Friday, 20 July 2018

On London politics, house prices, a French exodus and Merv the Swerve

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Supposedly it is a big day in the UK as local council elections take place up and down the country. At least, it should be a big day. The standard form is that the representatives of the party whose leader occupies 10 Downing Street take a pasting and the opposition candidates sweep back into the town halls from which they were expelled when their own chap was Prime Minister.

Anthony Peters, SwissInvest Strategist

It is called “local democracy” but I know few countries where parochial politics is played out by none other than the local hacks and where the rest of the population demonstrates so little interest.

In the middle of this wave of apathy there is also the mayoral election in London which pitches the incumbent maverick against his maverick predecessor in the form of Conservative Boris Johnson and Labour Ken Livingstone. In terms of personality politics, the fight for City Hall here has made the Republican primaries and even the face-off between Sarko and the other, faceless chap look rather bland and tame.

The threat by that other faceless Frenchman who looks set to be President to push marginal taxation to 75% on incomes over €300,000 has London property abuzz

On form, Ken should have been pushing at an open door but it appears as though his cosying up to anything and everything he perceived to be Muslim, the strategy that got another maverick, George Galloway, re-elected into the House of Commons has backfired.

Galloway of course stands for his own “Respect Party” in a largely Muslim constituency in the North but Ken is the official candidate of the Labour Party here in the capital and there will no doubt be questions asked as to what the party leadership was thinking when it decided to wheel him back out again. It certainly looks as though Boris will be opening the Olympics but I do hope that Ken will not be left out, for it was under his watch that the mandate to hold the games here in London was won.

In the real world, things are no happier though. The Nationwide House Price Index reported in for April at –0.2% MoM as opposed to the forecast +0.5% which kept the YoY at –0.9% against the prediction of –0.3%. It must be added the Nationwide is a relatively volatile index and that it is the RICS Index which is the one to be taken seriously and is due next Tuesday. It has shown a positive trend for a year and a half now and was back improved from –13 in February to –10 in March (meaning 10% more surveyors reported price falls rather than rises). A dip from there would be more concerning although, again, the rising trend has not been without the odd month’s hiccup.

Please bear in mind that UK house price averages only tell a small part of the story as the gains are still being made in London and losses are being taken in the regions. The threat by that other faceless Frenchman who looks set to be President to push marginal taxation to 75% on incomes over €300,000 has London property abuzz, not least of all in the parts of Kensington near the Lycée Français, known colloquially as the “Frog Pond”.

I recall that during the previous election campaign Sarkozy actually came to London to canvass. There are assumed to be somewhere between 300,000 and 400,000 French citizens living here which would make it the seventh largest French city – how else would “MacDo” be doing so well? – and there are bound to be more to come. I tripped over a note somewhere yesterday which also reported a significant increase in interest by the French in Brussels property. In the 70s there used to be a joke about the sign at the port of Dover which read “Would the last businessman to leave the country please switch out the lights”. Maybe they will be attaching something similar in Calais or Sangatte soon.

Merv has some nerve

BoE Governor Mervyn King made the headlines on the wireless this morning for nothing more nefarious than having delivered the BBC Today Programme Lecture last night. It was interesting in as much as he was speaking directly to a broad audience of non-specialist and he chose to use plain language in trying to explain where the Bank had failed in the run-up to the financial crisis.

He found some nice phrasing such as “We did preach sermons about the risks. But we didn’t imagine the scale of the disaster that would occur when the risks crystallised.” He will go down in history for continuing: “With the benefit of hindsight, we should have shouted from the rooftops that a system had been built in which banks were too important to fail, that banks had grown too quickly and borrowed too much, and that so-called ’light-touch’ regulation hadn’t prevented any of this … We should have tried harder.”

However, overall he was very defensive and blamed much of the disaster on the decentralisation of regulation and oversight. Given that many other jurisdictions had that unification and fared no better failed to get a mention. Merv the Swerve remains a controversial character – as do most bright people – and although he has come in for endless criticism, not least of all in the City, I challenge anyone to have done much better without the rose spectacles of 20:20 hindsight.

The central banks went into and through the crisis without an “Escapology for Central Banks” manual. They were making the rules up as they went along and all of that with some pretty loosely worded remits. There are several generations of economics PhDs to be written on the rights and wrongs of what the monetary authorities did or didn’t do, should or shouldn’t and might or might not have done. But as the old saying goes: “When you are up to your butt in crocodiles, it’s often not easy to remember that the original objective was draining the swamp.”        

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