What a turkey, by George...
Who says there is no free lunch?
I bet most morning columns today will begin by wishing everyone a happy Thanksgiving. I see no point in that in as much as those of us who are in don’t celebrate Thanksgiving and those of us who do aren’t in and therefore won’t be read the greeting. So no wishing of happy Thanksgiving on my part which I trust will not be seen by those who are at their desks as a slight.
That, however, does not relieve us from what will be a quiet day in markets with the concomitant tradition of taking a long, maybe even very long lunch. I watched the news this morning, only to see President O’Bama perform the ritual pardoning of the turkey. The BBC proudly announced that this presidential pardon is a tradition going back to the 19th Century. Sorry BBC, total piffle. The Turkey Breeders’ Association of America first began presenting the President with a turkey in 1948. The bird was always slaughtered and served at the White House’s Thanksgiving dinner until 1989 when the then President, George H Bush, was asked during the handover of the bird whether he would be pardoning the guilty parties in the Iran-Contra scandal. He replied that he might as well pardon the turkey….which he did. There, my dear friends, is where the Beeb’s 19th Century tradition was created.
Anyhow, while O’Bama was doing what he does best (which is nothing in particular), the Right Honourable George Osborne MP was doing what he does best which is to confuse. With the British press having seemingly been briefed by way of strategic leaks on everything he was going to announce in the Spending Review and Autumn Statement, he stunned by going off in a totally different direction.
The slash and burn which was expected in welfare spending and in the finding of police services simply disappeared. Carefully prepared opposition speeches and responses, the work of the finest brains backing the Labour benches, were worthless and other than crying “U-Turn!”, there was little for them to come up with.
Osborne, meanwhile, could look on the struggling opposition benches with a “You tell me to listen to the voice of the people; I listened to the voice of the people. What’s the fuss about?” look on his face. Supposedly having found £27bn which nobody knew about, he was able to justify a massive reduction in the expected public sector cuts although his decision not to tinker with the Working Tax Credit drew all the attention and much of what he said beside that was lost in the white noise of shock.
The papers this morning declare UK austerity to be dead and gone to meet its maker. I’m not so sure. The entire edifice is supported by some revised numbers provided by the Office for Budget Responsibility. Deferred increases in rates, as suggested by the Governor of the Bank of England, holds debt serving costs low and also permits the DMO to continue to refinance redemptions at a very favourable rate. These really do lock in long-term savings. On the other hand, the OBR’s forecasts on future growth and fiscal revenues have a snowball in hell’s chance of being accurate. Nevertheless, our George has decided to take them as gospel and to use them in full as an excuse to dress himself up as Lady Bountiful.
I spent a large part of yesterday at a lunch which was held with the principal purpose of ridding the world of its remaining stocks of alcohol. We nearly got there. On my way home, I found a text message from a lady friend who has retired and who is in the process of downsizing. Her objective is (or was) to sell her home, buy a smaller one and use the balance to acquire a buy-to-let property in order to generate some income. Osborne announced a sharp increase in the stamp duty for buy-to-let second homes which has my friend up in arms.
My understanding is that Osborne is trying to take some steam out of the starter home and 1-2 bedroom flat sectors where retiring, equity heavy baby-boomers just like the lady in question are competing with potential first time buyers… and winning. It is interesting how her choice to buy property rather than to invest in stocks and shares for income reflects the British obsession with locking personal wealth into bricks and mortar. The vast majority of Brits hold their wealth that way.
There is a lot written about the how the younger generation, Generation X and soon the Millennials, are happy to rent rather than to buy. The question on my lips is not whether they are doing that because they lack the desire to own but whether they are making financial savings instead or whether what might have gone out in interest and capital repayments on a property is instead being splashed on diving holiday on the Great Barrier Reef? In other words, are they forming long-term capital reserves by other means or is it all spend today, worry tomorrow? Has anyone seen a study on the financial behaviour and savings habits of the young, non-property owning professional class?
Osborne clearly believes in home ownership and his raid on the buy-to-let market is aimed at helping young aspirationals. In doing so, however, he has put a broadside straight into his core middle-class, middle-aged electorate. Not only that but he has made it clear that he will back a heavy house-building programme. Middle class wealth is, as noted, largely locked in property which is expensive due to their being a structural shortage. Fill the sort and the bid fades. Bring property prices down and one of the principal drivers of British economic growth, the household wealth effect, is endangered.
I see where Osborne is coming from but he is, in my view, playing hard and fast with the national balance sheet in order not to have to work on the national P&L. Very risky stuff and skating on ice, the thickness of which nobody can assess.
Anyone free for lunch and currently close to Chipping Norton?