Thursday, December 14, 2006

Hedging your bets

From The Sprout, 2006

It has been a few weeks now since I packed up my belongings, tidied the office and hired the help of a very cheap removal company (my dad) to bring my shoes and I away from the mother ship and back to the motherland. Whilst I may have saved myself from ever attending another Economic and Monetary Affairs Committee meeting, I still find myself surrounded by people who talk much, but know very little it seems, about economics. Maybe that was inevitable, though, with the new office being so close to the UK Treasury, and that prize buffoon, Gordon Brown.

Aforementioned removal company was very happy back in May, having invested a fair bit in gold. Maybe that’s why he was feeling benevolent enough to drive over 200 miles with a stiletto heel sticking in his ear and limited vision. Come to think of it, quite a few people I knew had taken the time to invest in the shiny haven of last resort, sometime around early part of this millennium, and combined this with the intelligence to hang on to it for a while. Odd, then, that whilst these normal folk can grasp supply and demand, our Chancellor of the Exchequer is still learning from the Fisher PriceTM easy learning guide to buying and selling.

Just in case you’re a little short of time, Gordon, let me summarise the basics for you. Firstly, gold, however much politicians like it or not, will always be purchased, especially in times of uncertainty and instability. Secondly, the price of gold goes up and down depending on demand and supply. The idea is to buy when cheap and sell when the price is high. This is one way of getting some cash in your coffers and it doesn’t include taxing people to buggery.

Thirdly, if you announce when the price of gold is already low that you are going to sell 60% of the United Kingdom’s gold reserves, it’s going to mean yet more people will sell ahead of the inevitable drop in price once a large amount of gold is sold back onto the market. Once they’ve sold theirs, the price drops even more! And here’s the golden (excuse the pun) rule: once you’ve announced you’re going to sell, don’t then wait a few weeks and sell gold which essentially belongs to more people than just you at a 20-year-low. But hey, you’re the Chancellor of the Exchequer, I’m just a girl with a few letters after her name: there’s no way you’d ever make that mistake! I mean, if you had waited just a few years, then you could have raised ₤4bn which would have gone down nicely at a time when the tax burden has risen from 39.3% of income in 1997 to 42.4% right now.

Drifting my mind back across The Channel, I am reminded of yet another economic retard. Step forward Mr Jo Leinen MEP: socialist and German so we can probably guess he’s not well up there with the liberal market economy. Mr Leinen, who studied half an economics degree during the 1970s, when people were convinced that Keynesian demand management actually works, happens to think that people in Europe shouldn’t have anything to do with hedge funds, because they are an ‘alien concept in Europe.’ That’s not strictly true, actually, Mr Leinen, any more than the IS-LM curve is.

Assets under management of the hedge fund industry totalled $1.13 trillion at the end of 2005. This was up 13% on 2004 and almost 50% on three years ago. Between 2006 and 2008 assets are expected to grow by 15%. So for a new idea, it’s doing pretty well. About 2/3 of hedge funds are managed offshore in the Caymen Islands, British Virgin Islands or Bermuda. The biggest onshore collection is in the USA, with 34% of funds and 24% of assets. London is Europe’s leading centre for hedge fund management, with three quarters of European hedge fund investment, ₤300bn, managed within the UK.

So whilst we may be lagging behind the USA, the UK at least is doing pretty well at hedge funds. It’s actually making money, which is more than can be said for the eurozone which is once again trailing behind not only the other EU countries in terms of economic growth, but also behind the English speaking world. In a time of economic uncertainty, do we really need MEPs who cannot differentiate between a continent of countries and a political union to be giving us money-making tips?

That they are lightly regulated makes them an alien concept to the European Union, but not to all countries in Europe. That they make money, instead of grasping it out of the hands of people who won’t waste it makes them an alien concept to the EU, but not Europe – the Continent which threw the world into the industrial revolution and thus global development. That Herr Leinen is not worth listening to is an alien concept to the EU, but not Europe, whose electorate chose to send him to the European Parliament where at least he won’t have any actual power.