at the far end of the Laffer curve, or at least they try to.  If they had a managed economy with little or no debt then they could row away from there.  However in the UK the far end is the only place to be.  Labour cannot operate there for political reasons.  They have to punish the rich…for being rich…and operate with lower income than a Conservative government.  I would reiterate that maximising government income supposes that they will spend it wisely.  I have seen no evidence of that in my 60+ years.  Why not let rich people earn it and spend it, as they will likely do it better than the government of whichever flavour.

Still more there is little he can do with economic policy.  He has saddled himself with the architect of so many of our current problems to get us out of them.  A huge handicap.  The strategy chosen is to say that the cuts are not appropriate now and to reduce indirect taxation to gain growth.  The problem is that it is only the cuts that has kept the ‘market’ from ‘doing a Greece’ on us.  Greece is cutting and cutting and cutting.  They are on diminishing returns.  If you first cut government spending by 10% you might narrow the deficit by 5%.  When you come back to cut again by 10% it is much more difficult but the deficit only narrows by 2% if you can manage the cut.  Cut early and cut deep.  At the very least you might get onto the virtuous curve where you can start reducing interest payments.  This spiral works in both directions.  Labour have chosen to keep borrowing so that at some time in the future when growth has gone far enough (sic) there will be enough money coming in to turn the deficit into a surplus and start on the virtuous spiral.  Growth is impossible but not because of cuts.  However the Labour party is hoping to persuade the public of this as we get near the election.

So he has a problem that to get elected he has to ignore his sponsors, not over-tax, persuade the public that it would have been better if he ran the economy, and somehow look different to the Conservatives.  Labour got their strategy right: avoid winning the election at all costs.  However they have, so far, not managed what follows at all well.  It is probably simply not possible.

It is obvious: politics is a game that, alas, has little to do with running a country

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Posted by chrisrick13 on September 27, 2011

It is obvious: a lot happened today

This morning on the radio in the car I heard Mr and Mrs Balls being interviewed.  An un-remitting stream of drivel, alas, and as expected, left unchallenged by interviewers.  Jeremy Paxman rose to fame asking a question repeatedly when it was not answered.  There is room there for another to persist over this and make their name as well.  Mrs Balls showed consummate skill avoiding answering any question she was asked yet doing enough at least to persuade the interviewer she had.

I’m an implacable opponent of the Labour party.  It is no secret.  Yet there is little I have to do for it to fail.  This time they have chosen a leader who does not look good on tv.  His brother was much better and sounded better, even after the operation.  They also allowed their leader to be chosen by the unions.  This will play big in coming months.  Once in charge he played a master stroke.  He put the person in charge of economics who presided over the disaster we are in now (along with himself).  Even an apology, hoping it will all be forgotten come the next election, will not work.  The Conservatives will run and run with that.

A while ago on Eggheads (I came into the room as my wife was watching and soon left…honest) there was a question for which the three choices for an answer were Harold Wilson, James Callaghan, Margaret Thatcher.  The team member answering was a 30-something, maybe just a 20-something.  His first comment was that he had never heard of James Callaghan.  I had also heard the comment that after 17 years of Conservative (mis)rule a generation had arrived who were unaware of what a Labour government would do with an economy and so voted it into power.  There can be few who are unaware now.  Will it be another 17 years before they are allowed to run things again?  Will Gordon Brown be forgotten as quickly as James Callaghan?  I think not.

So another day passed of repeated calls for growth as the only way out of our current mess.  It probably is, but there is no chance of getting it.  I also heard the mantra of training and skills to equip our youth for jobs.  Just now I heard a BAE engineer with 26 years of experience, no job as of today, and little chance of getting one, on the tv.  Is there any point training (or even educating) a young person with the skills to get a job when there isn’t one to be got?  Perhaps we should create bicycle farms and put all the unemployed to generating power for 8 hours each day to get their benefits.  Maybe pay them for every kilowatt hour generated.  Could do the same for those in prison – it is what they did in times gone by.  Indeed it could be offered for anyone: I’m just down to the bike farm dear, not much on tv tonight so I thought I’d earn some cash for the holiday fund.  We’d be a lot fitter as a nation.  Less obesity nationwide.  Might win a few more olympic medals as well.  We could have the cycling time trial event extended for different teams:  The life sentence team, The long-term unemployed team, The local pub team, The banned drunk drivers team.

Alongside that I heard a lot of words unsupported by evidence, an impassioned plea from the Greek PM, and not much about how the new idea of a rescue fund for Europe is to be created.  I also saw stock markets rise on the words of yesterday.  I would class anyone who bought as at best an optimist and at worst stupid.  I wonder who was buying and who was selling.  Remember, half of them thought it a good chance to get into the market and half thought it a good opportunity to get out.  As I said yesterday: end of October.

It is obvious: a lot happened today, not much of it a surprise

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Grow up again

Posted by chrisrick13 on September 27, 2011

It is obvious: I’m right

I hear the debate about Greece and default.  It has moved from denial to ‘when’ and ‘how much’.  The people I have read, and myself, have been looking beyond the Greek default to what happens next for a long time already.  However there is an interesting debate going on about the how, how much, and when of a Greek default.  The question to pierce this is: who decides when Greece defaults?  Is it the ECB?  The IMF?  The EU?  Angela Merkel?  Who?  So far the ‘when’ has been manipulated.  Nothing else can be affected.  Even if someone were to gift Greece £340bn it would only reset the clock for Greece to turn up in the same place in a few more years.  So who decides?  It is probably down to some rogue member or members of the Greek parliament who will stop a crucial vote going the right way.  They are driven by their constituents of which a vocal few drive the actions of the majority.  The future of Europe is in the hands of a few hundred Greek local activists.  How on earth did we get there?  Ask Merkel, Barosso, Trichet, Sarkozy, Berlusconi, Lagrande…they think they are in charge, shame they don’t act like it.

If I’m right and growth is the enemy then there are two aspects to this.  With something so central to my thinking I have an easy life.  I can judge all that I do on my central belief and live or die by my hand.  It is a little scary.  People with such strong beliefs in the past have done very well: Stalin, Hitler, Genghis Kahn…

Second, I really ought to follow through on the idea that I bang on about so much.  Is a no-growth world so bad?  A thousand years ago it was not that bad because we were on the flat part of the exponential curve and growth had little effect on anything.  However life was not that great.  A long grind every day just to stay alive, then an early death.  Roll forward to a hundred years ago and life was getting better.  It was healthier and people had time at their disposal.  There were more people but fewer were suffering.  Roll forward to today and it is very good for a few people and not so good for many others.  Was there a time where we could have nailed the clock?  I am not sure I could do it.  However any improvements in the quality of life of the people of this planet were based on the growth of economies.

If there is no growth then we do not enter an apocalyptic world.  There will be much change.  I think the Four Horsemen of the Apocalypse were over-staffed.  Famine, Disease, and War are enough.  Death seems surplus to requirements.  However, up close, the long slow descent will be a series of small steps which will seem like apocalypse to those involved.  Be assured that the efforts of governments to achieve growth will be more and more futile.  Their efforts ought to be directed at preparing for a different world.  For example building a nuclear power station to run for a hundred years requires huge amounts of energy which without oil will just not be possible.  There are things we can do now that we might not be able to do in 10, 20, 30 years time.  This forward planning won’t happen so it is down to individuals.

Even if that view is taken it does not mean retiring to a teepee in the woods and living off nuts and nettle salad.  Why not take advantage of the benefits of the current world.  Just because it is not sustainable in its current form does not mean that you should not have a piece of that action.  Spend the money before someone takes it off you.  This is likely done by government through inflation or taxation, or if it falls apart, then by someone with a gun.  I don’t see the latter, at least not in the UK.  We have a national psyche, still not lost, that will see a different social response.  Apart from anything else it is not easy to get a gun.

To the point – at last.  If, despite the best efforts of those in power, there is no growth how can I prosper and grow?  For a start I could put such money as I have into things that will give a good return in a low growth world.  I’ll focus on that over the coming months and come up with some ideas.  A starting point would be the traditional defensive stocks if I was to buy into companies.  However, think of what things are not done now that will be attractive to do in a low growth economy?  I will think.  I remember a time when food was delivered from the local shop by a boy on a bike with a small front wheel and a big basket above it.  Perhaps a pedal driven home delivery service will do well?  At the other end if resources are reduced then we might spend a lot of time sitting at home with entertainment and information delivered down a wire.  I thought that communication companies were where we should be 10+ years ago.  Maybe I was too early and the time of telecoms is about to arrive?

Predicting the future, at least publicly, is not a good game to get into.  There are no good outcomes right or wrong unless you have acted on those predictions.  I will enter the game.  I am minded that putting money into the stock market is a better deal than having it hanging around as cash (of which I have too much at the moment).  Timing is important.  The FTSE will be a lot lower at the end of October than it is now so there is no point buying shares today – I can get them cheaper in a month.  How many points down from today?  I think 4,500 is a good target which, with current volatility means anything from 500-800 points as I haven’t looked at the FTSE in the last hour.  I’ll say more when we get to the end of October.

It is obvious: I’m right but remember how much you are paying to read my thoughts

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Watch for the consensus

Posted by chrisrick13 on September 26, 2011

It is obvious: when everyone agrees then they must be right

I have a house in Dorset.  It nearly pays for itself.  I will live there one day provided that I can bring myself to sell my London house before the crash and move there.

I have not realised it yet, but still were I to, it would be the best investment I have made.  It means that I get to go to Dorset a lot and that has improved my quality of life hugely.

We spend a lot of time walking around the county.  I don’t know why it has become something I enjoy, but it has.  All to often I walk with my wife and we end up arguing about something.  Perhaps we are rounding each other’s sharp edges off.  So far two have gone out and two have come back so we are ahead of the game.  I often go walking with a friend and his wife.  The wives walk behind moaning about us and we set about solving the poor performance of the England Rugby team, the mistakes of the government, the dire condition of the younger generations (used to be generation) and the state of the world.

As we walk through fields and along country paths we frequently turn corners and see, in the middle of nowhere, a line of cottages.  They are either derelict or have been converted to holiday homes.  I puzzled over it for a long time because I am so slow.  Why were people living in that location?  There is nothing to do within miles.  On a grander scale: what is the point of having a village just there.  The answer is obvious: not so long ago the vast numbers of people working on the land needed somewhere close-by to live.

This obviously links to the blog responses I have read this morning.  For some while now I had weaned myself of reading blog responses to the likes of Flanders, Peston and Pritchard.  They all had their own axe to grind and proposed simplistic solutions that it is obvious will never be tried.  Interesting stuff but pointless both writing them and me reading them.  After a week and weekend of action…  No!  After a week of action by financial markets and weekend of words by politicians I read responses to some of the blogs.  They were remarkable.  All the well known ‘loony’ responders were saying pretty much the same thing.

It is obvious: when everyone agrees then they must be right even if they are all mad as hatters

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Keep it stupid simple

Posted by chrisrick13 on September 26, 2011

It is obvious: not everything worth doing is worth doing well

I’m not a good conversationalist.  Not easy in strange company.  One good route to keep the social interaction going is to ask people about themselves.  We are all the world’s foremost expert on the topic and will talk for hours with little prompting.  You can spot the people who have read the same books.  Their typical response is: Oh I work in computers.  Very boring what do you do?  It must be a lot more interesting.  If you have your wits about you then you do a short answer and put another question in.  It makes interesting conversation for both of you…which was what it was all about.

Another ploy I have used is to ask what the other person’s, or better still all the members of your conversation circle, what their favourite piece of music is.  Immediately they fire back with a question about the criteria.  Job done, conversation running.  (For your amusement: Don’t let it bring you down, Neil Young, though I prefer the version on 4-way Street by Crosby, Stills, Nash and Young)  Harder is the Desert Island Discs question.  You can usually, easily get 4 pieces, then the whole life experience opens out.  Each piece you think of links to another piece and suddenly the dozen or so you first thought of are joined by twenty more from further back.  It becomes harder to filter.  Just the one though can be done.

(Of course if that conversation topic does dry up and you are still at the party/social gathering then you can move on to films and books.  If it is an arty bunch you can do plays and paintings.)

So it is with my efforts to understand what is happening in the world and in particular the money world.  My goal is simple: have enough money to do the things I want to do in a deteriorating world.  There are vast armies of much cleverer people than I at banks, government departments and other interested parties trying to understand where this world is today and where it will be in the future with differing ‘horizons’.  Any attempt that I make to model the future will not be doomed to failure but will be on a small probability of being right.  It is too complex as the ECB, IMF, MPC, and practically every government in the world are proving every day.  Therefore I have tried for a few simple ideas that I have confdence in that will point off in the right direction.

It took some while, but I finally nailed it with Greece.  I am proud of the very simple idea: Greece owes £340bn – how will lending it another £110bn help it to avoid bankruptcy?  Simply (stupidly) it won’t.  A more complex problem is how to fix it and the ramifications of not fixing it.  There is much to discuss on that topic, but none of it would be necessary if action had been taken a year ago.  I think the simple answer is that pain does not go away, it just gets worse until the right thing is done.  Finding the right thing might not be easy but there are plenty of wrong things that are easy to avoid.

As the world sits in recession, hidden by fudged numbers, what is happening and what is to be done.  This morning I heard the shadow Chancellor trying to rehabillitate Labour with a couple of apologies and proposing a solution: growth.  But this nonsense, also echoed by numerous powerful people over the weekend, is simply not possible.  Growth for the last 10 years in the UK and much of the world has been achieved by people and governments borrowing.  They have said that they will have money now, spend it, wisely (sic) and spend 10, 20, 30 years servicing the loan and paying it off.  If you have spent a lot of money, just supposing that you have an income over the following period you will have little spare money to spend.  You will be paying interest on your loans and trying to repay capital…unless you are Greece.  There will be no growth of anything coming from you and most of the people around you.

In this finite world we are moving our exponential growth around the corner and on to the steep part of the curve.  Growth will just not be possible soon.  There are not the resources to support growth.  The numbers of extra people needed to achieve growth are not being produced.  If it is tough keeping yourself happy and well resourced, do you want to add extra consumers to your load?  The model of having lots of children to support you in your old age is well proven to be invalid today.  Oh dear, is that not how UK pensions are funded?

So the simple ‘fact’ at the centre of all my thinking is: how does that idea fare in a no-growth world?

It is obvious: not everything worth doing is worth doing well so do those things that do well for you

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Grow up

Posted by chrisrick13 on September 25, 2011

It is obvious: they have no idea

I have refrained from much comment over the last few days: I would come over much too smug.  I just could not keep sat on my hands this weekend.

Today the leader of the Labour party declared that the government have got it wrong (it is what he is paid to say) and his solution was to go for growth.  I have problems with the growth thing as you will know from many previous blogs.  However even if I think growth is the enemy I have said before that growth for one last time to get us into good shape for a stable economy required in the future would be a good idea.  Where is this growth going to come from?  We have few activities of any scale that we are good enough at that we can grow them in the face of hard competition, much of it powered by dollar-a-day wages.  There is growing scarcity of resources pushing prices up.  The last 10 years at least have seen growth fuelled by borrowing.  So who or what is going to increase demand to provide a market to grow into when we are busy paying off our debts (in most countries in the world)?  It is a nice idea but I stopped believing in fairies when I was 5.

The other thing that caught my attention was the IMF putting together a fund of over £1tn to ‘fix’ sovereign economic problems.  For a start no fixes are planned.  it is purely funding to stop countries going bust in the hope that something will come along.  That something is…growth.  See my previous paragraph.  Where is the £1tn coming from you might ask.  The IMF will borrow it.  I am fuzzy on where it might get it from, but I am pretty sure I am included in the contributions.  However the way to service those loans was much clearer.  It will come from the revenues of member countries.  Yes they are plotting to use my taxes for the next 30 years to support the current system for a few more years in the hope that something will turn up.  This is starting to get personal.  The only good thing is that I might be able to avoid paying much in the way of taxes over the coming years.  I think I might copy Hotblack Desiato and spend a year dead for tax reasons.

It is obvious: they have no idea…or do they know what drivel they are saying

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You can’t touch me…

Posted by chrisrick13 on September 23, 2011

It is obvious: I’ve got a small pension

Stock Markets are going down as is the price of oil and other commodities.  This is no surprise, alas the timing is not predictable and neither is the end point.  This is what ‘investing’, or is it gambling, is all about.  In the good old days when we were on the flat part of the growth exponential curve it was possible to pick a business that over a long period you could put money into and watch grow steadily over many years, retiring on the proceeds at the end.  Not any more.  Hence my mantra of invest in yourself and be prepared to work a lifetime…if you can (for any number of reasons).

The pension business was built on this premise.  Indeed at the extreme ends pensions were promised to workers that were based on their salaries and were not strongly correlated to how much money was invested in their pension over the years.  So it is with many public sector workers.  They have been promised pensions that are not supported by any investment.  The nation can no longer afford those promises and is trying to reduce them.  Quite naturally the unions are going on strike to protect those promises.  As it is with the higher rates of income tax and the consequent loss of government income (see Laffer curve) if those pensions are maintained then there is a cost.  There will be less money to spend on other things.  A hospital or two fewer, a hundred or two fewer ambulances, same for policemen, and, alas fewer land-sharks (police dogs).  So a body-count can be attached to the union demands for their pensions to be sacrosanct.  Perhaps I’ll ask the next union leader that I meet.

I have a number of small pensions along with my wife.  We have 4 with Equitable life (oh dear).  I have 3 others with other companies.  These pensions will all be strongly invested in sovereign bonds (Greece, Portugal, Italy…).  The rest will be solidly in shares…  Perhaps I should go on strike to protest against the reduction in my pension?  The body count associated with this would be one when my wife strangled me.

On that topic I note that there is a double hit.  My final pension fund is small because of poor returns on investments.  Then when I buy my annuity it is reduced…because of poor returns on investments.  In particular I will be subsidising people who retired earlier on much better annuity rates which the pension companies cannot support on the investment returns they are getting.  Pension companies are great smoothers.  They give you money if you live in retirement for 6 months or 30 years.  Not much at the end of 30 years, but money nonetheless.  Go to a mortgage calculator, put in 100,000 as the sum choose a 20 year period (your likely time in retirement) then try different interest rates and look at the monthly payments.  Look at the annuity rates you are being offered.  What percentage return do you need on your investment to beat the annuity rate?  Don’t do it if you have any heart problems

It is obvious: I’ve got a small pension and it’s getting smaller all the time.

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