Wednesday 30 November 2011

NOV 2011: NOTMEGUVONOMICS


It’s been a long summer and autumn without being moved to write, as shouting at the radio seems to have been enough to avoid breaking into a rant but alas no longer. The trigger for returning to the blog was a customer who asked me the imponderable question “… will the tavern clock hold its value…..”. I embarked on an erudite exposition of those clocks which have held their value, namely early clocks, be they lanterns or in particular marquetry longcases with good original movements from say 1685-1710. Also anything by a golden age maker; the best and the rest and all that. The truth is that the question has no answer and could have been about any asset. Will your house hold its value, your classic car, grandad’s war medal, auntie’s pearls…..you complete the sentence. In the past three years, since the recession bit, the only certainties have been Chinese relics for repatriation and the continued recovery of the modern art market, (the latter having bombed before recovery). Oh, I forgot, gold and rhino horn.

It used to be possible to make forecasts and assumptions about many things but we have drifted into the unknown where everything is uncertain, no-one knows what to do and no-one takes the blame for what has happened. Opposition leaders seem to have amnesia that they had declared that boom and bust had been eradicated. The 19th century satirist Ambrose Beirce wrote in his “Devil’s Dictionary”, (http://www.thedevilsdictionary.com/), that politics is “A strife of interests masquerading as a contest of principles. The conduct of public affairs for private advantage”. Now that we have an alliance of conflicting principles, will we be any better off? Well, back to Bierce, who defined a Conservative thus “A statesman who is enamoured of existing evils, as distinguished from the Liberal, who wishes to replace them with others”. Apparently not, as all we can expect is the daily diet of one side blaming the other and internal strife within the coalition. Perhaps we should take a leaf out the books of those countries that are actually bust or teetering on the edge. Should we hand over to the technocrats? Leaving aside the democratic deficit that unelected governments embody, will the bickering end as the appointees suck up to the tax payers of Northern Europe, the IMF, Brussels and anyone else who will lend them a dime or two. Greece and Italy are supposed to have “governments” that will act in the national interest. Let’s hope so, but the precedents of politicians acting in the national interest are not good; remember duck houses? What about the unelected?  Recently, two members of the House of Lords were jailed for failing to understand the allowances system and beyond comprehension is the case of a Baroness who wrongly claimed over £100000 for allowances to which she was not entitled; she has been reprimanded and barred but will be allowed back to serve the nation. Rules do not apply to me guv! No hope there then. Can we rely on the over-borrowed populace to get us out of trouble. Apparently the nation thinks that Richard Branson, inter alia, could do a better job. Back to Bierce; voting, “The instrument and symbol of a freeman’s power to make a fool of himself and a wreck of his country”. What about the foreigners? China has $3201bn of reserve assets, the UK $57bn, the Eurozone $204bn, USA $49bn and Russia $472bn. These figures ignore any borrowings, hence the UK has $57bn of reserve assets it could use to pay down debt; if only, ..........a significant amount is on deposit at the IMF to bank-roll the Eurozone by the back door. So, not even our own assets can be used and those in the money don’t like cut of our jib.

Back to values. There is hope, as we are not in the bust club that is the Eurozone, our borrowing rate is now below the best of the Eurozone. It is a matter of time and doing the right thing, not the popular thing. For once, politicians need to hold their nerve and not be distracted by noises off from vested interest wishing to protect the bloated state. The revival of the private sector is the only route to the sunny uplands. Borrowing more money to grow the state will put the nation into the bail-out bucket. Japan took a very long time to get out of the mess that they got into and now they have reserve assets of $1129bn and but for their devastating events they had been running a surplus economy. We will get out of this mess and in the meantime what will happen to values? Anyone’s guess, but the precedents are that the stock market is likely to drift and drift and drift. Interest rates in Japan for years were negative in real terms as they are now here. No-one knows which companies, banks, funds and other paper assets will prosper or tank. Physical assets are our only refuge. Buy the best you can and enjoy them. I leave you with Bierce’s definition of a Clock – “A machine of great moral value to man allaying his concern for the future by reminding him what a lot of time remains to him”.