Gold… yawn? Surely, enough has been said? Lenin despised it and thought it should be used to build public lavatories. Warren Buffet famous quote is no less contemptuous: “Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”
But have they missed a point? Pinkers Post believes that gold remains the ultimate hedge. We live in a virtual world and there really is nothing more gratifying than the warm and happy feeling of holding a 1kg gold bar… that extraordinary gravitational pull imbuing a sense of complete safety… yes, it’s almost as comforting as crawling back into mummy’s womb.
And what about that other tangible asset… cash? Surely on the way out? Well, far from it according to German banknote printer Giesecke & Devrient. Despite projections of a double digit increase in the use of cards and other electronic payments, G&D expect banknote production to rise by 5% a year for the “foreseeable future”. The company maintains that “cash is 100% reliable in times of crisis, in periods of panic where a solid financial system has to prove itself; the reason for this is trust in real currency.”
One of the reasons people flock to notes during financial panic and natural disasters lies in the way they look and feel; i.e. the desire to to store your wealth in a physical object increases as the world around you becomes more uncertain. Well… need more proof in the mattress? Just look at Greece after the imposition of capital controls. And what is even more surprising: 80% of payments globally are still made in cash; builders’ pockets bulging… . Black economy? So what? It’s just a process of recycling and will ultimately benefit the white economy.
But let’s not get carried away… Zimbabweans can exchange bank accounts of up to 175 quadrillion (175,000,000,000,000,000) Zimbabwean dollars for five US dollars… so the pecking order is clear: Gold first… cash a very distant second!
We all knew it. Well, it’s been common knowledge since 1 August 1291: The dullest 15,940 square miles on the planet? Switzerland, of course. Now it’s official. Logan Naidu, CEO of Dartmouth Partners, the recruitment firm, says: “Switzerland is a dull place to live.” This statement follows Brevan Howard‘s decision to move some of its most senior traders back to London from Geneva. It will put paid to the idea, once and for all, that hedge funds want to quit the UK for Switzerland.
But what about losing out on all those tasty tax perks? Well, clearly not tasty enough. Again, Mr Naidu doesn’t mince his words: “After all, if you are a billionaire hedge fund manager, wouldn’t you rather be in London?”
Let’s face it: Making money alone isn’t good enough. Lifestyle matters more. Remember all that talk some years ago of dull-as-ditchwater Frankfurt posing a serious threat to London as the European financial capital? Yes, it seemed barmy then and even barmier now. More proof in the pudding required? Try and brush this aside: Versace, the Italian fashion house behind Liz Hurley’s infamous safety pin dress, has now confirmed that it will be designing the interiors of Vauxhall’s new £600 million tower dubbed the “Jenga”. Yes, it’s true: Versace is coming to seedy Vauxhall! Brevan Howard’s staff must be desperate to come home… and nobody can blame them! London is the world’s capital and that’s where the Moët tastes best!
It used to be called ‘herd instinct’ but that expression is so yesterday. The more fashionable and, indeed, more respectable term is ‘pro-cyclical behaviour’. On that note, Pinkers Post wishes all its loyal readers a 13 seconds Happy herdy Christmas on Pinkers TV!
Well, it had to happen. Sooner, rather than later, the Spirit of Ecstasy will be ripped off Pearson‘s bonnet. Founded by Samuel Pearson in 1844 as a building and engineering concern, Dame Marjorie Scardino took the helm in 1997 and became the first female Chief Executive of a FTSE 100 company. The formidable Dame singlehandedly transformed the ailing conglomerate into the greatest and most successful British multinational publishing company, tripling profits to almost £1b. She was a true visionary, correctly predicting the fast-growing, insatiable appetite for education in the new emerging economies. Selling off peripheral assets and re-investing the proceeds in China proved to be her biggest coup.
Pearson’s most visible asset is the Financial Times Newspaper. From a purely commercial point of view, it is also the most incongruous. However, when questioned about a potential disposal of the pink paper, she famously replied “Over my dead body”. She loved the newspaper and considered it to be an important platform and, indeed, foundation of the educational empire as a whole. And she was right. And she remains right. The FT is Pearson’s flagship. The FT is not only at the heart of Pearson, it is the heart of Pearson, its ethos feeding into all areas of the company’s activities. And, remarkably in this day and age, it actually makes a profit.
So why sell now, as reported in The Times this weekend? John Fallon, Dame Marjorie’s successor, is clearly suffering from ‘itchy feet syndrome’. The man wants to make his mark. Pearson hasn’t done well under his stewardship even though it appears to be slowly turning the corner. The figures put on the paper range from £600m – 1£b. Useful to pay down debt or, even better, top up the pension fund. More likely, however, it will be the same old story: Appeasement politics. The dosh, or at least a large proportion of it, will be returned to shareholders. Well, would make a nice and most welcome X-mas pressie in these gloomy times! And, to kill two birds with one stone… literally…, finish Marge off: Dead & buried!
The former chief executive Chuck Prince hit the nail on the head with his astute observation in 2007 that “as long as the music is playing, you got to get up and dance.”
And, bar minor ‘wobbles’, the party has now been in full swing for the last 6 years – virtually without any interruption. The markets have, of course, long been completely detached from any economic fundamentals and, indeed, the rising threat of geo-political risk. Herd instinct, or to use the more academically minded term “pro-cyclical behaviour”, has dictated the direction of equities and bonds since the collapse of Lehmans in 2008. Fuelled by well-orchestrated and beautifully-timed injections of heroin (also known as QE), followed by a subtle, almost unnoticeable switch to methadone (also known as QE in disguise), the champagne has been kept flowing and the partygoers, drugged up to their eye balls, happily raving along. And who can blame them? After all, with a guarantee of a virtually unlimited supply of cheap finance and the promise by policymakers to keep up clearing any potential mess, there seemed little point of betting against momentum: Surely a contrarian play too far?
So what’s all the current fuss about? Tabloid headlines screaming “Market turmoil causing panic amongst investors” and at the same time “professional advisors” urging market participants to “hold their nerve” and to stay “calm and rational” have badly unsettled the revellers. One of the most hilarious comments that of Patrick Connolly, financial planner at Chase de Vere: “If your investment strategy was right before this recent bout of market volatility, it is probably still right for you today.” Or in other words: Let’s keep f******* up!
But then, why worry when the world’s central bankers have once again united, offering reassurances for interest rates to be kept at historically low levels as long as need be and this helping to boost declining sentiment. The message to investors is clear: No party poopers, please! The steady drip of methadone with the occasional ecstasy pill thrown in for free, should continue to keep the jamboree going for a while yet. However, when the music does stop, the Betty Ford Center will be a crowded place.