Editorial - Issue 29 InterIM Insight

10 September 2008

It Never Rains But It Pours?

My predecessor as IIM Chairman, Tony Evans, dedicated his last editorial in InterIM Insight to a ‘rainy’ metaphor, and this seems an appropriate theme to continue on with.  The grass in my back garden, normally a parched brown at this time of year, is green and lush from successive downpours. The daily weather forecast during August promised each day would be warmer than the last, but with each successive day actually proving to be colder than its predecessor, it crossed my mind that a forecast heat wave would necessitate breaking out the thermals!

Surprisingly, August has been warmer than average, but only in digging into the figures does one discover that day time temperatures have been colder than normal, whilst night times have been warmer than average, deceptively boosting the overall figure. And throughout, this August has had the least sunshine since records began.

And as it is with the weather, so cold, wet and gloom is now the order of the day for the economy. Every day brings bad news, as the press and media vie amongst themselves to report problems caused by the twin whammies of the credit crunch and high energy prices.

The Bank of England, responsible for controlling inflation, is caught between a rock and a hard place, as it tries to achieve a soft landing for the economy without ‘stagflation’. Stagnation – the ‘stag’ element of the word – is certainly with us, but referred to in ‘politician speak’ as zero growth. The fan charts projecting the Consumer Prices Index in the Bank’s last three quarterly inflation reports have shown inflation coming down in the long term, but beforehand peaking higher in each successive forecast. So interest rates remain high despite the impact on growth.

Whilst there have been job losses, these are not yet on a massive scale – it is likely that firms are preferring to introduce an element of spare capacity before finally wielding the axe. It is probable therefore that there is bad news to come on this front.

It was therefore refreshing to attend a seminar organised by IMSIG at which Dennis Cox of Risk Reward Ltd was one of the speakers. Dennis is a great believer in learning the lessons from history and is a chartist by nature – using the patterns shown by charts of past investment performance to predict future activity.

To illustrate his view of the present, Dennis began by putting up a slide of the prices of tulips during ‘Tulipmania’, a speculative bubble in 1636/7 in Holland, when the prices of the newly introduced tulip bulbs rose to dizzy heights over a period of about three months – at peak, the price of single bulb was more than 20 times the annual income of a skilled craftsman. But after a brief period of wobble at the peak, the price collapsed in a near vertical drop. The next slide up showed the 2008 movements in the oil price – and not only did it mirror the movement in price of tulips, but a wobbly peak was discernible. Coincidence? Perhaps, but since then the oil price has been moving steeply south, and OPEC are meeting to address the issue.

So there may be good news around the corner for the economic outlook. But in the meantime, UK plc is feeling the pain and inevitably is moving to a period where even the strongest companies will need to change to survive, the weaker ones will need the attentions of the turnaround specialists, and the weakest will probably go to the wall. Change of this nature brings opportunities for the Interim – in many respects Interim management is counter-cyclical, picking up the pieces on the way down, and providing resources as growth returns.

And the risk? As newly-redundant employees come onto the jobs market, the number of available ‘Interims’ will increase, with consequences for both daily rates and quality of service.

Make the professional accreditation of your Institute count!

Tom Brass