Tuesday, 29 September 2009

Getting Published...

Over on the terrific Crime Time website, The Curzon Group have been jointly explaining how we came to get published. It's an astute choice of subject. Every writer will know that the question you get asked most frequently is how you interest a publisher in your book.

The answers are revealing - and you can read them on the site, so there is no need to repeat them here.

But there are, I think, some common themes.

One is to know the market. Publishers are commercial operations, and they publish what sells.

Next, know their list. You might have written a great military thriller, but if they've already got one of those on their list, they won't want to publish you as well. Look for their gaps, then fill them.

Finally, persevere. Don't take no for an answer.

Of course, that said, it's a completely chaotic industry, in which no one really knows anything. So as soon as you set down any rules, they are likely to be broken.

Sunday, 27 September 2009

The Public Spending Massacre

In my Money Week column this week, I've been discussing why Britain is goig to need far deeper cuts in public spending than most people yet appreciate. Here's a taster....

The political season kicks off in earnest this week, with both Labour and the Conservatives scheduled to hold their party conferences. Expect to hear plenty about the need for cuts in public spending. Promises will be made to trim waste. Efficiency drives will be launched by the minute. A few totemic big projects will be scrapped to show determination to get the deficit under control: if you were in the nuclear submarine business, you probably wouldn’t want to be relying too much on that British government order.
There’s only one problem. The politicians still aren’t levelling with the public about the scale and ferocity of the assault on public spending that will be needed. They probably aren’t even levelling with themselves. In reality, the cuts will need to be much harsher and much deeper than most people yet realise. There are three reasons for that. The UK economy can’t be squeezed for any more tax. The tax base is going to carry on collapsing. And at some point, the UK is going to need tax cuts if it is to have any hope of reviving its economy.
The scale of the fiscal hole that Britain has dug for itself is now so deep and so alarming that even is principle digger, the Prime Minister Gordon Brown, has been forced to promise to put down his spade. Speaking at the TUC conference, Brown finally conceded that the next government, whatever its colour, would have to start cutting spending.
That was inescapable. The government’s finances are plunging deeper and deeper into chaos with every month that passes. In August alone, the government posted a deficit of £16.1 billion, the highest recorded for that month since records began. In the first five months of this year, the deficit was £65 billion, and for the full-year the Treasury is forecasting a deficit of £175 billion, or 12.4% of GDP. The actual figures are likely to be much worse: they almost always are. The actual deficit could easily be more than £225 billion, making it by far the worst of any developed industrial nation.
Everyone knows that can’t continue. One in every four pounds the government spends is now borrowed money. It could soon be one in three. Over the medium-term, that spells financial ruin. At some point, tax and spending will have to be bought back into balance.
But how? There is an easy assumption that it can be achieved by a combination of raising taxes and gradually curbing expenditure. The figure of a 10% cut in public spending is bandied about as a rough guide to how much will have to be sliced. And yet, in reality, that is far too optimistic. The cuts will have to be much, much deeper than that. Here’s why.
First, forget tax rises as part of the solution. True, governments can put up taxes as much as they like. And they probably will. The hike in the top rate to 50% is just the start of it. But there is a big difference between raising taxes and raising more revenue. The Laffer curve, named after one of Ronald Reagan’s intellectual gurus Arthur Laffer, describes how, after a certain point, the more you raise taxes, the less revenue you get back in return. People leave the country, or decide it isn’t worth the hassle of working anymore.
The evidence suggests the UK has already reached that point. In a decade as Chancellor, Gordon Brown tried to raise taxes plenty of times. Most people have lost track of the number of stealth taxes introduced. But he wasn’t very successful is raising the percentage of GDP taken in tax. One of the best measures of this is Tax Freedom Day, calculated by the Adam Smith Institute, which works out the day on which you stop working for the government and start working for yourself. It takes account of all taxes, not just headline rates. In 2009, it was May 14th. Back in 1997 when Brown became Chancellor, it was May 25th. Back in 1979, when Mrs Thatcher became Prime Minister it was May 29th. Forty years ago, with Harold Wilson as PM, it was also May 29th. The message is very clear. Whatever the government does, tax revenues remain broadly stable at around 35% to 37% of GDP. To imagine that any government is going to suddenly be able to sweep another 10% of GDP into the tax net is fanciful. It isn’t going to happen.
Next, the big problem right now is that tax revenues are collapsing. Take those August figures, for example. Tax revenues were down by 9.2% year-on-year. Corporation tax receipts were down by a whopping 49%, but VAT was also down by 13% and income tax down by 12.5%. What makes anyone think that this process is about to suddenly stop? Britain is heavily dependent on financial services, and profits in that sector will be squeezed for years to come. Lower profits equals lower taxes. As unemployment rises, income tax will fall further. In truth, Britain’s tax base was built on the froth of the finance and property markets. There is no reason why it shouldn’t continue to fall – and every pound that slips out of the tax net adds to the deficit.
Thirdly, at some point the UK is going to need to start talking about tax cuts, not rises. Even once the recession is over, the outlook for the UK economy is bleak. Growth of more than 1.5%, looks unlikely, and that won’t keep unemployment from rising. At some point, the UK will have to embark on an enterprise recovery, based on encouraging entrepreneurs and foreign investors to start building new industries. That simply isn’t going to happen while the UK is one of the highest-tax economies in Europe. It will take a radical programme of tax-cutting. And those tax cuts will have to be paid for out of lower state spending.
Whether any political party has the courage to push through cuts on the scale needed remains to be seen. They certainly aren’t talking about it yet – and it may well end up being the bond market or the International Monetary Fund that have to wield the axe.

Monday, 21 September 2009

The Banking Rally

In my Money Week column I've been looking at how odd it is to have a rally led by banking stocks. Here's a taster....

What’s the best company in Britain right now?
You could make a case for Tesco, the sleek juggernaut of the retailing sector, now pushing aggressively into financial services. You could make just as persuasive a case for BP, the oil giant holding its dividend steady despite falling oil prices, and making big new finds in the Gulf of Mexico. You could equally well make a case for any one of a dozen retailers, miners, drugs or telecoms giants.
But the market has a different answer: Lloyds Banking Group. The bombed out, debt-laden, strategically muddled combination of Lloyds TSB and the wilfully mis-managed train-crash that was HBOS is rated by the market anyway as the company to back.
Take a look at the performance charts for the stock market rally of the last six months. It has been led by bombed out banking stocks, such as Lloyds, and the equally debt-riddled Royal Bank of Scotland. Much the same is true in the US: the S&P has been driven up by such paragons of financial reliability as Freddie May and Freddie Mac, as well as banks such as Goldman Sachs, which, whilst they may be minting money right now, were on the brink of insolvency only a year ago.
Nothing could better illustrate just how flimsy the rally in global stocks is right now. It has been sold as a rational response to the gradual recovery in the global economy over the pasty six months. But there is, in truth, nothing rational about the way that financial stocks have led the rally. Most of those banks are impossible to put any sensible valuation on right now. And the fact they are leading the upswing perfectly illustrates how the markets have lost touch with reality in the last few weeks.
Nowhere is that clearer than in the companies that have been leading the FTSE-100 index back up to the 5,000 mark.
Take Lloyds for example. Its shares have recovered from slightly less than 25p earlier this year, to more than £1 now, quadrupling in value. Likewise, RBS went all the way down to 10p a share, but is now back above 50p. That matters for the index – the banking sector, even in its much reduced state, still accounts for 16% of the FTSE. The rally has, to a large extent, been about the recovery of the banking stocks.
Much the same is true in the US. The two wholesale mortgage lenders, Freddie Mac and Fannie Mae, probably the two companies most exposed to the whole sub-prime debacle, saw their shares triple in value in the last month. The shares of the big Wall Street players, such as Goldman Sachs, have done just as well. Goldman is up from less than $60 at the start of the year to more than $170 now. Morgan Stanley has recovered from less than $8 to almost $30. Just as in Britain, the rally is largely about the recovery in the value of financial stocks.
And yet, how can we rationally come up with any meaningful valuation of companies that are, in effect, wards of the state?
Let’s focus on the two big British banks. The future of Lloyds and RBS is so cloudy that it is very hard to take any rational view of what the future might now hold for them.
What, for example, will the government do with its stakes?
Will the state-owned shares eventually be sold to the public, in a re-run of the mass-marketed privatisations that marked the last Conservative government? Will the state hold onto its shares indefinitely, gradually turning the banks into utilities, or instruments of social engineering? Will more radical options, such as turning the banks back into mutually-owned societies, be considered?
Right now, no one really has the foggiest idea. Nor will it become clear for quite some time yet. There is the small mater of a general election to be dealt with first.
No one really knows what kind of losses might still be racked up either. The credit-rating agency Moody’s reported this week that the UK banks were only half-way through reporting the losses they were likely to suffer as a result of the recession. They’ve already chewed up £110 billion in losses. But another £130 billion is still to come, it reckons, as the downturn ravages the value of commercial property, to which both Lloyds and RBS are heavily exposed.
Nor does anyone really know what kind of regulatory structure may emerge. It isn’t clear whether the European Union’s competition rules will allow Lloyds to control more than 30% of the British banking market long-term (hopefully it won’t). Or whether rules preventing unfair state-aid will be applied to RBS? Exactly the same doubts surround the American and European banks that have been soaring in value over the past six months.
In reality, the value of these companies is a complete mystery to everyone, including the people in charge of them. It is certainly a mystery to investors.
True, there is a big element of bounce-back. The banks aren’t closing down, and the global economy has averted a re-run of the great depression. The fears of earlier this year have turned out to be exaggerated. That accounts for some of the recovery.
But markets are meant to be forward-looking. And while the future is always to some degree unknowable, most companies can at least have a rough idea what their sales and profits might be in two or three years’ times. The banks have none at all.
In truth, many of the prices being set in this rally are quite literally a shot in the dark -- and one probably made by a blind man aiming at a black cat. And that isn’t much of a basis for continuing strength. The rally may well continue. But so flimsy are its foundations that there is little reason to assume it will.

Tuesday, 15 September 2009

Dan Brown Day Arrives...

First, a confession. I really liked The Da Vinci Code. Admittedly, that was in part because I’ve always enjoyed the rich vein of nutty conspiracy theories that it drew upon, but I also though it was a brilliantly conceived and executed thriller. It took two of the strongest traditions of the genre – Sherlock Holmes style sleuthing, and cold-war conspiracies – and brilliantly updated them. It completely deserved all its success.
There’s only one problem with it – and one that is particularly pressing as the tsunami of hype and hoopla over Dan Brown’s follow-up, ‘The Lost Symbol’, threatens to wash away the rest of the publishing industry. Like many really successful books, while good in itself, its consequences haven’t always been quite so happy.
Publishers, inevitably, have been trying to cash in on the book’s popularity.
In the wake of The Da Vinci Code, the Vatican seems to have taken over from the KGB as the stock villain for thriller writers. Where once, every thriller had to have a tense scene with a rogue double-agent at Checkpoint Charlie, now it is just as mandatory to have a few missing pages from the Old Testament to chase, some wacky inscriptions from a church spire to decipher, and a few rogue monks quietly assassinating people.
It works for Dan Brown. But when most other writers try it, it looks a bit silly.
Worse, the publishers are now terrified that the Dan Brown juggernaut means they have to clear all other books from their schedules. But that is probably a mistake as well. After all, lots of people will be going into bookshops in the next couple of weeks to buy ‘The Lost Symbol’. They may well buy something else as well while they are there. So this month is probably a good one to sell a book that isn’t by dan Brown.
Which is why my fellow Curzon Group writer Richard Jay Parker and I put a short video up on You Tube about the Dan Brown craze. We wish the Dan-ster the best of luck with the new book – there are certainly a lot of expectations to live up to. But publishers and booksellers should remember there are a lot of other good books out there. And the last thing his fans are looking for are pale imitations and rip-offs.

Monday, 14 September 2009

Fiction In A Recession

Over on the Curzon Group blog, I've been writing about how fiction changes in a recession.

There's some discussion out there about recession fiction, According to this piece in The Independent, publishers are demanding changes from their chick-lit authors to fit more straighten times. Meanwhile, the Daily Mail chips in with a peice about 'recession-lit'

Out go the sex-and-shopping bonkbusters, it seems. In come frugal tales of coping with the recession.

I wonder if the same trend applies to thrillers. Less obviously, in the sense that popular women's fiction is very materialistic. Thrillers don't have so much shopping in them anyway.

But in another sense, all popular fiction has to capture the mood. I suspect people are going to want more escapism, and more heroes who have fallen on hard times and want to make some quick money. I try to touch on some of those themes in my mercenary stories.

But I suspect it is a rich vein for thriller writers to mine. More financial thrillers, perhaps? More heist thrillers? And more mega-rich villains.

Oh no, a merger boom....

The last thing the City needs right now is another takeover boom, as I explain in my Money Week column this week. Here's a taster.

The bulls are rampant again. Bonuses are back. Million-plus houses in London are being snapped up. And, if we needed any more evidence that the City has regained much of its swagger and confidence, it now looks like a merger boom is cranking up into action.
The American food giant Kraft started the week with a £10.2 billion bid for the chocolate manufacturer Cadbury. The weekend papers were full of stories of a bidding war for Deutsche Telecom’s British mobile unit., T-Mobile, before a joint-venture with Orange was sewn up. It is not long since the mining giant Xstrata lodged a £41 billion merger proposal for its rival Anglo American.
A this rate, we’ll soon be in the middle of a full-scale merger boom, much like the telecoms and media takeover craze that powered the bull market of the late 1990s.
But this time around, the City should resist. The fund managers should tell the predators to get lost, and the bankers should tell their clients they are not interested. If there is one thing the capital markets need to do right now, it is to demonstrate that they have put self-serving, fee-driven short-termism behind them. And there would be no better way of doing that than by killing this merger wave off before it picks up any more momentum.
It isn’t hard to understand why some big deals are being put on the agenda again. After the savaging equity markets took in the past year, assets are cheap by any historical standards. Regardless of whether you think the global economy has recovered, or whether the downturn has another dip in it, there is probably not going to be a better moment to expand an industrial empire. If you aren’t going to make a bid for that great rival you’ve been coveting for the past decade this year, then you probably never will. British assets are particularly cheap. The FTSE hasn’t recovered as fast as other markets, and the pound has devalued significantly against the dollar and the euro.
Nor is it just a matter of opportunistic timing. The chances are that the next decade will be a lot tougher economically that the one we have just been through. Global demand will be sluggish as debt mountains, both public and private, get paid down. Making money is going to be a hard slog. Taking over a rival, cutting costs, and hopefully edging up prices as competition is reduced, is one of the few guaranteed ways of improving profits when times are hard.
The City, if the past is any guide, will pile in enthusiastically, doing everything it can to stoke another merger boom.
Bankers will be licking the lips at all the fat fees that can be earned from M&A deals. Fund will be looking forward to locking in the profits of the last six months, and pocketing healthy takeover premium as well. Take Cadbury’s for example: the shares went down to 445p at the depth of the credit crunch, but soared past 800p the morning the Kraft bid was launched. It will be hard to resist profits like that.
Hard, but not impossible.
In truth, the last thing the City bankers and fund managers should be doing is slipping straight back to their bad old ways. One of the main problems the City needs to tackle is the way it rewards short-term porifts at the expense of long-term prosperity. That’s true of bonuses, most obviously. But it is true of the M&A market as well.
The overwhelming evidence is that mega-mergers don’t work. They destroy value on an epic scale. Vodafone chewed up billions making itself the biggest mobile company in the world whilst losing market share at home. Glaxo devoured Wellcome and then SmithKline Beecham, and didn’t end up any bigger than it had been when it started. Conglomerates put together through wheeler-dealing, such as Hanson, fell apart even faster than they were created.
True, the bankers make some fat fees. But only at the cost of destroying long-term relationships with companies that could have provided work for decades to come. And the fund managers get a short-term boost to their profits. But only at the cost hollowing out the base of companies they can invest in.
Again, think about Cadbury. The UK has precious few globally successful consumer goods companies. A hundred years of work has gone into creating some of the most recognisable confectionary brands in the world. Almost certainly, if they are subsumed into a giant Kraft conglomerate, they will slowly be forgotten about and eventually die off. Sure, the fund managers will make a quick extra 30% profit on the shares, and that will flatter the next quarterly report to their investors. But there will be one less high-quality British company to invest in. Cadbury could have provided them with steady profits and dividends for years – precisely the kind of blue-chip stock that pension funds need to hold in their portfolio.
Likewise Anglo American. True, plenty of fund managers have questions about the way the mining conglomerate is being managed. It may well not be extracting all the value that can be squeezed out of its assets. Over the long-term, however, a huge merger is unlikely to fix that. If the shareholders aren’t happy, they can always sack the management. But if they sell the company, they won’t get to share in its long-term growth. And the FTSE will lose another big, quality company – after all if platinum, gold, diamond mining isn’t a good long-term business, then it is hard to know what is.
The City, including the fund managers, the hedge funds, and the bankers, could send a simple message. Over Cadbury or Anglo American, they could say, this is a quality business, and if there are any problems, we’ll ask the management to fix them. If they aren’t up to it, we’ll appoint new ones. But we don’t see any point in a mega-merger: it will just distract management, and destroy value in the long-term.
True, there is probably about as much chance of happening as there is of a packet of chocolate buttons surviving break-time in a school playground. If it did, however, it would send a powerful message that the City had changed. And before the fund managers pocket the profits, and before the bankers start trying to rustle up a rival bid, they should at least pause to ponder whether another merger boom is really what they want right now.

Monday, 7 September 2009

Reasons To Be Cheerful....

Despite all the gloom about the gloabl economy, there are, as Ian Dury might put, reasons to be cheerful as well. I explored a few of them in my Money Week columm this week. Here's a taster.....

It isn’t hard to be depressed about the outlook for the global economy over the next twenty years. After roughly two decades when everything seemed to go right --- inflation was tamed, technology boomed, globalisation opened up new markets – to many people it now looks as if everything is about to go wrong. Massive debts will overhang both the private and public sectors, whole industries look bankrupt, and protectionism is returning.
And yet, one lesson of the past hundred years has been that the surprises are more often on the upside. After a traumatic shock, the economy often does a lot better than most people thought it would. That was certainly true after the inflationary traumas of the 1970s, and it was true as well after both the First and Second World Wars. Could it be true again? Despite all the challenges the economy faces, there is no reason why it shouldn’t be. The consuming populations of the emerging markets are about to double, the developed world has huge hidden reserves of labour that could be put back to work, Africa could be re-integrated into the world economy, and technology could yet re-ignite global demand. We might yet be pleasant surprised by how well the world economy does in 2010-2030.
Looking back, the 1990s and 2000’s will no doubt go down as a uniquely benign period in global economics. The Bank of England governor, Mervyn King, took to referring to it as the ‘NICE decade’, standing for ‘non-inflationary consistently growing’ and that pretty much summed it up. After the oil shocks and recessions of the 1970s and 1980s, just about everything came good. Inflation was successfully tamed. Governments around the world embarked in programmes of deregulation and privatisation. Communism collapsed, propelling lots of new countries into the free market system. The growth of computers, mobile phones and the internet spawned huge new industries. It retrospect, it looks like a prosperous golden age, in which all we had to do was worry about spending wealth, not creating it.
In the wake of the financial collapse and global recession of 2008/2009, it is easy to imagine that is over. The banking authorities warn us that any return to growth will be a long hard slog. Debts are massive in both the private and public sectors. Borrowing will have to slow down and taxes will have to rise. The world is awash with excess capacity, destroying profits for a generation. Populations are aging, creating huge demographic challenges. Resources are scare once again, and it may not be long before we have inflation to contend with as well. Charles Bean, the deputy governor of the Bank of England, already refers to it as ‘the great contraction’, and that is a view shared by many policy-makers. They don’t expect the good times to return soon.
And yet, the aftermath of a traumatic shock to the global economy is often better than people imagine. “The periods after the two world wars in the twentieth century, the inflationary 1970s, and the emerging markets crisis in the period from 1997-2000 were all thought likely to be the gateway to stagnation, but economic performance, in the end, surprised on the upside,” argued George Magus, senior economic adviser to UBS in a recent analysis.
We may well be surprised again. Whilst there is no point in ignoring the problems, there are reasons for optimism as well.
First, over the next 30 years, the world’s population is expected to grow by another three to four billion people. Most of them will be in the emerging economies, so whilst Europe and the US may have a demographic crisis, those economies will still be thriving. Many of the big developing economies – and in particular China and India – will have a rapidly expanding middle-class. They will have reached the point where they stop just buying necessities and turn into affluent consumers. That could be one of the big drivers of growth in the next 20 years.
Second, in Europe, and the US lots of people don’t work. In the UK, for example, around five million people are on incapacity or unemployment benefit. The same is true in many other countries (even if they have other ways of disguising the unemployment). People still routinely retire at 55 or 60 even though they may well live for another thirty years. A combination of welfare and retirement policies have pushed down the percentage of the population that works. If that starts to change – and the pressure that public finances are going to be under in the next decade means it will probably have to - then it will release a huge number of people into the labour force. Since the number of workers is one of the main determinants of long-term growth, that would give the economy a big boost.
Thirdly, a whole continent was excluded from the economic boom of the last decade: Africa. Whilst the rest of the world got richer, Africa got poorer. That doesn’t make any sense – the continent has too many valuable raw materials too be ignored. At some point, Africa will be re-integrated into the global economy, unleashing yet another driver of growth.
Finally, don’t discount another technological revolution. Mobiles might have reached saturation point. The internet might not be able to grow in the next decade the way it did in the last. But, by definition, we have no idea what will be invented in the future – if we did we’d already be making it. With the world’s population rising, with education improving in the developing world, it would be very odd if the world’s inventiveness slowed down. It is much more likely to speed up – and all the new stuff that gets invented will create new industries.
None of it may happen, of course. Yet amid all the gloom, it is worth remembering that the global economy has a great capacity to bounce back from adversity. Undue pessimism can be just as expensive for investors as exaggerated optimism. Growth has surprised us before – and it may well do again.

Tuesday, 1 September 2009

Fed Up With Dan Brown? We Are....

The Curzon Group is already fed up withe the hype over the new Dan Brown book. So we made a video about it....