Sunday, 3 January 2010


When B-budget horror flick 'Night of the Living Dead' had it's public premiere at the Fulton Theater, Pittsburg in October 1968, the audience was packed with kids looking forward to a fun-filled Saturday matinee of comedy schlock-horror.  The brand new film classification system wouldn't come into effect until the following month, so even pre-teens were admitted and parents happily brought their tots.  Poor little tykes.

According to Roger Ebert, then critic of the Chicago Sun-Times:

The kids in the audience were stunned. There was almost complete silence. The movie had stopped being delightfully scary about halfway through, and had become unexpectedly terrifying. There was a little girl across the aisle from me, maybe nine years old, who was sitting very still in her seat and crying... It's hard to remember what sort of effect this movie might have had on you when you were six or seven. But try to remember. At that age, kids take the events on the screen seriously, and they identify fiercely with the hero. When the hero is killed, that's not an unhappy ending but a tragic one: Nobody got out alive.

You remember the plot: a disparate bunch of strangers barricade themselves into an isolated farmhouse in the middle of the night, fighting off wave after wave of flesh-eating zombies, until... 

Director George A. Romero says he envisaged it as a metaphor for revolution: at the end of a tumultuous decade, which climaxed with the flowering baby-boom generation protesting over Vietnam, marching against racial segregation, rioting against police brutality in blighted inner-city districts and burning down neighborhoods in the wake of Martin Luther King's assasination, it seemed the whole social fabric of the United States was being torn assunder. 

Indeed it was only a month after the release of the film that an older generation of Americans, alarmed by the escalating chaos and perhaps by an even deeper fear of their own children's emergent rebelliousness, elected 'Tricky Dicky' as President in an attempt to re-establish order.  If they'd only known the resulting disillusionment would beget a decade of suede, flares, handlebar moustaches and Deep Throat, perhaps they'd have let the kids have their own way after all.


And so it comes to pass that, a generation later, we witness those same baby-boomers, the very ones who kicked and struggled to bring down the Man, the ones who marched, fought, protested, loved, smoked, mushroomed, weeded, pill-popped, short-skirted and flower-powered their way to a social revolution, now stampeding down the malls of America from New Jersey to New Mexico, armed with credit cards steeped in debt, fighting through crowds of their fellow revolutionaries in the war of the New Year Sales. 

Amid chaos in the aisles, they wield their lard-butts and bingo-wings as grade one weapons in a to-the-death struggle for bargains in this - not the battle of Kent State University, not the battle of Grosvenor Square nor the riots of the 1968 Parisian spring, but the battle of the Sears New Year Sizzling Sale Spectacular.

And there's an even more ironic twist to this tale.  Because what these mall-warriors don't yet know is that they are no longer the great and unbeatable consumer army they once were.  In fact they have already been slain but, being proud shoppers, cannot yet comprehend nor accept defeat.  Buried in the killing fields of 2008, they have risen again to shop in 2010. 



Alas, like those poor zombies, great swathes of the world's consumers, plus many of our financial institutions and several governments of varied size and importance have, economically-speaking, passed over to the other side. 

They certainly give off the appearance of life.  They shop, they trade, they still display shiny brass plaques at their grand office entrances.  Their CEO's still hand out vast bonuses to their employees in a grand show of confidence, health and vitality. 

Christmas and holiday shoppers nonchalantly wave their Amex Platinum cards at the checkouts as if 2008 never happened.  Countries-which-shall-remain-nameless continue to slap billions on their own credit cards, conjuring a fantasy world for their electorates in which vital public spending is 'ring-fenced' and we march on fearlessly as before.

Meanwhile stock trading figures for company insiders reveal that the same corporate CEOs apparently so confident of better times ahead are busy selling the shares of their own companies as the market rises, at the highest rate since the halcyon days of 2006/7.  Does that sound like a vote of confidence in their future to you?

click to enlarge

And as they walk those malls, the developed world's consumers are rapidly passing beyond the age at which they statistically spend most (45 - 50) into a period when historically they have increasingly paid off debt and saved more of their income for retirement.  Here, for instance, is a glimpse of the mighty German consumer's spending patterns:

German workers' spending increases into their mid-40s, then falls away.  Those who are retired, naturally, spend far less. 

Tens of millions more western baby-boomers will move into their 50's and 60's over the next decade, their retirements hugely exacerbating the spending slowdown (see 'Demographics and the eighty year flood' from December's post).  Lots of nonsense gets talked about people 'postponing retirement' and working longer.  In a contracting economy, exactly who will these ageing millions be working for?  And what will they say to their unemployed children and grandchildren just trying to make a start in the jobs market?  "Don't forget to sign on, son, now pass me my zimmer frame, I'm off to work..."?

Germany's spending profile is typical of most advanced economies.  Once the 'hump' of the consumer population passes their late-40s, spending will decline in those same sectors of the economy which were at the heart of our thirty-year boom - housing, appliances, cars, family travel, large home electronics and speculative financial products - those sectors which have been the undisputed domain of the high-income, middle-aged spender. 

As demand in these areas gradually wanes, other expenditures will have to compensate if prosperity is to return, unemployment is to fall and those of us still barely-employed are to get a ruddy pay rise.  The good news is that this situation will naturally right itself once a fresh surge in the middle-aged population begins after 2020.  But I've yet to hear a remotely convincing argument for where our growth is going to come from in the meantime.


Look beyond the great bonus sideshow and their proclamations of renewed health: many of our banks are the very definition of the living dead.

Poisoned by bad debts taken on in the boom times - debts which still fester on their books but which (through sly accounting rule changes) have been conveniently swept under the carpet - these banks have survived through nothing but steroid injections from the world's taxpayers and central banks.

The consequences of allowing them to die would certainly have been catastrophic, but now they are the next worst thing: 'Dead Banks Walking'.

Right now, they have free reign to make money.  While they can borrow cheaply, they can rake in profits.  For example, they have been able to get funding at close to 0%, and then buy government bonds which pay them a return of up to 3.5%; given that, you'd have to be a dog of a bank not to make money. 

But, as I pointed out in last month's post, the money they're making is not being lent out but hoarded.  At the same time as businesses are crying out for cash and governments are tut-tutting about the lack of lending, banks are being told to rebuild their stores of capital, which they are only too happy to do.  They can't and won't do both.

We thus have a situation in which, instead of serving their primary, systemic purpose - providing capital to consumers and businesses to encourage investment, growth and spending - the banks' are unable to do anything but serve their own purpose: to stay standing.

So instead of extending you a loan at a rate you can afford, they'll tell you to f*** off and raise your bank charges.  Instead of offering you a new credit card at a lower rate, they'll cut your credit limit by half and slap on an extra fee if you pay a day late. 

Banks will come up with all kinds of ruses to protect their profits as conditions worsen.  Yet their behaviour only adds to the downward cycle, because the more these flesh-eating monsters take chunks out of us cash-strapped consumers, the worse economic conditions are destined to become.


They live by night

Gordon 'no-more-boom-and-bust' Brown: you've got to hand it to him. 

Literally hand it to him - because your taxes are going up.  UK plc is drowning under a sea of debt which (sorry kids!) has to be repaid, and there's only one place that money is going to come from: the great British wallet.

Despite recovering recently, tax receipts have fallen since the start of the downturn while repayments on hundreds of billions in extra borrowing has to be serviced.  Bluntly, this means that either spending has to be cut (politically problematic in the run up to an election) or taxes raised.  Or both.

As election fever mounts, the debate over whether and how much to cut spending will likely turn into into a battle of the slogans. 'Savage Tory cut-backs!' will fight 'Labour's debt timebomb!'  

Actually I've not yet decided which way to vote, as I'm trying to work out which approach - spending like there's no tomorrow or cutting 'til there's no tomorrow - is the least worst.  My gut feeling is that we're going to have to choose between agony incurred or torture deferred

  • CUT NOW! and watch people get thrown out of work, benefits chopped, services axed and spending plummet, or...

  • SPEND NOW! and rack up debts we and our children will be paying off for years in high taxes, a stagnant economy, higher interest rates and potential inflation...

Hell, even if we spend now, there's a chance interest rates will rise to the point where the government will eventually be unable to repay its debts, a la Greece or Dubai.  Then we'll need a humiliating bailout from the IMF and will be forced to cut spending.  Heads they win, tails we lose!  Oi vei.



So in conclusion, take heart, friends.  The recession is virtually over.  The stock market will likely chop higher, house prices will probably hang on grimly and things may appear to be getting better, all well into 2010. 

But beware: we have passed into a zombie fog, a twilight world where nothing is quite as it seems.  At its financial heart are institutions which are still standing, but their fundamental sickness - toxic debt - still eats away at them from the inside. Therefore, to save themselves, they must drain the life-blood from the rest of us...

We have zombie governments, which can only pay their debts by hiking taxes on their electors and cutting spending on precious public services, throwing public sector workers onto the dole.  Thus they drain us of cash with which we could choose to spend and support the economy or save and pay off some of our own debts...

And last, but very definitely not least, we have the zombie consumer.  Aside from the twin onslaughts on his bank balance suggested above he is, from every perspective, living on borrowed time

Ageing well beyond his peak spending years over the next decade, his wallet is set to gradually gather dust, as he trades in his Porsche 911 for a mobility scooter.  Not only that, he has a  little light debt problem of his own, as highlighted by this exchange on Sky News recently between financial newshound Jeff Randall and Terry Smith, CEO of top City broker Tullett Prebon:

  • "My thesis is this: the consumer has not been rescued, their pain has merely been deferred.  People who were massively overborrowed in 2008, by and large are still massively overborrowed today. All that's happened is, they can pay off their debts a little more cheaply in the short run.  But that can't go on, can it?"
  • "No it can't. Because interest rates are, to the nearest whole number, zero.  There are alot of people out there who went on to an interest-only mortgage (which is just another way of renting, basically) and took money out of their house like an ATM machine to buy cars and holidays and all the rest of it, who basically are dead - they just don't know it yet."


OK, that's yer doom-fest for this month.  Grab a cup of tea, throw another Big Brother celebrity on the fire and come back to feast on my January Investment Outlook, posted below.  I'll be back with another blast of wintry reality on Sunday February 7th - if you can take it!

Meantime thanks for reading and my very best wishes for a happy, healthy and prosperous 2010!