Anger of ordinary men at the end of a difficult year

Anger of ordinary men at the end of a difficult year

Rage against the headlines…

I was walking along a street in central London yesterday morning when I came across a newsagent, with all the various titles on display outside. It is something of a curiosity that these places survive at all given the inexorable decline of printed media, but I think they sell phone cards, and other must-have stuff. Anyway, you can read the headlines of a dozen newspapers in less than thirty seconds, and, because it is London, there is usually a whole range of international offerings there as well.

So, whilst I was assimilating all this, a slightly older chap stopped to do the same. He was not dressed for the office, but not scruffy either. He then started to read out the headline from The Daily Mail in a loud, almost incredulous, voice. “BIG COMPANIES AVOID £25 BILLION IN TAX”. I thought he was on the phone to somebody, but no. No sooner had he wandered off than he returned, and went through the same exercise, with the sheer anger increasingly palpable.

We went our separate ways, but the image holds vividly. Moderate people turned incandescent.

Cash needed to keep up with an i-generation…

Meanwhile, the gap keeps on growing. At a meeting on Monday, one participant produced an iPad, apparently better than a Blackberry, but clearly a required piece of kit these days. And I suspect that neither of us is particularly comfortable with this type of technology. But if you cannot afford to buy/rent/lease these things, you are going to get left behind. With youth unemployment rates approaching 50% across Europe, there is a very real risk of a lost generation.

One of the great unknowns is whether the politicians get this.

 Real world loses out while the banks cash in…

Maybe they do. The ECB, (the central bank), today lent nearly 500 billion, on a three year basis to banks across the region, having relaxed the quality of the collateral they are prepared to take in exchange. Thus all those photocopy lease contracts end up in the central bank, which lends money out at 1%; you then use that to buy ,say, Spanish government debt,  (which remains risk free, according to the regulator), at 5% and life is good.

The turn makes you profits, which rebuilds your balance sheet, and has the happy coincidence of paying your bonuses. It does absolutely nothing for companies trying to operate in the real world, but hey.

But, damn. Others have spotted this; thus Spain managed to sell 6 month debt at only 2.4% this week verses the 5.2% it had to pay last month. So, maybe those bonuses won’t be so good, after all. I suspect that they will have to throw a lot more at this, but it is a start.

Another point of view…

For the alternative view, I leave you with the thoughts of Jim Leaviss, head of fixed interest at M&G.

“This will need to be the colossus of bailout packages-the alternative of collapsing banks, hyperinflation, depression and social upheaval will be too much to bear for any society.”

The test for 2012…

Thus, Christmas is upon us. It has been a very difficult year, and the only things that have worked for investors have been counter intuitive, at best. But I do think that these problems are capable of resolution, if only the politicians were not so self-serving, and incompetent. 2012 will be their test.

We will try and publish next week, but in the meantime, I wish you all the best for Christmas.

CDO

21^st December, 2011