Tag: Brexit

What is Theresa Waiting For?

Author
Angus Dent
Date

Whatever my views, we’ve decided to leave the EU and as Mrs May is now famous for saying ‘Brexit means Brexit’, so why doesn’t she get on with it?

Preparation takes time. Before negotiating even the smallest of deals, you need to be well prepared, and we’ve been advised this week of the expected additional cost and recruitment needs. Set next to 43 years of membership and integration and the time the negotiations will likely take, the period of preparation measured in months rather than years is disproportionate.

It seems that hardly a day goes by without either a UK pro-Brexiteer or an EU official suggesting that we should get on with it. There’s a gap between the unelected officials and the elected representatives of the people.

The EU, and particularly the countries of the Euro Zone, are in a mess. There’s a German hegemony that is beggaring southern Europe (under-valued German currency and massively over-valued southern European currency). There’s never been a successful monetary union without a parallel or preceding political and fiscal (read corporation and income tax) union. To state the obvious, there are the beginnings of a political union in the EU and no fiscal union. Without a single fiscal authority within the Euro Zone there can be no common monetary policy for that zone. The political will / union appears to be fracturing; the unelected officials of the EU seem to be further and further ahead of the European electorate when it comes to integration. With political union stagnant at best and possibly fracturing there’s no chance of a fiscal union.

The question becomes then how long will the Southern European countries and France put up with this, probably not much longer. In any case, the situation gets worse by the day, deficits rise, borrowing rises to fund deficits, and the need to devalue to re-balance the economies becomes worse. Or in the jargon austerity continues so that Germany can, in theory, be repaid debts that in practice can never be repaid and which must, therefore, be forgiven. Plus we may have another banking collapse, lead this time by the German banks.

The worse the mess in the EU the better the deal that the UK can negotiate and / or the less impact a so-called hard Brexit will have on the UK. Playing the long game may be playing the smart game. A ‘week is a long time in politics’* six months is a lifetime.

*Harold Wilson, UK PM 1964 to 70 and 1974 to 76.

eu-and-brexit-zip

Falling Further Down the Rabbit Hole

Author
Angus Dent
Date

The rate at which the Bank of England is prepared to lend short-term money to financial institutions looks set to fall below its current historic low of 0.5 per cent to 0.25 per cent, a move designed to stimulate the stuttering British economy. However, I would argue that further suppressing the cost of credit will do little to help British businesses battling Brexit uncertainty. Instead this rather negligible Interest Rate reduction will inflate the debt bubble while further punishing pensioners and savers, thereby diminishing waning economic confidence; thus costing companies dear. So what is the MPC’s rationale?

interest rates

In Money Creation in The Modern Economy – a paper published by the Bank of England in 2014 – Michael McLeay, Amar Radia and Ryland Thomas explain how commercial banks create money via the provision of loans to households and companies. Contrary to economic theory outlined in most textbooks, ‘rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits’ (McLeay et al., p.1, 2014). It is thus the commercial banks (not the Bank of England) who create money. The interest rate – otherwise known as the ‘repo rate’ – acts as the ultimate constraint to commercial bank’s ability to create money as it determines the price and consequently the profitability of lending. By lowering interest rates, the MPC are reducing the price of credit and thus imploring commercial banks to conjure up more money by writing new loans.

The MPC hope that more ‘fountain pen money’ – money created at the stroke of bankers’ pens – might help to sand over the cracks our decision to leave the EU has created. It will not. Rather, it is a vote of no confidence in the UK economy, an economy currently plagued by uncertainty. What’s more, it proves we have learnt little from the 2008 financial crisis. As Mervyn King (2010) suggests, ‘for all the clever innovation in the financial system, its Achilles heel was, and remains, simply the extraordinary – indeed absurd – levels of leverage represented by a heavy reliance on short-term debt.’ Would raising interest rates be such a bad idea?

BUSINESS AS USUAL AT ARCHOVER

Author
Alex Taylor
Date
It took less than two hours yesterday (June 27) for lenders to snap up a £150,000 business loan on ArchOver’s ‘Secured and Insured’ crowdlending platform. The 12 month facility, offered on behalf of rapidly-expanding accountancy firm Spain Brothers, was the first new transaction to appear on the platform since the EU Referendum result was announced last Friday. Lenders will receive a return of 8% per annum.
Commenting on the loan, ArchOver CEO Angus Dent said: “We don’t yet know exactly what the future holds, but, far from retreating, we see this as a period of opportunity. We can demonstrate that the ArchOver platform remains in good working order for the benefit of ambitious SMEs and discerning lenders. Successful companies have clearly not lost the confidence to raise the finance they need to develop and grow their businesses, while lenders have equally not lost their appetite for keeping their investment returns as high as possible in this uncertain world.”
“It speaks volumes for the loyalty of our lenders who clearly appreciate our easy-to-access systems and trust our ‘Secured and Insured’ model to safeguard their interests as well as deliver attractive returns.”

Was it acceptable in the 80’s?

Author
Angus Dent
Date

So the results are in, we have stood up as a nation to be counted and the surprise result is that rose tinted nostalgia seems to have taken us in a direction none expected – back to the golden era of the 80’s. There’s the funny side of course, big hair, even bigger shoulder pads and at the end of the decade enormous mobile phones. Of course it’s the bleaker side that’s worrisome; British soldiers on the streets of the UK, 3m+ unemployed, a surrogate civil war with the miners……That’s said, the effect that had on asset prices was only beneficial to the humble man on the street  and you could get married, buy a house and an Aston Martin, as a poorly paid Chartered Accountant ( I know I did ). Pity about all that equity that might go to waste and for those who came along later and paid higher prices.

 

brexit flags

 

What we didn’t have in the 1980s, or at anytime until this decade and really only the last couple of years in anything approaching a measurable volume was an AltFi sector. A real alternative provider of finance that may just keep the economy going through this particular period of uncertainty and beyond.

 

Substantially AltFi was born of the last financial crisis; a hunger for yield from those with cash and a need / want to borrow from people and businesses. Some of us saw this opportunity and established businesses that arch over from the lenders to the borrowers. The problem is that the sector while growing very quickly in macro economic terms remains small when compared with the banks. Mind you much micro economic theory, some of it written and tried in the 1980s, suggests that the biggest effect can be had on the margin, deploying relatively small amounts of money.

 

What might this mean; the banks continue to carry the base load in value terms and AltFi provides finance alongside. The banks continue to lend to the larger corporates and AltFi takes more of the personal lending and the lending to small and medium sized enterprises. This of course is what has been happening over the last seven or eight years. I expect that our sector, the AltFi sector has just received a boost. Crisis makes us all more cautious, makes us retreat to where we feel most comfortable. For the banks that’s corporate lending for AltFi its SMEs and personal lending. So we’ll both be playing to our strengths, working in the areas we know like and understand.

 

One other thing makes me more optimistic; increasingly AltFi and the banks are working together. We’ve moved from a position of say three years ago, when we, metaphorically, spat at each other to one today where we’ve realised that we provide different services and should therefore work together. Working together we’ll get the UK economy through this crisis, maybe without it even becoming a crisis, and forge a larger more robust AltFi sector in the process.