Carry On Regardless

One of the nice things about these long holiday weekends is that it gives the chance for the TV networks to show some of the old "Carry On" Films. They don't really age well, but the simple, saucy humour is always good for a chuckle.

But the best laugh around this weekend was from the world of high finance. It was the plaintive bleating sound of free-market-advocating Investment Bankers pleading with Central Banks to preserve their fortunes by intervening in the credit markets.

This really is a tough one to understand.

In business around the globe the rules seem to be pretty straightforward. You do something or make something and sell it. If you make a profit you stay in business and if you don't, you don't.
If you want to borrow money from a bank then as long as you have a pound of security the bank will probably lend you 50p.

In the world of high finance however, the rules appear to be a little different. For a start that £1 of security you have, well that allows you to borrow up to £30. (To fool us all they don't call this borrowing, they call it leverage). Now it gets even better than this. The £1 of security that you pledged to borrow your £30 is probably actually only worth 20p! What a deal.

For the borrower it is a real win-win. You get to bet with the £30 and if it all goes horribly wrong you have to put your hand in your pocket and give over your 20p. Of course if you are the lender and it all goes horribly wrong then you have a real disaster on your hands.

Or maybe not.

And this is where the free-market goes into free-fall. These guys really don't want to lose all their money. No, they were making it on the way up and they are certainly not going to let go of it on the way down. So they have come up with an even better plan.

Why not spread the misery around and let the tax payer into the party? OK, your average punter didn't make £75 million last year but there are an awful lot of them and if they each cough up a few hundred quid then we get to keep the yacht.

What a carry on.

Collars and Cuffs

You know I tried as hard as I could, but as Alistair Darling steamrollered through this years incomprehensible budget I just couldn't take my eyes off his snowy white hair and his two jet black eyebrows.

Try as I might to absorb the contents of his speech, unravel the complexities of his presentation, I just couldn't help wondering which of the two elements was real and which was dyed.

Both look pretty realistic, and yet something tells us that this can't be. One of these hairy features is fake. Does this tell us anything about our Chancellor of the Exchequer?

I don't know, but maybe the theory is that if enough people are concentrating on his thatch then they will be too preoccupied to listen to the detail. Just maybe Gordon Brown is not losing the plot. Alistair Campbell replaced by Vidal Sassoon. Spin Doctors replaced by Stylists. We will all be too mesmerised to worry about the detail.

Jacqui Smith in Vivienne Westwood. Harriet Harman in Gaultier.

The budget itself was a study in "Neroism". With the Northern Rock debacle still fresh in our memories, the American banking system in disarray, the worlds credit markets frozen solid and a general sense of foreboding in the air, Darling stepped up to the dispatch box with a series of daring and dramatic proposals to help bail us out from this predicament.

4p on a pint of beer.

3p on a litre of cider.

Did I hear correctly? Could he possibly have been this decisive in the face of world collapse?

I don't know. I just couldn't take my eyes off those eyebrows.....

The Thinking Chair

The other day I sat down and listened to a series of questions being posed to the great investor, Warren Buffett. He is a wonderfully colourful character, full of the slightly hokey wisdom that you would expect from a man from Omaha, Nebraska. And he plays the part to the full. He really gets you thinking.

Buffett's annual letter to the shareholders of his investment company, Berkshire Hathaway, is always worth studying. He fills it with broad brush analysis of his businesses and general comments on the world as he sees it. He has been pretty successful over the years amassing a personal fortune in excess of $50 Billion and Berkshire Hathaway boasts a share price of around $150,000 a share.

In this last letter he took a swipe at Wall Street and slapped the Investment Banks. Not claiming the quote for himself he wondered why " the banks have created complicated, new ways to lose money when the old ways worked perfectly well"!

He also noted that if some of these people had IQ's any lower "they'd have to be watered twice a day".

But of most importance were his comments on the real economy. Bluntly he noted that although there may be technical reasons why the US is not in recession, when a person's home has dropped in value by 20% or more, food and petrol have risen sharply and there is no pay raise in sight then, my friend, you are in a recession.

So, are 3,600 miles of Atlantic Ocean enough to keep this state of affairs from our doors?

Buffet doesn't specifically address this but he does make a very important observation. We are experiencing a global phenomenon that is wooing us again with its "new paradigm" siren call. Driven by the growth in the Middle and Far East, the story goes, Commodity prices can only go one way. Up.

Beware, says Buffett. There is always a fool looking to be parted from his money. As investors around the globe chase the type of returns on their money they have had for the last few years, so money has poured into Metals, Agricultural Products, Oil, Gold in fact anything that this never ending demand from the developing countries. Many of these commodities are now heavily overpriced according to historic valuations. A correction here it can be argued, is overdue.

As Buffett himself might say, with institutions chasing liquidity by offering juicy savings rates, cash looks a pretty good place to be right now.