Blackmock

The fallout from the banking collapse highlighted one overwhelming message……the power that investment banks held over the Government. Investment banks simply make too much money for them to be ignored and they create vast wealth for the UK coffers. This wealth creates power……this then leads to the Government conforming with their political policies and regulation that is very ‘friendly’ to investment banks.

 

Fast forward a decade across various political promises of reform against this power……exactly where are we?

 

 

Exhibit A Your honour……BlackRock.

 

BlackRrock are an investment company responsible for the investment of $5.7 trillion ($5,700,000,000,000)

 

A recent freedom of information (FOI) request has uncovered that Blackrock held 14 meetings with the Treasury in 2017. While there is no suggestion that rules governing how much access a company can have with current policymakers has been broken, exactly why does an investment company need access to the Government every 4 weeks?

 

And that is just one company…… there are many, many more.

 

 

Exhibit B Your honour……Ex-Government Officials.

 

BlackRock has been the next calling point for a number of high-profile Treasury officials in recent years.

 

George Osborne last year started in a contractor role at the company in a four day a month ‘research position’ earning him £650,000 a year.

 

Rupert Harrison, the former chief of staff to George Osborne, joined BlackRock in 2016.

 

Another ex-Treasury official, Antony Manchester joined BlackRock in 2017 to lead the firm’s ‘Brexit position’.

 

 

Given we live in a capitalist society (well, for now anyway), I’m all for a successful Government on an economic level which creates an environment for corporate success. But why does there seem to be an underground secret that big city institutions have open door access to Government. Why is there seamless career progression from Number 11 to city institutions?  

 

The lack of transparency creates concern……and we know where that all led a decade ago.

Driverless Supermarkets

It’s been in planning, production and testing for the past 12 months…..and this week sees the first driverless supermarket go live.

Amazon Go has launched in Seattle with no checkouts at all and no human interaction needed to shop or pay for the groceries. It uses an array of ceiling-mounted cameras to identify each customer and track what items they select, eliminating the need for billing. Sensors on the shelves add items to the bill as customers pick them up and deletes any they put back. Purchases are then billed to a customer credit card when they leave the store.

Which all begs the question……is the driverless supermarket going to be a new reality in the years to come or is it simply Amazon serving up a shiny brand marketing campaign / gimmick?

 

Well, it has some legs that’s for sure. I guess it will all come down to profitability and how long the upfront investment in technology will take to ‘pay back’. When you consider that Tesco alone employs over 300,000 people, it is clear that a significant labour saving will be attractive to supermarkets that work on such low profit margins.

Which brings me to ponder a few points:

Technology in supermarkets. As we are seeing with electric cars, the rate of development and market penetration is far from quick. Let’s be frank, supermarkets seems far from quick to adopt technology and manage it successfully. Just get yourself along to any self-service checkout and watch as customers take it in turn to lose the plot with the “unexpected item in the bagging area”. It’s like a Monty Python sketch.  

 

What about customer identification? On a busy Saturday morning, I am pretty sure I am not the only dark haired (with subtle grey ‘areas’) tall man sighing his way around the isles ramming any screaming kid with his trolley. Just how reliable is the identification? I’d hate to think someone else was paying for my shopping.

 

Then there is the customer experience. If I am not being greeted with a miserable sigh / grunt at the deli counter, treated like I am the thickest man alive when my knowledge of where the piccalilli is located is inferior to staff members with 15 years experience under their belts, endure a 15 minute queue whilst Brenda at the checkout provides a running commentary on the items being purchased by the irritating lady in front, playing adult Tetris on the conveyor belt with my trolley load and having to repeatedly confirm that I do not need any bags or help with the packing, then it will lack the ‘supermarket experience’. A certain irritating and frustrating ‘je ne sais pas’ will be missing in all our lives.

 

Despite these ponderings, money talks. And if the technology is consistent and offers supermarkets significant long term labour savings, it could all become reality.

 

In a consumer driven economy, it will be interesting to see how this will all impact the UK economy.

 

Intriguing times.

Bankrupt State Pension

The latest report by the Government Actuary's Department (GAD) paints a pretty grim picture for the future of the State Pension. It projects the National Insurance fund used to pay out the State Pension will be exhausted within 15 years. The result? The harsh reality is that, as the aging population bites the cost of the state pension will inevitably boom.

 

There will have to be a reduction in public services to cover the cost or taxpayers will have to pick up the slack to the tune of hundreds of billions of pounds. There really are no winners on this.

 

Should we be surprised though?

 

The issue has been known for the past few decades (or more) but no political party in power wants to address the issue. The State Pension, Income Tax and National Insurance are all political decisions. Politicians aren’t exactly famed for their long term thinking and planning given longevity in their position is all too rare. Let me put this into perspective, Esther McVey become the fifth Secretary of State For Work & Pensions since 2012. How can we expect long term joined up thinking with such a high turnover in the key position? (such a key position that only 1 in 1000 people new who she was in a recent survey!!!)

 

Then add to the fact that any Government that does take positive action to address the State Pension blackhole will receive a huge negative snowball from those people or areas that will have to pay for it……hardly any encouragement to show courage and leadership is it. Hardly a vote or popularity winner.

 

We have a very ‘safe’ Government currently that will simply kick the can down the road for someone else to pick up……and there is a readymade excuse of Brexit negotiations that the Government can use to duck taking ownership. Convenient. Very convenient.

 

But make no mistake, at some point extremely tough decisions will need to be taken as demographic reality hits the UK finances.

Trumpeting

In amongst all the magic of Christmas, you would be forgiven for missing President Trump well, errrrrr, trumpeting his latest achievement.

 

In short, Trump managed to persuade the US Senate to pass a Republican proposal for a $1.3 trillion tax cut that is likely to further boost the American economy. Basically, he cut Corporation Tax on business profits from 35% to 21%. It smacks of copying a Ronald Regan move in the 1980’s which is all based on a lower tax intake for the US Government in the short term but then getting a bigger total tax intake in the future from companies making more profits. Time will tell.

 

I guess Trump will just be pleased he’s managed to pass anything looking at all meaningful in his first year of office.

 

Anyway, enough of Trump……what’s the impact for the UK? Tax cuts tend to be an economic incentive for businesses to invest……and for employees to work and spend. An already strong US economy is strengthening and this is likely to boost it further. When the largest economy in the world is strong, those on the coattails receive an economic shot in the arm also.

 

With all the negative impacts that Brexit is having, a shot of economic steroids from Trump can only help.

 

No surprise that economic stimulus comes from afar and not from our own doing. Take note Mrs May.   

Bitcoin – Greed Rarely Ends Well

I am literally flabbergasted at the way people are parting with their hard earned money ‘investing’ in an asset (or is it a commodity?) when they really have no idea what it is, how it works, what governs the price and how it is regulated (or not, as the case may be). Welcome to Bitcoin.

 

Much of this euphoria has been brought about by clever people using sharp marketing to draw people in. I myself had a text message last week promising that someone (quite who I don’t know) would pay me 4.2% per month without any risk at all by ‘investing’ in Bitcoins. What’s not to like!

 

What is behind the euphoria? I understand perfectly well why ‘alternative’ currencies could be good for society. But I also understand that these kinds of unregulated markets would be ideal ways for criminals to legitimise their ill-gotten gains. The problem is, a huge gain in the Bitcoin value this year has seen the subject front and centre of media – especially social media. And that entices people. A lot of people. The problem is, of course, that speculative bubbles generally burst and no one knows exactly when they’ll pop. But they do. Always.

 

As I sit here writing this, Bitcoin is up over 11% today and its price now sits 20 times higher than it was just a year ago. This kind of euphoric investing rarely ends well. My view is that the smart people are already out of this market and have moved on. The ordinary man in the street who bets his life savings on the price continuing to go up will be the one who really suffers.  

  

As legendary investor Warren Buffet says, investors should be “fearful when others are being greedy” and that really has some resonance in the context of Bitcoin.

 

Greed rarely ends well.

As Safe As Houses?

Aside from the Brexit circus, the big news in my ‘special little world’ has been Halifax’s announcement that the growth in UK house prices is continuing to slow. The UK’s largest lender announced that their calculations highlight that house price growth is only a fraction above inflation and likely to slow further.

 

Halifax’s figure of 3.9% differs from most current indicators (and that of Nationwide’s – the UK’s largest building society) that the figure is even more modest – probably nearer 2.5%. Regardless, the key message is that house price growth is slowing and will slow further.

 

Which all leaves two key questions:

 

1. Why Is It Happening?

It is a range of issues that have created the cocktail. Firstly, Brexit (obviously) isn’t helping. Uncertainty makes people more cautious to spend and stretch themselves and choosing to retain the status quo for a while is the safest option. Secondly (and equally as impacting), is that wage growth is less than inflation which means that we have less money in our pocket than last year. Earnings growth being above inflation is a key ingredient to a positive housing market.    

 

2. Is This Really A Big Deal?

In short, yes. In fact it’s massive. There is a direct correlation between house price growth and our economy, which the Government is all too aware of. When house prices are buoyant, the UK spends money and the economy gets a lift. It’s the collective psychological feeling that you are wealthy due to an increase in equity in property that then allows more fanciful spending.

 

Earnings growth has been and is likely to continue to be around 2% over the next 12 months. Which leaves us to ponder what inflation will be over the next 12 months.

 

Negotiations with Brexit will impact our exchange rate which will impact the cost of imports……which will impact the rate of inflation. That bloody Brexit gets everywhere!

 

Interesting times

May The EU Force Be With You

 

It’s fair to say that I am getting a bit bored with the whole Brexit ‘divorce bill’. I’ve read various reports, theories, spin, counter-spin that offer wide ranging figures on what the actual cost to leave the EU will be for the UK.  

 

In the red, white and blue corner we have the UK simply trying to pay as little as possible. In the blue with yellow stars corner, we have the EU wanting as much as possible. The political sparing that has resulted with the financial negotiations has simply created a 9 month delay with nothing remotely important agreed. You see, the EU want the financials sorting before they will consider anything else. Why wouldn’t they!

 

Nearly 40% of our 2 years notice has gone. We have nothing agreed. The longer we do not agree the financials, the longer our economy suffers due to the uncertainty. In the grand scale of things, the key thing is to agree to a figure as soon as possible……even if it means paying a premium price for a ‘quick agreement’.

 

The reality is this:

 

1. Regardless of the figure agreed to leave the EU, Prime Minister Theresa May will not be able to sell it to the UK, she will gain no political points and she will leave herself open to abuse. £30 billion? £40 billion? £50 billion? It makes no difference, she is going to have to take it on her political chin.

 

2. The UK has a very weak hand to play and it is likely that we will have to pay the full amount that the EU want regardless. Playing hardball just isn’t going to work.

 

3. As soon as the financials are agreed, the UK will take a big step forward in restoring some confidence globally and take a big step closer to overseas investment returning to the UK.

 

Let’s get it done Mrs May.