Forget HS2, lets talk High Speed Capital. Let's talk crowdfunding. Let's talk kick starting an economy. Let's talk banks tied up in knots. Lets talk baby boomers pension pots. Let's talk returns on investments. Let's talk about risk. Let's talk about experienced fund managers
Let's talk less and let the money move quicker. Its simple economics.
I spend so others can spend.
I give so others can give.
If its stuck, money doesn't make the world go round.
While the politicians continue to convince us its about their ineptitude, past performance is not always a guide to future returns, but Brexit or not, we can, quite simply stare at the canvas they piss, shit and vomit on, or look at the canvasses people are creating despite them.
I worked, for a while, in a stockbrokers. It never ceased to amaze me how long it would take regulators to catch up with bad practice until in the words of Life Support, "The Penny Drops as the Mushroom Rises". The big mushroom cloud of armageddon that must've hovered over the financial world so many times during my working life and yet nobody seemed to get injured by the blast. See the film, "The Big Short", its all true. I witnessed small and large errors, frauds and the usual defence was 'it wis'nae me, big boy done it and run away'. Actually it was just ignorance, immaturity, arrogance or greed.
In 1987 I wandered down to help out our colleagues in London who had just been merged with County Nat West. While there I heard about a backlog. "40 people working on it", that's why I was helping out on the day to day. I dug a bit deeper and found they'd lost £600m. It took me a month to explain successfully to someone senior how counterparty risk worked and to show how the main bank had transferred this money into the failing firm to prop it up, the money was misplaced at best, but it had left the building. When the Nick Leeson incident occurred later on in the 1990's everyone was aghast. "Hello?" I shouted. The crash around then was blamed on many things but corruption and a lack of control was critically blamed. I blamed self reliance and integrity. If you have a chance to steal you dont steal, that's how I viewed it. That's not how the city viewed it. Big Bang had ushered in a mindset that Thatcher's government had endorsed. If you can take it, take it. Some people to this day view buying a council house at a overly discounted price, theft and view the privatisations during the 1980's as nothing short of bribery. That's not the question here, as I've always tried to say you deal the hand you're dealt, but please play with integrity.
What I loved back then and now is that the only thing that doesn't lie is the numbers only the people arranging them. When I looked for rational conversation in the press I turned to the FT. They could see that the numbers didn't add up sometimes and therefore certain strategic aims must be political as they're not economic. Labour isn't working screamed the poster displaying 1m UB40 holders, Thatcher's neat economic policies got it to 3m within a couple of years the revolution that caused the permanent schism in the UK. The oil revenues were used in a different way in Norway where they underwent their cultural revolution.
The Nick Leeson case was quite simply a case of Barings being greedy. Every time he declared he'd made more money, but needed to borrow more surely somebody raised an eyebrow. They didn't. The only people who learned were the corporate bankers who would later appear in the film the Big Short. They knew that as long as they kept saying the numbers were good, they were good.
Many people wonder about the expression the "Emperors new clothes" but its frightening to me that such basic education hasn't taken place. The difference between right and wrong. The spotting of what is glaringly incorrect. A guy coming towards you with a knife is not looking to help you cut the butter in your shopping bag.
The banking crisis occupied my head during the camino recently, skip below, my diatribe from Estella - Lizarra.
The Basque railway closed in 1967, butchers everywhere in Europe it seems thought buses were the way forward.
All that's left is the station, which now doubles as a bus station, and the Greenway to Vitoria.
I remember getting politicians in during my Stocktrade days. I encountered 2 in as many days. I asked Alistair Darling to come in and see our operation while he was still in opposition and a few days later I would give Angela Knight's script writers a lambasting at the Mansion house during the inauguration of CREST.
I tried to explain to Mr Darling that we had been christened the Socialist republic of Stocktrade by our sister firms and it was a name we liked in the city. We reduced the cost for employees to sell their shares from over a £100 to £15 and we got them a better price per share. The price like in any market depended on whether you wanted to try to harder. The whole concept of using a stockbroker was exactly that they would earn their money by getting you a price but too many regarded it as a closed shop, control of access to the market. They regarded their tariffs as access controls that prevented (aka protected) the public from sharp practice. It was of course very sharp practice and while the doyen of deregulation is held in high esteem it was also the death knell for many established brokers as the pound shops or execution only brokers entered the fray.
We wanted to target the workers who had been getting shafted by charlatans ripping them off. We were very lucky that we understood that someone working in a bottling plant would want their shares sold at the best price for the lowest commission. We were lucky because those companies had management who agreed, not all did and many preserved the status quo.
Working as staff is something we did together, and this is why I wanted to speak to Mr Darling and also Ms Knight.
We thought that workers should own their company and if they couldn't own it all, we wanted to increase their ownership. This wasn't for everyone and certainly not for Mr Darling who was quite candid that version of Marxism wasn't part of new labour citing Maxwell's pension collapse. I argued a modest amount of eggs in basket education shouldn't prevent it. I was a tad disappointed as I never got to explain how SAYE and matching shares diluted companies in favour of their employees, whilst often representing less than 0.1% of the equity. What it did mean however was someone working in a bottling plant would get £12,000 after 5 years saving and if the shares underperformance meant they were valueless then it was effectively just an interest only saving scheme.
There was a real jarring moment about that meeting especially as we were in a fast growing period that saw our staff rise five fold from 50 to 250 over the subsequent 3 years. It was the only assistance we ever asked for and it was fitting that this party of the people were against it while seemingly proclaiming to be into Thatcher's version of wider share ownership. My interpretation was that they couldn't understand that workers couldn't buy privatisations but they could save £30 a month towards an SAYE. If the government gave that SAYE greater security and privileges there genuinely would've been some wealth trickle down, to this day I feel I let my generation down by not pushing harder for this.
Later that week at the Mansion house in London I attended the inauguration of CREST with industry peers as well as listening to keynote speeches from Eddie George who was excellent and Treasury Minister Angela Knight, whose script writers were well off message. The UK had far too many bungling mistakes made public by Barings, but far more prevalent than many would believe. If as many kegs went missing as share certificates and dividends breweries would be out of business, and we all know how much some brewery workers drank.
Counterparty Risk was a major headache for financial firms and the industry needed to move to real time settlement. CREST replaced the old system of paper handling through to talisman an electronic system run by the London stock exchange. Stock and cash would move as seamlessly as a bus ticket does now with a tap of a card.
It put London back ahead in the global security industry and was fantastic news for our large financial institutions. Our place in the world markets was assured and whilst initially we would not deal and settle immediately the infrastructure was there to do just that.
What it wasn't good for was the private investor, the very people the scriptwriters concentrated on. I spoke to Ms Knight afterwards and explained her speech was well delivered but her scriptwriters needed sacked. They were miles off the brief. She was somewhat astonished, asked my name and firm. I replied including my offer to discuss broadening SAYE which I said was superb and offered greater opportunity for widening share ownership which I knew was no longer a Marxist theory but a conservative one!
Oh how we laugh as we look back.
The rich most certainly got richer under Tony Blair and the gap between rich and poor grew after the Marxist Major and never looked back.
The film the Big Short for me is the best black comedy of all time and it is 100% in line with my experience. I'd like to have seen a '24 hour' version including Alan Greenspan's exuberance.
If anything I feel the cutting room floor probably had so many stories left untold. Blue Arrow, Barings, Dot Com disasters and all the market 'corrections'.
All the time these people have skimmed 1-5% along the way. We've sat by and let it happen and now the poor have kicked back will we have brexit.
I think not - I still believe we could exchnge our valueless pound, join the Euro in 2022 and get welcomed back with tail between legs.
Markets have changed a lot since 1967 just like the railways!
Back to Crowdfunding
The model has a long way to run and doubtless many exciting twists and turns along the way, but crowdfunding platform providers have been slowly transforming the capital markets and with it the hand people are dealt. Democracy might be creeping back into the game as more and more individuals tap into this market via ISA or SIPP specific investments. From my experience the crowdfunding model is game changing at a time when the over 55's are sitting with piles of cash while their fund managers are finding it difficult to get returns. With the industry turning their back on seasoned pros like Mr Woodford, what they've done is shoot their own funds in the foot. Why would you trust someone in the city to be better at picking out investments just because its their full time job. The dot com crash in 2000 and then the banking crash in 2008 demonstrated people were paid to perpetuate a myth not protect performance.
The self interest of the city barriers come crashing down slowly, the rise of AJ Bell shows how long it can take but now, the critical path is how quickly it aligns with the baby boomers pension pots, and judging by the AJ Bell flotation last year, that is now. Its been a huge success and Mr Bell will push on now with his model, driven by successful technology and low cost innovation. 2020 will be known for more than just hindsight as the availability of capital becomes the new superhighway. When I first put my SIPP money with AJ Bell I did so because my investments were always going to be fairly small, £10,000-£20,000 max. Being with AJ Bell I wanted access to new issues and over time like HL they are good brokers to go to, where investors meet companies, its called the marketplace.
The money game moves on though and unlike the talk of the train and our northern powerhouse the capital markets are moving fast. Forget HS2, its HSC. High Speed Capital, continues to grow and will be arriving in the markets in size during 2020. Quite simply, the clearer the risk picture, the less compliance constraints there are. That comes from good software design as well as due diligence. The pure beauty of transparency and making sure people are aware how risky an investment might prove, is the less work to protect against that risk. With a Patient Capital investment trust you are advised to be patient but at no stage did they market to the investors Neil Woodford thought he had the Midas touch, they left that to the press. At least with crowdfunding you know the level of risk is higher, but by balancing out the portfolio as well as clearer evaluation of the risks, paradoxically the returns look more secure. The banks are now tied up in knots and their speculative lending has all but dried up. Peer to Peer lenders are rasiing money at an unprecedented rate. Crowdfunding will soon enter board rooms and just be known as a placing via a crowdfunding platform. Energy companies will try to fight with their corporate brokers and registrars over fees but it will be the shareholders and the media who will drive them to the less expensive solutions.
Investors can put the capital back into Capitalism and not see 7% top sliced by corporate brokers, registrars, accountants and industry yellow book enthusiasts who feel rewarded by going through a due diligence that is designed to clog up the arteries of its beating heart. Think Mr Creosote, please. Capitalism is a busted flush for a number of reasons, but first among them is that the money just doesn't flow anymore.
Marketing became the scourge of Capitalism during the 1970's when style won the battle over substance. Most board rooms over the last 50 years became populated with those media savvy types rather than manufacturers. Elegance won over engineering and closing communities in favour of colonial cousins where our wage rules didn't apply.
I've written so many times on bad laws passed, but the minimum wage has seen more jobs exported across the seas than any other piece of legislation. Quite simply anyone closing a factory here to open it overseas should pay their workers the minimum wage or have tariffs put on their products. The crass act of finding a way around a law is like people buying "off-road" vehicles to drive in town so the speed bumps dont impinge their road performance.
I've gone off message again though, so I say this, to the crowffunding generation, welcome to the party. I have Pension and ISA's and I can party. I have the cash to coarse through the creative veins of our country. I can fund the next POSTCARD or DEADBEAT records, I can help fund a venue, like the ODEON in Edinburgh, my friends can support a theatre run, we ccan fund the next vaccine trial, we can build houses for the homeless, brew bottled beers for the bams, build allotments and cafes, solar and wind farms and we can build the new industries. We did it before, that's why we've got so much in our SIPPs. We were doctors, and nurses, teachers, office workers, shop workers, plumbers and programmers, plasterers and professional darts players, hairdressers, oil workers and all of us saved.
Now its our time to spend.
Our cash is coming to a business near you.
Crowdfunding be ready for us, your first £1bn funding is just around the corner, welcome!
