There wasn’t much of a cheer this week when Britain posted its first annual fall in prices since the one-month wonder in March 1960. We’ve got used to the idea of things getting cheaper and besides, it’s only the Consumer Price Index that’s in negative territory, and by the smallest measurable amount.
The Retail Prices Index, maligned by the purists, includes a better measure of house prices, which the Office for National Statistics reckons have jumped 9.6 per cent in a year. The RPI is not perfect, but it’s a much better measure of the changing cost of living, and it’s still rising, by 0.9 per cent in the last 12 months.
Even measured by the CPI, the fall in prices will be short and shallow. The slump in the cost of crude or the wars in the supermarkets are hardly comparable to, say, the impact of the development of the railways on the price of domestic coal. That was a genuine gain in efficiency, while oil is already rising again and grocers will eventually rebuild their margins.
In anticipation that deflation will be as fleeting as it was 55 years ago, fixed interest stocks are themselves deflating. Since the start of the year the 30-year gilt has fallen by over 11 per cent, half of that in the last month. These bonds are used to determine the “risk-free” rate of return, although in reality it’s anything but risk free, as the recent buyers discovered. They have lost the equivalent of three years’ dividends in five months..
Like inflation, the cycles of rising and falling bond prices are measured in decades. In the 1970s, inflation appeared resistant to all efforts at control. Then along came Mr Hu He with his billion brothers and sisters, and the price of all sorts of goods wilted in the glare of globalisation. Today, the efforts of the world’s central banks are concentrated on preventing deflation. If the recent sharp rises in bond yields are any guide, the danger ahead is that they become too successful.
Contemporary, or just temporary
It’s not only government stocks where the investment risk is highest when it seems lowest. The anonymous buyer who paid $179m for Picasso’s Les femmes d’Alger at least has the comfort that the painter is no longer composing, so to speak, and that the supply of Picassos, while considerable, is at least fixed.
The purchaser of Christopher Wool’s confusingly-titled Untitled (RIOT) has no such assurance. Like a mini central bank, the 61-year-old Mr Wool can produce as much scrip as he likes, or as much as the market will bear. If he can get $30m a pop, as he did earlier this month, there’s quite an incentive to keep up production.
The cannier artists are even more like central bankers, since they produce a series of essentially the same work, sometimes with little more variation than is found in the serial numbers of bank notes. The buyers of contemporary art are adding the risk of further supply to that of fickle fashion. Nonsense, says Larry Fink, the CEO of fund manager Blackrock (salary $22.9m last year), contemporary art is one of the world’s two great stores of wealth, along with apartments in London and New York.
The image-conscious squillionaire may believe this, or view his purchases as a way to keep the score and show off to his peer group, but none of them likes losing money. Perhaps Mr Wool’s next work could be a series featuring a giant picture of a black tulip.
Change the recipe
As another chief executive departs from Thorntons, prompting one wag to remark that the key qualification for his successor will be the ability to have a pretty box full of creative but plausible excuses for failure at the ready. This little company has a miserable history of promise deferred, strategies abandoned and a share price below where it stood in the last century. But maybe the problem is not with the management, strategy or distribution. It’s just that Thorntons’ chocs are not very, well, chocy. They might be made of vegelate. Could the recipe have been wrong all along?
This is my FT column from Saturday (before they cut the jokes)