Moving in the Right Direction
News on the economic and political front has been mildly encouraging this week and the government seems to be waking up to the need to improve eduction. On balance it was a good week for investors but not one to get wildly excited about.
I have commented many times before that the economic situation is not really changing day by day, certainly not enough to merit wild swings in share prices, so the modest improvement in circumstances is welcome but no more.
At home we have May retail figures that are slightly better than forecast and massively better than those for April. It is worth noting that the May uplift is less than the April setback, so we are not back to where we were in March. Also May lost one of its two bank holidays this year while June gained two. We have yet to see what distortion this caused but it is reasonable to believe that extra shopping preceeded the Diamond Jubilee long weekend.
Still, a plus is a plus. Unemployment figures are also slightly better. It is always difficult to say, because the various components of the jobs figures never add up, but it does seem that growth in the private sector is more than making up for shrinkage in the public sector.
The best economic news of the week, either here or anywhere else for that matter, was the fall in inflation in April. CPI, the index used by the Bank of England, came down from 3% to 2.8%, still too high but at least the figure is below the 3% ceiling after two and a half years. RPI, the measure often used in wage claims, dropped more sharply, from 3.5% to 3.1%.
The easing of inflation means that base rate will remain at a lowly 0.5% for as far as the eye can see, so savings will continue to attract a pittance while shares continue to offer good yields. The vote in the bank's monetary policy committee was only 5-4 against the next round of quantitative easing and we will surely see another £25 billion lobbed into the melting pot in July. It could be £50 billion, but if so I expect the bank to spread the actual spending over at least two or three months.
The encouraging aspect is that the bank seems to be considering putting some of the extra cash into the real economy and not just buying gilts. With gilt interest rates remaining comfortably low, there is an opportunity to find out if QE really can achieve anything other than to keep government funding costs under control. No-one really knows.
News from Europe is also mildly encouraging. Having failed to produce a clear result in the first general election, the Greeks narrowly avoided creating another impasse. Thanks to a quirk in the electoral system that awards an extra 50 seats to the party winning most votes, the pro bailout parties have been able to put together a coalition sufficiently strong to be able to withstand one of the minor parties dropping out when the going gets even tougher.
Given that the anti bailout parties got more votes between them, this is not an entirely satisfactory state of affairs for the Greek voters but it does keep the eurozone intact until the next crisis.
Only in the United States, where the Fed has scaled back its growth forecast for the US economy, has there been downright bad news. Even so, the economy there continues to improve, just not as quickly as we had hoped.
A Question of Morals
Certain entertainers have been 'outed' as having reduced their tax bills by dubious but legal methods. David Cameron has outdone his Chancellor in expressing moral repugnance.
We should not be expressing outrage at individuals who choose not to pay any more tax than they are obliged to. What really is morally repugnent is that governments and top tax officers have allowed individuals and companies to set up tax avoidance schemes and done nothing about it.
The amounts of money are worth chasing. So let the politicians stamp out the schemes and the tax authorities demand payment. Until that happens, you cannot blame those who choose to keep as much of their earnings as they can.
Not Fair Enough
My first reaction on reading of the collapse of the Farepak case was that I, and many other commentators, owed the directors an apology. But the more I read, the more it became apparent that they and the directors of HBOS have even more to answer for than we thought.
To recap, Farepak ran a Christmas savings club into which people of limited means paid a regular subscription in return for a hamper and other goodies for the festive season. When Farepak's parent company went bust, the hapless savers were left with a devastated Christmas and subsequently only 15p has been raised for every pound they had put in.
There was much criticism of the Farepak directors on two counts: why had they continued to take in money when the company was in financial difficulties and why did they not ringfence the Farepak savings from the rest of the company so that in the case of bankruptcy the rightful owners of the money would at least get back what they had put it?
Six years later it transpires that Farepak did indeed attempt to separate savers' money and HBOS, its banker, twice refused. So when Farepak went bust, HBOS legally stole - there really is no other word to it - £4 million belonging to some of the poorest people in the country. It is little consolation that HBOS itself subsequently went bust and its own directors had their reputations tarnished.
To add insult to injury, the bank's costs in connection with the case against Farepak's directors, which has now collapsed, can be claimed from the money retrieved for the savers. HBOS, now part of government-controlled Lloyds, has managed to run up a reported £1 million in costs depite being only a witness.
Among the many unanswered questions are:
Why did Farepak not open a separate account for savers' money if HBOS refused to ringfence it?
If this was because HBOS would have stopped financing the group, why did Farepak's directors not stop taking savers' money that was being placed in danger?
If HBOS was so worried about Farepak and its parent company, why did it not pull the plug earlier rather than allow savers to continue throwing good money after bad?
Most important of all, why has HBOS waited so long to tell the world that it refused to safeguard money belonging to Farepak savers. Why wait six years, running up its own costs in the meantime as well as other people's, before destroying the case against the Farepak directors? And why did the Farepak directors not make this clear right from the start?
Market Performance June 18-22
FTSE 100: +0.64%
FTSE 250: +0.88%
FTSE All Share: +0.67%
FTSE Smallcap: +0.80%
FTSE AIM 100: -0.38%
FTSE Fledgling: +0.24%
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