Tuesday 1st August 2017
The life-support system cannot be turned off….
I went into town on Saturday expecting to see some long faces….
But truth be told, the consumers out on maneuvers looked no-more or no-less despondent than they did earlier in the summer….
The findings of market research firm GfK last week – that the British householder’s view of the broader economic situation has dropped to a 4-year-low – clearly haven’t filtered down onto my local High Street….
Nor the viewpoint of Joe Staton, head of Market Dynamics at GfK, who said: ‘All bets must now be on a further drift downwards in confidence.’
Saturday’s shoppers weren’t exactly doing cart-wheels into Boots or W H Smith. But nobody looked in dire need of the Samaritans either….
- Growth – flat on its back….
Maybe the shoppers on my local High Street just have good poker faces….
Maybe, like the equity markets, they simply don’t appreciate how miserable they ought to be….
Or maybe they just get on with the job of living and let the economic news blow in the wind….
Who knows? But the fact is that there isn’t much to be upbeat about right now….
Take last week’s figures from the Office of National Statistics which revealed Britain’s economy grew by just 0.3% in the second quarter of the year….
It is growth, I suppose, if you want to quibble. And I guess 0.3% is a slightly better figure than the 0.2% recorded in the first quarter of the year….
But if GDP growth is to the economy what the pulse is to the human body, it is unclear right now whether we need to call for the ambulance or for the undertaker….
The economy is flat on its back and not so much as twitching. Put the mirror to its mouth and it barely mists….
- Hand-wringing in the Threadneedle street….
Meantime, the Bank of England shows distinct signs of anxiety about levels of consumer indebtedness.
Guidance on the subject is being dispensed with a frequency that suggests there’s some serious hand-wringing going on behind closed doors….
In June, it was Bank of England chief Mark Carney issuing warnings about household debt representing a ‘pocket of risk’ in the economy….
But a fretful BoE doesn’t seem able to leave the subject alone. And just last week, they were at it again – out front and center in the glare of the cameras and picking away at the scab….
This time it was Alan Brazier, the bank director for financial stability, talking of a looming ‘spiral of complacency’ about mounting consumer debt….
‘Lenders have been the lucky beneficiaries of the benign way the economy has evolved. In expanding the supply of credit, they may be placing undue weight on the recent performance of credit cards and loans in benign conditions.’
Banks, credit card companies and car loan providers were put on notice that they face ‘action’ if they are found to be providing credit with reckless disregard for the consequences….
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- Closing in on a tipping point….
I think we can read a few things into the Bank of England’s growing ‘concern’….
First, we’re closing in on a tipping point. The Bank of England can see the time approaching when British households are more indebted than they have ever been before….
The last available figures say that the proportion of household debt to GDP in Britain was running at 87.6%.
That figure remains shy of the all-time high of 97% recorded in 2010. But make no mistake – we are moving steadily in that direction….
In the last 12 months, household incomes have grown by just 1.5% but outstanding car loans, credit card balances and personal loans have risen by 10%. There’s a clear disconnect between household incomings and outgoings – and one that shows no signs of narrowing….
Reports this morning from the BoE reveal that unsecured credit has topped £200 billion for the first time since 2008. We are entering dangerous territory.
The new household debt to GDP figures are due and the clear signs are that the revised numbers will take us closer still to that high-point of 2010.
How long before we move beyond that high-point? That must be the question that is keeping Bank of England officials awake at night.
Prices are rising, wages have remained stagnant and people are borrowing – not just to buy fancy cars on the never-never – but simply to make ends meet.
- Getting the not-guilty plea in early….
The Bank of England comments also tell us something else….
The bank is moving early to distance itself from what will eventually turn into a full-blown consumer credit crisis….
A decade of ‘emergency’ level interest rates and money-printing – both Bank of England policy – has played a leading role in the ‘benign way the economy has evolved’ and the resulting consumer credit frenzy….
Now the pigeons are coming home to roost. The central bank has studied the view through the telescope, knows it and is now busy getting ahead of the agenda and staking out its position early doors.
In June, the finger was wagged at irresponsible consumers borrowing beyond their means….
Last week reckless and greedy banks and credit companies were dragged under the spotlight and given a foretaste of the much stronger opprobrium that will inevitably come their way further down the road….
This is ‘forward guidance’ at its most subtle….
By pointing out the culprits and issuing stiff verbal censure before the crime is even evident in the public mind, the Bank of England hopes to exonerate itself from any blame and to escape from the scene without so much as a blemish on its character.
Chances are, it will succeed….
- As you were….
The other thing we learn from the Bank of England’s comments last week is that things will remain just as they are….
The Bank of England’s Monetary Policy Committee is scheduled to meet on Thursday to discuss interest rates….
For a moment or two over the summer months it had looked like interest rates might be hiked by some small increment – a first step in the long journey back to historical norms.
But last week’s growth figures, in combination with stagnant wages and continuing uncertainty about Brexit, have put the old kibosh on that.
The Bank is unlikely to raise the lending rate – even fractionally – against such a gloomy and uncertain backdrop.
Reuters polled 80 economists last week. Only two thought the BoE would raise the rate on Thursday. We don’t know what those two had been drinking but only wish we had a bottle of it stashed away in the cupboard….
The situation is this: almost 10-years after the BoE introduced an emergency interest rate to keep the British economy alive, the emergency rate remains in place and the patient remains unable to sit up in bed and take even the merest measure of medication that might help get him back to where he should be….
The life support system of cheap credit and hot-off-the-press money must remain switched on and hammering away on all 12-cylinders – 24/7 and for the foreseeable future….
Even with all that assistance over such a protracted period (going all the way back to 2008/09), the patient is barely displaying any vital signs whatsoever.
Without this artificial assistance, we may as well call in a priest to deliver the last rites….
That’s how it looks from here….
All the best,
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