Sunday Thoughts: When will the economy recover? When both a family in Florida and you know what your house will sell for

There is much talk in the Sunday newspapers about the economy, and the comments of UK Shadow Chancellor George Osbourne. The question is – how long will the recession be?

Simply, at present I don’t know anyone who knows the answer to that question. The answer to part of that question is: do you know what value your house would sell for tomorrow? OK, November is not a great time to be selling a house, so what would it sell for say next April, as Easter is traditionally a high spot for the home sales market?

You may think “well its worth X,” and there are many people still believing that – just take a quick look at UK house marketing website RightMove, and see how many properties have the words “Offers in Excess of” tagged before the price. But really, all that is a view of hope over economic reality.

When I was in college, there was an argument between the electronics lecturers and the business lecturers over a project they lead us through, to design and market a product. The electronics lecturers said that the price of the product was cost plus fair margin; the business lecturers said it was whatever the market was prepared to pay. Siding with the business lecturers was what eventually made me end up going into business – its economic and market reality, as in theory the value could go to zero.

My view is that those who put “Offers in excess of” would have sided with the business lecturers – but then, watching those properties, they have now been on the market on average in excess of six months; and those that don’t have those words are starting to – slowly – turnover and sell. These are either fire sales by mainly what seems like buy-2-let owners, or repossession resales by mortgage companies – of buy-2let flats. I have said to friends now for a while, that this recession could well be a middle-class one, where by the buy-2-let dream becomes a reality of “prices can go up as well as down.”

But fire sales always happen in markets, as do repossessions – it’s the growing volume which is concerning, and those growths are not signs of a stable market. It’s the sales price of the average family home which is where the problem of valuing assets is currently the part answer to the recession question.

On Friday, various mortgage lenders re-entered the tracker-mortgage market. The products though, as economists had predicted were changed. The changes were in the form of: a larger “gap” between the Bank of England base rate and the mortgage rate – with some predicting new products may well be based soon on LIBOR as opposed to BoE rates; and the amount of deposit required – there are now less than 50 mortgage products on the entire UK market which require a 10% deposit, and nothing below this level.

What does this data say? It says that most mortgage lenders, already short of cash, can’t take a bet at present on house prices dipping by a further 10% in the next two years. In fact what it is saying, is that that is what is going to at least happen. In most stable markets, a 10% deposit would be enough to take care of most economic changes - at present it is not, and until it is this recession will not find a bottom.

The hailed for and resultant stock market rallying – possibly Gordon Brown lead, I think so – injection of capital into the banks together with buying of so called “toxic” debts has still not occurred. In the United States, Henry Paulson stated that the US Treasury had so far with its $700Bn cash pile only bought shares in banks, not the toxic debt – which resulted in more turmoil on the global stock markets; while new RBoS CEO Stephen Hestor still debates the how and when of the proposed BoE cash injections. All this means that the lack of trust between banks continues, resulting in the continuing instability of the interbank markets reflected in LIBOR, resulting in less lending, and hence to the stock markets falling and climb like the Red Arrows – the whole problem that the Gordon Brown solution was supposed to solve.

The economic storm was started by: over lending in the United States mortgage market; and packaging of these debts in to the world finance market, and purchase by global bankers who didn’t know what they were holding. This storm will continue until the banks can trust each other, and know that either they have sufficient cash to pay back debts, or can sell assets to pay these debts, and know the value of those assets. While the lack of cash-injection continues, and a resultant lack of lending, the value of those assets will fall, and hence the cycle will continue downwards.

What about specifically the UK? Downturns are when Governments should spend, and that what Gordon Brown is proposing – from listening to the media, a tax cut in a pre-Christmas budget. However, as one commentator said yesterday, even a 10% tax cut putting in £30 a week in the average pay packet will be swallowed up by rising fuel prices rather than high street spending – so I don’t like that idea.

My view is – if you don’t have any savings in the cupboard (which the UK doesn’t), and you need to spend (which we ought to), then spend on long term projects, which you would have had to have borrowed for anyway. Transport is a good sector for such projects – which creates many jobs in the construction and operations phase - so why not revive plans for a high-speed link in the UK? Virgin had plans in their bid for the East Coast mainline a few years back, and there is always the old “rebuild the Great Central Railway” which is still relatively untouched post-Beeching; and I can’t see why electrification of the old GWR can’t be undertaken, or a review of the long term location of London’s main airport can’t be undertaken – there are far fewer homes in the Thames than the M4 corridor.

So, when will the recession end? It will bottom after Mr Paulson and Mr Dowling get on and inject their cash into the banks; after Barack Obama gets into the White House; and once you know the price of what your house will sell at next Easter, and the banks will give the buyer of your house a mortgage on a 10% deposit from a choice of more than 250 products, knowing that it provides a fair risk/return. Until that point, and no matter what Gordon Brown spends on or George Osbourne says will make little or no long term difference – it will only add to the peaks and troughs which say: neither I, nor you, nor the bank know what your house is worth.

Good Luck!

Sunday Thoughts: "English is widely spoken, but not widely understood"

I saw this quote recently, and smiled!

When I ran the largest call centre design team for a large UK based TelCo, we always trained our guys to design systems around the customer experience, and data collection for the client (it amuses me when I think about it, that nominally those are two great principles around which to design a website). In designing customer experience, we always insisted on a lot of input to the agent selection process - my best client took this to another step, and really challenged the team asking us to design the building: he went on to start what is now the UK's second largest outsource call handling service on the same principles. When we designed solutions, we always thought about customer flow and volumes - and always thought about language. It meant when we designed in country A for a flow of customers in region B, the agents were mainly from that region.

I thought the late 1990's flow of call centres to India was interesting, and shortermist. Basically, it was Exec's more worried about bottom line economics of running their businesses, than thinking about customer relationships. My most annoying experience was cashing in the endowment policies associated with a mortgage. The original policies were issued by two separate companies, which some 15years later had merged - one had outsourced to India, and it took 3months and 20 phone calls to get cashed; the other presently still handled the calls in the UK, it took 28days and one phone call to cash. I had a life insurance policy with that company, which I also decided resultantly to cash and move elsewhere, and after doing so wrote to the Chief Executive to explain my experiences and reasoning - he still moved the call centre handling completely to India! I think there are excellent Indian based call centres - but the good agents were the one's who had travelled, and returned home - and they were picked up years ago.

Some 12months later, the new CEO of the insurance company announced he would be moving front office handling back to the UK - a short hand way of saying what other banking CEO's admitted later, that customer turnover was escalating out of the roof when calls were handled overseas from the customer, while locally based solutions showed more stable relationships. About two years later, I was interviewing an experienced Call Centre business development manager for a job, who had handled the review of the a large UK car breakdown companies thoughts about off-shoring. He took a brief on a Thursday, wrote a business case through the weekend which he presented to their telecoms team on the following Tuesday; and had a commendation by Friday from the CEO, together with a two year deal to retain all telecoms services for his company. Why? Because he had taken their own data of each customer being worth an average of £480pa in revenue, with an average life relationship of 47years, and calculated the point at which increased client turnover (and hence lost revenue) outstripped the cost saving of off-shoring - the answer: 0.01%, or 23days!

I think there is a role for off-shoring, but in customer relationships there are other factors. I always thought these would show through, and eventually the effective off-shoring would be "back office" mainly non-client interaction and processing, not customer handling. Many of the biggest and best Asian IT outsourcing firms now employ "localised" front offices, with the back office where it is most cost effective - but the article questions: is it really, even at that level? I know of contractors in a large Swindon based organisation now complaining of continual delays in implementing a new IT solution, because the solution is being written some 6,000miles remotely, and communication issues mean wrong deliveries which are continually late.

I don't think this is a language issue - and I don't think its a cultural issue. I do think its an issue where we ought to accept each other as human beings, and that we truly are unique and different in many, many ways.

I think the question for us in business, is how do we manage these human scale differences to ensure delivery and team harmony? I have seen what are in the majority simple communication differences, translate into become highly disruptive racial problems - and that's just daft.

Sunday Thoughts: HMRC says - get divorced, sleep around: very loudly...!!!

Thursday was A levels results day - and I am sure that many students received both good and bad information. Just a thought, but which ever way it turned out, you have more than enough time on your side to make what may seem a life ending drama to have a very successful life: just get focused!

On Friday, a friend who I played bestman for in his second marriage a few years ago rang to confirm his son had passed his A levels, and was off to University. I congratulated him, but said: "Wow - but with three at University, that will be expensive!" He contradicted me, and said that as he was divorced from their mother and his wife remarried, the three children get all tuition fee's paid, a full grant plus a full loan - so that's around £120/week per child, less £70/week for accommodation, leaving £50 for books, food and transport.

Peter is my personal role model for a father. His wife left him while the family was in Singapore and about to move to Saudi Arabia. Peter told the children to go home with Mum or her parents, but as Mum didn't want anything to do with them for the next four years they decided they liked to stay with Dad, which they did with him as sole parent for seven years. Mum then came back into their lives, and they all effectively now live with Mum, who is remarried.

Peter is the most caring parent I know of - and he earns over £100k pa, and his wife is married to a millionaire. And yet, as the children are domiciled with Mum (hence Peter's income is dismissed in assessment), and she is a lady of leisure with no "income," Buckinghamshire council pick up the tuition fee's for three children.

I was watching BBC News 24, and they featured a story of a married couple with four children who all wanted to go to University. The couple estimated that the cost of putting each child through University was £20,000 per child - they had hence concluded to take out another mortgage, which would be paid back when they were both 70!!!

I say - HMRC says: get divorced! And its not just saying it, its encouraging it

What does this say about the modern morals of 21st century Britain? At one point, the family was the centre of our community. Now, if even the government penalise you for being married, is it any wonder society is breaking down so quickly?

NB: I'm not saying divorce is bad - or that many of the modern changes in our society are bad for it: the persecution of the LGBT community was as daft as the Victorian models of a woman's duty. I am just astonished that even couples who lived together are also persectuted under the same rules - surely we should be encouraging long term coupling, not discouraging it?

Sunday Thoughts: Stop drinking water - and drink water instead....

The bottling industry has always been one that amazed me. As a child for instance, I could get Coke and other drinks in glorious glass bottles, and which after I drunk them I could get 1/2p back on them - which encouraged me to drink more!

No say's the drink industry, that's not safe or efficient (Hmm - so all those empty lorries going back to the depot is "efficient"?), and some nasty people were using them to attack people which we got sued for - so we need to replace them with (unrecyclable) PTFE plastic.

OK, so let the customer have an inferior experience, reduce customer loyalty, and let the council worry over how to dispose of four out of five of the PTFE bottles, which take 1000years to degrade.

The Mayors office of New York City has started a campaign, encouraging citizens to be environmentally friendly and dump the bottled water for tap water. Why? Because some of it comes from half way around the world, the distribution lorries create congestion, and bottles create landfill waste. Restaurants in California have separately started to use tap-water as their standard product, unless you ask for the bottled version.

But the Bottled Water Association says it is unfair to single out an industry that is promoting recycling and introducing biodegradable packaging. Yeah, yeah, yeah - talk to the hand buddy!

Note - if you have one of those office water dispensers in your office, supplied by a nice lorry, think about this. If you swapped that for a tap-feed dispenser supplied via a micro-bore system, it would take around 4months for the costs of initial outlay to be repaid and for you to start saving money - at between a 50% and 70% level. On the other hand, you could keep clogging up the environment, and instead of drinking water that's fresh from a tap and fully filtered; drink stuff that on average is four months old instead, and biodegrades in that nice container in the top due to sunlight: Yum!

Sunday Thoughts: No doubt - the EU's not protecting my Human Rights

The tragic and callous murder of head master Philip Lawrence outside his school in Maida Vale in 1995, caused national headlines and sympathy for his family, as well increased security for schools.

And yet, the EU Court of Human Rights has decreed that his killer, Learco Chindamo now 26 and serving a "life sentence" from which he is likely to be released from in less than 18months; that deporting him to Italy, where he was born, would breach his human rights.

The rules covering the deportation of convicted criminals between EU states are complex, particularly when they have spent a significant part of their life in the country where they have been imprisoned: Chindamo came to the UK when he was five. In such cases a criminal can be deported only if they are a "genuine, present and sufficiently serious threat to the fundamental interests of society."

Personally, I have never heard an interview from Chindamo expressing his regret at the killing - and a jury found him guilty of murder, not manslaughter. Personally I'd call that a "sufficiently serious threat to the fundamental interests of society."

The more the EU Human Rights laws are abused, the more I'm thinking as a social liberal that there's something in voting for UKIP. How much more of this lunacy should we take, from a law that has been bent beyond recognition of what it was originally meant to achieve?

PS: if you want to get really happy, then just be advised that the costs are to be picked up by HMG.. ie: your taxes!