Dear rss free blog,
We tend to take too seriously comments about there being something called Anglo-Saxon economics. The is no such thing as Anglo-Saxon economics, unless you are referring to the barter done by hunters in the 5th century AD. The term is popular with Continental European critics, but very inaccurate.
A simple comparison of the economic policies of Britain and the USA should disabuse those arguing that they are on the same track because of their common language, their common intellectual heritage, the fact that most recent economic gurus wrote in English.
And if you add in the outrider English-speaking countries like Australia, pursuing exit strategies like higher interest rates because its slump is over thanks to raw material exports, it quickly becomes apparent that there is no standard single Anglo-Saxon model.
Americans are currently slashing household debt with puritanical zeal after years of living recklessly. British households, which started out nearly as deeply in debt as yanks, are still spending with a vengeance. Christmas may be a bust in the USA (we’ll know by Friday night, according to traditional auguries); but Britain has already gone into boom mode. Its housing market is recovering more rapidly than the US also.
One reason is that British unemployment, while high, is not as high, at 8% vs over 10%. It is also not as high relative to prior years, since the persistent British jobless levels during the fat years were higher than US levels. Britons are often unwilling to move to where the jobs are or retrain, unlike their transatlantic cousins.
The role of government, which both countries tried to limit in the past, has obviously become a mainstay of anti-crisis action lately. Britain did not start out in deficit; unlike the USA, its Labour Govt. did not spend more than it received in taxes during the boom years like the Bush Administration. Maynard Keynes, British despite his huge posthumous importance in the USA, always wanted to keep deficit spending in reserve for crises. So the British kept their powder dry for use in a slump; we didn’t.
The UK government has been an early and deeper interventionist in the economy than Washington. Britain took the global lead. Today there are more major British banks owned by the government than one could imagine in the USA. London also has made more money available to refloat the financial system, using quantitative easing, than Washington.
Shockingly uncapitalistic Britain’s govt. decides who will run its financial institutions, not leaving it to the boards of companies it now controls. This is much harder to pull off in the US. The UK has been more activist and more European in limiting salaries.
Britain has also been pragmatic about foreign investment. It opened the gates to foreign buyers of troubled banks or airports. The door now has been opened to some profitable companies like Cadbury. Britain scorns protectionism because it has a much more consistent free trade history than the USA.
Yet Britain has also added more European-style regulatory measures over bonuses and pay packets than would be countenanced in the US. Which is the more Anglo-Saxon? Despite its aberration, in percentage terms the London stock market is doing far better than Wall Street although both markets are ahead of themselves.
Both markets benefit from a paradox. Their companies reported a very good quarter thanks to one-off cost cutting which cannot be repeated. That stimulated animal spirits. But their Central Banks doubt that the slump is over and retain stimulus measures. Both factors feed into stock market rises.
One reason London is ahead is that lists more heavyweight energy and commodity companies than Wall St. If you wish, it is more Australian than America is.
Which will do better in 2010? British GNP is falling harder this year than American, 4.5% off vs 2.4% off (OECD data.) The British trade deficit is lower proportionately. Its inflation rate, while low, is higher proportionately. Its national debt is higher. The official forecasts are that both countries will continue to slump next year but that Britain will slump more.
Watch this space.
Brad Durham of EPFR (which tracks fund flows) predicts that emerging markets will get the highest ever inflow of investment funds in 2009. The level is already between $57 bn and $71 bn (depending on which statistics you use); the prior record was $50 bn in 2007. Unless there is a complete reversal in the next 5 weeks it sounds like a sure thing.
Another reader, PG, took me to task over the price of platinum comparing your editor to one Dave Kansas, whoever he may be. Encore une fois, the price of platinum has risen about 55% this year; the price of gold about 80% (and is going up some more as I write). Therefore platinum is cheaper compared to its historic levels. Moreover, as the auto industry revives, platinum will be in demand for engine exhaust cleanup as well as an alternative investment to protect against inflation. It has more upside than gold.
There will be no newsletter tomorrow because I will be flying back to the USA. There will be none on Thursday because of the celebration of Thanksgiving and Eid Al-Adha.
I did Thanksgiving dinner for family, friends, and one competitor (David Fuller) last weekend and a good time was had by all. The hit of the meal was my late mother’s stuffing. If enough of you want the recipe I will post it for a fee on the Global Investing website.
I am not doing the whole business again Thursday. I can be thankful without slaving over a hot stove.
More news about our portfolio recommendations for paid subscribers follows. Our portfolio is only accessible to those paying for a subscription. Don’t be a turkey; sign up for a sub and you will have reason to give thanks.
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