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Budget reaction from real investors

Posted on March 11, 2008 by Richard Beddard
Filed Under Ramblings |

I’m in the boardroom at Interactive Investor HQ watching the Budget with seven readers of this blog. Editor/commandant-in-chief, Steve McDowell, is in the chair for a special Budget edition of iBall, to go out later today (watch for it here).

Meanwhile I’m live-blogging our panel’s pithiest thoughts and you’re welcome to join in. Just post your comments at the bottom of this page and they’ll appear on the site within milliseconds (until we’ve retired up the pub to rid ourselves of our Budget hangovers).

It’s a bit like a software developer’s convention:

But all the kit is in the hands of me and Steve. Oh dear. We may need more from our panellists than their thoughts later.

We’re off, and if you want to keep up you’ll have to press refresh in your browser toolbar every now and then. Judging by the ebullient faces around me this isn’t going to be the gloomy budget mooted by the press. It’s 12.30, there are gales howling around the streets of the City, the FTSE’s around 5770, rumours of collapsing investment banks stalk the markets, we’ve sworn allegiance to the Queen and we’re wondering how politicians are supposed to manage a national Budget when they can’t keep track of their own expenses.

Rumour has it ‘resilience’ will be Alistair Darling’s ‘prudence’. Is this going to be his finest hour? Some might say that’s not setting the bar very high. I think some of them might be here.

Oh yes. He’s said the ‘r’ word. That’s resilience not, recession. But I’m down already - everybody else is championing Northern Rock for most used or abused word. They’re 2-1 up.

He’s warming us up for downgraded growth forecasts. Apparently Japan’s slowing! There’s an air of scepticism in the room.

Here we go. His last forecast was 2% to 2.5% and as expected he’s cut it to 1.5% to 2%. Has anyone noticed that as it falls that 0.5% band is, mathematically speaking, getting wider? A fall from O.5% fall to 1%, say, is more significant than a 0.5% fall to 3%. Talking of 3% that was the upper range of his 2009 forecast. That’s gone to…. I think…. He said 2.5 to 3% but in 2010. Not sure, Gavin next to me is waving his arms and proclaiming at the TV.

He’s talking about the fiscal rules now, “to keep debt low”. Our panellists protest.

You’ve changed the dates year after year to fit your rules

Says Gavin. He has a point.

Is the ‘golden rule’ a gonner? This is the thing about golden rules. There supposed to be as unimpeachable as Elliot Spitzer’s character. You know, “Though shalt not kill”, “‘i’ before ‘e’ except after ‘c’” and “Though shalt not avail oneself of the services of ladies of the night while one is running for election campaigning against sleaze.”

It’s not a rule at all is it? Maybe it’s a benchmark? If it is, it’s a wobbly one. Hang on a sec. a wobbly benchmark isn’t a benchmark is it? The whole point of benchmarks is that they don’t change, or how else can you measure anything against them? It’s a golden guess, I guess. Although it’s not really a gold standard in guess-making, so perhaps we’ll rename it a silver guess.

Anyway, Alistair Darling’s sticking to the golden rule, though how he knows is anybody’s guess. Anyway the Government’s only borrowing to invest, so we’re told, so we’re looking forward to hearing what we’re going to invest in.

Another resilience. It’s 2-2. And the FTSE’s apathetic - 5764. ‘Resilience’ again it’s 3-2 to me and Gordon Brown’s nodding. He approves. Or he bought the spread on the number of ‘resilience’s’.

There’s outrage at his claim more is being spent on defence, not so much that we are spending more, but it’s being spent on war. But it’s quiet in the room now as he talks about spending. I’m not sure that’s because he’s talking about restraining spending, or we just don’t know what to make of the barrage of stats and assertions.

Now we’re on to child poverty. The Govt’s struggling to meet its target to halve child poverty by 2010. So they’re changing the rules on tax benefits to make it economic to be in work. That gets a nod of approval in the room.

Child benefits and child tax credit are going up. Hooray. There’s only one problem people don’t claim them, or get into such a fudge with all the paperwork they end up owing the Government money.

Small business owners on our panel are complaining about Mr Darling’s claim that the UK is a good place to do business after reductions in business rates. They’re paying more.

They’re going to limit regulation by Whitehall departments (General snort of disbelief, and wonder).

We’re accusing Mr Darling of desperately trying to support the housing market. The point is that by allowing people to borrow in shared equity schemes, the government is encouraging the cult of property ownership, which is fuelling house prices.

He’s also talking about encouraging long-term fixed rate mortgages to reduce interest rate risk to borrowers. Sounds like a long way off - he’s ’seeking views’ as to how it might be done.

Climate change:

They’re going to legislate against carrier bags, and the money ’should’ go to environmental charities. Cries of “new tax” and queries about the word ’should’. Our panellists claim they are already getting discounts on home energy efficiency, so what’s new?

Here we go. Transport. He wants more aviation, its good for the economy, but he’s raising duty. Luke says green taxes are Trojan horses, and Gavin agrees. “They kill from the inside.” What they’re saying is that the Government’s really interested in filling its coffers and at the same time satisfying the green lobby (I’m not sure about that!). Richard says it’s the next financial bubble.

Robin says having calculated his income tax liability from pre-Budget reports he’ll be better off while basic rate taxpayers will be worse off. Now that’s not right.

Mr Darling commends the budget. Do you? Let us know. Oh and the FTSE’s at 5777, seven points higher than it was 57 minutes ago. There’s a symmetry in that, even if there isn’t in the budget.

OK, our verdict, we’re playing buy hold or sell:

Gavin is going to:

Follow the money where the Government is spending it

Because the government intends that thirty per cent of its spending will go to middle sized businesses within five years. That means outsourcing and sale and leasebacks.

But, mainly avoid, he says:

The tide is running out and we’re about to see whether Darling Brown is swimming without any trunks.

Robin’s stronger than sell, but he’s on the same track. He’ll be looking at AIM and smaller companies because they’ll be able to take loans out against their future earnings from government contracts.

They’re going to take taxpayers money and give it to these companies so we need to invest in them to get our money back.

Richard says:

Low expectations, completely fulfilled.

I reckon it was billed as a boring budget, and it was a boring budget. The Government is hamstrung by bigger forces, troubles in the credit market, the changing nature of globalisation and once the fallout from the Budget is over*1, that’s what I’ll be thinking about.

Footnotes.

  1. Watch out for Ceri Jones‘ analysis, here on Monday.
Category: Ramblings

Comments

5 Responses to “Budget reaction from real investors”

  1. Gavin Palmer on March 13th, 2008 4:02 pm

    ON reflection Darling Brown has done a huge amount of carefully work PR and TV commercials after the dead pan talk. As per usual there was more rubbish and shocker in the red book issued at the same time as he started his talk. WEll hang on for the inflation ride I expect even more borrowing and with all that cash about more inflation. Also a drop in profits as price rises feed into the companies lowering profits for a while. Expect more pushes for higher wages. Maybe the Swiss with their gold is the place to be.

  2. Richard Beddard on March 13th, 2008 4:25 pm

    Thanks for your comment Gavin, and your contribution yesterday. I forgot to attribute your quote about the tide running out partially to Warren Buffett, but I’m sure the great man will forgive me. I’m inclined to agree with you about inflation especially if they keep dropping interest rates to cushion the economy. Mind you, at least those with long-term fixed rate mortgages will be happy when rates start rising again to quell the inflation :-)

  3. Robin Soole on March 17th, 2008 11:37 pm

    Way to oversell the market today. This is going to be the sale of the century soon.

    One would have thought that the sub-prime losses and second home ‘investment’ losses would be priced in by now.

    If the remaining people can keep their jobs then they can pay their mortgage.

    The Fed should be focussing on keeping companies ticking over and worrying less about the banks.

    Here’s a thought for the day. A 100% mortgage means no restrictions on upward house price pressure. I wonder who thought that one up?

    Eventually people will forget that some greedy bankers are the real beneficiaries of this mess! It is the usual redistribution of wealth, capitalist style. I guess it is rough justice that the banks are being eliminated, one-by-one :-)

  4. figurewizard on March 20th, 2008 6:18 pm

    Despite the fact that in successive budgets Gordon Brown had trumpeted cliches about the enterprise culture and the importance of small businesses, Alistair Darling said not a word on them. Nor did he address the scandal of the fact that a small company with profits of around £11,000 will be paying 1110% more in corporation tax by 2010 than it would have been in 2005. If you find that hard to believe, the figures are in an article on figurewizard titled ‘Budget 2007 Exposed.’

  5. Gavin Palmer on March 25th, 2008 1:46 pm

    More mud and murk. Also the decieving way they announce changes for years ahead so that they are not considered budget changes.
    A realistic view would be to present all the tax changes this year whether they were annouced years beofre or not.
    Eg the impact of empty properties paying full council tax is going to hit property investment companies with their void periods being under scrutiny. Makes commercial investment even more damaging to the pension funds and insurance companies that back the develpoments.

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