Why you should flee into cash and gold
By
MoneyWeek editor-in-chief
Merryn Somerset Webb Jul 11, 2008
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First a defence of poor Gordon Brown. Clearly, while on his way to one of the G8's famously over-the-top banquets, it was unwise of him to suggest that the rest of us eat more leftovers. But by Wednesday he was being mocked again, this time for apparently not noticing that he had had a 19-course dinner. "It seemed to me to be three courses," he told the press. "I don't know quite why it's been described as larger."
Now we all know by now that Brown isn't very good at counting, but I think on this occasion he was probably right. Japanese menus often list scores of dishes but each one is tiny – just a taste – and in this kind of meal they tend to arrive in groups rather than one by one. Brown can say little right these days, but I think that even he, despite having no formal training in economics, econometrics, statistics or, indeed, mathematics, can tell the difference between three and 19.
Right, on to his failings. The most obvious is surely complacency. He must at some point have believed his own rhetoric – must have believed that he had somehow abolished boom and bust, along with inflation and (any day now) child poverty. Otherwise, there is no way he would have left our currency so vulnerable and our public finances in such a state that he has no immediate way to ease our path into and out of recession.
And make no mistake, we are headed into recession. The official numbers don't show it yet. But as Anthony Hilton points out in London's Evening Standard, they aren't much use anyway. Let's not forget that 40% of our economy is accounted for by some sort of state activity or another. So the extent to which this translates into growth or not is to a large degree dependent on the view the Government statisticians take on things. "Does £100 spent on the NHS deliver £100 of value? Or £103? Or possibly £97?" If they put in the lower number the NHS is a drag on growth numbers. If the higher, it boosts growth numbers. Who knows if they get it right?
Then there is inflation. The official numbers are fine for measuring trends, but "they are less convincing as their measure of the actual level of inflation most people currently feel". If this is 3% higher than the stated rate, then growth is currently overstated by 3%. All in all, it is no wonder the economic data constantly point to a "rosier picture of the economy than one experiences living in it", as Hilton puts it.
Still, we don't really need the official numbers to tell us things are bad. The housing market is telling us with its collapsing volumes, sliding prices and imploding building sector. The retailers are telling us with dismal sales numbers. Manufacturing, such as it is, is telling us with its falling orders. And, of course, the stockmarket has told us exactly how things stand by diving into official bear-market territory as even the commodity and oil-related stocks have finally begun to come off. This is a time to be in cash and in gold. It isn't time to be in much of anything else.
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Merryn Somerset Webb
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