Inflation in surprise dip, but for how long?

It is funny how just as the Bank of England finally seemed to get the hint and become more cautious with its inflation predictions, its previous more optimistic forecasts actually came right. It would be ironic indeed if, after spending years being too optimistic with its inflation forecast, a chastened Bank of England started to become too cautious.

Inflation – as measured by the CPI – was 2.4 per cent in April, from 2.8 per cent the month before. Falls in petrol prices helped. However, core inflation – that is with so-called one-offs including energy prices, stripped out – was just 2.0 per cent. In other words, it was bang on target.

There is one catch. The timing of Easter this year compared to 2012 may have distorted the figures.

Meanwhile, producer prices, which may act as a kind of forward indicator of consumer inflation, also told a positive story. Annual output price inflation dropped from 2.0 per cent in March to just 1.1 per cent in April, with factory gate prices actually falling 0.1 per cent between March and April. As for input prices paid by companies for goods and services they bought in, these fell by 2.3 per cent in April over the month before. (Year on year, input prices fell 0.1 per cent.)

What with a recent report from the British Retail Consortium showing that shop price inflation was just 0.4 per cent in April, maybe the UK inflation picture is about as positive as it has been for a very long time.

Yet the consensus is for inflation to rise again, peaking in June at between 3.0 and 3.5 per cent, and even the Bank of England concedes that inflation will be above its 2 per cent target over the next two years.

The Ernst and Young ITEM Club recently forecast that later this decade global inflation pressures will rise as wages increase in China, pushing up the cost of imported manufactured goods.

Marks and Spencer needs more time – or is it out of time?

The latest results were a disappointment, not that you would guessed it from the share price. Pre-tax profits at Marks and Spencer in the year to the end of March were £564.30 million, down 14 per cent from last year, and to their lowest level since 2005.

A fall in clothing and hardware sales did not help, nor for that matter did a bond buy-back costing £75.3 million. But at least food sales, international sales and the multichannel business were all up.

But the shares are not doing so badly; they are up some 90 pence since the beginning the year, or almost by 25 per cent. Maybe The Share Centre’s Helal Miah summed up the mood pretty well yesterday when he said: “We continue to believe Marks & Spencer is tackling the problems in its womenswear and general merchandise operations.” Marks & Spencer is a buy for the contrarian investor 

Give the company’s boss Marc Bolland credit – he has opted for fighting talk.

“I’ve always said this is a big job,” he remarked. “I think you have seen from the scope of the job that this is one of the largest transformations in retail that you’ve seen in the UK. This is a difficult job to see through. I’m prepared for it because I like a job like that.”

So how long has he got? Has he got longer, for example, than Jose José Mourinho will have at Chelsea?

Mr Bolland said: “Time frames are irrelevant.”  And his message for shareholders who don’t like his ideas? He said they should: “vote with their feet.”

In some ways though, there are similarities between M&S now and Sainsbury a few years ago when Justin King took over. He changed the supply chain, got the little things right, and pretty much stopped the rot – even reversed it.

But are you not getting a slight feeling of déjà vu?

When Stuart Rose took over at the store, it felt as if M&S was drinking at the last chance saloon. Well, it took its drink, appeared to recover, and now we are told it needs time; that Mr Bolland has to make up for past errors. Some are even talking about Stuart Rose as a trader, who put short term profits over long term sustainability?

Mr Bolland may or may not pull it off, but do you not feel just a little bit weary of hearing how M&S has got it right this time?

Carney warning on Europe

Just a little bit longer before Mark Carney moves his desk to Threadneedle Street. And the big question remains, will he be one of those central bankers who talks in subtleties, and teases with hints disguised as ambiguity, or will he be one of those types who speaks his mind?

Yesterday was his last day for speech making at the Bank of Canada. He said: “Without sustained and significant reforms, a decade of stagnation threatens Europe.”

So that did not real feel like he was mincing his words.

Still in un-word-mincing mode, he said: “Europe can draw lessons from Japan on the dangers of half measures.”

So there you have it. The ECB needs to be bolder. Well that is probably right. But is that a hint that he thinks something similar about the UK?

We may not have to wait much longer to find out.

MPC turns hawkish

Then again, even if Mr Carney turns out to be an ardent fan of QE, he may struggle to persuade other members of the MPC to vote his way.

The latest minutes were out this morning, and they revealed that for the fourth month in a row, three members voted for more QE (including Mervyn King) and three against. More to the point, there were hints in the minutes that some MPC members have hardened their views, and fear that more QE may lead to inflation rising too high.

UK retail sales fall

UK retail sales fell 1.3 per cent in April, after dipping 0.6 per cent the month before. So that is not very good, and rather contradicts all that rather more promising data we keep hearing about.

Samuel Tombs, UK Economist at Capital Economics, said: “The recovery in high street spending at the start of the year has begun to fade.”

Chris Williamson at Markit adopted a slightly more optimistic take on the data, however, saying: “The picture may not be as bad as the headline data suggest. The ONS reported that poor weather contributed to a particularly steep drop in food store sales, mainly supermarkets, which slumped 3.8% below levels of a year ago, down to their lowest since December 2003. Supermarkets reported especially poor sales for items such as garden furniture, blamed on bad weather.”

He added: “The underlying picture is more likely one of modest growth of sales (in the latest three months sales were 0.7 per cent higher than the prior three month period; the strongest rate of increase since last September), which reflects an improvement in consumer confidence.”

Companies in the news

Telecom/Internet services company Daisy Group was able to put a sufficiently good case to its bank, for it to agree to renegotiate its £200 million loan. The bank likes what it sees at Daisy, and that impressed Tempus at the ‘Times’, as did the company’s modest valuation to expected earnings. That was enough for Tempus to suggest that “Daisy is set to bloom.”

It was less bullish on TUI Travel, however. Note that Tempus was negative about the company, which it compared favourably with Thomas Cook. It is just that Tempus could only bring itself to say “hold.”

These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

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Distribution of income, and indeed wealth is a problem, perhaps the biggest single problem in the developed world today. Don’t get me wrong, I am no socialist. At different times from these, I would make a quite different argument, but right now the growing gap between the very richest and the rest is leading to lack of demand. The only way consumers can afford to spend the kind of money the economy needs them to spend for it to keep growing, is if they run-up debts.

That is why housing booms can create growth, because for those who own their home, rising house prices help to make up for the fact that their income is not rising with inflation, and makes consumers feel more confident about borrowing to fund spending. But this can only ever be a short-term fix, especially as house prices are already too high, and creating growth via boosting asset prices is begging for a trouble at a later date.

Many times I have used this column to refer to the way in which corporate profits to GDP are around an all-time high, while wages to GDP are approaching an all-time low. I don’t think the explanation is rocket science. The combination of globalisation and technology has increased the rewards to capital, and decreased the rewards to labour. This means the economic system is becoming self-destructive. It is working against itself. See it in terms of a football match, in which people start standing up to get a better view of the action on the pitch. As a result, others stand as their view has been blocked. You may end up with the entire crowd standing up, meaning no one – unless they are unusually tall – has a better view of the pitch, but everyone is less comfortable. The economic system is working like that right now. Individual behaviour is making the entire system worse off, which in turn will eventually make everyone – or nearly everyone – worse off. Certainly, in the long run it is hard to see how corporate profits can carry on rising, when the economy is contracting.

The massive volume of cash sitting on company balance sheets is a symptom of this. For as long as companies are sitting on so much cash, the economy will be fragile. The fragile economy encourages companies to sit on even more cash. In such circumstances economic depression is a real risk. Somehow this dead money has to be freed up. One method to free it up is for governments to borrow the money that is lying idle, and spend it to boost demand. But this increases government debt. Another way is for government to tax corporate profits more, and spend the receipts boosting demand without increasing their debts.

But no individual country can act. Apple has told the US that if it wants the company to pay corporate tax, it should reduce the corporate tax rate from 35 per cent.

So let’s sum up. Companies are making so much money that they don’t know what to do with it. They can use the fact they operate in a global economy to their advantage and reduce taxes.

Only international efforts can mitigate against this. But right now, it is in the interest of the people who make up the global economy to see a minimum global corporation tax, applied to all states that do not want to be shunned by the rest of the international community. Instead the issue is barely discussed.

As for the UK, our Chancellor talks about cutting corporation tax, and the EU itself talks about an EU wide financial transaction tax, which the UK dislikes intensely.

But a financial transaction tax would be effective if it was applied globally. Like a global corporate tax, it would help to solve one of the underlying problems in the economy.

The UK, working within the EU, can do much to overcome these challenges, but instead, we just scream and shout about everything the EU tries to do.

I do have one doubt concerning the idea of a global corporation tax – aside that is, from the fact that it would be very hard indeed to get global leaders to agree to it. And that is what happens if things change, and economic circumstances switch so much that the balance between labour and profit moves in the other direction.

As I say, I am no socialist. At different times from these, I would make a quite different argument. Getting global leaders to change their approach, because times have changed may be even harder than getting them to agree to a global tax rate in the first place.

These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

The post Apple Tax row shows problem with globalisation, the solution has to be global appeared first on The Share Centre Blog.

Top customer buys 21/5/2013

Lloyds

FirstGroup

Xcite Energy

Melrose

Vodafone

Quindell Portfolio

Carnival

Barclays

Aviva

HSBC

Top customer sells 21/5/2013

BP

Lloyds

Xcite Energy

FirstGroup

GlaxoSmithKline

Vodafone

Marks and Spencer

Royal Bank of Scotland

BT

Royal Dutch Shell

Ratio of buys to sells – 54:46

Top customer ‘buys’ and ‘sells’ represent the total number of shares traded at The Share Centre, NOT the total value of shares traded.

Top trades should not be taken as a recommendation to buy or sell and it is not intended as advice.  Top trades is only an indication of the buying and selling movements from some of The Share Centre customers during the time frame stated.

The post Top of the stocks, 21 May appeared first on The Share Centre Blog.

Top customer buys 20/5/2013

Lloyds

FirstGroup

Vodafone

Quindell Portfolio

Melrose

Aviva

Royal Bank of Scotland

Vatukoula Gold Mines

Glencore Xstrata

Barclays

Top customer sells 20/5/2013

Lloyds

Royal Bank of Scotland

BP

Barclays

Quindell Portfolio

FirstGroup

Aviva

Thomas Cook

Centrica

ITV

Ratio of buys to sells – 53:47

Top customer ‘buys’ and ‘sells’ represent the total number of shares traded at The Share Centre, NOT the total value of shares traded.

Top trades should not be taken as a recommendation to buy or sell and it is not intended as advice.  Top trades is only an indication of the buying and selling movements from some of The Share Centre customers during the time frame stated.

The post Top of the stocks, 20 May appeared first on The Share Centre Blog.

FTSE 100 hits millennium high, but what is this large thing with a trunk in the room?

And so at last it finally happened. The FTSE 100 passed a millennium high yesterday. Indeed at the time of writing, it is trading at 6756, some 40 odd points higher than the record set in October 2007. Even the all-time high set in December 1999 looks to be in danger. Could it happen? Could the FTSE 100 finally power past 7000, and move into virgin territory as it were?

Some might say it is a bit odd; after all, while the recent economic news has been okay, when you sit back and look at recent data in an historical setting, it has really only been okay in much the same way that a football team that was thrashed three nil celebrates because the week before it lost seven nil.

On the other hand, look at the FTSE 100 in terms of pe ratios, and current prices don’t look exceptional. Besides, argue the bulls, the FTSE 100 is a global stock market, and the companies within it trade across the world. It should not really relate to the UK economy at all.

But if that is so, then explain why it is that over the last 13 years or so the Index has been a good forward indicator of the UK economy.

But let’s run with the idea that it is the global economy and not the UK economy that matters, and maybe let’s add to that the idea that it is market mood and sentiment that pushes up shares, and right now the global mood is bullish.

If we were to follow that logic, then let’s look at US stock indices. It turns out that the S&P 500 is quite expensive. The cyclically adjusted pe ratio for the US indices, according to Capital Economics, is 24, and the historical average since 1900 has been less than 15. Sure pes are low compared to the boom years of the 1990s, but were prices during that era built on lies and false hope?

But Capital Economics also fears that the euro area will be visited by another crisis in the months ahead, and for that reason thinks equities will fall sharply in the second half of this year.

One question mark hovers above all the euphoria of recent months, however. And this question mark relates to what effect QE has had on equity prices.

And if it has had a major impact, maybe even an impact of over-riding importance, what will happen if QE goes into reverse?

And this brings us to that large thing with a trunk sitting in the room: it is called the end of QE. And what follows is an account of why that end may be closer than we think.

Will inflation quash hope?

The Ernst and Young ITEM Club reckons inflation is going to be much higher than central banks are estimating.

In a report out a few days ago, it forecast that inflation will rise above 3 per cent later this year, fall back, but will remain above the Chancellor’s 2 per cent target for the foreseeable future.

It assumes that inflation in food and non-alcoholic drinks will hit 5 per cent this year, and will then fall back to around 2.5 per cent by 2016.

It reckons that inflation in electricity and gas prices has peaked, but will nonetheless hover around 4 per cent for the next three years.

But one major factor to push up prices will be university fees, and then, of course there will be a toll on the UK economy as former students repay their debts. In the US this is a very serious problem, maybe the single biggest problem in the making. In the UK, it is serious, just not quite as serious.

The ITEM Club also assumes interest rates will rise in 2015 and reach 2 per cent the year after.

But the big fear that haunts the ITEM Club is the prospect of rising manufacturing costs in China as a result of wage rises, and this would lead to global inflation pressures.

And this is precisely the point.

Why did we have low inflation and low interest rates in the noughties? There was no one answer, but it was partially because of the Internet promoting price competition, and partially down to globalisation leading to lower manufacturing costs, and – related to that – it was because of the rise of China, and its cheap imports.

Coupled with that was the world savings glut, created in part by China’s policy of protecting the yuan.

If all that goes into reverse, or even into partial reverse, interest rates set by the markets will rise, irrespective of what central banks do.

And that is why there is a large thing with a trunk in the room. If it finally trumpets – or whatever it is that elephants do – expect the markets to suddenly look very different.

Yahoo tries to look cool

YaWho? is trying, it really is.

But its track record in recent years has been decidedly dodgy.

But now Yahoo has a different boss, and Marissa Mayer is certainly making waves.

A more detailed look at Yahoo will appear in a forthcoming Thought for the Day, but in the meantime, here is a brief overview of the latest happenings.

Yahoo has bought Tumblr for $1.1 billion. Ms Mayer said that Yahoo “Promises not to screw it up,” although it is not clear whether she was trying to reassure investors or users of Tumblr.

Tumblr is either the epitome of cool or full of porn, depending on how you want to look at it. It is a is blogging social media site, for users who want to communicate with others in more depth than they can with Facebook. The site is full of lots of whizzy things, and if you are over 25, you probably won´t get it.

Tumblr boss David Karp is 20, and he said to users, in an attempt to reassure them, that the site is not turning purple.

So Yahoo’s challenge is to try not to spoil the unique experience that is Tumblr, but also monetise it with advertising, while trying to reassure investors who almost certainly don’t understand Tumblr.

We are in a guessing game. Yahoo may or may not find that this deal is its saviour. But here is a company that is having to experiment like crazy, by investing in companies, in the hope, they won’t do a MySpace.

Will its bets come off? Predicting that is like predicting the turn of the roulette wheel.

Chilean growth slows

As has been pointed out here before, Chile seems to be one of the more interesting – maybe the most interesting – of the Latin American economies, at least from an investor’s point of view.

Data out yesterday revealed that the economy grew by 4.1 per cent year on year in Q1, compared to 5.7 per cent in Q4. It is a big drop, but may have been distorted by the fact that there were fewer working days in Q1.

It does appear that the Chilean economy is cooling, as growth in investment and consumer demand moderates. Falls in commodity prices have not helped either.

The consensus is for Chile to expand by 5 per cent this year. Capital Economics predicts 4.3 per cent. But the point is that Chile has problems that most of the rest of the world, including Latin America, would love to have.

These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.

The post Bull and Bear: FTSE 100 hits millennium high, but what is this large thing with a trunk in the room? appeared first on The Share Centre Blog.

Marks & Spencer reported a fall in full year profits this morning as legacy issues and difficult trading conditions have seen its general merchandise operation suffer. However, on a positive note investors will be pleased to see its food and international operations continued to perform well. Although it failed to offset the drag from general merchandise, like-for-like food sales rose by 1.7%.

We continue to believe Marks & Spencer is tackling the problems in its womenswear and general merchandise operations. The changes to the board and the actions they are taking are being implemented but investors should be aware it will take some time to bed in. The share price has shown some strong gains in recent months on the back of anticipated future improvements and rumours around a potential takeover.

For those investors who can see past some of these economic difficulties and take a contrarian view on cyclical stocks we continue to recommend Marks & Spencer as a ‘buy’. We believe there are positive changes to come from the group. It continues to look at ways to reduce costs whilst remaining competitive in these challenging conditions and expand its overseas operation, which should help balance its reliance on the UK consumer over time.

All information given including prices, yields and our opinion is correct at the time of publication.  Our opinions on investments can change at any time and for our latest view please go to www.share.com.  To understand how our Advice team arrive at their views please read our Investment Research Policy.

The post Marks & Spencer is a buy for the contrarian investor appeared first on The Share Centre Blog.

I don’t think the economic arguments are clear cut. There would be losers and winners. Yes, the EU is our main export market, but then again the UK would be the EU’s main import market. It will want to sell goods and services to the UK, so why should we not be able to use that to our advantage to ensure that in return for not impeding EU imports, it must allow our exporters free access.

One of the criticisms so often aimed at the EU and its bureaucracy miss the point. Yes the EU makes lots of rules, and insists products comply with certain apparently arbitrary standards, but the purpose of this is to try to create fair competition to stop countries from cheating the system.

I am not a fan of the common agriculture policy, and never have been. It has the effect of pushing up the price of food and is grossly unfair on famers in other parts of the world, including developing economies.

The UK’s problem, however, is that it has never been a good European.

It has for too long been a force for criticism, and does not do enough to support the EU. I am not talking money here; I am talking spirit. Oh there go the Brits again disagreeing with everything we try to do. So we are a force for obstruction, and then complain when we seem to lack influence.

Then there is the immigration debate. I have kept clear of discussing this here, but I feel uneasy about this debate. I think too much of the media bombard us with distorted truths. Immigration is not unique to the UK, or indeed to France. Germany too is expected to receive one million migrant workers this year. But the media backlash is less extreme. I am sorry, but I think many of the words written in the UK press about this subject are little short of jingoistic.

If the UK was to pull out of the EU because of fears of immigration, I think it would be making a major error. Besides, it works both ways. Millions of Brits live in other parts of Europe. For them, pulling out of the euro would be most unhelpful.

What the EU does offer is the opportunity for companies to cooperate. And that is a very important benefit.

What I do think is tragic is the way in which the Eurozone is tearing itself apart. This is an area that is in economic depression, yet so many of its politicians seem to be in denial. The UK could take a leadership role, but instead it pretty much steps back.

The challenges within the euro area can only be met if a way is found to try to force the countries that export more than they import to buy more goods and services from the euro’s big importers. Keynes, the British economist, understood precisely this problem. Instead of singing from the hymn sheet of Keynes, our government tries to brush Keynes and his inconvenient insights under the carpet.

But one fundamental truth gets forgotten. The EU was never about economics; it was about the dream of ensuring there will be never again be a war in Europe. I don’t think another war in Europe is very likely. But the divisions within the euro are worrying.

The German people have done nothing wrong, other than have a tendency to be quite prudent. Not many people think that is a sin. But Germany’s economic policy, and its unfounded and irrational fear of an inflation threat risks creating social instability in Europe, the like of which we have not seen for a very long time.

It is during times such as these that the EU needs some countries to take a lead. The UK could play a key role, but instead we have a debate that is pretty much straight out of the gutter.

These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.

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We have been fans of Melrose for a long time, it has many years of experience and success in the engineering field and its arrival in the FTSE 100 once again highlighted the attractions of the company. The share price has recovered from its fall in November and its recent results have helped to underpin this return in confidence. Q1 was described as encouraging by management and we recommend investors buy for the chance of further growth and cash returns.

Its aim of ‘buy, improve, sell’ has proved attractive for investors and can lead to them receiving special dividends. Management has an excellent track record in improving businesses it has acquired however investors will need to be patient as these improvements take time.

Melrose’s most recent acquisition was German water and gas meter making group Elster. The focus for 2013 is on implementing change in order to improve margins at this business and investors will be pleased to hear the plan is ahead of schedule and margins have already improved

All information given including prices, yields and our opinion is correct at the time of publication.  Our opinions on investments can change at any time and for our latest view please go to www.share.com.  To understand how our Advice team arrive at their views please read our Investment Research Policy.

The post Share tip of the week, 20 May appeared first on The Share Centre Blog.

Investors have reason to like Facebook despite what Murdoch says

“Look out Facebook!” tweeted Rupert Murdoch, “Hours spent participating per member seriously dropped. It was the first really bad sign as seen by MySpace years ago.” So when the man, who not is not so much a media magnate, but more of a media magnate factory, says something like that, you had better sit up and listen.

The data that so got Mr Murdoch’s magnetic north so active showed that there were 10 million fewer visitors each month – in fact down to a trifling 149 million on Facebook.

It is just that visitor numbers on Facebook’s app for iPhones and Androids rose 37 million to 99 million, so is it not possible that hits on the web site fell as users visited the app instead?

There is another difference between Facebook and MySpace – well actually there are many – in particular Facebook is more intertwined with the rest of the Internet, which means that the barriers to exit are such that many users will be very reluctant to ditch all the content they spent hours putting up.

But being intertwined with the rest of the Internet has never been a priority for the Murdoch stable: look at the way the ‘Times’ looks slightly disconnected from the rest of the World Wide Web.

Maybe this is a benefit that Mr M either doesn’t or doesn’t want to get.

The social media site is just sussing out how to maximise ad revenue too.

So actually, when it comes to making money, and indeed developers of apps that work with Facebook, it really is a magnet.

Has Apple lost its edge?

71 per cent – that’s the percentage of respondents to a survey who said Apple has lost its innovative edge. So that was a damning comment on the world’s once-largest company.

But the headline does not tell the full story. In fact, the survey found that 43 per cent of respondents felt that Apple had only temporarily lost its edge, and the remaining 28 per cent saw the company’s loss of form as more permanent.

Sorry, but the critique misses the point. The skill that Apple brings to the table relates to its ability to introduce disruptive technology. Its design expertise when thrown at an emerging business type has been formidable. The company did it with music, smart phones and tablets. It is not quite so good in more mature markets where technology advances in small steps. We are at the tweaking stage of smart phones and tablets, and Apple is not much better at tweaking – if it is indeed any better – than its rivals.

Apple’s test lies ahead. Will it lead the next phase in disruptive technology, smart watch or TV players for example? To make a judgement now is to judge a test before it has begun.

Government must not create its own Fannie Mae and Freddie Mac, says King

Well, Mervyn King sort of said that, anyway. He was interviewed on ‘SkyNews’ and was questioned on the government’s Help to Buy Scheme. He said: “I’m sure that there is no place in the long run for a scheme of this kind. This scheme is a little too close for comfort to a general scheme to guarantee mortgages.”

Of course, it all boils down to permanence. Is Help to Buy here to stay, and is it to become for the UK what Fannie Mae and Freddie Mac are for the US? George Osborne says no, it is just here for two or three years during unusual times.

“We had a very healthy mortgage market, with competing lenders attracting borrowers before the crisis,” said Mr King. “We need to get back to that healthy mortgage market.”

The real snag, of course, is that in the UK healthy mortgage market is shorthand for pushing up demand, which will push already too high house prices up even higher.

Temporary or not, Help to Buy will only help to build a sustainable recovery if it leads to much higher levels of new builds.

Bankers are not demons

This may come as a shock, but if you were to shave a banker´s scalp, the numbers 666 would not be revealed. At least that is the gist of what Mervyn King said.

Speaking in the very same interview, in which he gave us the benefit of his wisdom on Help to Buy, the Bank of England Governor said: “Where the banks contributed to the problem was that they themselves had taken too many risks on their balance sheet and they simply didn’t have enough capital to absorb the losses that were likely to come along and people took fright, they lost confidence in the banks, they didn’t provide money to the banks so the banks couldn’t lend to businesses or households.

“I would say to people though, don’t demonise individuals here. This wasn’t a problem of individuals; this was a problem of failure of a system. We collectively allowed the banking system to become too big, we gave them far too much status and standing in society, and we didn’t regulate it adequately by ensuring it had enough capital.”

To some people, this may seem like a controversial thing to say because they reckon that eternal damnation is what bankers need.

It is a puzzle why no one has suggested throwing them in water, and to then observe whether individual bankers sink or swim, with sinking meaning they are innocent and swimming meaning they are witches.

The truth is that bankers in the UK are like BP in the US, and they are an easy target. The court of public opinion has found them all guilty and they are willing to believe anything really bad when describing bankers – or in the case of the US, BP.

Whether such demonising is a good thing, however may be a moot point.

Now US consumers are more confident

The good news on the US economy continues. This time it is data on US consumer confidence which has the markets cheering.

Last Friday saw the release of the University of Michigan Consumer Confidence Index, and it was up, a lot up. In fact the index hit 83.7 in May, and that was nearly a five year high.

That US gasoline prices are hovering around a three month low has helped, so has the fact that US stock indices have been breaking records with regularity.

The alternative measure of US Consumer Confidence produced by the Conference Board is due out on the last Tuesday of the month, but the two indices, don’t tend to differ wildly.

All in all then, this is more evidence that the US is enjoying economic news which we can only dream about in Europe.

These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.

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So, private sector pay including bonuses contracted by 1.3 per cent in the year to March. Over the same period inflation was running at 2.8 per cent. I don’t get it, how can people say the economy is slowly recovering when pay is actually decreasing? And, by the way, overall –  that’s both private and public sector – wages including bonuses decreased by 0.7 per cent in the year to March.

Let us remind ourselves of what GDP is. It is made of consumption, government spending, investment and exports, minus imports.

There seems little reason to expect consumption to rise while wages are falling. At the same time, households consisting of the baby boomer generation are – if they have any sense at all – worried about how they are going to fund their retirement. They know that they have to save more.

So let’s run that past you again. Incomes are falling, and there is a need to save more. So under these circumstances, how can consumption do anything other than fall?

But, while wages are falling, corporate profits look healthy. This is no coincidence; the macro explanation for rising profits is that they are funded by falling wages.

Investment will only occur if companies have a reason to invest. Why should they invest while consumer demand is so stretched?

There are signs – very subtle signs – that exports may be slowly improving. The UK’s main export market is the Eurozone, and that offers nothing but bad news. However, exports to the US and emerging markets have been rising. Of late, exports to China have been rising faster than imports from China. If this trend continues, one day, exports may lead the UK to growth, but following the current trajectory I would say that day is at least a decade away, maybe longer.

So, if all that is true, the only way GDP can rise is if the money that households and companies are saving is spent by someone else, and that someone else is the government.

Now let me take a move sideways. A major problem in the UK economy is poor productivity. This can only be improved via superior infrastructure, investment in capital, such as machinery, labour in the form of education, and generating ideas and wealth in the form of  R&D and entrepreneurs.

What the government could do is create recovery by taking the money that is not being spent, and invest it in the areas I describe above.

Instead, it chooses to repeat the errors that created today’s crisis in the first place. It is deliberately trying to create a housing boom. If house prices rise, households may go out and spend more like they did in the 1990s and noughties, but I don’t see the underlying problems of poor productivity being fixed.

George Osborne is saying to the electorate. Okay, I am going to do nothing about falling wages, and poor productivity, but never mind, I can make you all happy by getting your homes to rise in value. It is like a bribe – a nod and a wink and I will get house prices up. But then again, none of these issues are new. This is what happened in previous administrations in both the UK and the US. It is no way to run an economy.

These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.

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