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Ignore the sweaty rabbit - Justin Urquhart-Stewart comment

March 23, 2010

Please don’t hold your breath – it’s going to be a tedious budget. Next week The Chancellor is going to stand up and effectively launch his part of the election campaign. The content will no doubt include some symbolic gestures (one or two unrepeatable ones come to mind) and inevitably some political pontificating along the lines of “you are safe in our hands”. There is however, unlikely to be anything new or of any note, although a small sweaty rabbit might be pulled out from an old frayed top hat just to keep us interested. Frankly anything meaningful or any initiative is going to be saved for the Party Manifesto and will come under the aegis of the First Lord of the Treasury and not his downtrodden Chancellor, whose career prospects post election would seem to be somewhat truncated whatever the outcome.

Any sweaty rabbits are likely to be concerning those areas that the Tories have begun to focus on and these would probably include direct support and encouragement for ‘businesses of the future’ and smaller to medium sized enterprises. Actually this is a very important area and one that deserves far more focus than a mere rabbit-related mention. This after all is quite likely to be the growth area for our injured economy and, if we are to move away from our dependence on governmental financial heroin handouts, then this is going to be our route.

A measure of our addiction to government spending was perfectly illustrated in last week’s ‘good’ unemployment numbers. The headlines all seemed to focus on an apparent fall in unemployment. However, upon closer inspection, all is not what it seems. Yes, the headline figure showed a drop in the claimant count of 32,300, and yes there was a drop in jobless numbers to 2.45m, but in fact there was a significant drop in the number of people actually employed overall. This dropped by 54,000 to a total of 28.9m which is apparently the lowest figure in four years. Not an encouraging sign.

However, there is a more concerning figure that I have highlighted before – we have apparently around 8.16m who are ‘economically inactive’ - those that don’t work and don’t claim benefits. Of this number, some 5.8m say they don’t want to find work but some 2.3m say that they do. So if you then add in those who are officially unemployed, 2.45m, then we have a total of the potential working population of around 10.55m not working. At a rough calculation that is about
17% of the population and roughly 30% of the potentially working population. What was the old slogan Saatchi & Saatchi - “Labour isn’t working”?

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I must congratulate the newly branded East Coast Line on the improved service on their trains. Since coming under new ownership I have asked quite a number of the staff there how things have changed and the answer comes back that, at last, they seem to have been left to run the trains themselves – and ‘better than the last lot who couldn’t even run a proper bus company!’ It just goes to show that if you let those who know about trains, run the trains, then maybe we
are better off.

Also I found it quite encouraging that Deutsche Bahn (DB,) the German state railway, is taking an even greater interest in our trains. Given their famous ability to run on time, then certainly this is something we can all benefit from. DB already run the well regarded Chiltern Railways, as well as the EWS freight service and has been behind the entrepreneurial Shropshire & Wrexham service, and is now looking at the Arriva train and transport company. Arriva are best known for
their Cross Country service and have recently been courted by the French national railway SNCF, but this seems to have run into trouble and thus probably triggered the interest from the Germans. Nothing like a bit of Rhine rivalry over our railways.

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As I am writing this, the Greek game of poker continues to be played out. For a country with few cards in their hand, the Greeks seem to be playing a blinder against the leading Euro zone members, but as yet of course have not resolved any of their outstanding problems. Seemingly every day I hear someone saying that the worst is over and the storm has passed, but I fail to
see one iota of resolution to the problem.

We must now recognise this as a much broader sovereign debt and sovereign risk issue in which the Greek situation is just one unpleasant and seeping sore. Over the next few months the funding for other nations will come to the fore and no doubt further suppurating buboes will
come out.

Whether the Greeks can continue to play the IMF threat against Angela Merkel with any credibility remains to be seen, but they need to be very careful as the demands of the IMF are likely to be far more stringent than those that could be imposed by the Euro zone members. Additionally, any referral to the IMF can only just show to the rest of the world that yet again those bickering Europeans can’t sort out their own problems. That doesn’t do much for the credibility of the Euro, and this only a year after many were calling for the Euro to be seen as a potential alternative reserve currency to the US $. Perhaps we should give it a rebranding and call it the Neuro – as it will just represent in effect just the northern Euro members?
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This article represents a personal and lighthearted view from Director, Justin Urquhart Stewart of Seven Investment Management Limited, and is based
on current financial news and events around the world. Its content should not be used for investment purposes and you should contact an independent financial adviser before making any investment or financial decision. Seven Investment Management Limited is authorised and regulated by the Financial Services Authority. Member of the London Stock Exchange. Head office: 23 Austin Friars, London EC2N 2QP. Telephone 020 7760 8777.
Registered in England and Wales number 4092911. Registered office: 3 More London Riverside, London SE1 2AQ.