Zug, putting the pat into the ex-pat?

Zug is a quietly booming city. Only the sound of the occasional helicopters used here to transport building materials to the upper floors of construction sites suggest dynamism.

From April until October the smell of cow dung wafts through Zug’s modestly affluent streets.   The  City has crisp borders with its farm neighbours. Where office blocks end, pasture begins. It is a precisely constructed city, the parts fitting together like Lego.

Although living in Zug city, I can buy milk from a farmhouse 500 metres away.

When I first arrived, nostalgic for the atmosphere of London City bars, I discovered the Almodobar. During the early Summer evenings it fills with financial traders in their shirtsleeves drinking beer from the bottle, and I am comforted.

The Siemens Building where the Almodobar was situated, is a brilliant white modern, climate controlled block, where blinds and shutters whirr intermittently adjusting the sunlight falling on the two large trees growing in the heart of the complex, and keeping the sun out of eyes of the many screen traders located there.

And, at about 800 metres, it is about as far as you can get anywhere in the city,  from  a cow pat.

Phil Collins and me

Phil Collins. I neither like nor dislike his music. I have never bought any of his recordings, been to any of his concerts, and if more people were like me, he would be unknown. If he had been born before there was broadcasting, microphones or electric guitars, he would be unknown.

I don’t know what Phil thinks about his career and success, but my guess is he, like his fans, see it as well deserved recognition for his talent. I doubt if he attributes it to randomness or serendipity or technology, but Phil is a good example of how success is derived from community resources, combined with the aggregation of a number of individually unimportant preferences into the fantasy that something new and great is made.

Does anyone really own their success? Don’t technology and other externalities determine it? What if Shakespeare had been a woman? Or Fred Astaire born in 1980? (Fred who?) Imagine Elvis before amplification and recordings. What use would we have for Horatio Nelson in 2015?

And in my life, how much of my success do I owe to absent competition for property, space, opportunities and women, due to circumstances outside of my control?

When I was 12 years old, after a two-year stay, I left hospital, leaving behind a much more able and clever close friend. He would certainly have added to the competition for available resources But he had muscular dystrophy whereas I only had tuberculosis, and at sixteen he was dead.

Even tuberculosis can be a success if Streptomycin is already in the world.

Heidi spricht kein Deutsch

One of the things freshers have prominently in their ‘to do” lists, when they arrive in Zug is to enrol in a German language course.  Breathless with enthusiasm to be part of the scene and fit in with local life, they excitedly anticipate that learning “the language” will lead to being accepted, loved, making friends, and enjoying the native culture.

However, in six years I have yet to hear of an ex-pat who has learned the local language well enough to hold a fifteen minute conversation with a local.  In fact, the better your command of Standard German (don’t call it ‘Hochdeutsch’ ), the more frustrated you will be as you find yourself failing to amuse and engage the local populace in the kind of chit-chat you enjoyed at home.

I am not referring to the kind of basic German which any idiot can pick up in a few weeks. Or the equivalent level of English an au pair will command after a few months immersion in the UK.

Many times you will have proudly requested “ Können Sie mir bitte  helfen?” to be served in a Zug shop, only to be met invariably with the reply  “ Of course, what are you looking for?”, from the sales assistant, who probably also wished you “have a  nice day” as you left.

The reason for this is that Heidi communicates in Schweizerdeutsch , and after three months of lessons (the average most endure before giving up the struggle) all you will learn at the German class you have enrolled in is lots of German grammar and enough vocab to order a taxi.

If you stick it out for a year or so, you may well have enough German to understand what’s going on around you in a German city, but the language spoken in Zug will continue to be as mysterious as Chinese.

When we originally arrived from London, we took the precaution of bringing our German au pair with us.  We thought it would be very useful having  someone with the language as her mother tongue, on tap for the first month so that we could quickly negotiate the inevitable transactions where fluent German was needed and our limited German inadequate.

However, after a couple of days she admitted defeat.  Although she was born and lived in Munich all her life she could barely understand a word.

Frankly, unless you are immersed at work every day  in the 100% company of  Schweizerdeutsch speaking, Swiss born co-workers, you might as well save the effort and stick to English, because nearly everyone under 40 speaks it fluently here.

Chill and Heidi will not drive you mad.

The Swiss drive with such good manners, it is likely that you, an average driver from the ROW, will feel uncouth, loutish and delinquent after a day or two.

The convention of the zipper sums up how things work here. At a confluence of two roads, instead of (as you would at home) pleading or edging increasingly aggressively and desperately into the traffic stream, chill, it´s taken care of.

The queues will each donate in turn, one car from each stream, into the combined line.

Heidi does not do competitive driving.

But rules, official and unofficial are there to be observed.

Imprecise driving can be very expensive in Switzerland. There are frequent changes in the speed limits in built up areas, and you will often pass through the three standard zones, 60, 50 and 30kp/h, in a couple of minutes

For a driver used to miles per hour, the differences in the limits and the precision required to observe them is demanding. For example, the difference between the 50kph (31 mph) limit and 55 kph (34 mph)  – the speed at which you will trigger a camera here – is a measly 3 mph, about a micro n on the speedometer!

The Swiss penalty menu goes from 100 CHF for 10 kmh over up to a minimum of 1,000 CHF (650 EUR) for 40 kmh over the limit. More than 40 kmh over the limit and you will lose your license and be heavily fined, and even be looking at the possibility of doing a little jail time.

A few years ago I was snapped by a camera while driving a hire car through Zurich, at a marginally illegal speed. Back in London, over the ensuing months, official letters from Switzerland arrived with regularity to my London office address, and I filed them in a file labeled Swiss Letters. The file kept growing.

The following year, driving through the border, I was stopped on entry and had my passport checked.  I was then politely requested to get out of the car and taken to an office. To my alarm, the official left and locking the door, and me, behind him.

After a worrying 30 minutes the official returned and told me there was an outstanding arrest warrant in my name. Two hours later, and 1,500 CHF lighter, they released me. It had cost me 100 for the original fine, plus 1,400 for court fees, penalties and letters they had added for dissing them.

An expat friend managed to be fined an average of three times a week in his first 6 weeks driving in Zurich. After this beating, like most of us here, he now drives like a 79 year old.

 

The Financial Crisis – 30 years in 300 words – updated in 237

Interest rates and inflation peaked in the UK and US in 1980. Over the following 29 years interest rates declined in the US and UK from 20% to 1% generating a long uplift in the value of equities and other assets.

Japan became a global source of very cheap investment capital in the mid 90s as a consequence of ultra low-interest rates, the declining value of the Yen and the emergence of hedge funds meant that it became risk free to borrow Yen and invest in investment assets with much higher yields.

The Dow closed at under 1,000 in 1980; twenty-seven years later it reached nearly 14,000. The FTSE rose from 500 in 1980 to nearly 7,000 in 2007.

By 2000, monetary policy was being used to avert possible recessions, rather than as had been the practice, to stimulate the way out of one. This policy created additional credit, at a time when credit was already cheap and plentiful The super liquid conditions stimulated the securitization of loans by banks and the creation of many new financial derivatives outside of the control of central banks .

Inflationary consequences of the asset boom on consumer prices were absent probably because of the unprecedented productivity enhancement effects of computerization and the internet reinforced by the availability of ultra-cheap manufactured goods from China.

The point was reached where no more financial air could be blown into the bubble and it began to contract. Interest rates have now been declining for nearly thirty years, In the case of the UK and US they cannot go any lower.

The last upward cycle in interest rates began in 1950 and lasted thirty years and coincided with an era of great prosperity and growth, although the Dow ‘only’ increased 275% in those thirty years.

Here’s to the next thirty years…..

I wrote that in February 2010. What happened next?

January 2013, the credit bubble is inflating again. Worldwide, bank shares have typically doubled over the past few months. An unexceptional example is Lloyds Group whose shares were 35p in June 2012 and are now 50p i.e. Lloyds market cap has doubled to £35 billion for no discernible reason other than credit easing (mainly quantitive easing).

Junk bond yields are at an all time low, most stock markets are have risen sharply seemingly both because of credit easing – fundamental prospects haven’t changed, junk is junk, austerity is austerity, flat or declining gdp is the story in most places.

The financial establishment appear to have won enough to fight another day. Newspapers report  any signs of rising property prices as ‘good’ news. Similarly more easily available consumer credit is reported as  a ‘good’ story.

Let’s keep it simple. Much of the fund management ‘industry’ earns income as a percentage of assets under management – AUM. In the past six months the majority of investment assets have risen in price. The reason they have risen in unison is because of cheap and easy credit (the lowest interest rates for 300 years, mind-boggling central bank money printing via QE).

The effect of this is to sharply boost the income of financial services, a windfall which will no doubt be portrayed as the consequences of cleverness and skill (a simple lie) The resultant recovery in profits and bonuses becoming a’ good’ financial recovery story in 2014.

So its game on.

Publish and be damned?

Years ago, I lived with an editor for a well-known publisher who used to spend many of our evenings at home reading through manuscripts while watching tv, drinking too much wine and talking to me.  I was with her the evening she pencilled “reject” on the last page of the ms of Valley of the Dolls.

Stephen King, William Golding,  Rudyard Kipling, J K Rowling, Richard Adams,  and William Faulkner are amongst the many eventually famous authors repeatedly rejected by publishers.  But there must have been vastly greater numbers with equal or better talent who were rejected and remained in obscurity.

But why do academic books have so many words? If it is information you need, then the conventional nonfiction book is an inefficient way of getting what you are looking for. Do we want to sip through 250 pages of consomme when it could be reduced to a jus of 20% or less of that? But would you be prepared to pay £17-18, or $30-34 for a book with say, 80 pages? And if it could be reduced to 80 pages, wouldn’t that make it easier to download and print, than buying it as a conventionally produced book? And then there is Kindle……

I buy as many books as ever, but barely read beyond the boredom which sets in after a few pages. I haven’t been surprised by anything I have read for years. I can remember reading Freud, Marx, Jung, Plato etc  at the Hendon reference library for the first time when I was about 14. As exciting as initial hearings Bob Dylan, John Lennon, Beethoven, Chopin, David Bowie.

Has anyone anything new to say?

Most of the publishing proposals I see are safe, inoffensive and guaranteed to upset no vested interest or cause too much excitement or endanger academic careers. But I would prefer Free Association Books to be the publishing partner to courageous writers with something new and controversial to communicate.

I will publish and be damned  – but send me the damned good (non-fiction) stuff please!   

Italy shrinks the Universe

I know now for sure that I won’t die in my childhood, twenties, thirties, forties, fifties and early sixties.    What a waste of journey time,  all those hours spent contemplating cancer, stroke, heart attack, plane crashes, AIDS, Bird Flu, whole life insurance. A man of 64 has an average life expectancy of 18 years, a 50% more than the average time spent by convicts on death row in the US – 12 years.

Much seems to have happened but at the time it was just moments of the day. I was blown up once, but the explosion did a mysterious stretching thing with time, the parts never added up to the whole, I had to read it in the newspapers to experience the scale of it, even when the blood poured it did so glacially.

As a child of 8, learning history, nearly all the past seemed an incomprehensible distance. The Romans, AD 100 were near infinity. Now from the perspective of my own lifetime of 66 years, I have a graspable unit of time.  I think of a date, the Copernican Revolution of 1543 for example and divide the interval, 468 years by units of my lifetime. The result – an entirely comprehensible 7 times. For my father in law who reached 92 – it was a just 5 lifetimes.  1066 is a stretch, but just about comprehensible at 14 times (10 for father-in-law).

Which leads me to how the 14.6 billion year age of the universe is now approaching comprehensibility as a result of growing familiararity with  Sovereign debt numbers  – the Italian national debt. 1.9€ trillion.

The debt number is 130 x larger.

Zug millionaires are non-practising

From time to time, journalists turn up in Zug tasked to write stories of affluence and privilege for the UK media.

They search fruitlessly for the spoors and watering holes of the rich, the exclusive bar, or shop or restaurant. They trudge the streets – and this doesn’t take very long in compact Zug – in pursuit of evidence of extravagant consumption and signifiers of affluent life. Invariably, the only icon to consumption they find is the single Ferrari dealer on Baarerstrasse. There they construct a story around the long waiting list for the most expensive model –dishonestly making no comparative reference to the long waiting lists common to all Ferrari dealers worldwide.
The really interesting story in Zug is that there are millionaires and billionaires living here, but they are non-practising.  Few of the icons of wealth are visible here. There is a marina on the Zugersee, and a waiting list of 200 for the mooring slots, but in the main, the boats are just practical cruising and sailing tubs, no Ferrari equivalents, Monaco it is not.

A cup of coffee costs much the same anywhere in the city. You cannot buy an expensive cup of coffee if you try. This is not a problem in London. But you can’t find a cheap cup of coffee in Zug either, and for me that sums it all up. There is a flattening up of differentials here. No special provision for the rich or the poor. It just isn’t possible to be poor in Zug the way it everywhere else. To be poor, you need to be provided for. The provision of inferior facilities and amenities is lacking here.

But also lacking are the private health clubs, exclusive bars and stretched limos, the private schools (the only ones are those set up by the ex-pats, and they offer inferior services compared to the Cantonal version). There is no special access via money to private medicine as in the UK, because all medicine is private and all citizens have equal access to it.

For example the public swimming pools here are of superior quality to the private clubs I used in London. Even if there were private pools, I wouldn’t need to use them. In London if you haven’t got enough money for a car or taxi, you must use expensive and unreliable public transport. In Zug, everyone (i.e. including billionaires) uses the public transport system in preference to the auto, because it is faster, more efficient, high quality as well as being inexpensive.

In London if you are poor you can find inferior accommodation, transport services, food, and clothes. In Zug there is a basic level below which there is simply no supply. You can’t be poor in Zug because there is no provision for it. The most inferior housing is still vastly better than the worst housing in London.

To be a practising millionaire you need places of worship, and they don’t exist in Zug

Inflation on its head?

People ask me about inflation in the 70s and 80s, usually because they want to position themselves advantageously for the inflation they now anticipate. “The only solution to all the debt is to have inflation” they say.

But the inflation of the 70’s felt like deflation. Although retail prices and incomes were rising fast, real and nominal prices of investment assets were falling.  Most residential and commercial property prices were (as they are now) determined by people’s capacity to borrow. As interest rates climbed, their ability to service a constant loan size declined faster than inflation lagging incomes and rents could boost their capacity to service it. The same pressures lowered equity valuations, earnings yields ratcheted upwards and prices plummeted.

However for residential property buyers actual net borrowing rates were generally lower than inflation. With the tax relief available to owner occupiers in the 1970s, it was possible to pay a net annual interest rate on your mortgage of less than the annual rate of inflation.

Trouble was, there was loan rationing everywhere, even from building societies, and the building societies were only lenders to owner-occupiers High street banks wouldn’t lend on property for investment at all, and rarely for occupation.  In 1976 I was offered a detached freehold house in Finchley (NW London) arranged as four flats yielding £4,500 per annum, for £16,500 .

It was desperately cheap but I couldn’t find finance, which was of course the main reason residential property investments were so cheap.  Residential investment property prices were falling because there was credit deflation.  In those days I had three credit cards maxed out up to my combined credit limit then, of £6,500, for the purpose of buying residential property investments.

London auctions were stacked with properties yielding 25% but no buyers. Most auction rooms had rows of empty seats in 1976.

But it was standing room only by 1979.

So my advice is counter intuitive. Liquidate everything for cash. In the coming inflation, market rates of interest will overwhelm central bank interest fixing (look at Italian bond yields last week for an example of markets setting yields against central bank diktat), and rise to levels which force holders of assets bought with borrowed money, to release them into a falling market.

And cash, ie real, folding money, will be king again for a while.

Phil and me

Phil Collins. I neither like nor dislike his music. I have never bought any of his recordings, been to any of his concerts, and if more people were like me, he would be unknown. If he had been born before there was broadcasting, microphones or electric guitars, he would be unknown.

I don’t know what Phil thinks about his career and success, but my guess is he, like his fans, see it as well deserved recognition for his talent. I doubt if he attributes it to randomness or serendipity or technology, but Phil is a good example of how success is derived from community resources, combined with the aggregation of a number of individually unimportant preferences into the fantasy that something new and great is made.

Does anyone really own their success? Don’t technology and other externalities determine it? What if Shakespeare had been a woman? Or Fred Astaire born in 1980? (Fred who?) Imagine Elvis before amplification and recordings. What use would we have for Lord Nelson in 2009?

And in my life, how much of my success do I owe to absent competition for property, space, opportunities and women, due to circumstances outside of my control?

When I was 12 years old, after a two-year stay, I left hospital, leaving behind a much more able and clever close friend. He would certainly have added to the competition for available resources

But he had muscular dystrophy whereas I only had tuberculosis, and at sixteen he was dead.

Even tuberculosis can be a success if Streptomycin is already in the world.