Thursday, 29 September 2016

Gramps'll fix it

Mark Carney, Governor of the Bank of England, told us last week that he's out of tools to sort the economy out, yet it's unlikely anyone in the City even so much as glanced up at their screens to see what the markets thought of that. In September 2011 the attack on the World Trade Centre sent the FTSE 'tumbling' by 5% or so but these days City boys eat 5% of FTSE 100 as a side order with their eggs for breakfast.

Another headline last week suggested that central banks have lost the plot and, frankly, I didn't have the heart to read the whole story.  I speculated as I quickly moved on that the headline wasn't intended to suggest that it's the central banks that have no idea where they are on the script but, more likely than not, it would suggest that the script itself got thrown out the window some time back, that they've been winging it for as long as they could get away with it and that it's only now really starting to unravel. It's like the old rules just don't apply anymore.  

Volatility is now the only certainty. As I've suggested above, markets have grown increasingly numb to what were the traditional sources of stimulus during an average day on the trading floor. Market events that would have been considered seismic as recently as ten years ago are taken in the markets' stride, not just because they're priced in but, hey ho, tomorrow's another day and it'll probably be moving the other way in the morning.

What exactly has happened over the last ten years to leave central banks powerless to put the global economy back on an even keel? How is it that despite massive money printing initiatives, record low interest rates which are teetering on the brink of going negative, consistently low oil prices and a crowded online sales environment driving competition up, prices down and high street retailers out of business, that consumer spending isn't pulling the global economy out of the doldrums at pace? The weak pound is also supposedly driving a British manufacturing boom and, notwithstanding the good news, the OECD is forecasting a relatively pedestrian 2% growth in the British economy in the short term but 1%(!) in the medium term as the effects of Brexit set in.

Not only is the economic performance tentative at best, but it's built on rather shaky foundations. Any mention of an interest rate hike sets the markets panicking and the Bank of England has thus far been unable to seriously consider raising rates even slightly. For most of 2015, the rate setting committee at least had one dissenting view that was of the opinion that the time had come to wean the economy off life support. But no. Nine years of transfusions and the patient is only just about alive - there's a pulse, but it's certainly not thriving. 

All the central banks have left is the idea of negative rates and the concept of 'helicopter cash', which is thankfully not yet part of the regular business column vernacular. That might be because it just sounds too much like the US Housing Market/Subprime Crash 2.0 in the making! Even if  from a purely academic point of view it seems like the only logical step forward along this path, I fear that we're only tempting fate if what we're doing is giving the 'children their pocket money' and 'telling them to spend it all at once.'

Is there a salutary lesson in the story of Japan's economic decline? A country which had historically saved more than it borrowed, it had been the doyen of financial prudence and stability, it's people got a taste of the easy money and as soon as the balance swung in the direction of net higher borrowing, the decline set in. Now the Japanese central bank is taking whatever measures it can to basically decimate its currency but it's still doggedly holding on to its value. It's a similar theme that applies to Greece: bailout after bailout was effectively forced upon Greece when anyone and everyone knew that the fundamentals of their economy were such that they couldn't even afford to repay the first tranche of debt. But never mind, as in the glory days pre-subprime, it didn't matter.  You got free money regardless of circumstances.

It is a tough prospect, that of letting a terminal patient go. Unfortunately however, it is often just a matter of biting the bullet and choosing to precipitate something that was inevitable in any event. Whatever the world does to encourage spending and drive growth I fear that, somewhere along the line, we simply forgot the lessons of fiscal prudence born out of necessity, that our parents and grandparents lived by. "Spend within your means - if you don't have the money to buy it, don't." It may be overly simplistic to pretend that the woes of the world can be explained away in these terms but it may be time for us to take a long, hard look at the 'buy now, pay later' approach to life. Question is: does anyone actually want to? 

Tuesday, 27 September 2016

Building walls and breaking down barriers

For a long time now technology has been playing catch up. With me.

Despite the pace of technological development, I've always wanted more from it. You'll be forgiven for doubting me when I remind you that the launch of the original iPhone happened in June 2007. Just nine years ago. Yet even in the face of the sometimes awe inspiring nature of some of the developments we've seen over the last nine years, I have always, in the back of my mind, thought, "wouldn't it be great if it could do this?", or when traveling, "I could really do with using a maps app now but I don't fancy remortgaging the house to pay for the bill when I get home!"

This morning though, when I noticed the latest update to the Google Maps app which, simply, allows you to download a 40MB packet of data to your phone which includes all the map information for your local area and which works, quickly and efficiently, without a data connection when you're out and about, I had an epiphany. I think technology might have sneaked up on me while I was sleeping... 
The way the smartphone has barged its way into every aspect of our daily lives has been so comprehensive that it's hard to fathom that it's only really been a relatively short period of time since the mere concept of a smartphone entered the collective consciousness. Stop to think about it though, and you'll probably be blown away by quite how much has happened.

From SMS to Whatsapp; from voice calls to data ones; from walking into the local branch of your bank to sending money around the world from your phone; and from a trusty London A-Z to Google Maps; fitness trackers, wireless scales that measure the level of CO2 in your bedroom, the 'internet of things' and fridges that will restock on milk, eggs and cheese on their own - these are all one-time technological luxuries which are shaping the way we will all do things tomorrow.

It's not just the devices, the operating systems and the mobile apps that have been coming along in leaps and bounds either. The telecommunications infrastructure too has enjoyed transformative change. From GSM to GPRS to 4G+ and soon to 5G, we take for granted how critical fast broadband is to the quality of the experience we have on our smartphones, but it has taken significant investment of time and money to get it to a point where we're not constantly complaining about how slow and expensive it all is.

Technology, infrastructure, and now regulation - they're all coming together to make the user experience match what must have been the vision all those years ago. Thanks to progress in EU regulation of the telecommunications industry, the average holiday experience is already far richer than it once was thanks to the availability of mobile broadband away from home at reasonable roaming prices. In fact, from 15 June 2017, all roaming charges will be abolished and you'll be able to communicate, navigate, discover and share from anywhere within the EU for the same rates as you would be charged if you were at home.

What's on my mind today though is the interplay between two distinct notions and the paradox they represent. On the one hand, technology is systematically breaking down virtual 'borders' and other barriers to business at a global level at a time when, on the other hand, the emergence of an increasingly nationalist/protectionist global political discourse (think Trump, Le Pen, Farage, Orbán) threatens to precipitate the reinstatement of physical frontiers and barriers to free movement which fuel a growing disconnect across territorial or 'real' borders.

As those borders become the focus of increasing national political interest in Europe and beyond and, here at home, we eventually find ourselves on the wrong side of the southernmost European fringe, it may well be technology, in the shape of, for example, development of fintech solutions, that may well be one of the keys to ensuring that Gibraltar can continue to reach, economically, far beyond its limited territorial scope. With the increasing use of robo-advice, as one example of the direction fintech is taking us, as well as the growing trend amongst executives of being mobile, free to be wherever they want to be, a focus on making Gibraltar a hotbed for financial technological development must surely be one of the ingredients of a plan to overcome, as we have always done, a new challenge not of our making.

A couple of weeks ago at the launch of the iPhone 7, Apple boasted about the new device having 'the most advanced computer chip on any mobile device,' no doubt capable of handling all the computing needs of the International Space Station. It seems a terrible waste that a lot of the time that same chip will be powering those emoticons of laughing dogs and lots of thumbs up! I am encouraged, however, that all that technological firepower, the solutions that stem from it and a good helping of local ingenuity on the financial services front will, I'm sure, stand us in good stead as we stare down the Brexit giant.