Thursday, March 24, 2011

The folly of thinking the future can be predicted

During his budget speech on March 23rd UK Chancellor of the Exchequer, George Osborne, had the following to say:

"We have already decided to rebuild our foreign currency reserves, and we intend to purchase a range of high quality assets. But with the price of gold at a record high we won't be able to replenish the reserves sold at a record low."

The “record low” comment was a reference to the fact that, between 1999 and 2002, the UK treasury divested itself of just under 400 metric tonnes of gold from its reserves. The average price achieved was $275.00 per (troy) ounce. 400 tonnes converts to 12.86 million ounces so the proceeds of the sale amounted to $3.5 Billion. On the day of the 2011 budget the spot price of gold was $1,438.00 per ounce. At that level the UK reserves sold off nine or so years ago would have realised just under $18.5 Billion, representing a capital gain foregone of some $15 Billion or 9.225 Billion pounds sterling because of the sale. The Chancellor at the time of the disposal was one Mr. Gordon Brown, of the New Labour persuasion, and therefore someone who could predictably be subjected to a jibe by a Tory minister, in hindsight of course, for the decision.

The fact of the matter is that the UK treasury, under Mr. Brown, honestly believed it had good reasons at the time for selling the gold. These included a need to minimise fiscal risk by diversifying into currency assets such as Euros, US Dollars and Yen, which are interest bearing while gold is not, an acceptance by all parties that gold was more volatile than the currencies mentioned (volatility is a proxy for risk) and a perception that gold was then overvalued. So strong was the last belief that many gold producing nations objected strongly to the proposed sale on the ground that the price of gold would be depressed.

However, even given the above, there is little doubt but that if Mr. Brown and his advisors had possessed the slightest inkling of what was about to happen to the gold price they would, most certainly, have postponed the sale or abandoned the idea altogether.

In the middle of 2010, not quite a year ago, the UK Centre for Economic and Business Research (CEBR) predicted that the “Euro Will Fall to Parity [with the US Dollar] Before ‘Inevitable’ Breakup”. During the course of the analysis they qualified the break-up prediction by saying that it could take as many as ten years. However, at year end, they were still at it, claiming the rapid decline of the Euro as the first on their list of predictions for 2011. Once again, parity with the US dollar was the target level. At the time of writing, some three months into 2011, the Euro is going from strength to strength. The reason for this is the determination of the European Central Bank (ECB) to ensure that the Common Currency is a success. It now appears that the advice of economists over the years to the effect that “you do not fight the Fed”, meaning the Federal Reserve System of the USA, effectively the US Central Bank, can just as easily be applied to its European counterpart.
In the Irish Times of March 25th 2011 our own Minister for Finance, Michael Noonan, was quoted as saying:
"No matter how wise one is, it is not possible to say the debt will be unsustainable next week, next month, next year or in three years’ time".
How right he is.
What all these examples mean, of course, is that it is impossible to predict the future. Not even if you’re a prominent and well experienced grouping of economists, or if you have at your disposal all the resources of the UK government, which are substantial indeed. That’s the fundamental truth that must be reflected upon.

All one can do in light of all this is to minimise risk and that, of course, can only be done with the information available at the time it is decided to act. The very decision to act, or not, must be seen as part of the process. If the outcome is still a loss or a disappointment then the only thing left is hindsight and no matter how tempting it is for critics to indulge in this, it is, at the end of the day, an irrational and fundamentally unhelpful impulse.

Saturday, March 19, 2011

Swan Lake at Dublin's Grand Canal Theatre

When the Russian State Ballet danced Swan Lake at Dublin’s Grand Canal Theatre on St. Patrick’s evening this year its members provided a truly wonderful experience for about 2000 people. This marked the first anniversary of the opening of the new theatre.

Everything about this production was superlative. There are not words good enough to express the brilliance of the performance. Of course one has to, firstly, acknowledge the genius of Tchaikovsky for creating such a masterpiece, but the perfection and excellence of the performers on this occasion is also something that should be experienced at least once in a lifetime.

In the aftermath of the live performance we’re now coming to terms, thanks to, with the individual sections of this great work. To see the swan dancers advancing in perfect harmony with short steps and arms half raised to invoke the familiar wing pose of these majestic birds, which I’m told is known as busking, to Tchaikovsky’s swelling score, provided on this occasion by the RTE National Symphony Orchestra, is wonderful. There are many memorable pas de deux, pas de trios and then the delightful, fantastic pas de quatre from the four small swans, an exercise in synchronisation that has to be seen to be believed and, of course, the extraordinary fouetté turns of Odile in act two (not the Black Swan, Odette, as the dancer was represented to be in the movie of the same name and which was apparently a piece of artistic licence on the part of the filmmakers). The jester stood out, both as a dancer and as an all-round link man between the various movements in the plot.

The Grand Canal Theatre is also impressive. I’m told it has capacity for around 2000 people, and there was a full house on St. Patrick’s night. It’s bright and airy and there are bars on each floor, although €8.30(!) for a vodka and tonic means that the promoters are certainly determined to keep out the riff-raff. Indeed between the seat cost, €10.00 to park the car and the cost of refreshments as noted, we’re definitely not looking at culture-for-the-masses here.

The seating layout is such that each row is curved, with the stage roughly providing a centre for the circle segment so described. This has the beneficial side effect that the individual seats are offset slightly so that any given member of the audience is looking over the shoulders of the people in front, but not perfectly in the case of the Grand Canal Theatre, as the offset does not place the rear seats exactly in the middle of the two seats in front. In a number of theatres in European cities that we’ve been in each seat is placed precisely at the join of the two seats in front. This is important when a short person finds him or herself seated behind one or more tall individuals.

You are now looking at a ballet buff in the person of yours truly.

Tuesday, March 15, 2011

The Schengen travel area and Irish sovereignty

We’ve heard a lot about the fear of losing our sovereignty during the recent economic disruption. Most people would acknowledge that membership of the EU involves exactly that but at least this was by the consent, even the desire, of the great majority of Irish voters.

So why then is it taken as an article of faith that Ireland should have opted out of the Schengen agreement, which guarantees passport free travel to those citizens who live in most EU states? More importantly, it also means that tourist and business visitors to Europe, notably from the two important present-day economic blocs, China and India, can move freely within the Schengen area by obtaining a single, Schengen, visa. To travel to Ireland from, for example, France these individuals would have to apply for a separate Irish visa, which many do not regard as worth the trouble. There is evidence that the Republic is losing out economically because of the loss of wealthy tourists and customers for services from outside the EU, because of this requirement.

The only reason we are not in Schengen is because the UK objects to it and if the Republic were to join passports would have to be shown at the border with Northern Ireland. While this would be onerous, it is not a sufficient reason for the Republic to have acquiesced to UK travel policy without, at least, a debate on the matter. Where is our sovereignty in this instance?

Sunday, March 13, 2011

Green agenda in decline

The Greens are gone and the scientific advisor to Fine Gael, according to the Irish Times, is a global warming sceptic. For those of us that have become weary of causes that rely more on moral persuasion than on clearly explicable scientific evidence, this is neither a surprise nor a tragedy. It is now time to recall the Hole In The Ozone Layer, which not too long ago was supposed to presage pretty much the end of life as we know it, but which is currently not on anyone's radar. In previous generations people worried about nuclear weapons wiping us all out but, again, nothing is talked of that at all in the present time.

My own attitude to global warming has been mixed. I found it hard to give credence to the Jeremiahs that foretold Armageddon but, at the same time, I felt that anything that tended to reduce the consumption of petrol and other fossil fuel derivitives was a good thing because they are being depleted, and the price at the pumps is a solid, deterministic piece of evidence of that which is apparent to all.

Is global warming caused by human intervention? Again, I simply don't know. However, I am convinced that the world is overpopulated with humans and anything that will bring attention to bear on this fact is also to be welcomed.

As for the policies that were put in place by the Green Party when it had some power in Ireland: these had nuisance value at best. None of the measures were such as would not have come about as a result of EU directives in due course. At the same time the Department of Finance was never going to be in the looking-a-gift-horse-in-the-mouth business when it found itself to be the beneficiary of windfall carbon taxes.