I rarely watch BBC News nowadays. This is principally because there’s precious little news on it. I suppose it all depends upon what your definition of news is. Mine is what are the obvious national and international stories today on this planet of 7 billion plus souls? Lord Reith had it right when he noted the BBC’s job was to inform, educate and entertain. Unfortunately, those days are long gone. Whenever the BBC runs a story that no other news outlet is covering under the guise of a BBC ‘Special Report’ (similar to a Putin ‘Special Military Operation’ but with more biased reporting), you don’t need to possess Nostradamian levels of predictive ability to know what’s coming. You’re about to be whacked in the mush with a BBC agenda and often, at its conclusion, will be told if you want to know more about this story, you can tune in to Panorama at 8.30pm this evening. This Islington welfare service persistently abuses its public service news obligation by advertising its programmes, which is not what news bulletins are for. Or, to put it another way, if Panorama wasn’t broadcasting this item, would it have been on the news in the first place? If the answer is ‘no’ (highly likely, I suspect) then it clearly wasn’t news, was it?
Anyway, I digress. However, I happened to stumble upon the BBC early evening news a couple of weeks ago and for some inexplicable reason continued to watch long after realising I’d pressed the wrong button on the remote. Even by its standards it was a classic of Hans Christian Andersen proportion. It purported to show the obvious links between Covid, the cost of living ‘crisis’, and of course, climate change. Ironically, I’d just indicated to Mrs Newsome that something told me we were about to hear the words ‘climate change’ and right on cue, there they were. Furthermore, other topics such as Ukraine and inflation were woven into this banal conflation. It carried all the subtlety of a Scooby Doo plot. You know the kind of thing. The gang are investigating why the deserted fairground has been invaded by vampires. Eventually, the case is cracked when they pull the mask off head honcho vampire only to find it’s really the seemingly friendly Mayor Johnson, who in truth is not a member of the undead but something far, far worse; a property developer. Mayor Johnson goes on to explain that in his considered opinion, he would have been successful in his quest to redevelop the site had it not been for these meddling kids.
This pseudo scientific BBC waffle ably reminded me why I seldom watch it but it also got me thinking how unnecessary the current economic situation actually is. If the Western world only had politicians and central bankers with more nous, we wouldn’t be staring at a vista where just about everything appears to have gone wrong at the same time. But perhaps even this description is a misnomer. Maybe, it’s not that everything has gone wrong at the same time but after years of meddling and the artificial prevention of what needed to happen, we’ve simply reached an inevitable destination? The only surprise being the length of time it took to get here.
Let’s start with energy, where it would have been difficult to concoct a bigger disaster if you’d tried. I shouldn’t need to say this but I believe it’s necessary because it frames the entire debate; the living standards of the developed world are based upon the burning of fossil fuels and clean/alternative energy sources are not yet sufficiently developed to carry the baton. Furthermore, the developing world (particularly Asia) is growing fast and at the risk of scaring the horses, they are nowhere near as bothered about climate change or the environment as the West is. Witness how China and India are lapping up the 25% discount on Russian oil that previously went to Europe. Anybody who believes this source of cheap energy is not going to be exploited by such nations over the long term is beyond naïve. Russian sanctions pretty much guarantee it.
Talking of Europe, I was almost surprised when the EU called on Russia to uphold energy contracts. How gullible do you have to be? You expect a man who authorises rocket strikes on shopping centres to play fair? And as for Germany, the catastrophic idiocy of allowing Europe’s strongest economy to become dependent upon Russian oil and gas is beyond parody. But there’s more because having permitted it, the Fukushima nuclear disaster convinced Germany’s politicians to close its nuclear plants despite there being no realistic earthquake risk. As Vlad didn’t say but I’m sure he thought, ‘Welcome to my parlour said the spider to the fly’. Not long after, Putin annexed Crimea and the rest is history. Germany is now burning increasing amounts of lignite (brown or dirty coal) to keep the lights on. So, an environmental agenda has resulted in a desperate scramble for more fossil fuels in general and specifically, greater use of coal; talk about the law of unintended consequences. And Germans are supposed to be smart cookies?
Not that the UK has anything to feel smug about. We have wasted the opportunity to enhance our energy security by throwing away the possibility of fracking. Furthermore, there are still oil/gas deposits around our coastline to exploit. It would not only offer cheaper energy but would help our balance of payments although getting politicians to understand the ramifications is so far removed from reality, I appreciate the debate is academic.
To those that regard fossil fuels as the enemy, I take your point but just look at what is now happening as a result of political mismanagement. We are burning more, not less. Greater supply would have cushioned the impact of the transition to cleaner energy if the period had been realistic. Unfortunately, no government has had the guts to engage in an adult conversation with their electorates as to how vulnerable living standards are if fossil fuels are junked too early. This is clearly visible as the public’s attitude has shifted from ‘environmental awareness’ to who’s going to pay my electricity bill? And don’t forget, those bills are higher than they would have been due to the renewables’ subsidies all consumers are paying for.
How ignorant do you have to be to not understand that rising demand for energy, set against the background of relatively static supply, can only result in rising prices? Energy companies have been demonised to such a degree they now see little point in significant further exploration. Their job is to find the stuff in the first place but they have absolutely no control over its price as witnessed during the pandemic when the spot price of oil went briefly below zero, due to its storage costs. Yet, the world and his dog believe they should be raided for more tax as they are ‘exploiting’ the situation. I didn’t see too many complaining when energy was dirt cheap and the oil giants were losing money hand over fist.
It’s not the energy companies that have brought us here. It’s cretinous politicians who are happy to take the corporation tax, excise duty, petroleum revenue tax, VAT, national insurance etc. yet readily trash an industry that is absolutely vital to our way of life. As per usual with politicians; we have hypocrisy and stupidity dispensed in equal measures. However, there is another simple dimension to this which is a bit closer to home and it relates to individuals. It’s not BP’s (other energy companies are available) fault that you voluntarily buy its petrol.
I’ll now move on to monetary policies which have been very similar just about everywhere; similarly disastrous, that is. Central bankers always turn their noses up at the term ‘money printing’. They prefer Quantitative Easing (QE) because it sounds sophisticated and makes them appear superior. But, if you conjure up resources out of nowhere to buy bonds (both sovereign and otherwise) in order to artificially reduce market yields, I reckon the term ‘money printing’ gets a lot closer to the truth than QE does. It’s an old trick; sound cleverer than you really are by using terminology that obfuscates rather than illuminates. As George Bernard Shaw noted, all professions are conspiracies against the laity.
Instead of turning the QE taps off as soon as the financial crisis had abated, they all kept the spigots wide open leading to trillions in fake money creation over the better part of a decade. Was it that difficult to see where this might end up? Well, for the Baileys, Powells, Carneys, Yellens and Lagardes, the answer was ‘Yes’. Eventually, the funny money was guaranteed to affect the prices of just about everything and it now has. It’s not that long ago they were spouting the word ‘transitory’ but we don’t hear that much nowadays. Why would we? There’s nothing transitory about this inflationary fireball. Ironically, Fed Chairman Powell recently noted “I think we now understand better …. how little we understand about inflation”. Well, better late than never …….
If central banks had taken the punch bowl away years ago, interest rates would be at levels permitting rate cuts. Instead, they are totally out of kilter with the economic cycle due to endless meddling where nothing bad was ever allowed to happen. It represents the largest monetary experiment in the history of central banking which means its exit will be every bit as experimental. And if, as the evidence clearly proves, they hadn’t a clue how they got here, I remain somewhat sceptical of their abilities to safely navigate the journey back to anything that approaches normality. Last month, Christine Lagarde, President of the European Central Bank, tweeted that she was happy to be one of the first signatories of the ECB’s/National Central Banks Equality, Diversity and Inclusion Charter. As a libertarian, count me in but I’m not holding my breath waiting for its charter on inflation, interest rates and monetary competence. Not for the first time, I’m reminded of Vikram Seth’s quote; “God save us from people who mean well.”
The value of investments and any income from them can go down as well as up and you may not get back the amount originally invested.
This material should not be considered as advice or an investment recommendation. Investors should seek advice from an authorised financial adviser prior to making investment decisions.
John Newsome can be contacted on 01423 705123 or john.newsome@williams-im.com. Williams Investment Management LLP is authorised and regulated by the Financial Conduct Authority.
