News:Blowing the Tanks
It feels a bit like the scene in that iconic German film “Das Boot” when the submarine commander orders all the tanks to be blown in a vain effort to try and stop the damaged U-boat from sinking. One by one all the levers are pulled and one by one their effect is negated by the weight of the sinking vessel. I am sorry if this is a rather negative analogy to the current situation but with each day that goes by, we hear of yet another initiative from one country or another pulling their economic levers to desperately attempt to fortify the failing strength of their economies. In the past week, the Chinese, the Americans and the Australians have all been acting but with seemingly little actual effect on events or sentiment.
Now to be fair, such actions rarely have an immediate effect but the flurry of action, whilst encouraging to see, does sometimes smack of desperation as politicians and central bankers rush along pulling every lever available to try and get their economy to start to resurface. I must add though that in the film, the U-boat does eventually surface and all ends well (for at least that part of the film at any rate). However, before being able to resurface, the damaged submarine had to spend an inordinate period of time lying motionless on the sea bed. In economic terms this analogy would therefore stretch to being the period of recession that many countries are facing or have already entered.
The good news is that at least this time the politicians and central bankers have been acting, whereas in Japan during a similar period in the early 1990’s, such action was limited and somewhat tardy – with the result that there was a depression of some magnitude. So now all the levers of tax cuts, direct investment and support for the financial system are seemingly being pulled – “blow all tanks”!
However, let me also be the purveyor of some more positive comments. Most recently the ‘world’s most successful investor’, Mr Warren Buffett, provided some much needed fortitude for nervous investors when he said:
“A simple rule dictates my buying: be fearful when others are greedy, and be greedy when others are fearful, and most certainly fear is now widespread, gripping even seasoned investors.” Sound logic which we should all agree with, but the question is when? To which his answer is:
“I haven’t the faintest idea as to whether stocks will be higher or lower a month, or a year, from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment, or the economy turns up. So if you wait for the robins, Spring will be over”.
Right, better get the bird feeder out then.
I am often asked can we see a bottom to the market – and the truth is you will never know until it has happened. All you can tell is that by investing in such periods, we will all likely benefit over the next few years.
Financial alcoholism is an easy trap to fall into. Such sufferers of this addiction often start innocently without realising their potential trouble. Often the excuse will be to support a key company or industry during a period of weakness, then followed by a need to protect jobs in an already weakened area and finally, by the ultimate financial alcoholics, an excuse that it is cheaper to keep them going than to face the economic consequences of sobering up. Welcome to the US car manufacturing industry.
For too long they have been building the wrong cars for a past era that is never to return. Protected by politicians trying to save their seats and followed by a desperate attempt to wrap the national flag around them, these are the last flailing efforts of a sad sodden addict desperately seeking another shot of government finance.
In our new world of economic austerity, maybe it is time for a brave move by a new leader to proffer some tough love to these failing corporations and let them seek solace in Chapter 11 bankruptcy. Perhaps this will finally make them seek to rationalise their outdated business functions, employment and operational practises. By most people’s measure, the likes of GM and Chrysler are bust. The US government needs to carefully deploy its restricted finances to areas where it can have real effect and future growth, and not in propping up financial confused alcoholics in quasi state-run enterprises. In the UK we can only speak from experience where we stood guilty ourselves of such financial inebriation and inaction for many years with fiascos British Leyland and Rover.
And finally... We may think that economic conditions are tough at the moment, but Berlin is determined to look after its canine population. An ‘exclusive’ soup kitchen just for dogs has opened in the city.
This follows on from another service just for pooches launched in September providing a doggy bus service, ferrying the dogs to a doggy day-care centre. On board, the passengers enjoy air-conditioned cabins and music on the trip, which costs 15 Euros per dog. They must be three stops short of Dagenham.
Have a good weekend,
Justin A. Urquhart Stewart
Director
Seven Investment Management Limited
(P.S. For those not familiar with the London Underground - three station stops short of Dagenham on the District Line is Barking.)
Article last updated: Nov 20, 2008
