Mega Trends For The Tens...

In my Money Week column this week, I've been writing about the mega-trends for the coming decade. Here's a taster...

Shortly before the 1929 stock market crash that ushered in the Great Depression of the 1930s, the American economist Irving Fisher made a celebrated prediction. “Stock prices have reached what looks like a permanently high plateau,” he observed.
Fisher was far from a fool. He was one of the founders of mathematical economics, and his equations on the relationship between the quantity of money and the inflation rate laid the basis for monetarism. Still, even the smartest brains flounder when it comes to predicting the future – a point that should be born in mind by anyone attempting to map out what might happen over the next few weeks, never mind the next decade.
Still, as the old decade ends, and a new one begins, it is worth thinking about the themes that will dominate the financial markets over the next ten years. Here are five mega-trends – bearing in mind that any forecasts made here are about as about as reliable as Tiger Wood’s marriage vows.
One: The Currency Markets Take Charge:
In any decade, one sector of the financial markets emerges as dominant. In the 1980s, it was the mergers and acquisitions bankers, in the 1990s, it was the dot com entrepreneurs, and in the 2000’s it was the quants, the mathematical ‘geniuses’ that gave us the structured products that allowed millions of dud mortgages to be wrapped up into clever-looking bonds and sold to people who didn’t understand them.
In the 2010s, it will be the currency traders who will move to the fore. The equity markets are supine, and the bond markets are now effectively controlled by the central banks. The only way that well-run economies can be rewarded and badly-run ones punished is via the currency markets. Expect to see a decade of massive currency movements as the markets attempt to re-balance the world economy through exchange rates. And expect to see the currency traders – and the banks and hedge funds that employ them – emerge as the most influential players in finance.
Two: The Scramble For Africa:
It doesn’t make much sense that a whole continent is virtually excluded from the global economic system – particularly when it is rich in the agricultural land and natural resources that the world is desperately short of. The process of globalisation that has seen Russia, Eastern Europe, India, and China gradually join the developed capitalist world has managed to largely by-pass Africa.
In the 2010s, that will surely change. Entrepreneurs from both inside and outside Africa will find ways of plugging the continent back into the global economy. And the ones that make the most money will be those that get in on the ground floor.
Three: The BRIC Companies Move West:
We tend to think of the BRIC economies – comprising Brazil, Russia, India and China – as providing raw materials and cheap manufacturer goods for the developed economies of Europe, the U.S. and Japan. Big multi-national conglomerates are the preserve of the existing major economies.
In the 2010s, that will start to change. Big new companies will come roaring out of the BRIC countries, providing intense competition for the existing Western giants. The reason is simple. The next decade will see incomes under severe pressure in the old economies: there are debts, both public and private to be paid for, and aging populations to cope with. Only low-cost producers will prosper – and BRIC companies have the most experience of making things very cheaply. Expect a double boost for the BRIC stock-markets, as both their domestic economies grow and their local companies start conquering the rest of the world.
Four: The Dollar Tax Gets Repealed:
The demise of the dollar as the global reserve currency has been predicted for years. Somehow it never quite happens. This decade, however, the dollar should finally be eclipsed. That is usually presented as a bad thing, and in one way it is. The transition from one monetary anchor for the global economy to another will be destabilising – and the world has quite enough instability to be getting on with right now.
In another way, however, it is a good thing. The dollar’s special status acted as a kind of tax on the rest of the world, in that it allowed the US to run a far larger trade deficit than would otherwise be possible. In effect, everyone else had to subsidise the over-consumption of the Americans. As that comes to an end – as it will if countries don’t need to hold dollars anymore – it will act as a kind of tax cut. And like any tax cut, it will be good for the economy. Americans will have to tighten their belts, but the rest of the world – and in particular countries such as Germany that have been running big trade surpluses – will be able to loosen theirs. That will allow them to grow faster.
Five: The Demise of Independent Central Banks:
Independent central banks were meant to be the guardians of economic stability. By managing interest rates and the money supply, they would keep a lid on inflation, and let economies grow at a reasonable pace. And because they were free of political interference, they would make neutral, wise decisions, aimed at securing long-term prosperity.
That was the theory, anyway. As the dust finally settles on the credit crunch, however, and as we start to figure out what really caused financial meltdown, it will become clear the reality isn’t living up to the promise. In truth, the central banks have presided over an era of wildly inflationary asset bubbles that have made the global economy less not more stable. The Federal Reserve, as even Ala Greenspan now admits, ran too loose a monetary policy, creating the credit boom. The Bank of England doesn’t emerge with much credit either. It did nothing to control the housing and debt bubble, and, in the wake of the crash, printed money to finance the government’s debt. The ECB, probably because it is the heir to the stern Bundesbank, has done slightly better, but still has to sort out the mess in Spain and Greece.
As the decade progresses, it will become obvious that the model of independent central banks is flawed – and we’ll need some better way of managing monetary policy. If we’ve found it by 2020, the global economy will be looking in much better shape.

A Great Christmas For Writers

There is too much doom and gloom around the writing industry. But a glance at the top ten bestsellers for this Christmas should cheer any fiction writer up. The number one book is a thriller (okay, Dan Brown, but still a thriller). Six of the top ten are original works of fiction, compared to only two last year. This year, there are only two celebrity memoirs on the list compared with five last year (and those two take the bottom two slots).

Publishers will notice. They will be less keen to promote ghost-written celebrity books, and investing more in fiction. That surely is good news for writers.

The reason is simple. People love stories, and always have done. And Christmas, certainly the greatest story of all, is always a good time to remember that.

The Celtic Tiger Returns

In my Money Week column this week, I've been arguing that the Irish economy will come back a lot faster than people imagine. Here's a taster....

What’s the difference between Iceland and Ireland, ran the joke in the City a few months back. One letter, and about six months.
Last week, it seemed as if that cruel jibe had more than touch of truth to it.
The Irish economy, the Celtic Tiger which for the last decade had been on a miraculous, giddy ascent to the top of the global prosperity leagues, has come crashing spectacularly down to earth. With its banks turned to toast in the credit crunch, and its property prices in freefall, the Government was last week forced to introduce one of the most savage budgets seen anywhere in the developed world, including cuts of at least 10% in the pay of all public sector workers, and reductions in welfare benefits.
But, in truth, the Irish aren’t about to go back to potato farming quite yet. Almost alone in the developed world, the Irish Government has crafted completely the right response to the credit crunch. It has allowed house prices to fall drastically, cut back a bloated state, and kept taxes low and steady. It is, in short, pushing for an enterprise recovery, accepting short term pain in exchange for medium-term gain.
Over the next decade, the Celtic Tiger will come roaring back. And it will give the rest of the world – and in particular its larger neighbour on the other side of the Irish Sea – another lesson in how to successfully run a modern, flexible, business-friendly economy.
In recent years, the Irish have certainly learnt the meaning of the phrase ‘boom and bust’. Over the last thirty years, it has transformed itself from a relatively poor backwater into one of the world’s most dynamic economies. Through the 1990s, it was regularly clocking up annual growth rates of close on 10% a year. Irish companies such as Ryanair expanded around the world. Migrants, once an Irish export, became an import instead, as Eastern Europeans flocked to Dublin in even greater numbers than they did to London. By 2005, the Organisation for Economic Co-operation and Development ranked it as one of the five wealthiest nations in the world, alongside the US, Switzerland, Norway and Luxembourg: a remarkable achievement, given that it is not a global super-power, a tax haven, or sitting on oil wells.
The British tended to be snooty about their neighbours achievement, presuming it was riding on a tide of EU subsidies. But so was Portugal, and indeed France, and they weren’t nearly as rich. In fact, the Irish had done it their own way, with radically low corporate taxes, and a state that was one of the smallest in the developed world.
But the credit crunch hit it hard. Its banks were wildly over-extended, particularly in their dabbling in the British buy-to-let and self-cert markets. In the last few months, the extent of the recession has become plain. The economy shrank by a terrifying 7.5% this year, and is forecast to contract by another 1.25%in 2010. House prices have fallen 45% from their 2007 peak, and are still going down. Unemployment is rising. The banks have had to be bailed out.
But just take a look at the response.
While Britain, along with many other countries, is racking up huge debts, printing money like crazy, and raising taxes, the Irish, just as they did thirty years ago, are taking a radically different path.
The Budget last week was a bold step. As a member of the euro, Ireland doesn’t have the luxury of devaluing its currency. Nor can it just print money. Only the European Central Bank can do that. Instead it had to put its own house in order. Last week’s budget set out plans to reduce the deficit from more than 11% of GDP now to less than 3% of GDP by 2014. Public sector pay is to be cut by 10%, and cabinet ministers will see their salaries reduced by at least 15%. Welfare payments for the unemployed were reduced, along with child benefit. Just as importantly, the government took the pain on the spending side of the balance sheet, refusing to raise taxes overall. Crucially, the 12.5% corporation tax rate that had made Ireland a magnet for foreign investment, remains in place.
There is no doubt that a tough couple of years lie ahead. The budget cuts are not going to turn around the economy any time soon. There isn’t going to be any lift from the housing market, nor will there be a sudden boom in speculative bank lending. There is going to be a lot of knuckling down and hard-work.
Even so, lift your eyes to the medium-term horizon, and the outlook is surprisingly good. By 2012, Ireland will have its budget deficit under control. It will have house prices that are back to levels where people can actually afford to buy them. It will not be threatened by constantly rising taxes. It will have a strong currency, not threatened by constant devaluation, or vulnerable to speculative attacks in the markets. And it will have some of the lowest tax rates in Europe, along with the certainty that there will be no real need for the government to raise taxes in the future. Along with that, it will still have one of the youngest, best-educated workforces in the developed world. Plus, of course, the English language.
It sounds like pretty good mix. And indeed, it is a pretty good mix.
In effect, Ireland is taking the pain in one short-sharp shock. It is purging the excesses of the bubble, and putting its economy on a sounder footing.
It will work. The Celtic Tiger will come roaring back. The policies it is pushing through now will lay the basis for a strong recovery in the next decade, just at the time while much of the rest of the world is scratching its head, and wondering why the strategy of piling debts upon debt isn’t actually working. Not for the first time, the Irish will have given the rest of the world a lesson in sound economics.

A Book A Year....

The end of the year is fast approaching, and I've just realised that I won't have finished a book this year. Not quite anyway. I'm on page 470 of 'Shadow Force', and I reckon it will be about 600 pages on Microsoft Word (double-spaced), so unless I skip Christmas completely it won't be done before the 31st. And that's just the first draft. There are still revisions to be made. And facts to be checked.

That doesn't matter greatly in itself. The book isn't due to be handed in until March, so there is plenty of time.

But one of the things I've discovered from visiting bookshops in support of 'Death Force' this year is that writers need to crack out a book a year to establish themselves in the market. Several booksellers have mentioned that a writer gets going, then a year goes by without a book appearing, and they lose momentum. Indeed, one of the reasons I think Headline liked the idea of taking me on as an author is because they knew from the ghost-writing I'd done that I could be relied upon to deliver a book once every twelve months.

I can see why it's important. Readers need to be seeing you regularly in the shops before they will sample you. Publishers need to feel they will have a supply of fresh product to make it worth promoting you. But I can't help feeling it will get harder as I go on. When you start, you just have the manuscript to worry about. As you progress, however, there is more and more promotional work to take care off. And whilst that's important as well, at a certain point it is going to make the book a year cycle harder to keep up with.

So I guess my New Year's Resolation will be to make sure I start work early on the next book in the series - so that I get it finished by the end of 2010.

Why Cadbury Should Stay British.

In Money Week this week, I've been discussing why Cadbury should remain British. Here's a taster.

The British have discovered economic patriotism pretty late in the day. Land Rover and Jaguar were sold off to the Indians. Heathrow to the Spanish, and Rowntree to the Swiss. Our power companies are French, and the investment banks American.
But Cadbury? The Birmingham-based chocolate manufacturer, under assault from the American food giant Kraft, appears to have stirred a final, last defiant stand against the foreign takeover of Britain’s traditional businesses. The Deputy Prime Minister Peter Mandelson has suddenly discovered a passion for British manufacturing, columnists debate the need for an industrial strategy, and the blogosphere and twitterati are in a sweat about the possible disappearance of Diary Milk.
In truth, Cadbury should remain British, but not for the reasons that people usually argue. Protecting British companies is a dumb way to try and re-build the UK economy. It won’t mean more factories in this country, nor will it stop jobs being transferred abroad. There’s no point in trying to emulate French economic jingo-ism: it hasn’t worked that well on their side of the Channel, and it will work even less well here.
But shareholders should reject the hostile bid for Cadbury for far narrower, more self-interested reasons. There are too few decent, long-term places to put your money left in the world for to justify sacrificing one more of them. Indeed, the Cadbury’s bid will be a key test of whether fund managers and shareholders have woken up to how much the capital market have changed in the last eighteen months – and how hard it is going to be to make money going forward. If they are willing to lose Cadbury, they are deluding themselves if they think they can make better use of the money elsewhere.
Cadbury has a heritage to be proud of. It is one of the few giants of Victorian capitalism to survive and prosper into the twenty-first century. It has brands that are recognised around the world. And, over many years, it has delivered consistently respectable results for its shareholders. In 1989 Cadbury’s shares were around 175p. They were above 600p before the Kraft bid was launched. That is a pretty good record for a well-established company in a mature market.
Kraft acknowledges all of that, of course. At £11billion, it is putting more than a fair price on the business. The 800p a share offer is a hefty premium to the price before the bid was launched.
Despite that, opposition is stirring. “If you think that you can come here and make a fast buck, you will find huge opposition from the local population and from the British Government,” said Mandelson last week. Even by his standards of spin, it was a bizarre comment. After all, the last decade of Labour Government has been all about encouraging people to make a fast buck in Britain. It has steadfastly refused to protect a single British company from foreign takeover. And as for this opposition from the British government, what exactly does it consist of? Absolutely nothing so far.
Yet Mandelson has a feel for the political weather, and was smartly tapping into the unease about selling Cadbury. People sense that the UK needs a new economic path. The idea that we can make a living by hosting half the world’s investments bank, and hedge funds, and encouraging every Russian oligarch and Middle Easter oil sheik, to base themselves in London, has, to put it mildly, taken a bit of a knock in the past year.
No one would deny that the UK economy needs to be re-structured. It has been too dependent on financial services, government spending, and the reckless accumulation of debt. But that isn’t going to be achieved through industrial policy. Nor will it be achieved by protecting national champions. It is far too late for the UK to embark on French-style planning and protectionism. We don’t have the kind of political, industrial and financial elite that could make that work even if we wanted to.
The reason shareholders should reject the Kraft bid – and any rival offer that emerges from Nestle or elsewhere – is their own self-interest.
In a post-credit crunch global economy, there are precious few places you’d feel happy investing your money. Interest rates are so low you don’t want to be in cash – and anyway, you can’t really trust the bank you’ve left it in. Government bonds hardly look safe anymore: sovereign debt is already building up as the next leg of the credit crunch. Commodities look over-stretched. Gold has its supporters but that’s already looking like a bubble: it’s hard to make money when you buy an asset at the top of the market. Emerging markets will do well. But just because the Chinese economy grows, it doesn’t follow that shareholders will make any money – and certainly not foreign ones.
In reality, one of the few assets you can really feel comfortable owning are big reliable blue-chip companies, with powerful brands, and a long-term record of delivering respectable returns to their shareholders. In a world of slow growth, and moderate, persistent and rising inflation, they should keep pace with rising prices, and pay regular dividends as well.
So what exactly are shareholders going to do with the £11 billion they get for Cadbury? They will struggle to re-invest the money into some other asset class – for the simple reason that none of them look very appealing. They can leave it in Kraft, or they can invest it in another safe, reliable blue-chip company. But there are a diminishing number of them. And the fewer there are, the more the prices get pushed up.
If Cadbury get taken over, the shareholders will just be wondering what on earth they can do with the money. They will have taken it out of a safe and reliable home, and thrown it into a dangerous, uncertain one. In their own interests, they’d be better off leaving it where it is. Cadbury shares should triple again by 2030, and pay consistent dividends as well. And there aren’t too many assets you could confidently forecast that for.

Role Models

I've always felt that one of the best ways to approach any endeavor is the choose a role model. Then you don't exactly copy them, but you can let them inspire you. You can figure out what they were getting right, and try and do the same things.

When I started out on the Death Force series, I was planning to use Alistair MacLean as my role model. I used to love his books as a boy. They were robust, manly tales, full of exciting adventures, and not too many girls to slows things down. And MacLean was, of course, a terrific writer, and someone who could spin a plot until you were dizzy.

I was assuming that MacLean was a largely forgotten figure. But it turns out he's having a bit of a revival. In The Observer this weekend, Geoff Dyer wrote a fantastic piece about the film 'Where Eagles Dare' (for which MacLean wrote both the script and the book). And, of course, he's right: it's a terrific slice of action film-making, with a riveting plot, and Richard Burton and Clint Eastwood are both right at the top of their game. It knocks Quentin Tarantino's recent limp attempt at a WWII movie straight out of the park.

Then, according to The Bookseller, Harper Collins are planning to re-issue MacLean's books. They've put quite a few out already, and are planning to re-isssue the rest of the backlist next year. Whcih is great. I won't have to scour second-hand bookshops, or order battered copies of the Amazon second-hand section, to remind myself how good they were.

Anyway, maybe being the new Alistair MacLean is not such an obscure ambition after all. That's if I can ever make my books nearly as good as his.

The Credit Card Crunch.

In my Money Week column this week, I've been writing about the looming credit card crunch, and why it is bound to end unhappily. Here's the piece....

Stand in the middle of any High Street in Britain this weekend, and you see hundred of people handing over small strips of plastic, and, in exchange, taking home bags full of toys, clothes, books, games, and all the other things they plan to give to their families on Christmas Day.
But then pause to think about a sobering statistic.
One in every ten of the pounds spent on all those credit cards won’t ever be paid back. It isn’t money in any meaningful sense of the word, just a kind of elaborate con trick.
The UK, in common with many other countries, is sleep-walking into a credit card crunch. Much of the country is still spending wildly on credit cards, living way beyond its means, and indulging in a fantasy prosperity, wilfully encouraged by irresponsible bankers.
Sometime soon, there will be a Dubai moment – a point where everyone realises that the whole edifice is built on sand, either the real or the metaphorical kind. When that happens, there will be a nasty hit to consumer spending, and a lot of red ink for the banks. And the flimsiness of the UK’s economic boom of the last decade will be painfully exposed.
Credit card debt is now a huge part of the British economy. It is no exaggeration to describe the last decade as one long exercise in bashing the plastic. In 1992, according to the Bank of England, the British were borrowing around £2.8 billion a month on credit cards. Now that is above £10 billion a month. It hit a peak in December 2008 – one last Christmas splurge before the credit crunch hit, perhaps – when we spent £12.1 billion of plastic money we didn’t really have.
Of course, credit cards are a way of paying for things as well as a way of borrowing money. At least a few of us pay off the balance every month. But the balance of credit card debt is still rising. The latest monthly statistics, published on Monday, showed a slight decline in overall consumer debt, but despite that, credit card debt outstanding still rose by £134 million. Overall, the amount of debt owed on British credit cards is now close on £60 billion.
We don’t know precisely how that will play out in a recession. In the last downturn, in the early 1990s, only about £10 billion was outstanding on credit cards, and defaults peaked at 4%, before dropping back to 2%. But, so far, the signs aren’t good. According to the ratings agency Moody’s the charge-off index – the technical term for bunging it on the card, then not paying the money back – hit an all time high of 11.8% in September. It has doubled since the first quarter of 2008. Nor does the agency reckon the outlook is very encouraging either. It warns that a splurge of Christmas spending may well trigger another spike in bad debts in the early part of the New Year. And the expected rise in unemployment – forecast to rise steadily through next year – will push even more people to the point where they can no longer make the payments on their cards. Don’t be surprised if the rate at which people are reneging on their debts ticks steadily up to 13% or 14% as 2010 progresses.
The conclusion is simple. Whilst the majority of people continue to keep their debts under control, a significant minority are clearly spending money they don’t have, and have no serious prospect of earning either.
The law makes it alarmingly easy to rack up debts, then walk away from them. When you credit card debts become unaffordable, simply declare yourself insolvent. Figures for the latest quarter show personal insolvencies up year-on-year by 28%, and now running at the highest level since records began in 1960.
If anyone thinks that situation is sustainable, they need to find a psychiatrist and fast. It is crazy, and the sooner people realise that they better.
So far, the banks have just about managed to get away with it, by passing the costs to the responsible customers. As interest rates have tumbled, the rates charged on credit cards have barely changed, pushing the margins up to 15% or more between what it cost the bank to access the money, and what they charge people for borrowing it.
That has allowed them to maintain their profits despite the hammering they are taking on bad loans. Barclaycard, for example, managed to increase its profits slightly this year, despite a doubling of bad debt charges.
The trouble is, that was a one-off. Sooner or later, the banks are going to be drowning in a sea of unpaid loans. They aren’t going to be able to keep passing the cost onto the rest of the customers in higher interest rate and higher charges. And the wholesale markets are going to take fright. Just like sub-prime mortgages, credit cards debts are bundled up and sold around the world. But who exactly is going to want to own British credit card debt, when one pound in ten doesn’t get re-paid, and you have no legal sanction against the debtor, nor any kind of asset you can call on?
At some point, this bubble is going to burst. Many credit card lenders will simply have to withdraw from the market – in much the same way the most of the self-cert, buy-to-let mortgage lenders have done. The rest will have to drastically curtail their lending, insisting on better credit records, and perhaps even demanding security for their loans.
That will be a big hit for the British economy. Right now, at least a billion a month of consumer spending is plastic money that is simply magic-ed out of thin air. Add to that the fact that one pound in every four the government spends is money that is similarly magic-ed from inside a computer at the Bank of England, and the extent to which the British economy exists in a twilight zone of pretend money becomes painfully clear. At some point it will disappear – and when it does, the results won’t be pretty.

Good Sex, Bad Sex....

Shucks, there's another award I didn't win. Jonathan Littell has collected the bad sex award handed out by the Literary Review. I really don't know how they can have ignored my efforts in 'Death Force'. "Orlena's body felt supple and warm next to him in the bed. Steve was cradling her in his arms, aware of the way their sweat was mingling. Her hair was lying across his chest, and he could feel his breath on his skin, and her nipples squeezed up next to him." I would have thought that stood a chance. Then again, when I read some of Littell's efforts, I suppose I have to concede defeat. "This sex was watching at me, spying on me, like a Gorgon's head," he writes. Cripes. That really is terrible.

For any writer, however, there is an interesting issue here. How do you write well about sex? I've always taken it as a given that a great thriller needs a great sex scene (unless it a police procedural, of course, in which case the hero will be a miserable Scottish bloke with a drink problem who no one would fancy). It is part of the mix of popular escapist fiction, which is what thrillers are all about.

But, of course, it is extraordinarily difficult to write well about sex. Elvis Costello, who's a big hero of mine, once remarked, in the course of taking his usual pot shots at the critics, that "writing about music was like dancing about architecture - it's a really stupid thing to want to do." And as usual the great man is onto something. Sex just doesn't lend itself to description. You either slip into soft porn cliches, in which case you end up coming across like 1970s edition of Penthouse. Or else you start getting ambitious, in which case you end up sounding absurd very quickly.

The key, I think is to keep it brief, and to make it integral to the story. But I'll return another day with the tips for a perfect sex scene. In the meantime, I'm still chuckling over Littell's efforts.

Did We Learn The Wrong Lessons From Japan?

More on bubbles. I've been writing about the collapse of the Nikkei 20 years ago for The Spectator. You can read it below. I can't help feeling the world took the wrong lessons from Japan. We keep being told we have to print more money, and raise government spending, so that we don't have a Japanese-style lost decade. But it hasn't worked for them. Anyway, here's the piece.

Twenty years ago this month, as we’ve been reminded by countless documentaries, the Berlin Wall was coming down. Eastern Europe was convulsed by a series of revolutions from which Communism never recovered. Yet, much further east, something else was happening which arguably has had just as profound an impact on how the global economy had developed since then. The rampant bull market in Japanese equities reached its final, frenzied peak.
For stock market historians, December 29th, 1989, will always be a key date. On that day, the benchmark Japanese index, the Nikkei 225, which includes companies such as Honda, Nissan and Sony, hit its all-time peak of 38,957.44, having quadrupled in value from 1985. When the markets re-opened for the first trading day of the 1990s, the index started falling. And falling, and falling, and falling.
And, give or take a few blips, it has been falling relentlessly ever since. Over the next two and half years, the Nikkei fell by 63%. By that was far from the end of it. In March this year, amid global financial panic, the Nikkei touched a fresh low of just over 7,000, more than 80% down in the peak. Even today, as the anniversary nears, it has managed only to claw its way back to 9,500, a quarter of its level two decades ago.
Nor is it just stocks. In the 1980s, the Japanese property market went even crazier, reaching levels that might even make a salesman from Foxtons blush. That market carried on rising even as stocks started to collapse: in 1991, an alarming calculation found that the value of Japan's land was about $18 trillion, or four times the value of all the land in the United States (even though Japan is only about the size of California). Since then, Japanese property prices have plunged as calamitously as stocks, and today remain about 60% below their 1991 levels.
It was, and remains, the Mount Everest of bear markets. And it is an event that dominates the thinking of both investors and policy-makers the world over.
Like all bubbles, there was of course some substance to the Japanese boom of the 1980s. The country was on a roll. Its car and electronics manufacturers were flattening the old, bloated giants of American and European industry. Take just about any product you can think of, and the Japanese version was more reliable, better designed, and cheaper as well. Management theorists flocked to witness its lean, flawless factories: futurologists predicted that pretty soon we would all be wearing kimonos and eating sushi.
The trouble was, like every bubble, it took the kernel of a truth, and stretched it to absurdity. Land in Japan might be short supply, but there wasn’t that little of it. There was a limit to how many Sony Walkmans we wanted to buy, no matter how good they were. And in a free market, the European and American car manufacturers were always going to smarten up their act to compete with the likes of Toyota. The bubble was always going to pop one day. What no one quite foresaw was how spectacularly it would burst, or with such calamitous consequences.
Twenty years later, what are the implications of that crash? For investors, there are plenty, even if the lessons are nearly all dismal ones.
The Nikkei crash blows just about every investment cliché out of the water. Buy and hold? Well, you wouldn’t want to have bought and held this market. Buy after the crash? Well, not really. If you bought the Nikkei in 1992 or 1993, you’d still be out of pocket. Stocks always perform in the long-term? Wrong again. Maybe the Nikkei will recover one day, but it’s likely to be your grandchildren who see it back at 40,000. Maybe even your great grand-children.
More significant, however, might be the influence of the Nikkei crash on policy-makers. We hear a lot about how central bankers are trying to avoid the mistakes of the 1930s. But so much has changed since before WWII, few lessons from that era are really very relevant to today’s world. What central bankers are really trying to do is avoid the mistakes of the Bank of Japan in the 1990s.
Initially, Japan’s monetary authorities didn’t reckon they had much to worry about. Sure, stocks were down, but they looked pricy anyway. The Japanese carried on raising interest rates until August 1990, long after the Nikkei collapsed. It was only once it became clear that growth, which was averaging around 5% annually in the 1980s, had evaporated, that they started to take action. Interest rates were cut, dropping from 6% in 1991, to 1.75% in 1993. And the government started to pump money into the economy: a budget surplus of 1.3% of GDP in 1990 became a deficit of 5% by 1995.
The trouble was, none of it seemed to work. The Japanese economy spluttered a bit every time it was stimulated, then stalled again. As the slump stretched into this decade, the Bank of Japan tried something new. Because it couldn’t cut interest rates anymore, it started printing money, or what was called ‘quantitative easing’. In effect, Japan’s response to the Nikkei’s collapse has been an economic laboratory for how the rest of the world should cope with the financial shocks of the last year. All we’re doing now is what they did a few years ago. There’s only one snag: none of the prescriptions really seemed to work.
For the world’s leading central bankers, the lesson has been that Japan didn’t act quickly enough or aggressively enough. Monetary and fiscal policy “should have become even more aggressive in an effort to prevent a deflationary slump,” argued a key paper on the Japanese experience published by the US Federal Reserve. And that has been the intellectual rationale for the speed and aggression with which the Fed, and the Bank of England, along with other central banks, have both cut rates and printed money in the past year.
But there is an alternative explanation. Just as plausibly, the Japanese propped up the banking system too long: its half-dead, zombie banks acted as a drag on the economy. They allowed too many bankrupt companies to stagger into a financial twilight zone. And they ran up so much government debt that they crowded out the private sector, and left the country fundamentally insolvent. And whilst they printed money like crazy, that just fuelled bubbles in other countries – as hedge funds and other borrowed cheap yen – while Japan stagnated. All they achieved was to turn a short nasty slump, into a long, catastrophic one.
Rather worryingly, we are doing very similar things. Our banks are propped up with billions, but still refuse to lend. And we’ve become even more indebted: in the three years after the Japanese bust, public debt rose by 140%, but ours is already up by 170% since 2007, including the cost of bank bail-outs. And whilst we’re printing money, all that seems to do is create asset bubbles elsewhere.
Central bankers and policy-makers in both the UK and US think they have learned the lessons of the Nikkei’s collapse, and the two decades of economic stagnation that followed. They are determined to avoid Japan’s mistakes. But it is equally possible they are just repeating them – except on an accelerated timetable. In which case, rather disappointingly, sometime around 2030 we’ll be looking back and wondering how the slump that followed the credit crunch managed to last two whole decades.

How to Spot A Bubble....

It seem obvious to just about everyone that we are in the middle of another asset bubble. I've been exploring that in my Money Week column this week. Here's a taster.

A year into the greatest downturn since the great depression of the 1930s, there is still no real consensus on what caused the sudden collapse in the financial system. Greedy bankers? Lax regulations? Global imbalances? You can take your pick from an intellectual buffet table laden down with different theories.
But one thing seems to unite just about every shade of opinion.
In the years running up to the credit crunch, the US Federal Reserve, along with other central banks, ran far too loose a monetary policy. They kept interest rates too low for too long, inflating asset bubbles in everything from houses, to credit derivatives, to fine art.
Everyone, that is, except probably the most important figure in the global financial system, the Fed chairman Ben Bernanke.
In a speech earlier this month, Bernanke re-trod the same intellectual ground as his predecessor, Alan Greenspan. You can’t spot bubbles, and even if you could, you can’t do very much about them.
The trouble is, if we can’t learn from the mistakes of the past, then we will just keep repeating then. The reality is, you can spot a bubble, and you can do something about. And only by doing so can you start to put the global financial system in better shape.
Reading Bernanke’s remarks to an audience in New York earlier this month, it was impossible not to be transported straight back to the Greenspan era. “It is inherently extraordinarily difficult to know whether an asset’s price is in line with its fundamental value,” he said. “It’s not obvious to me in any case that there’s any large misalignments currently in the U.S. financial system.” The best approach he argued was to regulate the financial players in the markets properly “and to make sure the system is resilient in case an asset-price bubble bursts in the future.”
It was very reminiscent of the argument of his predecessor, all through the dot com era, and the property and credit bubble that followed it, that it was not the job of central bankers to go around spotting bubbles. Nor was it their job to prick them. All they should try and do was clear up the mess afterwards. With varying shades of enthusiasm, that argument was followed by central bankers the world over. Our own Mervyn King, the Governor of the Bank of England, fretted publicly about the level of house prices in the run up to the crash. But he never actually raised interest rates to stop prices rising further. Was property a bubble or not? Too hard to tell, decided the Governor.
In fairness, there is an intellectual case to be made for that argument. In a free market, it’s hard to tell the difference between a bubble, and a shift in prices.
So, for example, if the price of oil doubles, that might be a bubble. Then again, it might be a rational response to a shift in supply and demand. If the world really is running out of oil, it makes sense for the price to soar: in response, we’ll find ways of using less of the stuff, and the exploration companies will invest more money finding new sources of supply.
It is not a bubble – it’s just prices changing. In a free market, that happens all the time. Try and stop it, and the market won’t work anymore.
On top, of that, it isn’t obvious that we’re in a bubble right now. Bernanke referred to the 63% rise in US stocks since the depths of the crisis last March. That was just getting back to normal prices, he argued. And he has a point. At a cyclically adjusted PE ratio of 20, US stocks aren’t cheap – but they are well below the PE ratio of 44 they hit at the peak of the dot com boom.
That said, there are clear signals that what the financial markets are experiencing right now is indeed a bubble -- and one caused by record low interest rates, and central banks printing money like crazy.
It might not be evident in stock prices – yet. But there are plenty of signs elsewhere.
Commodity prices are soaring, even as industrial production remains subdued. Take aluminium, for example. Its price is up by 33% so far this year, even though there is enough of the stuff sitting in warehouses to build 69,000 Boeing jumbo jets. How can you explain that, except that there is too much speculative money flowing into the system?
Bankers are paying themselves huge bonuses. There isn’t much sign of a pick-up in basic lending, or the profitability of past loans, but they are minting a fortune from their trading operations. Even hedge fund launches are picking up once more. Again, sure signs of a frothy financial system.
The carry trade – borrowing in a cheap currency and investing in an expensive one – is booming just as it did for much of the noughties. Last time around, firms borrowed in yen, and invested in the US or UK. Now they borrow in pounds or dollars, and investing in emerging markets. The result is the same – asset prices soaring on the back of borrowed money.
Even luxury, trophy assets are fetching record prices – another certain sign there is a lot of hot cash swilling around the system.
The real issue is not whether we are in a bubble right now. There are arguments on either side of that question. The point is whether central bankers – in both the US and Europe -- are prepared to look for bubbles and try and stop them. It isn’t enough to argue that central banks should just wait until a bubble has burst before they deal with it. They tried that last time around – and the results were hardly encouraging. The bubble had grown so enormous that it could not be unwound easily. As it burst it plunged the world into a recession that may take a generation or more to recover from.
True, spotting bubbles is difficult. Deflating them is hard work. But that is no excuse for not trying. And if the world’s central bankers haven’t grasped that yet there isn’t much hope of avoiding another crisis a few years down the line.

Electioneering Over The Economy

There is yet more electioneering over the economy today. But as I point out in my coilumn for Money Week this week, that is the last thing the UK economy needs...

It is now almost two years since the credit crunch stuck, more than a year since Lehman Brothers collapsed, and almost twelve months since the British economy plunged off a cliff, sinking into the deepest recession since records began. And yet to listen to the political debate you’d think nothing much had changed.
During conference season, the Prime Minister Gordon Brown reeled off a whole new list of spending commitments. In the weeks since, not a single tough decision has been announced on spending. Indeed, as Money Week went to press, the Queen’s Speech looked set to unveil yet more public spending.
Unfortunately, that is a foretaste of what is in store for the next six months – populist, pointless electioneering that just postpones the task of rebuilding the British economy.
And yet, the economy is still stuck in recession whilst the rest of the world recovers. Its budget deficit is spinning out of control, and a single word from the ratings agencies could still be the cue for the bail-out from the IMF. Rather than tackling the problems, the political class is still just scoring cheap points of one anther. The longer the UK delays tackling the real problems with its economy, the worse and worse it will get – and the more painful the eventual treatment.
In the past year, there has been no sign of the government facing up to the challenging economic circumstances the country now faces. Instead, we get some populist banker-bashing, such as the latest promise to tear up contracts the government doesn’t like.
None of it comes close to the debate the country needs. Britain needs to re-think its dependence on financial services. And it needs to come up with ways of regulating banks that stops them from holding the country to ransom. But futile measures to micro-manage contracts – which will be impossible to implement anyway - are just a way of avoiding the real debate.
As for yet more spending, there has so far been no recognition that the government is already spending wildly more than it can afford. For the last decade, British politics has been largely about bribing the voters with their own money. Now, it is about bribing the voters with printed money. One in every four pounds spent by the government is borrowed, and since the main purchaser of government debt is the Bank of England using money magically created in its computers, that really is the economics of the Weimar Republic.
Regrettably, the opposition isn’t much better. The Conservative Party might have a better idea of the tough economic medicine that is going to be needed. But it is still too nervous of the electoral consequences to spell out the pain ahead. It has gone along with the increase in the top rate of tax to 50%, even as it becomes painfully clear that it is fast driving entrepreneurs and companies out of the country.
We can expect much more of this in the six months or so until the election is finally called. Gordon Brown’s government will carry on spending money as if the stuff was going out of fashion (which, as quick glance at the gold price will tell you, it already is). Pre-election bribes will be frittered around the place. There will be lots of talk about making tough choices on the budget. Yet don’t expect any of them actually to be made. The opposition parties will be just as bad. They are too nervous to talk about real cuts, for fear of alienating the voters. Instead, they will offer a few headline-grabbing reductions in spending – scrapping the Trident missiles system, or reducing the number of MPs.
And yet Britain remains firmly stuck at the bottom of the global growth league, despite a thirty percent devaluation in the pound, massive government spending, and a central bank that has printed more money than any other in the world.
The stimulus might just about prevent the economy collapsing into a full-blown depression – although only at the cost of storing massive debts for future generations, and weakening the currency. But it is now clear that it is not going to restore the UK to a decent level of growth. The best the UK can hope for under current policies is to repeat the experience of France over the last decade – a state-dominated economy, incapable of growing by much more than 1% a year, and so unable to create enough jobs to maintain its prosperity.
In reality, the UK needs massive structural reform.
It needs to bring its tax rates down to competitive levels. The UK doesn’t have great infrastructure, or skill levels, nor, apart from finance, is it dominant in many industries. It can’t compete when it has the highest personal tax levels in Europe. The only way it can start re-building its economy is by cutting taxes to levels that will draw in a new wave of foreign investors, and encourage a new generation of entrepreneurs.
The budget deficit needs to be slashed. Even if you blieve the markets will fund a budget deficit of 12% or more of GDP (and there remains a big question mark over that), don’t forget that counties with big debts don’t grow. Look at Japan and Italy – the two most indebted countries in the world, and the slowest growing as well. Big budget deficits crowd out investment from the private sector: and yet it is only private sector investment that will restore growth.
Finally, it needs to stop printing money, and make sterling competitive again. There is no evidence to suggest that devaluation is stimulating exports. The UK does best when sterling is strong, not the reverse. What Britain needs to do is get the savings ratio back up, and get investment flowing into business – and you can’t do that when you are trashing the currency.
It is a tough programme. But, in the medium term, it is the only one that will work. And the longer it is put off, the harsher the medicine will have to be when it is eventually delivered.

When Will RBS Be Put Out of It's Misery.....

I wonder how long it will be before people start wondering how long it is worth propping up RBS with state-spending. In my Money Week column this week, I've been addressing that.

In 1977, the Labour Government of James Callaghan created a new state-owned company, which, even by the unfortunate standards of Britain’s nationalised companies was to prove grimly useless. British Shipbuilder grouped together the old Scottish shipyards of the Govan, some of the mightiest in the world in their heyday, put them together with the equally historic yards of the North-East, and embarked on a doomed attempt to salvage an industry in terminal decline through state control and massive subsidy.
Fast-forward thirty years and another once great Scottish industry has just been taken into state-ownership. Royal Bank of Scotland launches bond issues rather than ocean liners. But its ultimate fate is unlikely to be any happier.
In truth, the extra £25 billion the British taxpayer has just pumped into RBS is no more likely to revive the company than the millions poured into those Govan shipyards a generation ago. It would be better for everyone – and cheaper as well – to place the bank into administration today.
Better that than turning RBS into the Govan shipyards of the 2010s, a fate that looks inevitable if it stays on its current path.
Under the management of its little-lamented chief executive, Sir Fred Goodwin, RBS expanded furiously, becoming the fifth largest bank in the world. It was an impressive achievement for what, less than a generation ago, was little more than a regional British bank. But the credit crunch exposed the expansion as largely illusory. Puffed up by cheap money, RBS rode the credit boom with gusto, paying little attention to basic banking good-sense – such as whether its funding was secure, or whether it’s customers were ever likely to pay back the money they had borrowed. The credit crunch found the bank cruelly exposed: of the world’s top ten banks, it was, without question, the one that was always most likely to fail.
A year ago, in the midst of the financial panic created by the collapse of Lehman Brothers, it made sense to rescue RBS. If the government hadn’t stepped in, the bank might have closed within hours. Accounts would have been frozen, and ATMs stopped working. That would have created pandemonium. The risk wasn’t worth taking.
Yet last week, the government rescued RBS all over again, giving the bank another £25 billion, and taking its stake up to 84%. There is a big difference between rescuing a bank in the middle of a panic, and investing vast sums of money once the immediate crisis has passed. RBS has now received more bail-out cash than any other bank in the world. It is now a business beyond salvation.
Just take a look at its latest set of figures. Other banks have seen a sharp recovery in their profitability: both HSBC and Barclays reported decent figures this week. But RBS is still bleeding red ink. It lost £3.3 billion in the third quarter after making huge provisions for bad loans and credit-market write-downs. That might not be so bad if the bank was making an operating profit – after all, all banks suffer from bad loans in a recession. But RBS reported an operating loss of £1.5 billion for the quarter.
Another £282 billion in risky assets are currently insured by the government. How much more bad news is there still to come? No one really knows. But at its peak, RBS had a balance sheet of £2.2 trillion, or around one and half times the U.K.’s entire GDP. The potential losses are still horrifying.
But it is not the immediate results that are worrying so much as the five to ten year outlook. It is impossible to feel confident about the future of RBS.
It is a financial conglomerate that was assembled with little rhyme or reason. RBS went around buying up banks that, right now, you’d rather not own. It is strong, of course, in Scotland, and Northern Ireland, via its Ulster Bank subsidiary. But both economies are dependent on government spending and are going to suffer terribly once the taps get turned off. Indeed, Ulster Bank has already consumed vast amounts of extra capital: more than two billion euros have been pumped into the unit this year alone. Its Citizens Bank unit in the US has been making heavy losses. The ABN Amro business acquired with Fortis and Santander looks to have been a turkey. In short, RBS has paid a lot of money for subsidiaries that are now going to cost even more to keep afloat.
Nor do the prospects for its investment bank look good. It made money in the boom leveraging up RBS’s massive balance sheet. It can’t do that anymore. With the government insisting on tight controls on bonuses, it is hard to see how it can hang onto the traders and deal-makers needed to make that business work. It will be left with the people the rival banks don’t want, a certain recipe for decline.
Even worse, RBS now looks set to fall under political control. It will be guided not by commercial decisions about what suits its skills and its shareholder. Only tomorrow’s sound-bites will matter. Don’t be surprised in the next few years to find RBS propping up companies in marginal constituencies – regardless of whether the loans will ever be paid back.
The lesson of the Govan shipyards, along with a whole raft of failing companies that were nationalised in the 1970s, is that once a business is taken over by the government, it usually goes downhill fast. Rolls-Royce, the aero-engine manufacturer, was rescued by the government, and prospered in the long-term. But that is just about the only example. It is possible – although not likely – that Lloyds will repeat the trick. RBS certainly won’t.
It would be far better to place the bank into administration this week. Let the administrators sell off each part for the best possible price, then slowly wind down the rest. There need be no panic, and no crisis. The parts of the business that have a future could be found a better home. The rest could be quietly put to rest. Instead, the British taxpayer has just stepped blindly into an open-ended commitment to a failing financial conglomerate. It is hard to see that ending happily.

Annoying Things People Say To Writers...

Over on the Curzon Group blog, I've kicked off a series about the annoying things people say to writers. But here it is....

Tom's splendid post yesterday about film rights has prompted me to think some more about the slim volume I'm planning to write one day called 'Annoying Things People Say To Writers'. One of the hazards of this job is that people have no idea how it really works, but of course they think they do.

The result? If you mention that you are a writer at a dinner party, they make really irritating remarks. Such as....

1. 'All you need to do now is sell the film rights'.

What am I meant to say to that? Oh, yeah, thanks, I'd never thought of that. But I'll get it sorted on Monday morning. Thanks for the idea.

2. 'I've been meaning to write a book when I get the time'.

Listen, if I meet a dentist, I don't say, 'Oh, I've been meaning to do some root canal work, I just never get a minute.' Or if I meet an airline pilot, I wouldn't say, 'Oh, I'll take an A330 for a spin when I've got a day off.' I recognise that those jobs require years of dedicatd training and practise. And yet everyone seems to think they could knock off a novel, easy-peasy, if only they could find a spare minute. It is more than a little rude to suggest that what we do is so simple anyone could do it in a few dull weekends.

3. 'Can I have the name of your agent'.

Why do people imagine we want to give out the contact details of our agents to everyone we meet? They can look it up for themselves. I've just given up on this one, and I now hand out my agent's details automatically to everyone I meet. At my wife's parents house in Cardiff a little while ago, I met this 90-year old lady who used to live next door to my wife when she was small. Turns out she's been working on a historical romantic epic of several hundred pages. I humbly gave her my agent's details. I bet he was pleased to get that one.

4. 'I looked in Smith's and they didn't have your book. I just thought you'd like to speak to your publisher about that.'

Listen, an author is psychologically incapable of walking past a bookshop without going inside to check if they have his book, and, if so, how many copies. Even Dan Brown does it - I've seen him, moving the display bin a bit further to the front of Waterstone's. Trust me, if they haven't got my book in stock, I already know -- all you are doing is rubbing it in.

This one will be continued next time someone says something really irritating to me -- which won't be long I'm sure

Lay Off The Tax Havens

Everyone keeps attacking the tax havens. But there is very little evidence to suggest they played any role in the credit crunch, as I explain in my Money Week column this week. Here's a taster....

Which countries were most responsible for the financial crisis that engulfed the world last year? If you’ve been following the political debate over the last few months, you’d be forgiven for thinking it was a handful of secretive tax havens such as the Cayman Islands, Jersey, Switzerland or Monaco.
Everyone from President Obama to Nicolas Sarkozy of France to our own Prime Minister Gordon Brown has been queuing up to denounce the thriving offshore industry. Every G20 summit comes with a ritual denunciation of banking secrecy, and a fresh pledge to force open accounts. The suggestion is made that the huge fiscal deficits now being run up around the world could be plugged by clamping down on tax lost via offshore financial centres. Bullying tactics have been adopted against small countries to force them to change their laws in ways that suits their bigger and more powerful neighbours.
And yet two reports published in the last week showed that just about all the accusations hurled so furiously against the tax havens are just plain wrong. The British Treasury asked the accountants Deloitte to look into how much tax is lost through offshore loopholes. The answer? Not very much. Meanwhile, the left-wing Tax Justice Network, which campaigns ferociously against tax havens, has just published a report on the most secretive, un-cooperative financial centres in the world. The winner? Delaware, in the United States, closely followed by the City of London.
In truth, the attacks on tax havens are led by politicians guilty of presiding over precisely the system of secrecy they criticise elsewhere. What they are really frightened off is the way the havens provide an alternative to their own high-tax, big-spending policies.
It is certainly hard to escape the verbal hand grenades lobbed at the tax havens by the world’s leaders. In the US, Obama has launched a fierce crack-down on American companies using offshore subsidiaries for tax planning, pledging to raise tens of billions in extra revenue to plug his budget deficit. The Swiss banks have been forced to hand over the details of thousands of account holders. The French President promised to ‘put the morality back into capitalism’ by clamping down on the industry. The Germans have been bullying Lichtenstein into handing over details of account holders, whilst our own Gordon Brown promised “action against regulatory and tax havens in parts of the world which have escaped the regulatory attention they need.”
But how much tax is actually lost through the havens? And how secretive are they really? As it turns out, not nearly as much as people think.
The UK has always been in odd position on tax havens, because many of them – Jersey, the Isle of Man, Bermuda – are British crown dependencies. The Treasury has just published a report from Deloitte on their impact on the world financial system. The results were not quite what you might expect.
Written by Sir Michael Foot, a former director of the Bank of England, the report estimated that the amount of tax lost to the British government as a result of companies routing transactions through tax havens was less than £2 billon, far less than previous estimates suggested. In a country where the budget deficit looks set to breach the £200 billion barrier, that is little more than a rounding error – less than one percent of the shortfall in government revenues.
In exchange, the British banking system benefits from its relationship with the dependencies. They are used by the British banks to gather funds from around the world, which are then used to bolster the banks headquartered in London. So, for example, in a single quarter this year the dependencies provided almost £200 billion in net funds to the British banks. If the world was really to clamp down on tax havens the way Brown promises, the UK would be a net loser. It would collect only a tiny bit more tax. Against that, it would lose even more as the British banking system became less profitable – and so paid less corporation tax.
Nor does the secrecy charge have the weight you might imagine.
The Tax Justice Network’s ranking of the most secretive financial centres makes for surprising reading. Right at the very top of the list is Delaware, the US state routinely used by American corporations as their place of incorporation because of its pro-business legislation. Britain came in at fifth place, whilst Belgium and Ireland also featured in the top ten. Jersey didn’t make the top ten, nor Liechtenstein. Monaco was right down at the bottom of the list, ranking as one of the most open financial centres.
When you examine the evidence, it turns out the tax havens aren’t costing much in the way of lost tax. Nor are they particularly secretive.
There should be nothing in that, of course, to surprise anyone who actually knows how the financial system works.
In reality, the offshore centres are doing two things, both of them perfectly legitimate.
Fiscal systems around the world have become progressively more and more complex as governments attempt to squeeze impossible high amounts of tax out of the system. It is hardly a surprise that in an increasingly globalised world, companies choose to route their business through centres where taxes are simple, low and straightforward.
And they provide an alternative for people who object to paying the high rates of tax that governments in most of the developed world impose. People may or may not approve of that: but in a free world, it is surely an individual’s right to base themselves somewhere where half their income won’t be confiscated from them every year if that is what they want to do.
If they were really serious about cracking down on tax havens, Obama would be dealing with Delaware, and Brown would be hammering the City. And they would be a lot more honest about how their own policies have helped fuel their growth.
But then it is easier to launch attacks against scapegoats. And if they didn’t pretend they could raise more tax by plugging loop holes, they might have to start telling people how they planned to fix their deficits.

Ghosting for Slebs,,,,

Lynda La Plante created a stir at the recent Specsavers Crime & Thriller Awards with an attack on 'celebrity' fiction by the likes of Katie Price, Martine McCutcheon, and soon, heaven help us, Cheryl Cole.

She chewed up the assembled publishers for spending their money on 'drivel' rather than supporting real authors. "The publishing industry is going to implode. They can't pay the millions to these celebrities," she complained.

In the Telegraph, Nigel Farndale wrote a perceptive piece about her attack, arguing that ghost-writed rubbish for Slebs was as likely to put off young people from reading as encouraging them. And Martin Amis is planning to make Price a character in his next novel (I'm looking forward to that).

One point that people miss however is that ghost-writing is far more common than people realise. And the readers are, essentially, getting ripped off.

In fairness, someone like Katie Price makes no pretence of writing her books. The ghost gets credit, and is well-known.

But, as someone who did a fair bit of ghost-writing before writing 'Death Force', I am well aware that is far more widespread than most people realise. Quite a few of the thrillers on the best-sellers list are ghosted by 'authors' who actually claim to the writers of the books.

That strikes me, looking back on the experience, as far more deceitful.

There is no question that the books are a lot worse than the writer could do if they were working under their own name. The first couple of books I ghosted I took quite a lot of care over. But after doing it for a about five years, I was just churning them out fairly cynically for the money. The 'author' couldn't be bothered with the book, nor could the editor, and, after a while, nor could I. The plots were full of holes, the characters weird, and the typos horrendous: in one of them, even the dedication was mis-spelt, although I was probably the only person who noticed.

So people are gettting a sub-standard, slap-dash book, that no one really cares about.

And it is very hard to see how anyone really benefits from that.

With another hat on, I spend a fair bit of time as a business journalist.

And one thing you notice that really distinguishes good businesses from bad ones is that the they care about making a decent product.

The publishers putting out sleb fiction seem to have forgotten that. I suspect at some point they will pay a fairly heavy price.

How To Break Up The British Banks...

In my Money Week column this week, I've been looking at how to break-up the British banks. Here's a taster....

Perhaps in preparation for the way they will have to work together after the general election, the Governor of the Bank of England Mervyn King and the Shadow Chancellor George Osborne have already formed quite a double act.
Like a pair of street fighters delivering blows to their chosen prey in quick succession, in the last week they have delivered blistering attacks on the way the British banks have been bailed out by the taxpayer – without, it seems, any kind of reform of the way they work in exchange. Both in different ways are looking towards some kind of separation of retail from investment banking.
That is a big improvement on the current Government. Despite the Prime Ministers Gordon Brown’s boats of leading the world on financial reform, he hasn’t proposed a single significant change in the way the system works. After the biggest run of banking collapses in a century or more, that is, to say the least, eccentric. After all, if the implosion of Royal Bank of Scotland, Lloyds-HBOS, Northern Rock, and the rest of them, didn’t suggest to you the system might need a bit of a tweak, it is hard to imagine what might.
A year after the credit crunch, and with the country still piling up massive debts on behalf of its bailed-out banking system, it is clear that the way we regulated our financial sector has to be reformed. The U.K. can’t go back to hosting international banks of the scale of RBS. The interesting questions are how, how fast – and whether either King or Osborne will feel comfortable with the logical conclusions of the positions they are staking out.
Because what they are really suggesting in a system in which the City just plays host to the global capital markets, whilst the British banks get broken up –meaning the two giants of the sector, HSBC and Barclays, either split themselves up, or else leave the country.
Of the two men, King has pushed the argument hardest. In a speech last week, he described the way the banking system had returned to profitability on the back of government bail-outs as “creating possibly the biggest moral hazard in history.” It was fanciful, he argued, to imagine that the regulators could possibly control the sector: the bankers were too clever and too fast. The only long-term solution was to break up the banks into regulated deposit-takers that took few risks, and risk-taking investment banks, which could be allowed to go to the wall when they got things wrong.
Osborne doesn’t go as far as that – yet. In a speech on Monday, the Shadow Chancellor called for controls on bonuses at the retail banks. He argued that they should be forced to pay more of their bonuses in shares. What was really interesting, however, was his distinction between the retail and the investment banks, and the suggestion there should be different regulatory regimes for them. In truth, both men are sketching out a future in which the UK decides it isn’t really sensible to host big global banks.
As the Swiss have also realised, hosting global banks is just too risky for small or medium-sized countries. Both Britain and Switzerland avoided the fate of Iceland – a country bankrupted by the recklessness of its bankers. But it was a close run thing (and Britain is not out of the woods yet). Neither country wants to repeat the experience. The liabilities of a huge global bank such as RBS or Credit Suisse can dwarf those of the host country – and yet it is that country that ends up having to foot the bill if things go wrong.
So what should the UK do? The answer, in fact, is pretty clear.
The City should be nurtured as one of the world’s leading financial centres. There is no need to worry about the risks taken by the likes of Goldman Sachs, Nomura, UBS or Deutsche Bank. If they make money trading in London, the British government will collect a slice of the winnings in corporation tax. If they go pop, it is their governments back home that will have to pick up the bill. The bigger and brasher the City gets, the better: it means more tax revenue for the UK: and more business for the estate agents, shops, and restaurants that feed off the City’s money.
The British banks, however, are a different matter. They need to be broken up.
There can be little excuse for creating another monster on the scale of RBS. The smaller banks such as Northern Rock could easily be re-mutualised by handing shares over to mortgage and account holders, perhaps with a proviso that they couldn’t reverse the process for fifty years. The UK needs more diverse types of banks – and some big new mutuals would be a good start.
Lloyds-HBOS looks intent on returning to the private sector by raising cash from its shareholders to replace the Government’s stake. But it was a mistake to allow a single bank to control more than 30% of the market. It should be split into its separate parts, preventing a single dominant bank emerging. RBS looks in no state to be privatised soon. It should be forced to sell the profitable units of its investment bank, whilst the retail bank should be split into NatWest and Royal Bank, then privatised.
The tougher choice is for HSBC and Barclays, the two giants of the UK financial industry. Both are hugely successful global banks, with both retail and investment divisions. Neither needed state aid. To expect them to sell their investment banking units, or to sacrifice the profits from wholesale banking, would be unfair. At the same time, the UK can’t risk being liable for their failure – think of the cost of bailing out HSBC. Instead, reluctantly, they should be encouraged to move elsewhere – the US or perhaps China.
What the UK needs is a smaller, more competitive financial sector – every part of which can fail if necessary without provoking a wider collapse. Anything else is just setting up a bigger, and potentially much worse, crisis for the future. Whether either King or Osborne really have the guts to push that through remains to be seen – but it is the inescapable logic of their arguments.

Is Crime Fiction Too Sadistic?

There's an interesting debate going on over at The Bookseller. The reviewer Jessica Mann was reported as saying she was giving up reviewing the genre because she was fed up with "outpourings of sadistic misogyny" that now characterises so many crime thrillers - although, in fairness, Jessica points out out later on that she is only giving up on those kinds of books, not the entire category.

Still, it's a debate worth having, and one that authors should take seriously. At some point in the last decade, the crime genre seems to have transformed itself into a 'serial killer' genre. A lot of the poster campaigns you see for books these days appear to be designed to be as gruesome as possible, and may well be putting off as many people from the genre as they attract.

I don't have anything against violence in books myself - and I don't suppose that someone who has written a book called 'Death Force' is in any position to complain about it. It has always been a big part of the crime and thriller genre, and there are good reasons for that. We are all fascinated by death. And, of course, it is only life and death situations that really create the necessary drama and tension that writers are seeking to create.

There are two problems, however.

Much of the crime genre appears to have slipped into a kind of torture porn. The crimes get more and more horrific, much of it dircted against women and children. I'm not convinced that is either healthy or wise.

Next, it isn't really very realistic either. Unless I've missed something, this country has hardly any serial killlers. The US has a few more, but not that many. At yet the bookshelves are groaning with serial killer stories. They aren't reflecting the world around them.

I wouldn't want to dictate what people should write about. But I can't help feeling that Mann is onto something when she complains that the genre is disappearing into a ghetto which, while it may do something for a minority of readres, alienates the mainstream audience.

Looming Inflation...

In Money Week this week I have been writing about how the soaring price of luxury goods is a sign of inflation on the horizon. Here's a taster....

Sixty thousand pounds, or 726,000 Hong Kong dollars, is a lot to spend on a bottle of wine, even if it is 1982 Chateau Petrus, and even if the bottle is question contained six litres rather than just one. Still, that was the price fetched at a recent Hong Kong auction, a record price for that wine.
And it was far from alone. Right around the world, the prices of rare, luxury and collectible items are starting to soar again. There is an interesting message in that for anyone trying to gage the state of the world economy – and what is likely to happen next to asset prices. Fearful of inflation, the rich are moving their money into the few assets that are likely to survive it. And they may well be right.
There are plenty of signs for of life returning to the market for luxury goods. A rare Ming dynasty Chenghua bowl sold this month for $4.7 million, whilst a large blue-and-white Qianlong moon flask went for $5.1 million. An 8.74-carat blue diamond just fetched $5.7 million, a record for a stone of that type. Classic cars are soaring in value: prices have risen by 60 percent since 2006, beating most other investments. In August, a 1938 Bugati sold for $1.3 million, and more than 15 classic cars have fetched more than $1m so far this year, according to figures compiled by the auctioneers Bonham’s.
Meanwhile, the prices of top-end London houses, a market now largely the exclusive preserve of the world’s super –rich, are starting to look lively once again. Prices in central London have now gone above their 2007 peak, according to the agents Rightmove. That upward surge is being led by buyers right at the very top end of the market, drawn in by the cheapness in the pound.
But just about anything with any kind of scarcity value or collect ability seems to be soaring in price right now. A clump of Elvis Presley’s hair, believed to have been shorn from the singer’s head he joined the Army in 1958, just sold for $15,000. Barbra Streisand just raised $600,000 for her charitable foundation by auctioning off memorabilia from her singing career. Even the art market has recovered its verve. After going through a bubble as intense as anything that the banking industry experienced it froze completely after Lehman Brothers collapsed, with sales down almost 80%, but has started recovering in the last few weeks.
So what is all that telling is about the state of the world economy?
What the rich are doing with their cash is always instructive. After all, they are clever with money: if they weren’t, they wouldn’t have been able to accumulate so much of the stuff in the first place.
There are three big signals in the way the luxury market is starting to boom again.
First, there is a lot of spare money splashing around the place (much of it in China, which is where the really fancy prices are being paid). In a world where people are paying a million dollars for an old car there has to be. The programmes of quantitative easing, or what used to be known as printing money, implemented by most of the world’s main central banks may not have done very much to boost bank lending or economic activity. But they have created a lot of spare cash that is now swirling around the financial system. The way the luxury market is now booming again tells us that most of that newly-minted money is likely to go into creating a series of mini-bubbles in asset prices – and very little of it is likely to go into reviving economies, saving jobs, or creating new industries.
Next, the rich foresee inflation. With interest rates at record lows, the stock markets recovering strongly, and the banking bonus system back to its old ways, it is not just that there is plenty of money around. Inflation is certain to be making a return as well. The gold price is one clue to that. But gold – whatever its armies of devoted fans will tell you – isn’t much of a hedge against inflation any more and hasn’t been for the last three decades. Real assets are the one really safe place to park cash that you fear will be eroded by rising prices. Your money in the bank may gradually lose its value. Your investments in gold may never respond to rising prices. But the bottles of fine wine in the cellar or the Chinese antiquities on display in the hallway will go up along with the general price level – and probably even faster. They are growing any more 1982 Bordeaux’s and they aren’t making any more Ming vases. Like farmland, they are one of the few investments where the supply is completely fixed: the only thing that varies is the demand. And those assets survive inflation.
Lastly, it tells us that the rich don’t have much faith in productive assets. They could be putting their money into new companies or venture funds seeding the industries of the future. Instead, they are bidding up the value of items whose only real worth is their scarcity value. The world is awash with idle factories. Real wages are stagnant in most of the developed world, and consumers are over-indebted. Share prices might be rising for now, but is going to be very hard for corporate earnings to keep pace with the expectations markets are now putting on them. The luxury boom is suggests that the rich don’t think there is much money to be made from stocks in the next few years, and don’t want to tie up too much of their cash in them.
Indeed, if you wanted to think of the perfect investment for a world characterised by rising inflation and low growth, you’d probably decide it was luxury, collectible items. The rich have already figured that out. They are almost certainly right – and heck, if they are wrong, they’ll still have some decent wine for the cellar, and some fine antiques to admire in the hallway.

Authors websites

I've just been getting the Matt Lynn website re-designed. Fire Force is out next February in hardback, then in paperback in May, and I wanted it to be re-done to reflect the fact there were now two books in the series to promote. And, of course, is has to be flexible enough to incorporate the two more books in the series that are scheduled for 2011 and 2012.

But it set me thinking to what author's websites should be trying to do.

I don't really share the general gloom about the books business. People have loved stories for thousands of years and aren't going to stop now. Unlike newspapers, which are in serious trouble because the internet has taken apart their whole way of delivering news, electronic books don't offer any real advantages over the traditional printed sort. But that doesn't mean we don't need to change.

The web is changing the relationships writers have with readers, and our websites need to reflect that.

We need to be a lot closer to our readers, and allow them to talk to us. We need to provide more details of the story, extra information such as research materials, background on the characters, maybe free short stories. We also need to unpeel what we are doing, so that readers can take a look at how the books gets put together, and comment or criticise if they want to.

What we don't want to do is just put up marketing blub, or expect people to download and read extracts. The web is all about conversations, not broadcasting.

So far my website is pretty standard. But over time I want to expand it and develop it, so that it fits in as part of whole experience of reading the Death Force books. Our websites will be the main way we get closer to our readers, and make them part of a community, and that is the way we'll stay in business.

The ITV Saga....

There are endless stories in the papers about the search for a new CEO at ITV. But there is very little questioning of whether it really needs a big name. I've been addressing that in my Money Week column this week....

ITV is providing more entertainment off-screen than it is on – and certainly more laughs. For the last few months, the broadcaster has been keeping the City amused with a search for a new chief executive and chairman that has more plot twists than Emmerdale, more failed auditions than the X-Factor – and now seems to have been running for longer than Coronation Street.
Last Monday, the broadcaster announced that John Cresswell, currently its chief operating officer, would become its interim chief executive, although he would leave as soon as someone was found to fill the job permanently.
At the same time, Michael Bishop, the founder of the British Midland airline, said that he wasn’t interested in becoming chairman of the company, as did Sir Crispin Davies, the widely respected former chairman of Reed-Elsevier.
The executive chairman, Michael Grade, has already said he will leave the company, and ITV has spent the last few months embarrassingly courting a series of high-profile successors. Tony Ball, the former boss of the BSkyB, was in the front-runner for a while, until his demands for a multi-million pound compensation package became too much for the board to stomach. Names such as Sir Christopher Gent, the former Vodafone boss, and Sir Christopher Bland, the former BT chairman, have been linked to the chairmanship.
And yet, for all the apparent chaos, ITV may well be doing the stock market a big favour. In the last decade, British companies, and the shareholders that at least nominally run them, have become enthralled to the myth of the heroic CEO. They have allowed themselves to be bamboozled into believing that a single person can make a huge impact on the future of the business, and that it is worth paying tens of millions to secure the right man or women.
What they may learn from the ITV debacle is that it doesn’t matter that much who you appoint as CEO. In most cases, it would be far better to make a competent internal appointment, pay them modestly, and let them get on with the job.
ITV certainly has more than its fair share of problems. It called the development of digital, multi-channel television wrong, and made a hash of its own attempts to get into pay-TV. What was once accurately described as a license to print money has been turned into permission to lose it. The cost of making the new dramas and sitcoms, and acquiring the rights to sporting events, that will pull in the viewers escalates all the time. But it no longer has a monopoly on television advertising, and a deep recession has hit the ad market hard, leaving ITV squeezed on all sides. In 2008, the company lost £2.5 billion.
Even so, it is a mistake to imagine that a single chief executive can sort that out overnight --- and it is mistake that too many big companies now routinely make.
Whenever a company gets into trouble, the cry goes up from shareholders, the bankers, and of course the media, for a new CEO to be drafted in. The head-hunters get to work, and a new boss is found, usually at vast expense – we’ve seen it as Sainsbury’s, at Marks & Spencer and at countless other companies. Indeed, we saw it last time around at ITV, when they drafted in Michael Grade from the BBC. It is one of the reasons why CEOs are now routinely so well paid – the average FTSE boss is now paid more than £5 million a year, and the FTSE boards in total cost more than £1 billion collectively every year.
And yet, they are very rarely worth the money. Most companies face a fairly constrained set of circumstances. Their immediate outlook is determined by the nature of the product they sell, the state of competition, and the state of the economy. All of those are a given: a new CEO can no more change them than he can change the weather. Very rarely is there some big strategic move that will suddenly transform its prospects. Nor is there some whizzy change of direction that can turn a failing organisation into a successful one. Indeed, the attempt will often do more harm than good. What most companies need is an intense concentration on detail, and the patience to develop new products and markets: you don’t get that from a big name looking to make an instant impact.
ITV is a prime example. Its business has been overtaken by technology, and the ferocity of the competition from Sky. There is, however, nothing much that can be done about that now. There is probably a good business in there somewhere, although it will be a smaller and less profitable one than the old business. You don’t need to spend £40 million on a new CEO to discover that – you’d be better off paying £1 million to a competent insider, and spending the rest of the money on a couple of decent dramas.
Pretending that there is some magic wand that can be waved is a useful move for the CEOs themselves. It allows them to justify their huge pay packets: after all, to collect superstar wages you have to be a star. It is good for the headhunting industry, allowing it to justify monstrous fees. And it is good for the media and the City, which can use the speculation to whip up some interest in the shares.
But it is very rarely good for the company itself. Examine it closely, and probably the only FTSE chief executive of the last decade who could be argued to have made a real difference to his company was Lord Browne at BP: he pulled off some big acquisitions when the oil price looked bombed out for a generation. Most of the rest could have been safely swapped with someone else without anyone apart from their secretaries really noticing.
In truth, of the £1 billion paid to FTSE boards every year, at least £900 million could more usefully be paid back to shareholders in higher dividends. They simply aren’t worth the money – and ITV may well be company that finally drives that point home to shareholders.

Generation Recession

In The Spectator today I've been writing about Generation Recession, looking at how the global downtown is going to impact on the age group between 18 and 23 whose opinions and views will be formed by the financial collapse. It's still too early to say, of course, but I suspect they'll be suspicious of markers, debt, and paticularly hacked off with all the debts left for them by the generations above them. I think its a big topic, and it will be interesting to see if other writers pick up on the debate.

Fact and Fiction

I was interested to read this story in the Telegraph this morning, about how well-financed the Taliban is from the opium trade in Afghanistan, because it touches on the plot of my thriller Death Force, which is about the attempt by some Army officers and mercenaries to make the Taliban a bit poorer by robbing their money.

But it also started me thinking about the lines between fact and fiction and how thriller writers should handle them.

One of the things that I've also liked about the genre is the way it draws on real-life, taking stories from the military, from science, from finance or from politics. Of all the fictional genres, it is the most 'newsy'. Indeed, the best thrillers give you the same sense of immediacy and being close to the action that you get from reading a newspaper.

But, of course, it also creates problems.

A newspaper or website is real-time. A book is on a two to four year time cycle. If I start thinking about a plot right now, it will take a year for me to write it, and another year for it to come out, then a few more months before it comes out in paperback. Then you hope it survives on the shelves for at least two or three years. So someone could be reading it five years after you thought about it, and it has to still seem bang up to date and relevant.

Right now, I'm writing the third in the 'Death Force' series. It's called 'Shadow Force' and involves the unit of mercenaries taking on the pirates in Somalia. I had a discussion with my editor at Headline about whether pirates would still be in the news in 2011 when the book comes out. I reckon they will be, and I talked to a few experts to find out. The pirates, I reckon, will be in and out of the news for years to come (and it would be great if they could take a really big boat the month the book comes out).

But, of course, I can't be sure of that. People might have lost interest by then.

It's really a matter of guesswork - and also trying to figure out what conflicts or stories will be topical for several years, and which are just transitory.

House Prices Won't Rescue The British Economy

In my Money Week column this week, I've been looking at house prices, and why they won't dig the British economy out of the hole it is in. Here's a taster....

Estate agents have a glint in their eyes again, the property sections are back in business, and even mortgage lending is picking itself up from the floor. The worst of the housing crash appears to be over.
And it is not just in Britain. The far larger, and far more important, US housing market has crawled out of the intensive care ward as well.
But does that mean the economy is about to recover as well?
Since it was the collapse in property prices around the world that plunged the financial system into chaos, and started the recession, it might seem reasonable to suppose that it will. The stock market certainly seems to think so. Every time the house price indexes tick up another point, equities rally on the news.
It’s reasonable, but wrong.
In truth, the property market isn’t going to be able to re-boot the global economy. It may have led the last boom upwards, but it won’t lead the next one. There is too much supply on the market, too little fresh demand, too many burnt fingers, and too little cheap financing available. Whatever leads the next boom, it won’t be property.
Still, that doesn’t mean the signs of recovery aren’t real.
Last week, the Nationwide Building Society reported that British house prices rose for the fifth month in a row. This week, Halifax reported a 1.6% monthly rise. Prices are now back to the same level they were a year ago, at the same time that the collapse of Lehman Brothers triggered a global panic. They aren’t quite back to their peak, but they aren’t too far off it.
Mortgage lending is steadily picking up, and, even if volumes are thin, properties are shifting. It may be a while before the TV schedules are packed out again with shows on how to make a quick million from tarting up a semi in Wrexham, but the market looks a lot healthier than it did six months ago. By historical standards, 2008/9 was not so much as crash as a slight correction.
Much the same is true in the US. American house prices notched up their biggest monthly gain in four year in July. They rose 1.6%, the third consecutive monthly rise. Of the 20 largest US cities, 18 reported price rises. With prices a third off their 2006 peak, it will take a long time to recover all the losses. Even so, the trend clearly looks to be upwards.
Of course, we can question how durable that recovery will prove. Interest rates remain exceptionally low. With base rates at less than 1%, most people can afford to at least pay the interest on their mortgage. When rates start getting back to normal, as they surely must at some point, then monthly mortgage bills will soar. A lot more people will be repossessed, pushing more properties onto the market at fire sale prices.
And, of course, we may well be only half way through a double-dip recession. There could well be plenty of economic pain ahead. None of that will be good for the housing market.
The more interesting question, however, is whether hosing markets can kick-start the global economy.
It will help.
The banking system is critically dependent on property prices. A property – either commercial or residential - is the collateral for most loans. As prices recover, the banking system will start to look a lot healthier, and that will strengthen the economy.
Consumers will be feeling more confident as well. As their houses are worth more, and particularly if they claw their way of negative equity, they will start spending more. There may not be a recovery in mortgage equity withdrawal. But there will be a tick-up in sentiment.
That said, it would be a big mistake to expect a house price recovery to spark another boom.
First, there is too much supply on the market. The decade-long bubble in property prices led to construction booms in the US, Spain, Ireland and to a lesser extent the UK. The Spanish coast is cluttered with new apartments and villas. Old industrial cities like Leeds and Newcastle are full of smart new blocks of flats, most of them empty. It will take a long time to clear all that surplus stock – and until that happens, prices aren’t going to rise much further.
There won’t be much fresh demand either. A big part of the housing boom was demographic change. As populations rose, and waves of immigrants moved into booming countries, demand soared. But in the next couple of decades, those trends go into reverse. Low birth rates mean static or falling populations. And migrants are not going to be moving to countries where stagnant economies are not creating many new jobs.
The financing isn’t going to be available either. Over the last decade, mortgage lenders gradually loosened their criteria for handing out loans. They decided not to worry too much about whether you had a job, or a deposit, or indeed showed much inclination to pay off your debts. Some of that was justified – there was never much point in excluding the self-employed from the mortgage market, for example. But it went too far. And it’s going to be a long-time before the 125%-self-cert loan is back on the market.
Lastly, there are too many burnt fingers. True, bankers and investors have notoriously short memories. But not that short. The bankers aren’t going to pile into mortgage lending again in a hurry. And home-owners will go back to thinking about their homes as a place to live, rather than an extension of their bank account. As a rough rule of thumb, it takes the financial markets about 20 years to forget everything – so it will be 2030 before we’ve erased all memory of the credit crunch, and the housing bubble that led into it.
The global economy will start booming again at some point. It always does. But it won’t be the housing market that re-boots it. And there is no point in looking at those indexes for signs of a global recovery.