Perhaps it is the fact that we were softened up for disaster that makes poor economic data seem not so bad.
Once again inflation figures are disappointing. The CPI has fallen back from 3.4% to 3.2%, a step in the right direction but hardly cause for celebration, leaving us still above the 3% ceiling that the Bank of England is supposed to keep us under and well above the 2% target.
The RPI is even worse, edging down only 0.1% from 5.1% to 5%.
Falling clothes and fuel prices pulled the inflation rate down. The latter is the one bit of good news, since fuel feeds through into inflation across the board. Less promising is that core inflation, which excludes volatile items, actually rose from 2.9% to 3.1%.
I do not worry too much about core inflation, since it excludes food and petrol, two items that we cannot manage without. Nonetheless, the portents for a rise in interest rates before the year is out are stronger than ever.
Andrew Sentance, the committee member who voted for a quarter point rise in June, and presumably again in July, was this week arguing for a gradual rise in bank rate. I quite agree. History has shown that early increases produce lower peaks; starting to tighten too late means that interest rates will eventually have to rise higher.
Two Sides of Devaluation
If it were not such a serious matter, it would have been mildly amusing to read this week that small manufacturers are considering shifting production back from the Far East to save money.
This is the side of devaluation that proponents prefer to ignore: as import prices rise, the inputs into our economy become more expensive, thus pushing up prices here and wiping out the competitive gains for our exporters from devaluation.
It is true that bringing manufacturing home will ultimately help our economy as it will boost domestic production. The point is that devaluation is a double edged weapon, not a cure-all. It does some good and some harm but it does not address underlying issues. If the pound stays low and raw materials plus imported fuel go up as a result we will soon be uncompetitive again.
Too Little Oil
Singularly unamusing are the Falkland Islands, which I would like to visit just to find out if they really are as damp, cold and miserable as they look.
If you thought that fighting over oil in Iraq was a tragic waste of life, how much more so has the dispute over the Falklands been? At least Iraq does have oil in large quantities.
Falkland Oil & Gas has been forced to plug and abandon a well to the south of the islands. There is supposed to be 3 billion barrels of oil sitting under the ocean floor in the region but no-one has found it yet.
If you are asked to put up any money to fund exploration there, remember it is extremely high risk. Better still, remember to give it a miss. There are better prospects in the North Sea.
Too Much Oil
BP shares have risen for two reasons. One is the possibility of a takeover bid for the fallen international giant and the other is hope that at long last the spill in the Gulf of Mexico has been plugged.
I am sceptical about the possible bid. Even if one comes, who is to say that it will be a generous offer given the uncertainties of how much the Gulf disaster will cost?
While an end to the outflow is obviously welcome, there is still a lot of work to do. Meanwhile BP’s standing in the US is severely damaged.
I retain my view that any rise in the BP share price is a chance to get out. But if you have held on right through the collapse in the share price you are obviously not in the mood to take advice.
Too Few Votes
The great campaign to stamp down on excessive boardroom pay is dying with a whimper. Only 8.7% of shareholders who voted at the Marks & Spencer AGM voted against the remuneration report despite warnings from shareholder groups about the potential £15 million pay package for new chief executive Marc Bolland.
Another 8.7% of shares held by people who had not got the guts to stand up and be counted went into the abstentions column.
Sainsbury chief executive Justin King did even better, winning 98.2% support despite governance advisory group Pirc raising objections to his £8 million pay deal. He at least has already delivered for shareholders while Bolland still has to show what he is made of.
It is quite clear that large institutional shareholders will continue with their dereliction of duty on this issue.
When I advised shareholders in Lloyds Banking Group to express their displeasure by voting against every single resolution at the most recent AGM, I was chastised by a reader who pointed out that some resolutions need to be passed for the company to function.
My response was that there was no danger of such resolutions being defeated. If large shareholders will not do their duty, then small shareholders should vote no as many times as possible to get their voices heard.
There Could be Fireworks
Readers with access to London may care to make a note of the date: November 5th. The venue, however, will be Olympia, not the vaults of the Houses of Parliament.
I shall be running one of a series of tutorials at the London Investor Show organised by IX Investor, which is making a welcome return to London’s premier exhibition site after three years in the less accessible ExCel Centre.
Further details will be given in this column next month.
Rodney Hobson is a private investor. The views expressed in this article are those of the individual, and not of Morningstar, and should not be construed as financial advice.
