Ignore the experts….

Monday 22nd August 2016

In this issue of Money Truths….

  • The forgotten man….
  • Tired of experts….
  • What they said….
  • Out of the woods?
  • Delaying the inevitable….

The forgotten man….

Does anybody remember Michael Gove?

Not so very long ago he wasn’t so very far away from becoming Prime Minister.

Alongside Boris Johnson he’d been a lead campaigner on the Leave side of the Brexit debate. The public had warmed to him during the televised debates. His stock had risen.

When the Leave side won the referendum, Gove had nominated Johnson in the race to succeed the outgoing David Cameron.

And then, at the death, ambition got the better of Gove. He knifed Johnson in the back on the eve of the latter’s candidacy announcement and then stood for office himself.

It was a miscalculation. His party and the public saw the mask slip. Underneath it, he looked like a monster. Gove had committed political suicide and was beaten out of sight in the Tory leadership contest.

Just a few weeks on and Gove could appear on Babestation gyrating around a greased pole and nobody would recognize him. Such is the fickle, and the brutal, nature of politics. Today’s great white hope is tomorrow’s forgotten man.

But the political prospects of one Michael Gove are not the focus of this column. Matters financial are where we rest our gaze. And we are more interested in something Michael Gove said when campaigning for Brexit then what he did in the aftermath of the vote being won….

Tired of experts….

During one of the TV debates on Brexit Gove had said: ‘I think people in this country have had enough of experts….’

His comments were a response to what the ‘experts’ were saying about the dire consequences a vote for Leave would bring about in Britain.

Gove was lambasted in some quarters. And mocked in others. His words were interpreted as the nonsensical ravings of the anti-intellectual brigade. Someone asked Gove if he deigned to listen to the doctor when he was ill.

But Gove wasn’t talking about that kind of expert. Gove was talking about the kind of ‘expert’ who doesn’t really know anything at all.

The kind of ‘expert’ who confuses speculation with certainty.

The kind of ‘expert’ who thinks he knows best and tells you what he ‘knows’ with a sense of authority as misplaced and as misguided as his conclusions.

In short Gove was talking about the economists and financial planners who deal in theories rather than facts.

He was talking about the commentators and the pundits who make their living prognosticating about things that are pretty much unknowable in advance.

He was talking about the proponents of vested interests who approach the public with weasel words and a set of ‘facts’ that are custom-produced to fit the agenda of choice.

These are the ‘experts’ Gove was referring to. And he probably didn’t quite make the point when he said people are tired of them.

What he probably meant and should have said is that people are starting to see through this kind of ‘expertise’ and to recognize it for what it is – propaganda, BS or noise that fills segments of newscasts or fills space in newspapers.

People are starting to see through on-message ‘experts’ who frequently say little that doesn’t turn out to be hot-air.

What they said….

All the way through the referendum, the ‘expert’ pollsters were telling their clients in the city and the media that the country would vote Remain – right up until the point it voted Leave.

That false prediction served to fuel a rise in the FTSE 100. The Leave vote caused the FTSE 100 to fall. Economic ‘experts’ said it would fall further. It didn’t. Instead it regained lost ground.

Other experts – the pointy heads at the Treasury and the IMF – predicted a post-Brexit economic shock.

Prior to the referendum vote the Treasury produced and distributed a dossier detailing what the ‘shock’ would consist of if the nation were foolish enough to vote to Leave.

House prices would be 18% lower by 2018 if we chose to leave the European project….

There would be heavy job losses…. Panicky consumers would stop spending money and the economy would grind to a halt….

The value of sterling would nosedive…. The stock market would follow it to the floor….

There would be recession…. and turmoil…. and much misery….

There would be an emergency budget. Income and inheritance taxes would need to be raised – immediately. The NHS budget would need to be slashed. So would other ministerial budgets. A £30 billion black hole would instantly appear in public finances….

The prime minister – a man surrounded by ‘expert’ advisors – raised the specter of a third world war. He told the electorate that the European project was the glue that united countries who would otherwise be at one another’s throats. To vote Leave was to risk conflict.

That’s what the ‘experts’ said would happen. But not much of it reflects what we see two months down the road from the Brexit vote.

House prices show no sign of plummeting. Unemployment is down. Consumer spending is up. The stock market was at a 14-month high last week. There was no emergency budget. We are not at war. Civilization remains intact – at least as intact as it was before the referendum.

The experts did get something right though (even a broken clock is right twice in any 24-hour period). Sterling has dropped in value. But overall the snapshot this morning is better than the experts predicted.

The Bank of England is now suggesting that Britain will avoid going into a full-blown recession.

Out of the woods?

So Britain is out of the woods? Is that what I am saying this morning?

Not at all. I don’t have the first clue what’s going to happen further down the line. And I wouldn’t insult you by pretending that I do.

What I’m telling you this morning is that all the experts they wheel out on TV and in the newspapers don’t know either.

They might sound like they know. Newscasters and journalists might treat them like they know. Maybe they even believe they know. But, take it from me, they don’t. Not for sure. Nobody does.

Sentiment is changing though. Over the weekend most of the newspapers took the line that two months after the referendum vote things aren’t as bad as was feared.

Even the Economist – a particularly shrill supporter of Remain – has moved its focus off the apocalyptic consequences of the British public’s stupidity and onto the nuts and bolts of disengagement from the European project.

Amongst the public there is a sense of normality returning. The anti-Leave marches and the gnashing of teeth have flattened out. The newspapers are not quite so obsessed. The Olympics have been pretty good. The Premier League is on the TV again after the midsummer break….

There is a feeling that whatever happened is over. That something is behind us. The storm has passed. The dinghy didn’t capsize. There is bright weather overhead. The waters are calming. Life goes on.

People are beginning to look at one another and smile (at least metaphorically). They are wondering if they should start clapping – like they do when a plane lands safely after encountering severe turbulence mid-flight. There’s a sense that we’re going to get out of this thing alive….

Which can mean only one thing. We are in mortal danger. When people start relaxing, that is the time for the keenest vigilance….

Delaying the inevitable….

We should focus our minds by recalling that, like the engineer trying to save the engine that drives the ship, the Bank of England has been at work in the economy since the global financial crisis of 2008.

It has kept interest rates at rock-bottom levels, recently reduced them again, pumped extra money into the economy, promised to do more, bolstered confidence and tried to keep the whole show steaming across the high seas.

Prior to Brexit, the economy had problems. Brexit just added some more. The ones it already had were serious enough. And they persist. Without central bank activity, things would look very different this morning. The situation report would make for bleak reading.

And the Bank of England’s actions serve only to delay what is inevitable. Low interest rates and money-printing help support and stimulate the economy now. But ultimately growth remains sluggish. What has to come down the pike will come. Maybe not today or tomorrow or next week. But it cannot be delayed forever.

From this morning certain corporate customers holding cash with the Royal Bank of Scotland will be charged for holding cash on deposit – the first stirrings of negative interest rates in the retail bank sector.

Investment and pension funds will be faced with a hard choice. Pay to keep money in the bank or find some other use for the cash.

Businesses and consumers will be next. With interest rates currently at 0.25%, the price of borrowing money can hardly fall lower. The next step in encouraging companies and consumers to borrow and spend will be to pay them to borrow and to penalize them for holding onto cash.

It’s already happened in Switzerland and Japan. It is only a matter of time before negative interest rates – paying borrowers to borrow and charging savers to save – becomes the new norm here and elsewhere.

The British economy might look ‘normal’ or ‘okay’ post-Brexit at first glance. But unprecedented things are happening. Things that suggest the situation isn’t very normal at all. Rough seas lie ahead of us.

That’s a money truth….

I’ll be back with more on Friday.

All the best,


Dave Gibson

Money Truths