I really should start hanging out with Jean-Claude Trichet, the president of the European Central Bank (ECB). We’ve got so much in common. Maybe I’ll ask him if he fancies a pint next Friday.
Regular readers will recall that a couple of weeks ago I proclaimed Trichet the Hardest Man in Central Banking. And yesterday, JCT served up another feast of hard-nosed common sense.
It reminded me of my formative years, when I took my first faltering steps into the bewildering maze that is the study of economics. I was 14 when I first learned about the 1970s oil price shocks, and how they had caused stagflation (unemployment and inflation rising at the same time) in Britain.
In a nutshell, here’s what I was taught: the higher cost of oil meant Britain had to pay more for its fuel. This represented a transfer of wealth from oil importers like the UK to oil exporters like the OPEC nations.
Unfortunately it took time for people to cotton onto this. They saw their cost of living rising, and wanted to be paid more. Unions threatened to strike if they didn’t get their way. The government tried to stimulate growth in the economy, hoping this would make the problems simply go away. But they didn’t.
All that happened is we got inflation — nature’s way of forcing us to buy less when we refuse to accept that we’re poorer.
Britain entered a wage-price spiral, which fuelled higher inflation. Eventually we had to be bailed out by the International Monetary Fund.
By the end of the decade, Britain had both high inflation and high unemployment (usually the two are inversely related).
I realise this is a somewhat simplistic précis. Economic history is far more nuanced than this. Nevertheless, the broad strokes of this story made sense to me as a 14-year-old.
And they still do. Which is why it was heartening to hear that JCT seems to share my view of what went wrong in the 1970s:
"In the first oil shock, we took wrong decisions and embarked on second round effects and tried a high level of inflation for a long period of time," he said.
"We created by our own absence of lucidity mass unemployment in Europe when before 1974 we had no mass unemployment. Price stability, and credibility in price stability, in the medium term, is the best way to have a high level of sustainable growth and sustainable job creation."
Indeed, it was the lure of sustainable growth and sustainable job creation that led Gordon Brown to grant operational independence to the Bank of England in 1997, his very first act as Chancellor.
But there’s evidence that the Bank is losing the "credibility in price stability" battle. Inflation expectations are on the rise; the FT today writes that investors are more sceptical of the Bank’s ability to tackle inflation than at any time since it gained independence.
The Bank only has itself to blame. It has cut interest rates this year despite the fact that inflationary pressures are rising. Its reasons for doing so are understandable — Britain’s economy is on the rocks.
But that doesn’t change the fact that fighting inflation should be the Bank’s number one priority.
The Bank isn’t helped by the fact that its inflation target is measured by the Consumer Price Index (CPI). CPI annual inflation was at 3.0% last month, right at the upper limit of the Bank’s target zone.
But we in Britain know full well that the prices of what we buy are going up more than that. Small wonder the Bank is losing the battle for hearts and minds.
If the Bank went all out and targeted inflation properly, we’d quickly feel poorer. But that’s the point — we are poorer.
Prices of commodities we buy are going up around the world. As both Trichet and my economic teacher would gladly tell you, this represents a transfer of wealth away from Britain to those countries exporting the stuff the world needs.
So what to do? That’s where my good friend Manraaj Singh can help you.
As Britain’s wealth (together with that of most western countries) flows abroad, it’s ending up in places that are rich in commodities like food and energy.
And Manraaj has found one forgotten corner of Africa that’s sitting on the biggest coal reserves in the southern hemisphere!
As my old man used to say, "There’s more than one way to cut grass" (he was a groundsman at the local playing fields, with a knack for getting those horizontal lines across the football pitches).
Yesterday, our commodities expert Garry White explained how ‘King Coal’ is making a comeback. Now is the time to invest in coal.
Today, Manraaj offers up another opportunity you should really take a look at. Here are the details:
Another great way to play coal!
"Mozambique has been completely overlooked," said Manraaj at this morning’s meeting. "Completely overlooked! And it’s sitting on the largest coal reserves in the southern hemisphere!"
Manraaj reckons that this once-sleepy little corner of Africa is waking up — and is about to become the latest beneficiary of the ongoing global energy boom.
In today’s free issue of Profit Hunter, Manraaj gives you the full lowdown on the Mozambique investment story, together with the unique profit opportunity it offers you
Are pets the latest victims of the credit crunch?
Following on from my piece yesterday, in which I argued that the credit crunch has become a handy blame sponge for anything bad that happens, The Independent has a curious headline on its front page today:
ABANDONED! ARE BRITAIN’S PETS THE LATEST VICTIMS OF THE CREDIT CRUNCH?
I’m not going to argue the logic. It makes sense that people who feel poorer are dumping their pets.
But this sad phenomenon has a number of root causes, which can’t just be summed up by a handy two-word buzz phrase.
I want to start a collection of these ridiculous "Blame it on the Credit Crunch" stories. So if you see any yourself, I’d be very grateful if you could pass them on to me.
The address to use is fleetstreetdaily@fspinvest.co.uk
Many thanks!
Americans would rather starve than give up driving
"Sandwich Man is early!"
That was the cry from an excited Garry White this morning, as he scurried off to the office kitchen to buy his daily cheese and pickle bap.
Garry is a man who likes his food. But it isn’t just the delectable wares of Sandwich Man that makes Garry’s mouth water. Because for Garry, food has also proven to be an excellent investment.
His agriculture play has shot up 21.2% since he recommended it last November.
Just think of all the sandwiches Garry can buy now!
"So, are you planning to take profits?" I asked
"No chance!" he said.
According to Garry, the bull market in foodstuffs is only just beginning. One reason is that American farmers have abandoned producing food. They now grow crops to make ethanol instead, which is added to gasoline.
It’s all part of George Bush’s strategy to reduce US dependence on foreign oil — and keep American cars on the roads.
But it’s having a major impact on the price of food — and, says Garry, this is why you need food exposure in your portfolio.
Find out how to take advantage of Bush’s short-sightedness by investing in the food boom.
Until tomorrow
Ben Traynor
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