Tuesday, 30 June 2009
A Great Review Of Death Force
There is a great review of 'Death Force' in the Lancashire Evening Post. "Lynn's superbly realistic thriller is one of those good old-fashioned adventure yarns that sets your heart thumping and your mind racing", it says. Great stuff....
Monday, 29 June 2009
Pirate trips...
According to this report, some Russian companies are offering pirate-hunting cruises. Given that the third book in the Death Force series is about pirates, maybe I should book myself a ticket.
The British Budget Deficit
In my Money Week column this week, I've been writing about the terrible state of British public finances. Here's a taster.
The battle lines for the next general election are already being drawn. Gordon Brown plans to fight on a platform of protecting public services from savage Tory cuts. We’ve already heard plenty about the nurses and policemen who’ll be fired if the Conservatives win power next year, and we’ll hear plenty about the teachers and care-workers who’ll be joining them in the next ten months.
Brown’s rhetoric is dishonest, as plenty of independent experts have already pointed out. The last budget pencilled in cuts of 7% in real terms to public spending for the years after 2011. The truth is, as anyone who wants to take a look at the figures can quickly work out, that whoever forms the next government will have to push through painful cuts.
The rhetoric, however, is potentially very dangerous. It is crowding out a sensible debate on how the vast budget deficit can be bought back under control. At some point, it is going to spook the currency markets, making a cut in Britain’s credit rating almost inevitable. And it may well provoke the Bank of England into raising interest rates sooner than it otherwise would.
This is more than just harmless political knock-about. It risks provoking a serious economic crisis.
No one can have missed the way the arguments over spending cuts have been ramped up in the past two weeks. You might think a government presiding over a budget deficit now expected to hit a massive 12% of GDP, the highest in the developed world, and the biggest the UK has run since it was engaged in the small matter of fighting World War II, would at least be willing to concede that spending had to be tightened up a bit.
Not at all. The Government insists that spending will carry on rising. In the House of Commons, Brown argued that capital spending would increase up to and including the 2112 Olympics, whilst Ed Balls, the schools secretary, has insisted spending on education can continue rising in real terms. There has so far not been a single admission by a senior government figure that spending will have to be cut in real terms, and in many cases, very savagely.
That is nonsense. Real Madrid might be able to carry on spending money as if the credit crunch had never happened. The British government won’t be able to. “We must live within our means,” argued the Chancellor Alistair Darling in his speech to the Mansion House. “There are tough choices ahead.”
There isn’t any sign of those ‘choices’ being made yet. In reality, the only decision facing any British government is whether it wants to get serious about the black hole in its finances now or after the election. Deficit spending on this scale – one in every four pounds the UK Government spends this year will be borrowed money, and it will be taking on additional debts of £14,000 for every family in the UK – simply isn’t possible.
Right now, the yah-boo rhetoric is crowding out any kind of serious debate about how that deficit can be bought under control. Countries can significantly reduce state spending without slashing services or tearing up welfare programmes. In Canada, for example, government spending as a percentage of GDP peaked at 53% in 1992, which is roughly where the UK will get to next year. It has now come down to 38% of GDP. Outstanding debt was cut to 32% of GDP in 2008 compared with 71% in 1995. At the same time, corporate taxes were cut back all the way to 15%, and little damage was done to the country’s traditional welfare and healthcare systems. Most of it was achieved by reducing state payrolls, and at the same time cutting business taxes, so the people laid off in the public sector cold move into jobs created in the public sector. There is no great miracle about it. But so far the UK is resisting learning any lessons about how other countries have curbed their deficits.
Worse, the currency markets are going to take fright. Ignore the recent rise in sterling. That is going to be reversed soon, and probably savagely. Standard & Poor’s has already cut its rating on the UK, putting it on ‘negative’ outlook. That is just the start. The ratings agencies have cut Japanese and Irish debt, and those countries are in no worse fiscal shape than Britain. Probably better. So far the currency markets have remained fairly sanguine about the collapse of British government finances, largely because they assume a change of government is imminent. The Conservatives will restore discipline even if Gordon Brown won’t. And yet as the debate becomes ever more divorced from reality, that is unlikely to last. At some point, confidence will crack, and the sterling will face a collapse that will make funding the deficit much, much harder. In a world where most governments are borrowing on an unprecedented scale, there is not much incentive for investors to hand their money to a government which shows no inclination to even admit spending has to be reined back.
Most seriously, if the politicians won’t get a grip on spending, the Bank of England might have to do the job for them. “If, as seems likely, the necessary fiscal surgery is delayed, then the MPC is likely to judge that the responsibility for maintaining economic and market stability falls to them and cannot be ducked,” argued Citigroup economist Michael Saunders in an analysis of the deficit. He forecasts as many as three half point hikes in interest rates in 2010 as the inflationary consequences of massive deficit spending start to become clear. Couple that with the tax rises needed to cope with the deficit, and the inevitable slow down in public spending, and it is clear that the UK faces a very severe squeeze on spending. Forget about a rapid return to growth. Britain will be lucky if it avoids another recession in 2010 and 2011.
The UK needs to start a serious debate about bringing public spending under control now. The longer it postpones it, the worse the pain will be when it finally does get around to addressing the issue.
The battle lines for the next general election are already being drawn. Gordon Brown plans to fight on a platform of protecting public services from savage Tory cuts. We’ve already heard plenty about the nurses and policemen who’ll be fired if the Conservatives win power next year, and we’ll hear plenty about the teachers and care-workers who’ll be joining them in the next ten months.
Brown’s rhetoric is dishonest, as plenty of independent experts have already pointed out. The last budget pencilled in cuts of 7% in real terms to public spending for the years after 2011. The truth is, as anyone who wants to take a look at the figures can quickly work out, that whoever forms the next government will have to push through painful cuts.
The rhetoric, however, is potentially very dangerous. It is crowding out a sensible debate on how the vast budget deficit can be bought back under control. At some point, it is going to spook the currency markets, making a cut in Britain’s credit rating almost inevitable. And it may well provoke the Bank of England into raising interest rates sooner than it otherwise would.
This is more than just harmless political knock-about. It risks provoking a serious economic crisis.
No one can have missed the way the arguments over spending cuts have been ramped up in the past two weeks. You might think a government presiding over a budget deficit now expected to hit a massive 12% of GDP, the highest in the developed world, and the biggest the UK has run since it was engaged in the small matter of fighting World War II, would at least be willing to concede that spending had to be tightened up a bit.
Not at all. The Government insists that spending will carry on rising. In the House of Commons, Brown argued that capital spending would increase up to and including the 2112 Olympics, whilst Ed Balls, the schools secretary, has insisted spending on education can continue rising in real terms. There has so far not been a single admission by a senior government figure that spending will have to be cut in real terms, and in many cases, very savagely.
That is nonsense. Real Madrid might be able to carry on spending money as if the credit crunch had never happened. The British government won’t be able to. “We must live within our means,” argued the Chancellor Alistair Darling in his speech to the Mansion House. “There are tough choices ahead.”
There isn’t any sign of those ‘choices’ being made yet. In reality, the only decision facing any British government is whether it wants to get serious about the black hole in its finances now or after the election. Deficit spending on this scale – one in every four pounds the UK Government spends this year will be borrowed money, and it will be taking on additional debts of £14,000 for every family in the UK – simply isn’t possible.
Right now, the yah-boo rhetoric is crowding out any kind of serious debate about how that deficit can be bought under control. Countries can significantly reduce state spending without slashing services or tearing up welfare programmes. In Canada, for example, government spending as a percentage of GDP peaked at 53% in 1992, which is roughly where the UK will get to next year. It has now come down to 38% of GDP. Outstanding debt was cut to 32% of GDP in 2008 compared with 71% in 1995. At the same time, corporate taxes were cut back all the way to 15%, and little damage was done to the country’s traditional welfare and healthcare systems. Most of it was achieved by reducing state payrolls, and at the same time cutting business taxes, so the people laid off in the public sector cold move into jobs created in the public sector. There is no great miracle about it. But so far the UK is resisting learning any lessons about how other countries have curbed their deficits.
Worse, the currency markets are going to take fright. Ignore the recent rise in sterling. That is going to be reversed soon, and probably savagely. Standard & Poor’s has already cut its rating on the UK, putting it on ‘negative’ outlook. That is just the start. The ratings agencies have cut Japanese and Irish debt, and those countries are in no worse fiscal shape than Britain. Probably better. So far the currency markets have remained fairly sanguine about the collapse of British government finances, largely because they assume a change of government is imminent. The Conservatives will restore discipline even if Gordon Brown won’t. And yet as the debate becomes ever more divorced from reality, that is unlikely to last. At some point, confidence will crack, and the sterling will face a collapse that will make funding the deficit much, much harder. In a world where most governments are borrowing on an unprecedented scale, there is not much incentive for investors to hand their money to a government which shows no inclination to even admit spending has to be reined back.
Most seriously, if the politicians won’t get a grip on spending, the Bank of England might have to do the job for them. “If, as seems likely, the necessary fiscal surgery is delayed, then the MPC is likely to judge that the responsibility for maintaining economic and market stability falls to them and cannot be ducked,” argued Citigroup economist Michael Saunders in an analysis of the deficit. He forecasts as many as three half point hikes in interest rates in 2010 as the inflationary consequences of massive deficit spending start to become clear. Couple that with the tax rises needed to cope with the deficit, and the inevitable slow down in public spending, and it is clear that the UK faces a very severe squeeze on spending. Forget about a rapid return to growth. Britain will be lucky if it avoids another recession in 2010 and 2011.
The UK needs to start a serious debate about bringing public spending under control now. The longer it postpones it, the worse the pain will be when it finally does get around to addressing the issue.
Saturday, 27 June 2009
Death Force In The Charts
Death Force is at 25 in the Asda charts today, which is fantastic. If you go into the WH Smith Travel shops at the stations or the airports, it is at number 60. Exciting....
Thursday, 25 June 2009
Death Force in Paperback
Death Force is out in paperback today. I was in London yesterday, and it had great positions in WH Smith at Waterloo and Charing Cross. It was prominently displayed at No 60 in the top 100 at the front of the shop. It's an amazing experience to see a book you've worked on displayed like that. Of course, now I'm worried about whether people will buy it or not....but that's better than worrying about why it isn't in the shops.
The Airport Tour
The Curzon Group has been plotting an airport tour to promote our books. You can read all about it in The Bookseller today. It should be fun. Writers don't usually go to airport bookshops and that's where people buy thrillers.
Monday, 22 June 2009
Why The Banks Can't Go Back To Normal
In Money Week this week, I've been discussing why the banks can't just go back to the way they were behaving before the credit crunch. Here's a tatser.
It might not be quite the moment to start re-opening the champagne, and eyeing up ten-million-plus houses in Notting Hill, but there is little doubt the weather is suddenly looking a lot sunnier for the world’s bankers.
In the US, the big players on Wall Street have started to repay the money from the Treasury’s bail-out scheme, re-leasing them from the shackles of state interference. In the UK, Lloyds has started to re-pay some of the money it received from the government, whilst Barclays, flush from the $13.5 billion sale of Barclays Global Investors, has started talking about becoming one of the world’s leading investment banks again.
The markets are bullish, and profits are starting to flow through the industry. At this rate, don’t be surprised if the City is awash with bonuses again by Christmas.
And yet it would be a big mistake for the banks simply to think they can re-wind the clock, and get back to way things were in 2006. There is still plenty of potential pain ahead, and the banks are still on life-support from public money.
In truth, the banking business model needs to be re-built from the bottom up – and the sooner they start work on that the better.
Still, there is little mistaking the renewed sense of optimism in the City and on Wall Street. Last week, ten of the biggest American banks started to pay back the $68 billion of the funds they got under the emergency Troubled Assets Relief Programme (or TARP) launched as Wall Street went into meltdown last autumn. They included JP Morgan, Goldman Sachs and Morgan Stanley, three firms that now look to be the powerhouses of the post-credit crunch US financial system.
Freed from the shackles of part-ownership by the government, with all the public scrutiny it implied, the banks can get back to doing what they do best again – making lots of money for themselves. They are already in a far stronger financial position than they were at the start of the year. The S&P 500 financial index is up by almost 50% in the last three months. With figures like that, the banks should have no trouble raising capital from shareholders rather than the government.
A similar story is emerging over here. Lloyds raised £2.56 billion from its shareholders to repay some of its state aid, freeing itself from some of the restrictions of state control. Meanwhile, in Europe, so long as the emerging markets of Eastern Europe avoid total meltdown, the banks appear to have steadied and pulled through the worst of the crisis. Credit Suisse and Deutsche Bank look like the big winners in investment banking, and Santander in retail banking.
Indeed, banking is looking like a lucrative industry once again. Central banks are still pumping money furiously into the global economy, and whenever that happens, some of it always winds up in the pockets of the bankers. Near zero interest rates mean the ‘carry trade’ is lucrative once more (banks can borrow freely for next to nothing, then re-invest the money is assets yielding 5% or 6%). Even fee income may start to swell once again as corporate restructuring work gets underway, and as takeover activity starts to pick up again.
Plenty of bankers could be forgiven for thinking it is 2006 all over again. By Christmas, the talk will be of bonuses. Indeed, since it may well be the last year they can collect big payouts before Gordon Brown’s new 50% top-rate comes into force, don’t be surprised to start seeing some mega-payouts as London’s bankers bring forward any money they are owed to avoid the new top rate. Ferrari dealers will be ready to celebrate. House prices in the smartest parts of London will start to edge up again.
Amid all that, not surprisingly, talk of changing the system is being quietly forgotten. Six months ago, the banks were full of repentance. Plenty was heard about how bonus systems would be reformed, how lending would become more responsible, and how risk management would be taken more seriously.
Not much is being heard about any of that any more.
That is a big mistake.
First, there is still plenty of pain ahead. The worst of the financial crisis may have passed but there is still a long and grinding recession to come, followed by a period of very low growth. We haven’t yet seen anything like the peak in unemployment or corporate failures. As both start to rise, the bank will face a lot more losses.
Next, the banks are still to a large extent being kept alive by public money. Even as they gradually repay direct state shareholdings, they remain dependent on taxpayer support. Only the fact that government ultimately stand behind them keeps their cost of funding down, and so allows the banks to remain profitable. After all, how willing would you be to have money in Lloyds if you didn’t think the government would bail it out again if necessary?
The big question raised by the credit crunch was this: If the banks are too important to be allowed to fail, then can they be allowed to run risks which the taxpayers will end up paying for?
The banks still have to find a convincing answer.
In reality, they can’t just go back to their old ways, much as they might like to. The industry needs to be re-built from the bottom up. The retail banks need to accept they must become a far duller, more regulated business. The investment banks need to move back towards something a lot closer to the old partnership structure that used to dominate the City, where individuals put their own money at risk, and were forced to plan for the long-term.
Trading on the global market, paying big bonuses and expecting American or British or German taxpayers to pick up the bill if it all goes wrong might have been acceptable once. But the bankers shouldn’t imagine they can get away with the same trick a second time. They should press on with reforming the industry while they still have the chance.
It might not be quite the moment to start re-opening the champagne, and eyeing up ten-million-plus houses in Notting Hill, but there is little doubt the weather is suddenly looking a lot sunnier for the world’s bankers.
In the US, the big players on Wall Street have started to repay the money from the Treasury’s bail-out scheme, re-leasing them from the shackles of state interference. In the UK, Lloyds has started to re-pay some of the money it received from the government, whilst Barclays, flush from the $13.5 billion sale of Barclays Global Investors, has started talking about becoming one of the world’s leading investment banks again.
The markets are bullish, and profits are starting to flow through the industry. At this rate, don’t be surprised if the City is awash with bonuses again by Christmas.
And yet it would be a big mistake for the banks simply to think they can re-wind the clock, and get back to way things were in 2006. There is still plenty of potential pain ahead, and the banks are still on life-support from public money.
In truth, the banking business model needs to be re-built from the bottom up – and the sooner they start work on that the better.
Still, there is little mistaking the renewed sense of optimism in the City and on Wall Street. Last week, ten of the biggest American banks started to pay back the $68 billion of the funds they got under the emergency Troubled Assets Relief Programme (or TARP) launched as Wall Street went into meltdown last autumn. They included JP Morgan, Goldman Sachs and Morgan Stanley, three firms that now look to be the powerhouses of the post-credit crunch US financial system.
Freed from the shackles of part-ownership by the government, with all the public scrutiny it implied, the banks can get back to doing what they do best again – making lots of money for themselves. They are already in a far stronger financial position than they were at the start of the year. The S&P 500 financial index is up by almost 50% in the last three months. With figures like that, the banks should have no trouble raising capital from shareholders rather than the government.
A similar story is emerging over here. Lloyds raised £2.56 billion from its shareholders to repay some of its state aid, freeing itself from some of the restrictions of state control. Meanwhile, in Europe, so long as the emerging markets of Eastern Europe avoid total meltdown, the banks appear to have steadied and pulled through the worst of the crisis. Credit Suisse and Deutsche Bank look like the big winners in investment banking, and Santander in retail banking.
Indeed, banking is looking like a lucrative industry once again. Central banks are still pumping money furiously into the global economy, and whenever that happens, some of it always winds up in the pockets of the bankers. Near zero interest rates mean the ‘carry trade’ is lucrative once more (banks can borrow freely for next to nothing, then re-invest the money is assets yielding 5% or 6%). Even fee income may start to swell once again as corporate restructuring work gets underway, and as takeover activity starts to pick up again.
Plenty of bankers could be forgiven for thinking it is 2006 all over again. By Christmas, the talk will be of bonuses. Indeed, since it may well be the last year they can collect big payouts before Gordon Brown’s new 50% top-rate comes into force, don’t be surprised to start seeing some mega-payouts as London’s bankers bring forward any money they are owed to avoid the new top rate. Ferrari dealers will be ready to celebrate. House prices in the smartest parts of London will start to edge up again.
Amid all that, not surprisingly, talk of changing the system is being quietly forgotten. Six months ago, the banks were full of repentance. Plenty was heard about how bonus systems would be reformed, how lending would become more responsible, and how risk management would be taken more seriously.
Not much is being heard about any of that any more.
That is a big mistake.
First, there is still plenty of pain ahead. The worst of the financial crisis may have passed but there is still a long and grinding recession to come, followed by a period of very low growth. We haven’t yet seen anything like the peak in unemployment or corporate failures. As both start to rise, the bank will face a lot more losses.
Next, the banks are still to a large extent being kept alive by public money. Even as they gradually repay direct state shareholdings, they remain dependent on taxpayer support. Only the fact that government ultimately stand behind them keeps their cost of funding down, and so allows the banks to remain profitable. After all, how willing would you be to have money in Lloyds if you didn’t think the government would bail it out again if necessary?
The big question raised by the credit crunch was this: If the banks are too important to be allowed to fail, then can they be allowed to run risks which the taxpayers will end up paying for?
The banks still have to find a convincing answer.
In reality, they can’t just go back to their old ways, much as they might like to. The industry needs to be re-built from the bottom up. The retail banks need to accept they must become a far duller, more regulated business. The investment banks need to move back towards something a lot closer to the old partnership structure that used to dominate the City, where individuals put their own money at risk, and were forced to plan for the long-term.
Trading on the global market, paying big bonuses and expecting American or British or German taxpayers to pick up the bill if it all goes wrong might have been acceptable once. But the bankers shouldn’t imagine they can get away with the same trick a second time. They should press on with reforming the industry while they still have the chance.
Sunday, 21 June 2009
Will Brown Quit in January?
The Mail r that Gordon Brown is planning to step down in January, rather than fight an election. It sound plausibe. In case anyone hadn't noticed, Gordon doesn't do elections. He's run away from them all in the past....and, in fairness, fighting Cameron in 2010 when you are averging 22% in the polls isn't where you'd want to start.
Saturday, 20 June 2009
The Deighton Dossier: Thriller writers love to cook...
Hat tip to the Deighton Dossier for this link. The Deighton Dossier: Thriller writers love to cook... Thriller writers doing cook books, those were the days. Maybe I should ask my editor at Headline if he is interested.
Monday, 15 June 2009
The Savings Culture Returns
In my Money Week column this week, I've been looking at how savings rates will have to rise in both the UK and the US. Here's a taster....
In the US, the most interesting economic statistic right now is not the bullish stock market, the bottoming out of the housing market, or the gradual emergence of the ‘green shoots’ of recovery.
It is the savings ratio.
American consumers, who for more than a decade were the shop-till-you-drop, maxed out, credit-hungry motors of the global economy, have suddenly decided to start doing something their baby-boomer parents had probably forgotten all about but which their grand-parents might just dimly remember. Saving money.
Along with other over-indebted consumers around the world, they are putting a rising chunk of their monthly pay packet aside for a rainy day. That may well turn into the most significant financial trend of the next five to ten years – and one that has the potential to significantly re-shape the global economy.
It will skewer any chance of a strong domestic recovery, support the stock market, lower trade deficits, and, over time, strengthen the currency. In the medium-term, it will no doubt be a good thing – but in the short-term it is going to cause a huge amount of disruption.
There is no disputing the raw data.
In April, the latest date for which statistics have been published, the U.S. savings ratio rose to 5.7% of GDP, its highest monthly rate for 14 years. Earlier this decade, when the housing boom was at its peak, the savings ratio went all the way down to minus 2.7% (meaning the average American spent nearly 3% more than they earned, which even Gordon Brown might struggle to describe as prudent). Many analysts now expect it to get back towards its long term average. For most of the 1970s and 1980s, Americans saved roughly 10% of their income, and in 1975, at the peak of the last financial crisis, it hit 14.6%.
Much the same can be expected in other over-indebted countries. The British are tucking their credit cards back into their wallets as well. The latest quarterly figures show the UK’s savings ratio up to 4.7%, compared with only 1.7% in the final quarter of 2008. Like the US, the British saving ratio turned negative last year, the first time that had happened since Harold McMillan was Prime Minister in 1958. Over time, we can expect the other over-extended, over-indebted economies to follow the same trend.
There is no great mystery about why that is happening. A zero savings ratio was never going to be sustainable in the long run. But soaring house prices temporarily lulled many people into an unrealistic sense of financial security. When the average house was going up in value by £10,000 or £20,000 a year, struggling to save £2,000 out of average salary of around £20,000 looked pretty pointless. Now with house price stagnant, there is little option.
Consumers know their personal balance sheets are a mess. The only way they can get them back into shape again is by saving more. Nothing else is going to rescue them. And with rising unemployment, the alternative of remaining over-indebted doesn’t look very attractive.
Once they start saving, however, the sums involved are vast. The GDP of the US is close to $14 trillion. If it gets back to a long-term average of saving 10%, that would amount to $1.4 trillion, or roughly the GDP of Spain. Shifting that vast quantity of money from consumption to investment is going to have three big consequences for the global economy.
First, domestic demand is going to stay subdued for years. It doesn’t matter how many billions President Obama or Prime Minister Brown throw at their economies. Or how many dollars or pounds the Federal Reserve or the Bank of England command their printers to roll of the presses. When roughly a tenth of the economy is being switched out of day-to-day consumption then growth is going to be sluggish.
As the global economy starts to re-cover, it is going to have to find some other engine apart from Anglo-Saxon consumers. And investors should steer well clear of companies that depend on consumer spending – such as retailers or leisure -- anywhere in the UK or the US.
Next, expect a wall of money to hit the stock market. All that freshly-saved money has to go somewhere. With interest rates close to zero and likely to stay there for the foreseeable future, there isn’t much point in putting it in the bank. Much of it will find its way into the stock market, creating a wave of money that is going to sustain the rally in stock prices we have already seen over the last three months.
At the same time, it will rescue the battered financial services industry in both the US and the UK. Steeply rising levels of deposits, and the fees to be earned from steering that money into the stock market, will make banking profitable once again. Over time, it will even bail out the banks from all the crazy loans they made at the height of the bubble.
Lastly, it is going to lift the pound and the dollar – eventually. As the Anglo-Saxon economies start to re-balance themselves away from consumption and towards investment, their huge trade deficits are going to narrow. They may not hit a surplus, but they will get closer to balancing than they have for twenty years. Over time, that is going to strengthen their currencies.
In reality, ordinary consumers in both the US and Britain have figured something their political leaders are still to nervous to tell them. They have to lower their living standards, and start re-building capital for the future. That is long overdue. Individuals can’t spend more than they earn for more than a very short period of time without running into big problems, and neither can countries.
Over time, the new ‘savings economies’ of Britain and the US will emerge in much better shape. But it is going to be a rough ride, and will shift the global economy dramatically.
In the US, the most interesting economic statistic right now is not the bullish stock market, the bottoming out of the housing market, or the gradual emergence of the ‘green shoots’ of recovery.
It is the savings ratio.
American consumers, who for more than a decade were the shop-till-you-drop, maxed out, credit-hungry motors of the global economy, have suddenly decided to start doing something their baby-boomer parents had probably forgotten all about but which their grand-parents might just dimly remember. Saving money.
Along with other over-indebted consumers around the world, they are putting a rising chunk of their monthly pay packet aside for a rainy day. That may well turn into the most significant financial trend of the next five to ten years – and one that has the potential to significantly re-shape the global economy.
It will skewer any chance of a strong domestic recovery, support the stock market, lower trade deficits, and, over time, strengthen the currency. In the medium-term, it will no doubt be a good thing – but in the short-term it is going to cause a huge amount of disruption.
There is no disputing the raw data.
In April, the latest date for which statistics have been published, the U.S. savings ratio rose to 5.7% of GDP, its highest monthly rate for 14 years. Earlier this decade, when the housing boom was at its peak, the savings ratio went all the way down to minus 2.7% (meaning the average American spent nearly 3% more than they earned, which even Gordon Brown might struggle to describe as prudent). Many analysts now expect it to get back towards its long term average. For most of the 1970s and 1980s, Americans saved roughly 10% of their income, and in 1975, at the peak of the last financial crisis, it hit 14.6%.
Much the same can be expected in other over-indebted countries. The British are tucking their credit cards back into their wallets as well. The latest quarterly figures show the UK’s savings ratio up to 4.7%, compared with only 1.7% in the final quarter of 2008. Like the US, the British saving ratio turned negative last year, the first time that had happened since Harold McMillan was Prime Minister in 1958. Over time, we can expect the other over-extended, over-indebted economies to follow the same trend.
There is no great mystery about why that is happening. A zero savings ratio was never going to be sustainable in the long run. But soaring house prices temporarily lulled many people into an unrealistic sense of financial security. When the average house was going up in value by £10,000 or £20,000 a year, struggling to save £2,000 out of average salary of around £20,000 looked pretty pointless. Now with house price stagnant, there is little option.
Consumers know their personal balance sheets are a mess. The only way they can get them back into shape again is by saving more. Nothing else is going to rescue them. And with rising unemployment, the alternative of remaining over-indebted doesn’t look very attractive.
Once they start saving, however, the sums involved are vast. The GDP of the US is close to $14 trillion. If it gets back to a long-term average of saving 10%, that would amount to $1.4 trillion, or roughly the GDP of Spain. Shifting that vast quantity of money from consumption to investment is going to have three big consequences for the global economy.
First, domestic demand is going to stay subdued for years. It doesn’t matter how many billions President Obama or Prime Minister Brown throw at their economies. Or how many dollars or pounds the Federal Reserve or the Bank of England command their printers to roll of the presses. When roughly a tenth of the economy is being switched out of day-to-day consumption then growth is going to be sluggish.
As the global economy starts to re-cover, it is going to have to find some other engine apart from Anglo-Saxon consumers. And investors should steer well clear of companies that depend on consumer spending – such as retailers or leisure -- anywhere in the UK or the US.
Next, expect a wall of money to hit the stock market. All that freshly-saved money has to go somewhere. With interest rates close to zero and likely to stay there for the foreseeable future, there isn’t much point in putting it in the bank. Much of it will find its way into the stock market, creating a wave of money that is going to sustain the rally in stock prices we have already seen over the last three months.
At the same time, it will rescue the battered financial services industry in both the US and the UK. Steeply rising levels of deposits, and the fees to be earned from steering that money into the stock market, will make banking profitable once again. Over time, it will even bail out the banks from all the crazy loans they made at the height of the bubble.
Lastly, it is going to lift the pound and the dollar – eventually. As the Anglo-Saxon economies start to re-balance themselves away from consumption and towards investment, their huge trade deficits are going to narrow. They may not hit a surplus, but they will get closer to balancing than they have for twenty years. Over time, that is going to strengthen their currencies.
In reality, ordinary consumers in both the US and Britain have figured something their political leaders are still to nervous to tell them. They have to lower their living standards, and start re-building capital for the future. That is long overdue. Individuals can’t spend more than they earn for more than a very short period of time without running into big problems, and neither can countries.
Over time, the new ‘savings economies’ of Britain and the US will emerge in much better shape. But it is going to be a rough ride, and will shift the global economy dramatically.
Thursday, 11 June 2009
James Bond In Afghanistan
From Helmand With Love. No, that probably doesn't quite work as a title. Still, fascinating news that the producers of the latest Bond movue are thinking about setting the film in Afghanistan. My own book 'Death Force' is of course set in Helmand, and I suspect it is only a matter of time before we start seeing a lot more war fiction coming out the country. All the elements are there: a vicious war, a terrifying enemy, great power politics, terrorists, drug dealers and their fortunes. Indeed, the only surprising thing is that it has taken writers so long to catch onto it.
Wednesday, 10 June 2009
Phew, Brown Survived.
I'm pleased that Gordon Brown hung on. That's partly becuase I'm a Tory, of course, and he is one of the greatest vote losers of all time, who may well destroy his party and the centre left for a generation. But it is also because being deposed is too good for him. Within a few years, he'd have spun a myth about how he was a great leader, betrayed by jealous Blair-ites. Far better for him to be crushed pittilessly by the most damning defeat in recent electoral history.
Monday, 8 June 2009
A Conversation About Death Force
I'm doing an author chat about 'Death Force on the Book Army site. You can take part here.
Saturday, 6 June 2009
The Imploding Labour Party
With every day that passes, it is becoming clearer that the Labour Party may well be finished. Gordon Brown clings on relentlessly, even though everyone must know he is destroying the movement. And yet they are paralysed to stop him. I wonder why? My explanation is that the likes of David Milliband, James Purnell and Alan Johnson know they have nothing to say. They have no class or ideology they wish to give a voice to, and standing for an election would expose that emptiness. It's the same reason Gordon Brown didn't call an election in 2007: he could think of anything to say. Instead, they just prefer to limp on towards oblivion.
The BRIC Acquisitions
In Money Week this week, I've been speculating that the next boom will be a wave of takeover bids from the BRIC economies. Here's a taster....
The phrase ‘What good for GM is good for the US’ clearly doesn’t have the same kind of resonance it had when it was first coined half a century ago. As the American auto giant became the largest ever industrial bankruptcy in US corporate history, the stock and currency markets took the news comfortably in their stride. In truth, GM along with the rest of the American automobile industry, has been in decline for so long, its demise no longer has the capacity to shock anyone very much.
That doesn’t mean, however, that the story isn’t interesting to investors.
Its significance is not that GM is collapsing. It is who is rescuing its European arm, and what that tells us about how the global economy is changing.
The car-makers two European brands, Vauxhall in this country, and Opel in the rest of Europe, are being bought by a Russian-backed consortium. Within a few years, they will spearheading an emerging Russian auto industry.
One of the big themes emerging from the credit crunch is the transfer of global wealth, power and influence from west to east, and from the old economies to the new. What the stock market calls the BRICs – Brazil, Russia, India and China – are rising fast, not just as manufacturers of cheap goods, but as developed, powerful economies which, in many ways, will be better equipped to compete in the twenty-first century than their older, more traditional rivals.
Over the next decade, they are likely to embark on a huge acquisition spree in both the US and Western Europe, buying up brands, technologies and expertise. And, of course, there will be huge opportunities for investors and the City in that. Work out what kind of assets the BRICs will need, and there will be money to made.
The takeover of GM’s European assets is just one example of the trend. The deal was fronted-up by the Canadian auto-parts company Magna, but in reality it looks like a Russian takeover. True, the Canadian company will own 20% of GM’s Opel unit. But another 35% will be owned by the Russian bank Sherbank, whilst GM will hang on to another 35%. Crucially, the industrial partner for the new entity will be the Russia’s GAZ, best-known as a truck-maker, but which also owns the Volga car brand.
It isn’t hard to see how this is going to play out. GM is going to have enough problems without worrying about a European division in which it is a minority shareholder. The Canadians don’t have the expertise to become players in such a fiercely competitive global industry. With Russia set to become the largest car market in Europe – it is, remember, Europe’s biggest country, and doesn’t have many cars right now – GAZ will become increasingly the dominant partner. A decade from now expect to see plenty of Russia-built Opel’s on the roads (the Vauxhall brand may well be quietly forgotten – Chelsea is the only part of London that interests the Russians).
That is just one deal among many. We have already seen Tata of India take control of Jaguar and Land Rover. The Chinese computer company Lenovo bought IBM’s personal computer business. Those are only the tip of a very large iceberg.
The credit crunch is accelerating the shift of power from east to west. The over-indebted countries of Europe and North America are losing ground to the emerging powerhouses of Brazil, Russia, India and China. Where once a financial crisis would have hit the emerging markets hardest, in this one they sailed through largely unscathed. The Brazilian market is up by 40% this year. India is still growing at nearly 6% a year, and China at more than 6%. Russia has taken a hit to growth largely because of the fall in the oil price but is recovering fast – its stock market is among the world’s best-performing this year. Not only have the emerging giants been hit less severely by the global recession, they look like bouncing back faster as well.
The BRIC economies no longer just sell cheap manufactured goods and raw materials to the rest of the world. They are increasingly creating the biggest, most dynamic companies in the world. Of Fortune’s ranking of the top 500 global companies, 62 are now from emerging markets, up from 32 in 2003. That number is only going to grow.
For investors there is an opportunity there – and one that goes beyond just buying some emerging markets tracker funds for your portfolio.
The new BRIC giants will have to raid plenty of Western assets to fulfil their ambitions on the global stage. Volga is going to need a company like Opel to turn itself into a serious player in the global auto industry. Likewise, Lenovo needed the IBM brand name to turn itself from an assembler into a global business.
The BRIC companies will need brand names, and they will need technology. And they will need them in a hurry. They need the know-how to create large-scale manufacturing operations. And they will need the tradition and name-recognition that comes with a brand that has been built up over a century.
Where should investors be looking? Companies such as British Aerospace have the technology that the BRIC companies may well want. So do the pharmaceutical giants such as GlaxoSmithKline or AstraZeneca. Consumer goods companies such as Unilever are packed full of brand names. Mobile phone companies such as Vodafone have both the brands and the technology.
It is fanciful to speculate about particular deals. Many companies will have no interest in selling themselves. Even so, the next boom, when it comes, will be all about brokering the takeover of European and American assets by the rising powers of the global economy.
True, it might be selling of the family silver. But if it’s going to sold anyway, no reason not to try and make some money out of it – and plenty of people, not least in the City, certainly will.
The phrase ‘What good for GM is good for the US’ clearly doesn’t have the same kind of resonance it had when it was first coined half a century ago. As the American auto giant became the largest ever industrial bankruptcy in US corporate history, the stock and currency markets took the news comfortably in their stride. In truth, GM along with the rest of the American automobile industry, has been in decline for so long, its demise no longer has the capacity to shock anyone very much.
That doesn’t mean, however, that the story isn’t interesting to investors.
Its significance is not that GM is collapsing. It is who is rescuing its European arm, and what that tells us about how the global economy is changing.
The car-makers two European brands, Vauxhall in this country, and Opel in the rest of Europe, are being bought by a Russian-backed consortium. Within a few years, they will spearheading an emerging Russian auto industry.
One of the big themes emerging from the credit crunch is the transfer of global wealth, power and influence from west to east, and from the old economies to the new. What the stock market calls the BRICs – Brazil, Russia, India and China – are rising fast, not just as manufacturers of cheap goods, but as developed, powerful economies which, in many ways, will be better equipped to compete in the twenty-first century than their older, more traditional rivals.
Over the next decade, they are likely to embark on a huge acquisition spree in both the US and Western Europe, buying up brands, technologies and expertise. And, of course, there will be huge opportunities for investors and the City in that. Work out what kind of assets the BRICs will need, and there will be money to made.
The takeover of GM’s European assets is just one example of the trend. The deal was fronted-up by the Canadian auto-parts company Magna, but in reality it looks like a Russian takeover. True, the Canadian company will own 20% of GM’s Opel unit. But another 35% will be owned by the Russian bank Sherbank, whilst GM will hang on to another 35%. Crucially, the industrial partner for the new entity will be the Russia’s GAZ, best-known as a truck-maker, but which also owns the Volga car brand.
It isn’t hard to see how this is going to play out. GM is going to have enough problems without worrying about a European division in which it is a minority shareholder. The Canadians don’t have the expertise to become players in such a fiercely competitive global industry. With Russia set to become the largest car market in Europe – it is, remember, Europe’s biggest country, and doesn’t have many cars right now – GAZ will become increasingly the dominant partner. A decade from now expect to see plenty of Russia-built Opel’s on the roads (the Vauxhall brand may well be quietly forgotten – Chelsea is the only part of London that interests the Russians).
That is just one deal among many. We have already seen Tata of India take control of Jaguar and Land Rover. The Chinese computer company Lenovo bought IBM’s personal computer business. Those are only the tip of a very large iceberg.
The credit crunch is accelerating the shift of power from east to west. The over-indebted countries of Europe and North America are losing ground to the emerging powerhouses of Brazil, Russia, India and China. Where once a financial crisis would have hit the emerging markets hardest, in this one they sailed through largely unscathed. The Brazilian market is up by 40% this year. India is still growing at nearly 6% a year, and China at more than 6%. Russia has taken a hit to growth largely because of the fall in the oil price but is recovering fast – its stock market is among the world’s best-performing this year. Not only have the emerging giants been hit less severely by the global recession, they look like bouncing back faster as well.
The BRIC economies no longer just sell cheap manufactured goods and raw materials to the rest of the world. They are increasingly creating the biggest, most dynamic companies in the world. Of Fortune’s ranking of the top 500 global companies, 62 are now from emerging markets, up from 32 in 2003. That number is only going to grow.
For investors there is an opportunity there – and one that goes beyond just buying some emerging markets tracker funds for your portfolio.
The new BRIC giants will have to raid plenty of Western assets to fulfil their ambitions on the global stage. Volga is going to need a company like Opel to turn itself into a serious player in the global auto industry. Likewise, Lenovo needed the IBM brand name to turn itself from an assembler into a global business.
The BRIC companies will need brand names, and they will need technology. And they will need them in a hurry. They need the know-how to create large-scale manufacturing operations. And they will need the tradition and name-recognition that comes with a brand that has been built up over a century.
Where should investors be looking? Companies such as British Aerospace have the technology that the BRIC companies may well want. So do the pharmaceutical giants such as GlaxoSmithKline or AstraZeneca. Consumer goods companies such as Unilever are packed full of brand names. Mobile phone companies such as Vodafone have both the brands and the technology.
It is fanciful to speculate about particular deals. Many companies will have no interest in selling themselves. Even so, the next boom, when it comes, will be all about brokering the takeover of European and American assets by the rising powers of the global economy.
True, it might be selling of the family silver. But if it’s going to sold anyway, no reason not to try and make some money out of it – and plenty of people, not least in the City, certainly will.
Thursday, 4 June 2009
Blarism = Gaullism
I've thought for a while that New Labour was very similar to Gaullism in that it was built around a personality, rather than any very coherant set of beliefs, or any solid interest group. Gaullism melted away very fast once the General departed. Likewise, New Labour appears to fading very fast now that Tony Blair has left. There is a lot squabbling, but over very little. After the election, there won't be a New Labour party to inherit. There might not even be a Labout Party.
Monday, 1 June 2009
Reading in Hammersmith
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Martin Baker and I tried out the first Curzon Group public reading in Hammersmith last week. It went pretty well - and Debby Wale who organised it has very kindly sent us some pictures taken by Adrian Lewis.
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