The ABC of Finance

Now, you may have landed up in this Blog by accident because you were searching Google for something learned or maybe educational, on finance. Perhaps you wanted a forum to exchange views with finance industry participants. Or you may just be curious about the title. Whatever it is, read on. By the time you have discovered it is not exactly what you were looking for, you will have finished it anyway!

But first to the "A". A happy letter - it starts the alphabet, but is now a letter feared in Europe because it is the starting letter of that other "A" word - Austerity. A concept that some European leaders (not that Greece seems to have found a leader yet, following their elections), seem to regard as a recipe for disaster. A concept that politicians from the left seem to find has a particular appeal for their voters, especially those in the "sunshine belt" of the Mediterranean . But I bet those same politicians don't run their homes the same way they want to run their economies. If they want groceries, heating, clothing - they work out what they can afford, and spend within their limits - or close to them. And if times get tough, they cut back on various things. That is austerity, so I wonder which bit of Austerity they don't understand.

They want growth, but they need money to grow and they don't have it. Where does it come from then - the printing presses? Yes, up to a point but then we all know what happens to countries that just print money - eventually it all catches up with them and they enter a period of depression. Worse, much worse, I would suggest than a period of austerity. Oh yes, and another thing, who suffers the most - who has to pay it all back eventually? The children, and their children and inevitably, even their children. What great parents you all turn out to be.You voted for yourselves a comfortable life without having created the means to pay for it but, just like your household bills, they have to be paid eventually.

Sure, some people get it. While M. Hollande may have been victorious, yet the margin was not as large as it could have been, and he only received a little over half the votes which doesn't suggest a landslide, because almost the other half didn't want him! But look at the poll results for the far left. A huge success for them.That should worry Europe!

And has Europe given up worrying about Greece? I saw today that the leader of their far left says Europe would not dare throw Greece out of the Euro. Really? Alexis Tsipras might regret such a bold statement. But once again, did you notice in Greece the rise in popularity of a neo-Nazi party in the polls. Be wary Europe. It does not look good from where I am sitting.

"B" in the Blog title is for Bankers and Brides. Actually, I was originally only going to talk about brides under "B" - and at a safe distance from my daughter who could suffer sense of humour failure if I write this incorrectly, but it was in relation to austerity! My extremely talented and beautiful daughter (what do you mean I'm biased - well of course I am - but she is!), is about to get married - in a couple of months actually. Made a wise choice - Scottish accountant; they don't come much more careful than that - (but good luck son)! I was merely going to say that for weddings, austerity is not a word on the lips of many! But it's worth it - and I am NOT spending more than I saved for the day!

But then my thoughts on brides got neatly hijacked by Mr Dimon and his J P Morgan Chase colleagues, with yet another example of the excesses that continue to give banks and bankers a bad name, reinforcing the view that the profession is run by a bunch of banksters.

One of the greatest critics of new regulations, claiming they stifle business, Mr. Dimon has quickly been "up front" in saying that they got it badly wrong. USD2bn wrong at the last published count, (which is already a lot) although there were some rumours on the street I hang out on that the amount was actually quite a bit higher. Nice of Mr. Dimon though to be so refreshingly honest, and for senior people in his firm to accept responsibility and leave already. But in an honourable house, the buck stops with the boss who should take full responsibility. But then perhaps like the now standard "Murdoch defense", Mr. Dimon was not aware of what was going on!

And as for "C", well yes, China. For the second time in a month I find myself in the Middle East at the request of people there, to go and talk about China. Talk about a region which has strong historical links with the Middle East and Eastern Europe. Links that were put on the back burner during the last couple of hundred years with the rise (and subsequent decline) of British naval and trading dominance, the subsequent rise generally of the West, and then the growth of nationalism in China which effectively closed off the country for decades. The Middle East has the oil and gas and the money. China has money and a work force for hire. Both want to invest, but the trade links are nothing new. It is just a restoration of an old pattern.

As far back as 745 AD, or whatever the politically correct term is now, a census determined that as many as 5,000 foreigners were living in Xi'an, the so-called "eastern terminus" of the trade route from the Middle East. In terms of the difficulties of travel in those days, it represents a large community.

And today, in the North Western provinces of China, written out in this Blog in a six part series starting in July 2009 by younger son Paul entitled "Travels in China", there is still strong evidence of the Turkic minority in China known as the Uyghers. But the links have gone, so I find it fascinating that business people in the Middle East are once again looking eastwards. Wanting to re-establish ties with an emerging China - and othercountries in the region. Deciding that the future is in the East, and in what my colleagues in the PwC bit of my current working life have dubbed SAAAME. (South America, Africa, Asia and the Middle East).

And if you look at the West today, can you blame them for heading this way?

Comments

[Xiaolong]

Good to hear that, David. Incidentally, on a trip to Qatar earlier this year, I was hosted by an Arab-Kashgari family (Arab husband, Uighur wife). Apparently there's a sizeable community of Uighurs in the Middle East already so there's some interactions between Xinjiang and the Middle East, not that we ever get to read about it.

[David Eldon]

An interesting comment, Xiaolong, but the short answer from my perspective is that Xinjiang province will not provide an obstacle to the increase of business between the Middle East and China. In fact a Saudi gentleman of my acquaintance already has substantial business in the province, for a start.
I would not disagree with your comments in general, but at the end of the day - and as it has always been - business is business, and it is by definition two way.

[Xiaolong]

You are absolutely right. The potential for greater Chinese-Arab ties is a no brainer.

Yet, does Muslim Xinjiang's uneasy place in the Chinese empire place a limit how close China can get with the Middle East?

From the perspective of many Uighurs I spoke to when I was there last year, Xinjiang is a country under foreign occupation.

[Henry]

The great Mrs. T used to compare running her household with running the economy. I guess I find it really hard to equate the two. Buying carrots down the supermarket isn't really the same as investing in infrastructure, jobs, the future. You above all will know that most decent corporations run on some level of debt and it makes great sense to do so.

Mr. Hollande only received just over half the votes? I recall Mr. Cameron, that great proponent of austerity, received only about 30% of the UK votes. Mr. Hollandes win is a landslide by comparison. Anyway, you are right, most people do get it. (Barely) left wing and centrist politicians all around Europe understand the need to reduce and manage expenditure, but also critically the need to balance that with making the sorts of investments that will secure the future. Most right wing politicians seems to see this as a matter of ideology, and are prepared to reduce tax rates for the very richest at the expense of everyone else.

[David Eldon]

I confess, not a book I have read. However, the book I refer to most frequently is an out of print work called The Country Banker, which amongst other things describes in great detail the causes of the most recent financial crash - although the book was written in 1885!
It leads to confirmation of your very valid question - do we ever learn? In terms of the financial industry, sadly it seems the answer is "no"! Muddling through appears to be the name of the game - and rather than remembering previous crises, time tends to cloud the memory.

[Mister Bijou]

Mr Eldon, many thanks fo your commentary, Reading it, however, I was led to ask myself if you have read the magisterial "The Lords of Finance: The Bankers Who Broke the World" by Liaquat Ahamed? Published in 2009, but written well before then, it is examines the events and circumstances prior to and during the Great Depression of the 1930s. Reading it recently, I found to be an unnerving experience. Are the people in charge today, like those who were in charge 70 years ago, stuck in a mindset and have solutions that are inappropriate for the problems at hand?