Skinflint's City Diary
How to make money from the crash There has been a book published in the United States with atitle something like How to Make Money From the Crash, and it has headed the bestseller lists, which is not surprising. It is an evocative title, whatever is in the book. So far
I have not seen it.
Like everyone from Jim Slater to the humblest investor, I have been conscious that the stock market is now lower in real terms than at any time since the 1920s, and that it is prudent to study the changing ground rules of the 16 per cent annual inflation we are suffering. In studying the subject I have ignored Brazil, because it has been a closed economy. France and Germany are better guides to the strange things that happen to a country when it is gripped by inflation, as ours is. Investors behave oddly at these times. Some study the gold market. Others hoard food and supplies – the bunker syndrome, I call it. Still others take dangerous risks by being deliberately over-borrowed, which is not necessarily a panacea in inflationary times, since they are usually accompanied by industrial disruptions and bankruptcies.
France suffered a severe inflation between 1919 and 1927. In terms of gold, the purchasing power of the franc fell about 78 per cent. An investor with his money in the French stock market would have lost more than half his assets. An investor in French bonds would have lost 80 per cent of his buying power. A Frenchman who had gone into US stocks in 1919 would have gained 90 per cent by 1927.
However, within this period, interesting patterns can be noted. If in 1926, near the end of the inflationary period, the investor had gone into French stocks, he would have increased his assets by a third by the following year, 1927. If in French bonds at the same period he would have done almost as well, though if he had gone into US stocks at this point he would have lost money.
In the case of Germany, they had the worst inflation of modern times between 1918 and 1924. In terms of gold, the buying power of the mark fell by 99 per cent. An investor in German stocks would have lost two thirds of his capital between 1918 and 1924. A buyer of bonds would have done worse still, though a German buying US stocks would have increased his capital by a quarter. Now, again, the picture changes if a study is made within the overall span of the slump. An investor in 1923, at the height of the German inflation, putting his money into stocks, would have gained 600 per cent by 1924, just one year later. If he had panicked and gone into US stocks at this time, he would have lost money – admittedly only 4 per cent.
There are one or two particular lessons to be learnt from this period. The man who held cash or bonds was a big loser. The buyer of French or German equity shares suffered badly but not so much. In each case, the investor, who, at the beginning of the period, chanced to place his assets abroad in the United States, managed to keep ahead of inflation and made large real gains. But it must be stressed that this applied to investors who made their dispositions at the beginning of the period. The investor who lost confidence when the inflation was at its height and then went into US stocks lost money, as has been said. Again, an investor who bought French and German stocks when the inflation neared its worst benefited enormously.
' Are we now reaching the climactic period of inflation, or are we only in the early stages of a worsening inflationary period that could go on for years? And there is still another question: where are the relatively safe havens for investment now, similar to the United States and Britain in the 1920s? To me there are no clear answers. Obviously a general election and a government with a clear majority is necessary before electorally unpalatable counter-inflationary measures may be presented. However, for what it is worth, I see a tiny speck of light and feel cautiously bullish, so long as Mr Healey does not reflate — we have enough going for us without it.
Con men
Shoplifters, often foreign women with purses stuffed with cash, still get into the news. They have taken the place occupied by the gangs of Australians who were reported to be 'doing' the West End stores. It's a sad climbdown from that golden period of the 'twenties and 'thirties when the gentleman con man, using considerable guile, 'did' the jewellers.
There was the Punch cartoon of a well-dressed gent buying expensive rocks, saying, "Will you take a cheque?" while, unseen by the shopkeeper, he was wearing a pair of roller-skates. Many of their exploits had a Raffles-ish quality, appropriate to a time when there were a lot of unemployed ex-officers and much genteel poverty around. One such story, certainly apochryphal, had the usual smart young man – Old Etonian guards officer, you know the sort of thing – calling on a jeweller, saying that he was looking for an important black pearl. It had to be large, flawless and of exceptional quality. He was getting married and wanted it mounted as a solitaire as an engagement present. The jeweller had such a gem, large and perfect but very expensive, costing £3,000.
There was some concern when the customer said that he would like the pearl and started to write out a cheque. However, the customer said that, as it was Saturday and the banks had shut, perhaps they would deliver the pearl to his hotel after the cheque was cleared. In due time the cheque was paid and the pearl delivered.
Some weeks later, the jeweller received another visit. The pearl had been very much appreciated, but the young man and his belle had decided that a pair of earrings would be more suitable. Had the shop another such pearl? Needless to say, they hadn't, but would search for one of matching quality. The young man said that there was no hurry and that he appreciated the difficulty in finding exactlY what was needed. He understood that a second pearl might cost very much more than the first, but he was ready to pay handsomely to make the pair.
Eventially the jeweller telephoned to say that there was a pearl fully the equal of the first they had sold. Their agents in Geneva had located it and would bring it over in a few days. The price, how, ever, was extremely high — no less than £20,000. The young man was emphatic. He wanted the pearl and asked them to secure it for him.
Needless to say it is at this point that our hero leaves the story with a satisfactory £17,000 profit from..the sale of his pearl in Geneva.
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