Down but not out

At last we have some decent inflation figures, yet already economists are being wheeled out to warn us of the dangers of deflation. If only.

For the record, the Consumer Price Index, the one that the Bank of England bases its interest rate decisions on, has fallen from 2.9% in March to 2.3% in April.

Let us get this into perspective. The rate is still on the top side of the 2% target and has a long way to go to fall through the 1% floor at the bottom of the permissible range. Even if it came down below 1% it would still be showing inflation rather than deflation and a period of very low inflation would hardly be a disaster.

It is only because inflation has come down from alarmingly high levels that today’s rate looks reasonable. With the very sharp rises in energy and food prices fading into the past, and in some cases being reversed, we are now seeing a fall back that merely smooths out the volatility of the past two years.

The undeniable fact is that inflation as measured by the CPI, arguably the most accurate calculation as it removes the distortions of mortgage payments, has remained stubbornly high and while the latest fall is greater than economists expected, the previous three months of 2009 followed a trend set in 2008 of showing higher rates than expected.

The retail price index has moved further into negative territory, recording inflation at minus 1.2% compared with minus 0.4% in March. This deflation is entirely down to the hefty reductions in mortgage rates. As short-term tracker mortgages come up for renewal, these will be reset at higher levels, thus forcing the RPI back into positive territory.

Reasons to be cautious

One of the many emails I received after last Friday’s missive accused me of sitting on the fence in the past. It is quite true that for many months I have been taking a very cautious approach to the stock market but surely that is justified in the current situation.

Despite a rally towards the end of last week and the start of this one, the market has succumbed to heavy profit taking in the past couple of days and the FTSE 100 is still moving sideways, unable to break out of the 3,800-4,400 points range.

I thought I had been pretty brave to suggest that the market will, eventually, break out slowly upwards from that range given the massive uncertainties surrounding the global economy and I still feel it is right to warn of the lingering danger that the breakout could be on the down side.

Stockbroker Collins Stewart has produced a useful piece of research pointing out that the movements in the stock market between March and mid-May this year are remarkably similar to what happened last year.

The second quarter recovery petered out last year and could well do so again. However, I am a little more optimistic this time. A lot more bad news has been factored into the market in the intervening period and we are starting to get a genuine feeling that things are no longer growing worse by the day.

The key, as I have argued all along, is to invest in companies that pay a dividend, preferably one that is well covered. Believe it or not, there are still many UK companies making profits, in some cases increased profits.

Sorry but I meant it (1)

I was reminded this week of a childish retort from my schooldays. If you felt forced to apologise insincerely for some hurt caused, you would say: ‘Sorry, but I meant it’.

Michael Martin, speaker of the House of Commons, issued just such an apology. He is unable to accept that he has presided over a system that has brought the house into disrepute and that he then attempted to subvert the course of justice by trying to prevent the uncovering of fraud.

Martin’s supposed apology merely lumped himself in with all the other MPs who have let us down, arguing that they must accept blame collectively. He is sorry only to the extent that he has contributed.

He refused to acknowledge that he played a central role and that he scorned those courageous MPs who spoke out. Then he refuse to allow MPs to debate whether he should step down.

Martin is clearly not sorry. He meant it.

Sorry but I meant it (2)

Sir Victor Blank, one of the architects of the disastrous takeover of HBOS by Lloyds Bank, has agreed to stand down in 12 months time in the hopes of staving off a humiliating vote at the AGM.

If this is meant as any kind of apology for the disgraceful manner in which he subverted the interests of Lloyds shareholders to his personal aggrandisement and the convenience of the government, then it is not good enough. He should go now and take chief executive Eric Daniels with him.

Normally it is bad news when the top two depart together as it breaks continuity but we do not want a continuity of the disastrous policy that has reduced Lloyds from one of the strongest banks in the country to a pile of rubble. The chairman and chief executive refuse to acknowledge that they made a bad mistake.

The full horror of Lloyds Bank after the disastrous take over of HBOS continues to unfold. Now the unhappy shareholders are being asked to throw £4 billion of good money after bad and Sir Victor Blank and his sidekick Eric Daniels have been forced into the humiliation of offering a 60% discount to tempt shareholders into taking up their rights.

I cannot understand why this admission that Lloyds shares are deeply unattractive prompted a rise in the share price. Those who have had enough now have a better chance of getting out. Those who stay in should take up their rights and look to sell in the market at a profit.

Lloyds shareholders mistakenly allowed themselves to be bounced into voting for the disastrous deal of a lifetime. They do now have the opportunity to show their disgust by voting against every single motion at the AGM. Don’t throw those proxy cards in the bin. Get out a black ink pen and put a cross in every box in the 'against' columns.