Touting for investment

8th May 2013

Financial journalist Tony Levene mulls the value and price of everything from Chelsea Flower Show tickets to gold funds.

Websites are advertising one day tickets for the forthcoming Chelsea Flower Show at £450 – or some eight times their face value. Besides the crowds of well-heeled folk, the displays of ride-on lawn mowers, and the flowers themselves, this year’s big attraction is a garden designed by Prince Harry.

Adding royalty to mega-ticket prices gives a media story and a half with a “worth every penny” slant on the expensive entry. But how real are those online ticket spiv prices? Has someone really multiplied their money seven or eight times over the past month or so?

The answer is no one can be sure, especially on the scant information provided. Ticket sites are the online equivalent of ticket touts and you would not trust a spiv outside a sports event to tell the truth. It’s their job to talk up prices because they have a supply to sell. If they can convince you the tickets are worth £450, then you might pay that. But if they were to say they were worth £350, then no one in their right mind will pay £450.

Their real worth is what a tout, or someone else, is prepared to pay for a ticket. And I doubt whether any reselling site would pay me anything approaching £450 if I had a one to spare.

Much the same goes for the world of investment. There might be a price but you need to know how real it is. How many people were buying gold when it peaked nearly 18 months ago? Not many in all likelihood because that was the top of the market. If there had been loads of purchasers, it might have gone over $2,000 or even $2,500 instead of falling around $400 an ounce.

There were “experts” who said the price would go up and up – and it’s not just gold where these folk forecast. But they mostly had an interest in the metal continuing to rise in the same way as ticket touts talk up ever higher prices. How many had a financial interest in gold falling?

Once you have a reason to predict a trend, it’s easy enough to find the words to give that move credence. You can come up with anything – China, the dollar, the euro, the bond markets or the habits of Thai monks – and make that work for your needs. Depending on what I need to show, I could make a positive gold story out of China, or a negative one.

There are no absolute values – only relative prices. And a price only exists if someone – preferably lots of someones – is prepared to pay that.

32 thoughts on “Touting for investment”

  1. Jim M. says:

    Hi Shaun,

    Hmm… from here in the cheap seats it seems that the principal role of Mr Carney and “his “mates” from international organisations” is to make FIFA appear to be a model of financial probity!

    That nice Mr Galbraith may have been on to something.

    1. Anonymous says:

      Hi Jim M

      Oh dear that is rather a low bar as FIFA usually jostles with the IOC on that front. As to Mr. Galbraith he would plainly have been a critic of Forward Guidance and would presumably be pointing out that the fact that it is Forward Guidance 3.0 in less than a year backs up his critique..

  2. Robert S says:

    This Governor is a fool!

    Admittedly, what I know about economics from my amatuer, interest in economics, can be written on two postage stamps (single sided, of course), but let’s assume that I know nothing and I casually watched the late night news back in 2013; I hear that this spanking new Governor from a previous colony of ours says that he’s issuing forward guidance so that I have an idea when interest rates are going to rise. So I think to myself, do you know what ol’son, now might be a good idea to buy a house whilst the interest rates are low and are kept low for a short period of time. But low and behold, not quite one year later (I think Mr Maple Leaf arrived in June and issued guidance in July, but I could be wrong), I’m told that interest rates might go up in the near term! Now I know we only live for about 3 score and 10, but even I think that a “short” time should last more than 1, 1 and half years.

    What a fool. He swerves this way and that so much, that I think he could’ve replaced the late Mervyn “Swerve the Merv'” Davies in the Welsh rugby team!

    Great article, again, Shaun, thank you.

    Robert S

    1. Noo 2 Economics says:

      Yes, his forward guidance has led him into an admission that he think’s he’s probably got it seriously wrong.

      One thing though, he has demonstrated a willingness to change his stance in the face of new information rather than doggedly sticking to old policies that are clearly wrong.

    2. David Lilley says:

      Robert S,
      3 score and ten.
      Socraties lived till 70. We add one year every four years. We will have 30,000 centurians by 2020. Japan will have 50,000. We had over 1m over the age of 85 some 10 years ago. A baby born today can expect to live till 100.
      Yet a recent post on this site had 63 years as the life expectancy in Scotland and a BBC post this week had 61 as the life expectancy in Glasgow and 60% of them never marry.
      Gordon Brown made the teleological case that Scots have major health and ageing population issues that they should stay in the union because the Sassenacs fund them.

      1. therrawbuzzin says:

        Does anyone really believe that all Westminster parties are being so desperately dishonest in their “NO” campaign in order to hang onto a financial drain?
        Is anyone really that stupid?
        These people who pawned the country, and abdicated their political responsibilities to their electorate in order to save the rotten-to-the-core banks, want to keep Scotland whose population don’t EVER vote Tory, and who are supposedly a financial drag?

        1. David Lilley says:

          I completely agree with you but we have to be 100% yes. It is everyone’s best interest.
          They gave us two drinking partners who were two of the best thinkers posterity will ever know, David Hume (the greatest thinker) and Adam Smith (the first and still the greatest economist to date).
          Nevermind Gordon Brown’s revolting teleology. All teleology is revolting except when it is pragmatic.
          Independence may be good old Jacobien but it does mean that overnight Scotland becomes an international competitor and not a commonweath partner. Better to have a poor partner than a competitor.

  3. Foxy says:

    Inflation under control, wages growth subdued, spare capacity, strong pound, so why hint at base rate rise, sooner than later? Does he know something we don’t know? I wonder if Mervyn is busy?

    1. Anonymous says:

      Hi Foxy

      You are right to point out that Mark Carney’s change of mind is illogical considering the criteria he has set out. Indeed this poses the question of what criteria he has?! We may find that he picks whatever of the 18 measures the Bank of England now has as suits what he thinks at the time rather in the manner of a Magpie. That does not make for any sort of useful Forward Guidance does it?

  4. Anonymous says:

    Carney can claim whatever he likes with GDP – significant parts are just made up.

    Business investments could be innovative technologies to smuggle drugs, for example a passing ship could drop a heavy watertight container. A local power boater can come by later with a remote signalling device instructing the deployment of an airbag etc, causing container to rise can be collected. (Source: some news report, reporting a breach). Columbian smugglers have used submarines to deliver cocaine.

    Adding illegal drugs to GDP allows a whole asylum of tricks to gerrymander GDP ever further from reality….

    1. Anonymous says:

      Hi ExpatInBG

      As with so many economic concepts that have withered somewhat when the full glaze of publicity gets on them I suspect that the same would happen to Investment. One (wo)man’s investment is another’s consumption..

      As to the submarine part I think I do recall the Royal Navy plugging the ASW capability of its Carribean guardship. Now would they be considered to be GDP deniers?

  5. therrawbuzzin says:

    Keeping the right level of inflation of a bubble until the next election, must be a tricky business.

    1. Anonymous says:

      Hi therrawbuzzin

      Yes nicely bubbling with no boiling over and especially not going flat…

  6. Pavlaki says:

    Whilst part of me wonders about the accuracy of official projections (which appear to be out of date as soon as they are issued) the other part is at least pleased that Carney is not too dogmatic and prepared to change his stance when the facts change. I am more concerned about the data he is being given on which decisions are to be made. Their forecasting ability appears to be woeful. I guess they are very worried about ‘taking away the punch bowl just as the party gets going’ and then finding there wasn’t party after all! In a reversal of the Eurozone situation, confidence appears to gave returned to the real economy whilst the financial governess lag behind.

    It would appear that finally the Euro can’t fly on forever without any wings and the engine removed by Draghi. It needs to drop much further though to really help the peripheral economies. I wonder – how low can it go?

    1. Pavlaki says:

      Damn predictive text! Read ‘ confidence appears to have returned to the real economy whilst the financial governance lags behind’.

      1. Anonymous says:

        Hi Pavlaki

        Whilst I agree that it can be a strength to change your mind as many things are uncertain what the first year of Mark Carney’s Governorship indicates is a lack of a framework. Indeed what he has is contradictory because if the labour slack is still 1 to 1.5% of GDP then why has he changed his mind?

        The Euro has indeed nudged lower but as you say there is plenty more to do. Will the other currencies let it do it especially the Japanese Yen?

  7. Anonymous says:

    When does Carney’s term end? I’d imagine he just wants to help this baby limp on then get the hell out with his fake political points.

    1. Anonymous says:

      Hi Progrock

      It is a five year term so four and a bit to go. There must have been some plan as it is different to the (unlucky) seven year terms of Mervyn King.

      1. Anonymous says:

        Christ, I bet he feels that is interminable now.

  8. Anonymous says:

    Thanks to your excellent column, Shaun, I looked up videos of
    Governor Carney’s Mansion House Speech and Frankie Valli and the Four Seasons singing “Oh What a Night”. The Frankie Valli video was immensely entertaining, Governor Carney’s, not so much.

    Your line about the Bank of England trying to live inside a mirror made me laugh. The explanation why the British public is being told to expect a bank rate rise would seem to have nothing to do with the inflation
    knockout, since the May Inflation Report said: “Inflation has been near to the target in recent months, and is expected to remain at, or a little below, 2% throughout the forecast period [that is, through the first quarter of 2017].” It would seem to be justified by the financial stability knockout. A housing bubble is inflating, and it seems that Governor Carney no longer has quite the same faith in the ability of macroprudential tools to solve all problems that he seemed to have when he started at the Bank of England. He never talks about knockouts at all in the speech. He is so busy invoking canoe trip metaphors, conforming to a Canadian stereotype, he seems to have forgotten his formerly cherished boxing metaphor.

    As you point out, a CPIH based on the net acquisitions approach
    to owner-occupied housing would probably show inflation above 2.5% now. I am not sure if a forecast 18-24 months out for the same indicator would still show such high inflation, but it might. Then raising the bank rate could be justified based on the inflation knockout. Andrew Baldwin

    1. Anonymous says:

      Hi Andrew and thank you

      The situation regarding Bank of England policy has got very opaque. For example Thursday saw hints of measures on housing which were backed up but then Mark Carney assured us they were not part of his mandate!

      “To be clear, the Bank does not target asset price inflation in general or house prices in particular.”

      So Mark what are you targeting? Was he like this as Governor of the Bank of Canada?

      As to the song I used to work with someone who would sing it at every opportunity so it is etched in my memory.

      1. Anonymous says:

        Thank you very much for your reply, Shaun. Yes, Carney was saying the same kind of silly things about asset prices when he was in Canada. The big difference then was he was targeting an inflation indicator, the Canadian CPI, that was similar to the RPI, and closely monitoring the Bank of Canada’s own core CPI, which, since it excludes mortgage interest, would resemble a core measure based on the RPIX when it was still the BoE’s target indicator. So he spent his whole public career in Canada working with inflation indicators that give a heavy weight to housing prices and dwelling prices, while denying that they are appropriate to an inflation measure.

        This acutely schizophrenic mindset he seems to have acquired from his mentor, the former governor of the Bank of Canada, David Dodge. Dodge wrote in a 2009 paper: “In setting the policy rate central banks should continue to focus on consumer prices over the
        medium term, not directly target asset prices.” Then, in a footnote, he allows that house prices are in the CPI anyway.

        Incredibly, Dodge seems to believe that these are the Royal LePage resale price indexes. All house price data, for both dwellings and houses, in the Canadian CPI, comes from StatCan’s new housing price index (NHPI), which are used even when it is obviously inappropriate to do so, as a price index for real estate commissions (i.e. the Canadian equivalent of estate agent fees).

        Carney had to be aware that house prices were included in both the Canadian CPI and the core CPI. I suspect he neither knew nor cared what price data was used to measure housing prices in those indicators, and quite likely shared his mentor’s misconception that the CPI used resale price indexes, not the NHPI. I don’t believe there was any time when he was governor that a Monetary Policy Report displayed NHPI data, rather than resale price index data.

        A nitpicker could argue that the Canadian CPI does not measure the price of houses as an asset, but only the consumption cost of depreciation on homes, for which a dwelling price index is used as the measure. (In a market where dwellings and lots were separately transacted, and growth in the dwelling stock was just keeping up with population growth, the difference between this approach and the net acquisitions approach would be minimal.) However, neither Dodge nor Carney has ever made this argument, and it is hard to see how Dodge, at least, would ever make it, given his misconceptions about how the Canadian CPI is calculated.

  9. Eric says:

    Great stuff Shaun,

    You admirably highlight the great unanswered question. No; not life, the universe, and everything, but – What is monetary policy really targeting?

    What are they trying to hide with OMO and Forward Guidance. Not coming clean certainly makes the Govnr. look inconsistent and erratic; some might say foolish.

    Could it be that debt (household and Government) and still-too-big-too-fail banks with dangerous balance sheets have something to do with it? Which makes a target hard to explain in terms of the economic indicators and measurements – because they aren’t relevant to the real objective. Or am I way off?

    What do you think they are really targeting, Shaun?

    1. Anonymous says:

      Hi Eric

      There is nothing wrong with your point about debt. As to what has been the real target well whether they have meant it or not perhaps nominal GDP growing at 5% per annum. So they could ignore higher inflation when growth flatlined and now worry with relatively benign inflation because growth looks strong.

      1. Eric says:

        Ah! I see what you mean; but if growth is primarily supported by increasing debt rather than rising productivity and incomes then we could easily be right back where we started if asset prices fall. (Cue Maxine Nightingale!). That should be a cause for concern in Threadneedle Street thus the desire to keep rates “low for longer”.

  10. David Lilley says:

    Shaun,
    You have convinced me that there is no need to increase interest rates just now.
    But at the same time I must remember that your fellow poster, Simon Ward, estimates that there is little or no slack in the economy and that inflation will rise to 2.75% by autumn. November therefore does seem a likely time for a 0.25% rise in the base rate.
    The Mansion House speeches are our nearest to a “state of the nation” speech by the US president and therefore required viewing.
    The only thing that the media focused on was the posibility of an interest rate rise before the end of the year, as, sadly, their only focus is on house prices and “here we go again”.
    There has been little correlation between base rate and what we pay to borrow or what we receive as savers for many years.
    Far more interesting bits of information from this “state of the nation” were that the deficit will be halved this year, 2m extra private sector jobs have been created since 2010 and 75% have been full time and GDP will be 4% this year. These are great numbers but apparently of no interest to the media or, indeed, my target audience here.
    “The fastest growing economy of the advanced economies” cannot be repeated.
    I have my own doubts about these numbers but at least they are non-conspiritorial.
    -We hear that as many as 78% of new employment is self-employment and that might include selling four copies of the Big Issue. Only working tax credit makes the job pay. And we all know that 80% of start-up fail.
    -The 2m extra private sector jobs must be offset by the variously quoted 300k to 600k jobs lost in the public sector.
    -The 4% GDP will reflect the new way we measure GDP starting in September. I do agree with this new measure that was first introduced/muted in the US a year ago. If something adds to GDP it adds to GDP, even if it is black market.

    1. Noo 2 Economics says:

      Thanks for adding balance David, as you know this blog is populated by people concentrating on the negative but provides balance to all the positive spins I read.

      The problem I have with black market GDP is that the method of measurement is literally suck your finger and hold it up in the air!!

      It’s bad enough that we have all these relentless GDP revisions demonstrating how “accurate” the currently official numbers are without adding in numbers that are pure guesswork and yes, I agree with Shaun that R & D numbers should not be added to GDP as they are already reflected in the end price of products.

      I think the Government/BOE is taking alternative approaches to base rate rises – Mortgage market review (MMR) and Help to buy (HTB) along with Funding for lending(FLR) which has been adjusted a couple of times along the way, not forgetting QE of course.

      I think we and Simon need to adjust to the new world where base rates are pretty meaningless, where authorities use old conventional (MMR is a rerun of some of those parts of the 1974 Consumer Credit Act that Thatcher repealed in the early 80’s)(QE) and a mix of new unconventional(HTB) (FLR) macroeconomic and monetary tools to heat up/cool down economies.

      Meanwhile, the markets will calculate the likely effects of such measures and adjust interest rate expectations via gilt and bond prices which is what really matters to mortgage holders, savers and investors.

    2. Anonymous says:

      Hi David

      The base rate position is a tight one for me right now. I have argued for base rate rises in the past due to higher inflation and would prefer one in the range 1.5% to 2%. However we are where we are (0.5%) and with the pound where it is touching US $1.70 earlier today then a base rate cut could make it overshoot. So this is a difficult time where the choice is tight say 55-45.

  11. Bones says:

    Hi Shaun,
    It seems like your Mr Carney is making it up as he goes along. A good strategy if he is in front of the curve. A bit of a bugger if he is behind it.
    Just a small point. The RBNZ has lifted the OCR three times this year by 0.25% each time.
    I have been impressed how your team has performed here in NZ over the last two weeks. I think they are going to be a real force in the RWC at home next year.
    Cheers
    Bones

    P.S. Keep up the good work it is greatly appreciated.

    1. Anonymous says:

      Hi Bones

      I have thoroughly enjoyed the games so far and it has been good to see England play so well at what are the hardest grounds in the world to play. However some of the All Blacks play has been outstanding especially the early part of the second half this week and Ben Smith’s tackle on Tuilagi (as well as the rest of his play) shone on Saturday.That will reach us to put a centre on the wing! Actually changing our team weakened us as for example Farrell and Twelvetrees were outclassed by your midfield. However if I was Stuart Lancaster I would be really rallying the troops for the last game….

      As to the rate rises apologies, my attention must have been elsewhere when one of them happened.

  12. Noo 2 Economics says:

    and the Fed with the dollar, just as they cut back on money printing, putting upwards pressure on the dollar carney comes to their rescue as well as the ECB and the Bank Of Japan for that matter – just not sure how he’s helping with re balancing the UK economy and the trade deficit……

  13. Anonymous says:

    Hi Doubting Dick

    It is an interesting line of thought and Mark Carney’s complete change of direction does offer fertile ground for conspiracy theories! The UK Pound has been rallying against the Euro over the past year (~7%). The question is then though why the powers that be want to help the Euro and are getting other central banks to help?

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