Over the last few weeks, a number of things have made me think about the current economic uncertainty and how I am thinking about investing in such a climate:
1. Double Dip?
At the end of August, AIM listed James Latham Plc (LON:LTHM) , a long established successful importer and distributor of timber primarily for the construction industry, issued a trading update which was quite upbeat about current trading but also said the following: "However much of the work is immediate and it is difficult to predict the level of activity likely during the winter months. Some sectors that were hard hit in the initial stage of the recession, such as commercial vehicle manufacture, are busier, but anticipated cuts in the Government's capital expenditure programmes will hit many areas of the economy. Credit insurance cover is now more available but bad debts are above normal levels and continue to give concern".
Comment: I firmly believe that the UK economy will experience a double dip recession, and, indeed, for the reasons set out below the shape of the UK economy for a number of years to come will be similar to that of a horizontal sheet of corrugated iron.
2. The Consumer Failed to Deliver
Last week I read an out of print booklet written by Terry Arthur in 1992 entitled 'The Consumer Failed to Deliver Last Year and Other Fables.' - the principles underlying the Fables are so apposite to today despite being written nearly 20 years ago that they need sharing. The following extract from Fable 1 'Spend and Grow Rich' well illustrates the principles underlying the author's thinking:
Two workmen were digging out a quarry with a gigantic excavator. One said to the other 'It's a crying shame; this quarry would provide work for a thousand men with shovels'. The other replied 'Or a million men with teaspoons'.
We all know (don't we?) that the excavator has not put 998 men out of work. It has enabled 1000 men to work with greater productivity (and thus greater rewards); two of them in a quarry and the rest elsewhere. The pyramids were a marvelous example of collective human achievement but they did not bring riches to the labourers. Only capital goods can do that. Capital goods are the difference between rich and poor countries. The rich countries may be more 'capital-intensive' but they…
