Other well known Q.E.s

The economic leaders, i.e. the governments have no clue how this is going to play out. Neither do the so-called experts – the economists, the analysts, the commentators.

Due to the unmapped landscape and the all-pervading fear of this unknown scenario, politicians have literally been given a free reign to try experimental cures at alarming doses.

Just imagine going to the hospital with cancer which has been caused by exposure to some strange kind of radiation called ‘borrowtoomuch’. When you get to the hospital the doctor says he’s never seen such a case before. Then he says that the best they could do was try an experimental cure – by giving you a massive dose of ‘borrowtoomuch’! “Wait,” you remark. “Isn’t that what caused the disease in the first place?” you ask the doctor. He replies, “Yes you are right. But your body has now come to be dependent on it, like a drug addiction. The reason you have got ill is that suddenly you stopped getting it. Perhaps if we pump you full of borrowtoomuch we can jumpstart your system once more. I can’t guarantee the cancer will be cured but maybe we can keep the symptoms at bay!”

The £75 billion quick-fix

That’s what all these enormous fiscal stimuli which are being bandied about like sweeties feel like. An attempt at treating a problem caused by too much credit, by creating further credit. However crazy this all sounds, even we have to admit it does sound intriguing and we wonder if it just might work, but that is only because the true cure seems so tough and unbearable, i.e. to let everything crash and burn, to suffer deflation and depression Japanese-style for a decade or so, let greed vanish and bad companies die, let politicians and public come to their senses and realise you must first save and then spend, let real businesses which provide real services and real products drive a gradual increase in the economy, rather than institutions and individuals borrowing credit and speculating on asset classes and derivatives. This would ultimately be the healthiest way forward, but who wants to go to the physician and take bitter medicine for many years when the surgeon can remove the tumour far quicker, even if he leaves some scars and the risk of recurrence. Even in an idealistic world, this would be a tough choice. However in the real world of politicians who must win the next election, its no choice at all – it’s the surgeon’s quick hand every time.

Right now, the dear old Bank of England is ripping open the chest of the UK money system, and pouring in several gallons of cash. Glug, glug, glug. Can you hear those £75bn filling up the Governments fiscal heart? That heart hopes to pump it out into the arms of the banking system, and hopefully on from there into the hands of industry and business, to shore up productivity and jobs, as well as into our hands, through more mortgage lending. Plus, if that doesn’t work, there’ll be another £75bn ready to be pumped in just for good measure.

Printing presses off to a flying start

Darling & Brown, but where is Prudence?

Bear in mind also, that with so many extra ‘quid’ floating about, and this increased money supply chasing the same goods/assets/services – you know what it spells don’t you friends? Inflation.

Now personally we don’t think that a bit of inflation is a bad thing, in fact we’d rather have a couple of points of inflation each year rather than deflation. That would be healthy. However that level of healthy inflation needs to come from increasing economic activity and increasing productivity leading to increasing wages etc. The kind of inflation we might get from this Q.E. would not be this type of ‘good’ inflation. Instead it would be coming at a time when the economy is doing badly, companies are going bust and unemployment high. This is a time of stagnation in the economy, and inflation due to artificial stimuli at this time of stagnation is known aptly as Stagflation. This is not good, especially if it were to turn into hyper-inflation Zimbabwe-style (give or take a few zeroes!!). In an already depressed job market and time of trouble, the value of the pound in our pocket would plummet even further, and our mortgages would rise again from these historic lows. Its something we will all need to keep watching out for over the coming months.

Liquidity is not the problem!

The core dilemma we foresee with this tinkering with Q.E. is that it is trying to rectify the credit supply. Banks are not lending. The Government hopes that once they are given fresh injections of capital, the credit will start to flow again to businesses and individuals. The trouble is that it is no longer just an issue of credit supply. The banks do now have money to lend, they just don’t want to lend! They are being uber-cautious because they are scared. They don’t know what anything is worth. That’s why you can’t get a buy-to-let mortgage for more than 70% loan-to-value these days. The banks would rather hold on to their capital until the murkiness has cleared and assets have bottomed out in value.

Furthermore, even if they did want to lend, who wants to borrow? The public at large are scared. Everyone is worried about the coming years and is paying-down debt. People have actually started saving and we have entered a thrift-conscious era. Not many people want a new house or a new car (4×4 is now a dirty word, even in Chelsea). Garden centres are doing roaring trade as everyone wants to ‘grow their own’ veg. State schools are finding that their admission applications are rising as more of the middle classes opt for free State education. So even with these billions being pumped in by the Bank of England its no automatic guarantee that the economy will get the boost it needs.

Ultimately, what started out as a credit crunch, that spawned a recession, has now become a Depression. Both ‘credit crunch’ and ‘recession’ are events led by a country’s macroeconomics. A ‘Depression’ on the other hand manifests in the hearts and minds of the citizens. We are now ‘economically Depressed’. Our spending has stopped. You can’t Q.E. us out of our fear at the touch of a button or whirr of the printing press. We won’t feel like spending again no matter how many speeches you give or assurances you give. Not until we get jobs. Not until our firms stop going bust. Not until we feel safe.

Recommended related articles:

http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2009/03/qe_day.html

http://www.fleetstreetinvest.co.uk/shares/market-outlook/quantitative-easing-devalue-pound-11246.html

Human ingenuity reaches new dizzying heights

Could it be that the building of record breaking Skyscrapers could be used as a tool to predict the onset of economic downturn?

The answer according to economist Andrew Lawrence, research director at Dresdner Kleinwort Wasserstein, is quite possibly, Yes!

Back in Jan 1999 Lawrence put forward a concept which he called The Skyscraper Index.

He suggested that Skyscraper construction seemed to have a direct correlation to business cycles. Many skyscrapers over the past century seemed to have been constructed on the eve of economic downturns, at the end of a business cycle when economic growth had been exhausted. It wasn’t that they caused the downturn, just that they were a predictor of it.

Andrew Lawrence linked this phenomenon to economic factors which seemed to progress through a boom and peak at the end of the boom cycle. These factors were overinvestment, speculation and monetary expansion.

A decline in interest rates at the beginning of a boom has at least three effects which contribute to skyscraper construction. Firstly it drives land prices higher, hence the attractiveness of constructing a tall building with a small footprint and thereby increasing vertical density. Secondly, declining interest rates allow an increase in the average size of a company, creating demand for more office space. Thirdly, low interest rates provide investment to construction technologies that enable developers to break earlier records. All three factors peak at the end of the growth period.

Although some critics have dismissed the index as being an unreliable tool, nevertheless it appeals to the common sense approach when we consider the above mentioned factors in relation to speculation and overinvestment during boom times.

The table below lists previous skyscrapers which were all built on the cusp of recessions, and were often completed after the booms were well and truly over.

Record breaking skyscrapers and associated crises

As for the Burj, the coming year will tell us whether Emaar will be able to add yet another accolade to its collection – that of No.1 Endorser of the Skyscraper Index.

The Burj Dubai - the latest record holder

For more on this indicator, try the following:

Skyscrapers and Business Cycles [Ludwig von Mises Institute]
Skyscraper Index [Wikipedia]



This article first published here on www.dubaipropertycrash.com

Happiness is such a vague concept, one that means so many different things to different people. In economics terms I guess one could argue that happiness is that state of being which we spend our working hours in the pursuit of. There are those lucky few who actually enjoy the work they do and who therefore derive happiness from their jobs. Yet still even those people are not totally happy. They still aim for a mythical time, somewhere in the future, when they will have no financial worries, all their reasonable desires will be purchasable, they will have leisure time, good health, an esteemed status amongst their peers, and their family around them will be in a similar state of affairs. Yes I know that is very generic, but I reckon that’s a reasonable shot at the transcendent question.

I wonder what my father’s idea of happiness was when he arrived in uk 50 years ago in search of a better life? At that time I think the majority of those desires mentioned above probably applied, but in totally different proportions to today. For one thing, the sense of family responsibility of economic migrants from Asia in those days was very high compared to today, and the happiness derived from knowing you were supporting your loved ones in the village (who mostly never turned out to be thankful) ranked high on the list. Those guys were highly altruistic. Personal comfort and possessions ranked much further down than is the case today. Even we, their children here in the uk had to keep our requirements to a bare minimum (oh the stories I could tell of scrimping and saving!!) But you know what, we didn’t know any better, and I guess we were happy. In fact we were truly happy – we at least had the love of our parents. Benjamin Franklin wrote in “Poor Richard’s Almanack” that “A child thinks that 20 pounds and 20 years can never be spent.” I remember thinking that!

For my generation (the 2nd generation british asians) reaching adulthood in the uk towards the end of the 20th century, our future desires and goals were like a carrier wave. On that carrier wave was piggy-backed the signal transmitted from the hearts of our parents. After their industrious achievements and success of paying the debt of servitude to those back home, their youth was gone, and they now made a vow to not let their children endure the same soul-destroying treadmill. Hence the rise of the doctor-lawyer-accountant-engineer army of british asians amongst whom I can be counted.

Our generation now sees happiness through the eyes of the 21st century. Our concepts put leisure and personal pleasure far higher up on that list. Family responsibility is somewhat further down (although still there). The experience of our forefathers has been diluted, perhaps even lost. What they learnt through bitter hard graft and toil is evident in the house, or in some cases houses, which they bequeath us and in the businesses they pass on to us. Their emphasis on saving can be seen in the pensions which they receive each month. Their globalised equity is evident whenever you travel back to your village or town of origin back in Pakistan/India etc and people there show you some respect (more so if you flash some cash but its there even if you don’t as long as your dad once did!).

In this way, to some degree, our parents ultimately achieved their happiness. We are still looking for ours.

With the new Great Depression upon us, we may get a chance to revert to older fashioned pathways to happiness. Ways which involve saving and working hard before ‘earning’ the right to own a house or a large car. We may find ourselves getting pleasure from more of the things that don’t cost – the walks in the park, the mountain hike, the nights in playing monopoly or watching a dvd, cooking a pizza with the kids.

The coming year will bring mixed blessings to us in the West. On the one hand we will have a toning down of our consumerist tendencies forced upon us, but on the other hand we just may realise that happiness was never about all that stuff anyway.

Wishing all our readers every happiness and success for 2009.

Are you sick to death yet of the credit crunch/subprime crisis/global meltdown/worldwide recession ? Have we missed any of the Armageddon terminology being used these days? Probably – so please, email us with your suggestions and we will publish a full list in the next Ultraletter.

The thing is, the current situation unfolding across the world is the worst of its kind for a generation. This one is the big one – a recessionary storm of tsunami-scale proportions. Yet tell us, dear dedicated readers, does it feel that way to you? Deep within are you feeling the fear and the panic? Do you lie awake at night and feel sick through the day?

For those currently threatened with repossession or job loss, the answer to this question will undoubtedly be yes. Yet for the vast majority of us, we suspect that it still feels like just another scary news story, albeit one that has been going on for longer than most now. We know something bad has happened and we can see that prices of houses in our street have fallen a bit. But nausea and panic? …..Not really.

Take for example the stock market. After spending the first half of 2008 well above the 12000 mark, the Dow Jones Index fell to a low point of 7552 on Nov 20th. Yet since then there has been somewhat of a retracing and the Dow Jones ended the last week at just over 8400. Overall this was a positive week for the stock market, despite President Bush (fresh from dicing with the deadly dinner shoes) agreeing a multi-billion bailout for the obviously terminally-ill american car industry, and in spite of the desperate rate cutting by the Fed to a record low of 0.25% with the promise to print as much money as needed to bailout the nation, prosaically called ‘Quantitative Easing’.

a misleading stock market indicator

There is no doubt that if my pet cat was thrown from the top of the Empire State Building and then observed to spring back up off the pavement (sidewalk) – there would be a truly heartfelt impulse to believe that the pet had survived the fall. Yet one’s intellect would still be the best judge and we would realise, if we were sane people, that more than likely the moggy is indeed dead.

Unfortunately, the share traders and financial pundits out there are still listening to their hearts right now. They are hoping against the odds that tiddles the cat is still alive and has merely sprained a cat-ankle which is already on its way to getting better after a few shakes of the leg.

We on the other hand, remain with yellow pages in hand, looking for the number of the nearest pet cemetery.

You too should be very wary of this bounce. This is danger territory friends – a classic post bubble bounce. Much of it is down to technical traders trying for some short term gains. There are also short sellers in there, covering their trades. But also, average people still have hope left in them. They still remember the good times. Something in them thinks that the good days have just taken a breather and no doubt will be back again some moment soon. There are those who are counting on Obama doing a magic trick in early 2009 and lifting the economy with his bailout initiatives. The recent decline has not been internalised. People still view it all as some phenomenon that is in major part affecting those other than themselves. They look pitifully at their poorer neighbours who are obviously feeling the pinch. So the fall becomes a ‘buying opportunity’. The financial pundits are complicit – they tell us that stocks always go up in the long run. While this is no doubt true, it still doesn’t mean this is the time to pile in nor does it inform us as to how long the long term might be. The element of ‘risk’ is perhaps still being misunderstood at this juncture.

These ’sucker rallies’ happen in bear markets, we all know that. We are still too hopeful and curiously watching the show, chatting about it, considering whether or not to make a ‘play’ or sit it out some more. We see the daily doom, the companies in strife, the unemployment levels rising and the repossession levels growing. But still the worldwide indices are holding their nerve. We would humbly suggest that weighing things up in total, it is not worth taking upwards bets at this point, even though there may be some sorely tempting rallies in the next 6 months.

If you really believe in buying and holding, and do not mind the long term being more than a decade then we are sure that buying into high quality best-of-breed companies will work out well over that time frame. However if you are aiming for an investment span of 5 to 10 years, then be exceedingly careful with your selections.

When your neighbours look like this, time to buy shares again!

The latest round of interest rate cuts around the world have taken rates to amongst their lowest points in half a century. In the UK, USA and Japan they are approaching 0% and according to some analysts are likely to get there soon.

It hardly seems fair.

Yet there is another school of thought, which predates our modern day economists by a fairly wide margin and that could shed an alternative light on the debate. We all know (or should do) that the three major monotheistic faiths, Judaism, Christianity and Islam all have in their literature a prohibition on interest. The Torah, The Bible and The Quran all advise against dealing in interest, whether charging it or even paying it. References on these can easily be googled so I won’t elaborate here.

To my understanding of the idea behind this prohibition, it seems that just like the Paradox of Thrift mentioned above, there is another paradox when it comes to interest. Although at an individual level it may seem totally reasonable and even desirable for banks to extend loans in return for interest so that we can buy a house or start a business, on the macro-economic level it may eventually play a large part in causing the booms and busts that we experience. The theists will argue that taken as a whole, the harm caused by interest is far greater than the good that might come of it, hence it is not allowed. It is a complex subject and not one that can be covered in detail in this Ultraletter, but one worthy of a separate article which we promise to write up soon in the name of research and understanding. In the meantime here is an excellent guide from one of the UK’s leading ethical financial advisers, 1stethical.com, on the subject of Interest based lending in the modern banking system

At the crux of it though, the ‘good savers’ that put their cash away into savings accounts were after interest income without risk, or making money directly on their money without doing any economic activity, e.g. trading or renting out an asset. They were not actually contributing to the economy by spending or investing, but rather trying to earn money whilst taking no risk, i.e. capital was secure. Accordingly since no risk is being taken, to be honest they deserve no reward. It could be argued that its the people buying houses, paying stamp duty and VAT in the process, then spending thousands doing up their houses in the pursuit of happiness and profit who are the real stars of the economy. They are the ones who put their butts on the line! Those amongst them who took too great a risk, i.e. self-certified loans beyond their means or where they had a shaky cashflow, have been punished automatically by losing the asset they acquired.

The Board of 'The Bank of God' do some blue-sky thinking

Suffice to say that with falling rates across the globe, whether willingly or not, the world’s bankers are getting closer to a more divine banking system month-by-month! We wonder though if they will ever see the light. Our breaths are not being held !

I remember learning in biology class about Darwinism and survival of the fittest. We were taught that the dinosaurs became extinct 65 million years ago due to some cataclysmic event, most likely a comet impact, from which they were unable to recover. Does this sound familiar at all, Detroit folk? No doubt that dinosaurs walked the earth for over 165 million years, but when their time was up, it was up! There was no bailout – period!

But it had to be that way – they were no longer viable in the changing climate. Their large size meant they were resource-hungry and inefficient. They’d had it easy for too long. They could not adapt, so nature allowed their era to come to a close. Were it not for that event however, it’s unlikely that the meteoric rise of the mammals could have occurred. The wondrous creation known as Homo Sapiens may never have had its time. We have been around perhaps only a couple of hundred thousand years – yet look at the astonishing things we have done.

The point is that entities, whether species or companies, should not be given life-support beyond their natural end. If we do that, we will never find out what ingenious ideas or objects may have come in their place. In any case, even if we do try, the end is usually just postponed, not averted.

T Rex was late again to the Extinction Convention

We can understand the quandary facing the politicians. The US car industry reckons it accounts for 1-in-10 US jobs, of which 250,000 are direct employees. In addition, a bankruptcy or failure of the Detroit Three would threaten billions of dollars of financial instruments, according to credit market analysts. On an international level there are also many hundreds of thousands of jobs in related industries that are likely to suffer. So there are a lot of people’s livelihoods at stake here, and we are not callous enough to not care about all of that, so we say go ahead lawmakers, give it a shot. Where you have spent billions on the bank bailouts, why not give some to the car makers too? If you like you can send a couple of cheques our way too. We are sure you wouldn’t even notice a few K’s amongst all those billions.

Ultimately though, it appears that these corporates have already squandered their advantages. Their cars are inefficient and the quality is simply not there. They had decades to get it right. They didn’t have to export since their target market, i.e. the biggest consumers of cars in the world, was at their doorstep. They could understand their customers needs since they were from amongst them. They had the ear of politicians and finance was easy. It was all downhill driving. Yet now the world has decided that they do not want Detroit cars. They want German and Japanese cars. Maybe they don’t want cars at all and they just want LCD TVs instead. So by bailing them out, congress is saying to the world “NO, you must have our cars!” – The world will answer, “Hello? We don’t want them!!”

2009 ain’t lookin’ too good for the Detroitosaurus Rex.

What the…….!

No really, these are two funky new terms that we have come across this week whilst surfing the web and of course, we like keeping our readers up to trend with the latest fashions.

So – who fancies joining the new Frugalistas?

It’s the latest fashion of the thrifty chic. Living to excess is so last year. Expensive restaurants, SUVs, luxury holidays and overseas homes? – how passe! Definitely no longer cool. ‘Frugalista’ is the new black. Yes folks – you too can be poor and stylish !

Find some hot tips at sites such as Tips From The Frugalista Moms and The Frugalista Files

On the other hand, if you believe Barack Obama, we must all spend, spend, spend – if not at the consumer level then certainly at the governmental level. Its the only way to lift our economy out of the black pit of recession. Apparently! Nick Robinson of the BBC calls this philosophy Obamanomics, which reminds us of a website we quite approve of

In essence what we are alluding to here is something called The Paradox of Thrift – a term coined by the economist John Maynard Keynes in the 1930s, during the Great Depression. He stated that although being frugal and thrifty seems to be the best policy for individuals, as far as the overall economy goes it can be damaging. So the paradox is that the more we save, the more we reduce demand for goods and therefore the worse the economy gets. It can be quite a vicious circle. The slumping economy means businesses invest less, hire less and increase redundancies. Ultimately the effect cascades through the system and overall income for everybody declines, leading to less money for people to be able to put aside and save. Simply put, as a society overall, the more we save the less we earn. In this way the decline self perpetuates. Bear in mind this is all a theory.

In fact it is part of the Keynesian economic theory that is currently in fashion with Gordon Brown, Barack Obama and their global counterparts.

John Keynes’ suggested solution to the Paradox of Thrift conundrum was that to offset the thrift of consumers in times of recession, the government must step in and take their place. Keynes argued that the state should increase public spending – on hospitals, roads, infrastructure projects etc. in order to inject cash into the economy and try to keep businesses humming and people in jobs. This is even more vital when interest rates are also dropping and deflation (falling prices) is happening. Falling prices can reinforce the thrift instinct in individuals when it comes to big-ticket items because no-one wants to buy a new house or new car if they can see that in 6 months time these items will be even cheaper. Hence they stash the cash and kill the till.

Across the ocean, Obama has a Lightbulb moment………….

The Keynes effect is in full force over in the USofA. In fact it seems there is no end to the amount of money congress is willing to hand out to the ailing US economy. A fortnight ago another half trillion tax payer dollars were earmarked to ‘fight the crunch’. This time Bush (remember him?) wanted to address credit and housing, which experts say must recover to pull out of recession. That’s on top of the previous $470 billion bailout of the Wall St financial institutions (Fannie Mae, Freddie Mac and the rest).

Remember this is in the light of the steepest slump in US consumer spending for 30 years. Not only that but this weekend we heard that US employers axed 533,000 jobs in November, the biggest job cut since 1974. The unemployment rate is now 6.7% which is the highest in 15 years. Yet more record breaking statistics, the likes of which we are kind of getting fatigued of hearing now.

When Obama steps in in January he wants to hand out a further $500 billion +. This will be a ‘jobs rescue package’ with a definite ‘Green’ tint. He says that an “Immediate Infusion of money is needed to jumpstart the system” – looks like Obama has some surgeons and motor mechanics on the fiscal team! Amongst his many green-tinted Keynesian initiatives will be to make government buildings energy efficient by changing all the lightbulbs. Also new alternative energy projects will be an important theme. All these projects will create employment. Strangely though, his other initiatives such as increased road building and bridge construction as well as bailing out the big-3 car manufacturers, although meant to create jobs, are hardly going to help the environment. But right now the mantra is, that the price of doing nothing far outweighs that of the Obamanomics megaspend.

Rest-assured, like any theory, the Obamanomics-Keynesian theory also has its detractors. These critics feel that the infrastructure schemes will simply take too long to get off the ground and out of the planning stages to have any meaningful effect. By the time these projects get on line, the economy might already be past the rock-bottom stage anyway. Furthermore the effect known as ‘Rational Expectations’ may kick in. The general population may come to realise that all this hyper government spending will one day in the future have to be recouped through higher taxes. This expectation may make people spend even less than before and save even more, thus somewhat negating the effect of the increased public spending. Tricky isn’t it? But intriguing!

The biggest worry is that these strategies will not prevent a recession or depression, and worse still we may end up with Stagflation – the thankfully rare malady of a stagnating economy coinciding with a spike in inflation, such as that experienced in the 1960s and 70s, which took until the 80s to recover from (I promise to touch upon the how and why of what stagflation is in the next Ultraletter – so stay tuned – I don’t want to fry your brain cells and mine all at once! )

In the UK Gordon Brown and Alistair Darling are going hell-for-leather down the same route as Bush and Obama. The Germans are meanwhile hissing with scorn. Their finance minister, Peer Steinbrück, tore into Gordon Brown’s £12.5bn cut in VAT, describing the move as “crass Keynesianism” that would raise Britain’s national debt to levels that would take a generation to pay off

Whether we are about to see a new era of Stagflation, possibly on a global scale remains to be seen. Even we are intrigued to see if Keynesianism will do the trick this time around. In case it doesn’t just remember we were dubious all along.

I can see how the valued reader may have come to this conclusion, after all we are all too often having digs at ‘the establishment’. But, just to clarify for the benefit of all, we are not at all anti-establishment. Neither are we particularly socialist.

Au contraire mes amis we believe that ‘free market’ capitalism, though not perfect, is the best system we currently have. We believe that human enterprise should be rewarded in direct proportion to the inspiration and perspiration applied. Most of the time it works pretty well, sometimes perhaps too well (ask the Chinese!) Hence on occasion some powers feel compelled to manipulate it (ask the Americans), for example with trade barriers, subsidies, bailouts, credit pumping and so on. Fortunately though, in its truest form, the free market is a force of nature. It is the combined sum of all human economic endeavour.

In the short term markets can be somewhat manipulated by those with vested interests, be it market makers including the banks, cartels such as OPEC, government policy makers or hedge funds. Their activities influence the herd-mentality bubble-brigade (that includes many of us) who as a group are the end ‘voters’ who bid up assets such as stocks and houses.

As they say in stock market parlance, “In the short term the market is a voting machine, but in the long term it is a weighing machine“. Speculation might work short term, but only sustained hard work or skill pays off long term. In the end the market is far too complex to remain under any one group or nation’s control. It always reverts to its optimum state, and the force of the snap-back tends to be directly proportional to the degree of manipulation (or dumbness) which preceded it.

So, fellow comrades…err….citizens….we are not fuzzy thinking leftists after all. We don’t want to change the world – heck we wouldn’t even know what to change it to. We just want to see through the haze and perhaps get a few faint glimpses of the reality that is so often hidden from us. We want to expose the world of economics ‘as it is’ with a view to steering a course through the murkiness without getting our fingers burned; without ending up penniless towards the end of our miserable existences. Furthermore, being the nice people that we are, we want to share it all with you, our readers. Ultranomics commentary is meant to inform and entertain and to make you think. There are no political agendas or aims to be found on these pages. Honest, guv……

The award for the most depressing story of the week goes to……..

First the Somali pirates, now the Mumbai terrorists. At least the former were in it just for the money. The latter have proven more blood-thirsty. In the last Ultraletter we spoke about the 23rd century utopia of Star Trek. How far we truly are from that ideal.

With just under 200 dead we have no clear idea who they are and why they’ve done it. One thing we do know, they were highly organised and well equipped. They had insiders at the hotels who smuggled in the explosives. They had boats to drop them off, off the coast of Mumbai. They specifically targeted India’s financial hub and went after Westerners in particular. They planned it so well yet left an easy peasy trail of breadcrumbs back to…..you’ve guessed it…Pakistan. Doh!

I am no conspiracy theorist by nature – I even believe that the Americans really did go to the moon, much to the disdain of JQ ! – but you have to ask yourself who would have most to gain from this crime at a time when India and Pakistan are building bridges and getting pally once more? What’s worse is that the average man in the rickshaw falls for it. As surely as A is followed by B the terrorists cause some carnage and hey presto, the steadying relations of the two neighbours are blown to smithereens together with the perpetrators themselves. At who’s behest though, that is the question.

Perhaps Kashmiri activists making a point over territory? Perhaps Pakistan-based Islamic militants making trouble for the Pak govt over their support for America? Perhaps insiders who can’t abide any Friendship with the old enemy? Perhaps it could even be some other nation (or nations) that fear the possibility of an IndoPakChinese Superpower in the sense of military (nuclear) capability or economic strength? Who’s playing the long game here…..?

The classic Atari videogame: Breakout

Do you remember that old Atari videogame called Breakout, where the ball would bounce around the screen smashing any brick that it touched? That reminds me of the toxic debt originating in the US subprime debacle, the effects of which are still ping-ponging around the globe smashing companies and financial institutions in their wake.

After knocking out Iceland (the country, not the UK frozen food retailer which probably is worth more) and giving the worlds largest bank, Citigroup a hefty thwack, the latest UK bricks to be smashed last week were two household names in retail – I am referring of course to Woolworths and MFI. Who would have thought that good old ‘Woolies’, founded in 1909, having survived the Great Depression, two world wars and several recessions would meet its demise in the crash of ‘08? We are wondering where that wrecking ball is on its way to next? The world it seems is smaller than we ever thought and remarkably its all interlinked through the subprime debt network. John Lewis, Marks & Spencer – batten down your hatches. Ford, General Motors, Chrysler – run for cover now!

Houses…….

Well you would hardly be surprised to know that UK house prices fell again in November, albeit by only 0.4%, a much more moderate slowdown compared to the 1.3% fall of October. This is according to the statistics from Nationwide, UK’s largest building society.

Prices are down from a year ago by an average of 13.9%. Mind you you’re still doing OK as long as you bought more than a couple of years ago. Average prices are still £25,000 higher than they were in 2003. Those who bought more recently will need to ride out the storm – but if you do need to sell try to avoid those ‘buy and rent back’ profiteers. There may be some genuine companies out there but there’s plenty of sharks roaming the waters right now.

As for where we are headed in 2009 with house prices, its anybody’s guess – including ours. We do dabble in property so we have a gut feeling you see. Mine says that falling interest rates are going to tempt professional landlords into the market in a sustained way from here on in, although that won’t be enough to revive the market. Thus there will be no recovery in 2009 although a bottom may well be reached during the middle of the year.

How we go from there will depend on other factors such as bank lending improving, recession abating, unemployment steadying etc. The other main factor will be human psyche. We will as a nation need time to forget the panic of 2008 and the fear instilled by the subprime meltdown. Once we forget we will then start dippping our toe back in. At the moment though fear and worry are still the order of the day. That’s all my gut has to say on the matter for now, apart from some gurgling.

Jobs……..
The chancellor Alistair Darling was on BBC Radio 4 last Tuesday (25th Nov) insisting that Labour had reduced unemployment so significantly since coming into power and that most of the jobs created by Labour had been in private sector. I mean “Wow” – the art of propaganda and misdirection is obviously very much alive and kicking.

It is true that between 1998 and 2006 there seems to have been around 2.2 million new jobs added. Unfortunately 1.3 million of these have been public sector, inc admin, health, teaching, social work. As for new jobs for women, a whacking 90% all job growth for women was in the public sector, i.e. funded by the taxpayer! The West midlands actually saw a drop in private sector jobs of 2% while public jobs increased 25%!!

Why is this important – after all isn’t a job still a job, regardless of public or private sector? Well true at an individual level its great for those getting the job. Yet by creating all these government jobs they do not directly benefit the nation’s economy. Instead we all as taxpayers have to pay these public wages.

Of course we don’t mind the teachers, doctors, nurses – give us more. But its the pointless pen-pushing jobs in City halls up and down the country that we object to, each with attractive salaries, bonuses, generous final salary and index linked pensions. These public workers spend more days on strike and are 25% more likely to take sickies than those working for private companies. There are 818 workers in town halls earning more than £100k, paid for by me and you. Yet as a nation if we want to prosper we need industry, and people employed in industry. Thats the only way to turn a profit – by making products and offering services and exporting them to other countries. Paying each other to potter about organising this and that does not create wealth.

And…guess what? Its going to get worse! The Centre for Economic and Business Research (CEBR) reckons the state will be hiring another 50,000 workers while at the same time private jobs will continue to slide as the economy falters. The old soviet communists would be proud. What a warm feeling, being in the embrace of the all-knowing nanny state. Yes Gordon, take our taxes and spend them as you see fit. You are wiser and cleverer. Give us our daily bread, and our jobs. Since you employ us, we will of course return the favour and vote for you. After all, those nasty Tories might take away our cushy jobs. Lets not call it buying votes though – lets just call it mutual back scratching!

In the US on Thursday, Detroit car makers went up Capitol Hill to fetch a pail of money. Unfortunately they came tumbling down without a crown! Boo hoo. The silly sods went with begging cap in hand, yet when asked by congressional leaders how much they wanted and what for, they sat there scratching their heads like Stan Laurel (you remember Laurel & Hardy don’t you??). The Californian Democrat, Nancy Pelosi, who is the Speaker of the House of Representatives, said that the 3 Amigos, the bosses of General Motors, Ford Motor and Chrysler LLC have 12 days in which to come back with a viable plan of what they need and how they’re gonna spend it. Can you imagine going to see your bank manager and asking for a loan, then telling him he can give you as much as possible although you’re not sure what you want to spend it on yet. What a hoot!

As well as record levels of idiocy and farce, it seems the US is setting records daily across the board. The share price of General Motors hit $1.27, the lowest since 1938 ( a year before The Wizard of Oz). The US unemployment claims have hit 4 million – the highest since 1982 and factory output is now the lowest since 1990. Oil closed at $49.62 (the first time its been below $50 since 2003). Furthermore it seems that the cost of living in the US is falling at its fastest rate since records began in 1947. That might be much worse than it sounds. The same thing happened in Japan in the 1990s where the domino effect of dropping prices meant consumers wouldn’t buy large items since they’d be able to get them cheaper if they waited, leading to catastrophic demand slump and hence further price falls. Already in the US, retailers have begun to go out of business literally overnight. The double-edged sword of deflation might appear great for the consumer, but is in fact a guillotine to the neck of the economy. More detailed commentary on the deflation issue is promised for a future Ultraletter…..