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.