An animated young man confronted me as I walked in. He sported closely-cropped hair and a company waistcoat. He stood just a little too close to me. Are yer the Pensions Man?

January 2016

I like Scotland. At the risk of sounding like an American about to buy a London landmark, I can even claim some tenuous links. Our particular scion of the Ross clan hail from Morangie, north of Inverness, while Mrs R’s family are fisherfolk from a small village north of Peterhead. I also like Rab C Nesbitt. And Russell Crowe, although, apparently, he’s not Scots at all.

Some years ago a client bought a business up there and it fell to me to introduce the pension scheme to the staff in the outlets. The trip, planned with military precision, would see me follow an arc that started in Glasgow, take in a host of towns and several hundred people en route before finishing in Edinburgh three days later. We allowed fifteen minutes tolerance between each visit.

Things started going wrong from the off. The flight to Glasgow was delayed for three hours; the hire car waiting for me wasn’t a hire car but a mini-bus that took me across the city to the hire car depot; The Vauxhall Vectra I was eventually given had no petrol (no, really, it actually ran out on the forecourt of the nearby filling station and I had to push it to the pump…) and as I bit into the baguette I’d grabbed for lunch a large dollop of mayo landed in my lap, leaving a dubious stain on the only pair of suit trousers I’d brought for the trip.

The day was not panning out quite as planned and I was feeling more than a little frayed around the edges when I pitched up nearly five hours late for my first presentation in the cold heart of East Kilbride. For those who haven’t been to this beacon of deprivation, East Kilbride is a deeply depressing post-war new-town built to free people from Glasgow’s notorious slum tenements. Frying pan and fire leapt to mind. Finding the unit was easy, it was incongruously bright and welcoming in an otherwise boarded-up dystopia.

An animated young man confronted me as I walked in. He sported closely-cropped hair and a company waistcoat. He stood just a little too close to me.

          Are yer the Pensions Man?

      Yep, that’ll be me

          Yer late yer know…


          Do yer wanna fight?

Hey? Did he just ask me for a fight? My sensible system 2 brain was urging me to just say ‘no thanks’, reminding me that I hadn’t had a fight since I was about 13 and that hadn’t turned out well, but my instinctive system 1 brain was urging me on – go on Rich, hit him! After the day I’d had system 1 looked like it was winning.

      What did you say? I barked

          How was yer flight?

That was close – it had been a trying day but scrapping with a client who was simply being polite would have put the tin hat on it.

Next morning I got up bright and early in Glenrothes, another post-war new-town and in many ways a dead-ringer for East Kilbride. I was determined that today was going to be different! I stabbed the postcode of the venue in the Satnav and headed off. It seemed we were heading out of town, but my electronic guide appeared confident and sounded like she knew where she was going. It wasn’t until we came to a halt around ten miles later at the end of a cul-de-sac in a barren field once destined to have been an industrial estate but long since fallen victim to recession or change of policy or both that I twigged that the satnav may have made a mistake. Hmmmm.

Relying too much on automated guidance can lead to all sorts of problems. In recent years central banks generally, and the US and UK particularly, have moved to a system called Forward Guidance as a central plank of their monetary policy. In more normal times, central banks use the two levers of interest rates and money supply to manage demand in the economy. Ideally, an economy would see a steady increase in demand – if it grows too quickly it leads to inflation, too slowly and we get stagnation (and deflation). Typically, if the bank felt things were getting too frothy it would increase interest rates; if it felt things needed a bit of a boost it would lower rates, encouraging firms and households to borrow and spend more. With interest rates at or near zero the option of reducing rates has gone. In its place, central banks now say something like ‘trust us – we’re not going to increase rates for at least two years’.

This policy works just fine for as long as the central bank retains credibility.

Which brings us to trying to understand why the Fed (the US central bank) decided to increase interest rates at a time when the global economy was looking decidedly shaky. In December, pretty much all forward indicators suggested growth was faltering. Raising interest rates would lead to the already strong dollar getting stronger and give a double whammy to many of the smaller economies that had driven growth by simultaneously increasing the cost of their dollar denominated debt and increasing the costs of their dollar-pegged exports.

So why did Fed Chairman Janet Yellen raise rates? Increasingly it looks like it was more to maintain the Fed’s credibility – ‘we’d said we were going to increase rates so we will no matter what’. Either that, or, as some claim, to give room for future rate reductions – which seems an odd way of going about things.

The rise simply fed an already febrile atmosphere in the markets, reinforcing an environment where only bad news seemed to make an impact and even good news was seen as bad. It is important to note that while we are undoubtedly in for a difficult twelve months it is not all grim.

So, here’s some reasons to be cheerful

  1. The oil price fall. In the very short-term it will lead to cut-backs in the oil sector but in the medium term it will lead to lower producer costs and, in a reverse of the 1970s oil shock, should see economic activity boosted. Aha the naysayers cry, it’s bad because it reflects depressed demand, particularly from China. Yes, in part. But it also reflects increased supply both from an intransigent Saudi Arabia and an increasingly self-sufficient fracking US.
  2. The Fed has proved their point. Credibility has either been restored or completely destroyed depending on your view but either way further rate increases look less likely.
  3. Iran has come back on stream. The second largest economy in the Middle East is sitting on ten years’ worth of pent-up demand and rather a lot of oil. It looks like the relative over-supply of oil will continue for some time, keeping the oil price low.

Whether the Fed will reverse their rate increase remains to be seen but back in Glenrothes I traced my way back to the hotel and asked for directions. It turned out the unit was two hundred yards down the road…

This newsletter is intended for information only and does not represent personalised financial advice. If you require advice in respect of your financial planning, you should contact us. Past performance is not a guide to future performance. The information in this newsletter was correct as at Jan 18, 2016 but may not apply at the time of reading.

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