2008 to last one second longer

Many probably wish 2008 would just leave and be forgotten, but for those under 30 it'll mean an extra second drinking, whilst for the rest of us it'll be a nice extra second asleep* **.

* Or for those of a geeky bent, sat in front of our computers or radio-controlled clocks waiting for it to show 11:59:60.
** What will libertarians do?

Buy sterling! Possibly.

I've just returned from the first Christmas I have ever spent outside of England. It was the wrong year to pick, at least when one was in the Eurozone. Worse it was in Paris, which is never a cheap city, and at 1.02 euros/pound, which is the rate I got from M&S before I left, certain things were phenomenally expensive. Time Out descriped the Hotel de Crillon's set lunch 'remarkable value', but at 68 pounds, I decided against. It was more, however, the little things such as a cappuccino in bar at nearly 5 pounds(or for easier comparision in Starbucks 4.70 pounds), a takeaway sandwich at lunch a similar price etc. The only cheap thing remained wine, and then only just.

The obvious, and hardly original, conclusion is that sterling is undervalued. So I will attempt to continue my reasonably good record on currency speculation - at some point soon it'll be time to borrow euros* and buy sterling. Or if you are my eurozone reader, just buy sterling.

* Actually I don't really advocate this. When one reads the personal finance pages of newspapers nowadays they are full of rather complex ways to increase the return on your savings over standard deposit accounts by tiny amounts. People who live in the UK are 'overweight' sterling anyway, and so should probably be trying to diversify a bit (although now is not a good time).

More exchange rate confusion

This is a disappointing piece making the old comparisions - I'd say modestly fleshed out on this 'blog some time ago - about how exchange rate movements have altered the relative standing of the US, Eurozone and UK over the past four years. But we all know that when discussing dollar (or any other common currency) GDP you can talk about exchange rates, but when you start talking about 'living standards' you need to make a lot more explanations. This statement is clearly nonsense:

The Oxford Economics consultancy, which only a few months ago reported that Britain’s living standards had overtaken those in the United States,

It's disappointing because David Smith knows all of this more than just about anyone else around. And see post above.

The Audacity of Hope can beat the Realism of Awareness

GDP down 0.6%. Shops in record discounting. Blah blah!

As it's Christmas we need to accentuate the positive, even, or perhaps especially, with economic data. Take Iceland, where you might have read that new car sales were down 95% year-on-year in November. Put that way it sounds very gloomy, but instead look at it this way:

There were 74 people in Iceland who decided in November, after taking into account all of October's events, to spend their hard-earned cash on buying a new (imported) motor-car.

That's the spirit! Once you get into this mindset you can't stop. All year we've heard the horror stories of the US housing market, in particular the new build sector. Yes you cry, "in fact in November they were at the lowest rate since records began in 1959". Well that might be true. But think of it this way:

Having read all the economic news and forecasts for 2009, US builders and property developers decided in November that the country needed another 44,600 houses. Indeed so much were they required they started building them.

Any other positive news gratefully received.

Something missing

The Economist reminds us of Labour's 1983 manifesto:

SOCIALISM in Britain died in 1983. Its demise can be dated to that year’s Labour Party election manifesto, branded “the longest suicide note in history”. This document combined ideological purity (highlights included the creation of a planning ministry, withdrawal from the European Community, exchange controls to stop capital fleeing overseas and unilateral nuclear disarmament) with a lunatic disdain for what voters wanted.

'A planning ministry'? Sounds vaguely Heathite, hardly the stuff of nightmares. Whatever happened to laughing at the bit where it talked of taking the banks into public ownership?

Depression update

Best story so far. L&G have some computer model of the UK economy, and they put in all the variables and asked it to come up with the optimum interest rate to balance growth and inflation, and it returned a value of MINUS 1.25%.

One gets a vision of a large 1950s style mainframe computer with smoke coming out of it as it gave the answer.

Italy's virtues

Simon Hoggart, listing many things and:

brilliant motorways

Eh? France has brilliant motorways, to the point where to cross the border from Italy is always a joy. Italian motorways are narrow, windy [is this how you spell windy? It looks like windy?], littered with advertisements, poorly signed, and full of Italian drivers. They are, it is true, free, [update: in the comments James points out from his experience, and that reminds me of my own, and their website confirms this, that they actually aren't free at all] but if you want free motorways in Europe you are surely better off in Germany, or (for width, if you are not too concerned about the length, er...) the UK.

The Heff

He begins this piece by saying that you can tell things are worse here because sterling is taking an 'unique' hit (more or less, apparently) and then ends it by declaring the euro is finished.

And Lord Rumba of Rio? What's all that about?

The World of Tomorrow

This isn't bad as predictions go. I like the idea that this all-singing-and-dancing computer still needs punched cards though. And the lawnmower is nuclear-powered.

Tony Green, your country needs you

Another Fed rate cut, this time 75%, leaving rates at 0.25%. Things aren't looking good. I think we need Tony Green, of Bullseye (and a lot more) fame to calm things down. He could stand on top of the Statue of Liberty or in Shoreditch and shout down a big microphone to Wall Street/the City/me: take your time, settle in now, no rush, keep calm.

Where's Farndale's "I pray for a housing crash" piece?

Slightly strange thing at telegraph.co.uk. Nigel Farndale's classic whinge about he hadn't made enough money from the housing market and now wanted others to lose out so he could make more, which I noted here, seems to have been removed.

ps Oh dear just realised my credit-crunch black & white blog applies to hyperlinks. They're on here and removed in the last sentence.

Old money

Today the pound is at 1.1238, or at least that was the low today. In old money that is:

7.4 francs
2.21 DMs
2,184 lira

Things that make me go I'm-slightly-nervous

The Economist says it's time to buy shares:

Risky assets look more attractive now than they have in ages. Corporate-bond spreads are sufficient to compensate for the kind of default levels seen in the Depression.

World GDPs

There was quite a famous article back in the mid-1990s by Nico Colchester, of the the Economist, which explained the world economy in terms of Italys:

Think of the world economy as 26 Italys. Italy is a convenient unit of account because the size of its economy, give or take the Mafia, is $1,000bn a year of demand. One trillion dollars means nothing to anyone except Bill Gates. But an Italy can be imagined. North America is eight of those Italys [MJT - I had to include Mexico to get near this]. Western Europe is another eight. Japan is five Italys. That already makes 21.

Of the rest, the whole of east Asia, including China and the dragons, is two Italys. Latin America is one and a half. The economy of the entire former Soviet empire is just half an Italy which puts Russian super-power into perspective. The economy of the 1bn people of the Indian subcontinent amounts to spending of one third of an Italy.

In the past 12 years things have changed somewhat, and the standard, Italy, wasn't much of one. But it's also the case that many things are the same. If Colchester were alive today he would write of 2008:

Think of the world economy as 26 Italys. Italy is a convenient unit of account because the size of its economy, give or take the Mafia, is $2,400bn a year of demand. Two point four trillion dollars means nothing to anyone except Bill Gates. But an Italy can be imagined. North America is SEVEN of those Italys. Western Europe is another eight. Japan is TWO Italys. That already makes SEVENTEEN.

Of the rest, the whole of east Asia, including China and the dragons, is THREE Italys. Latin America is one and a half. The economy of the entire former Soviet empire is just ONE Italy which puts Russian super-power into perspective. The economy of the 1bn people of the Indian subcontinent amounts to spending of TWO-THIRDs of an Italy.

The biggest change then is actually Japan (and Russia) which is reallly to do with exchange rate movements in the mid-1990s than economic growth rates, although they were of course poor for Japan since 1995. China, hidden in China and tigers, has risen from about 0.7 Italys to about 2.4.

Similarly the currrency movements of the last few months mean 2009 is likely to be quite different even though GDP growth is quite similar (bad in most cases). Time for a table, with a bit more accuracy.



The UK? Well that's now an Italy, as it was in 1995.

Il sorpasso or not

Apparently due to the falling pound the UK will have a smaller economy than Italy in 2009 (and France) so say the CEBR. This is not a well written article, I'm afraid to say, as it doesn't make clear the rather artificial nature of currency-movements in judging economic size. Because it doesn't make this clear, the last paragraph will seem rather odd to many readers:

Richard Snook, one of the authors of the report, said: "The UK economy is likely to be the hardest hit by the credit crunch due to its reliance on consumer borrowing and the financial sector for growth. We see the economy taking four-and-a-half years to return to the peak in the second quarter of 2008. Only the Italian economy, which is beset by structural weaknesses, is set to do worse."

Only the Italian economy will do worse? Eh? I thought it was doing better.

Using market exchange rates, with all their limitations, suggests the CEBR figures are in the right ballpark. I dont have them but using the latest World Economic Outlook as a guide (whose 2008 figures agree with CEBR's quoted in the article), and assuming zero inflation and negative 1% growth in each country, Italy will have a GDP of 1,586bn euro, and the UK 1,437bn sterling. To make Italy overtake the UK requires a euro/sterling rate of worse (for sterling) than 1.103. If the UK grows slightly more (or has higher inflation) it will be even worse for sterling.

The end game?

A friend of mine found £50 in the street yesterday. Another separately found £20 in a pub last week.

Good luck? Or start of a new and desperate attempt to reflate the economy by the government, taking the form of simply printing money and leaving it in places where it'll be found?

This I suppose is one way in which one can get more bang for your buck. People might save tax cuts or government giveaways if they believe it means extra taxation down the line. But not if they don't realise it's from the government...

Cutbacks

Due to the impending Great Depression 2.0 (if it's Greater than the Great Depression do we need to rename the original?) I have had to make some cutbacks at this website, and the first is colour. It's just a luxury we can't afford.

Interest rates at 2% - why?

I don't understand the argument for not cutting rates to zero in order to keep something in reserve. I suppose it is a psychological one, in that the very act of cutting rates is meant to boost confidence, and if you can no longer do that things will decline further.

Thus...the obvious thing to do is to raise rates to about 15%, which will indeed be a psychological blow, but give 15 occasions on which rates can be cut by 1%.

Peston: out of touch

Robert Peston, today:

Let's say Mr and Mrs Slightly-Stretched have a £400,000 mortgage, which is the biggest mortgage allowed under the government's new bailout scheme.


Update: Actually I've changed my mind and think joking about it makes more sense than moping around. So Peston is forgiven.

Gulp!

0.54 euros to a pound declares the FT!

Sterling lost ground, falling 1.8 per cent to $1.5086 against the dollar and losing 1.6 per cent to £1.8385 against the euro.