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European Scene : October 2009

Cash positive and still plugging away


October 16, 2009
By John Roper

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Is it all over? The recession I mean. As long ago as June 11 the BBC
reported ‘a group of leading economists’ as saying that the recession
in the U.K., had ‘bottomed out’. The U.S. Federal Reserve says that the
U.S. is over the worst.

Is it all over? The recession I mean. As long ago as June 11 the BBC reported ‘a group of leading economists’ as saying that the recession in the U.K., had ‘bottomed out’. The U.S. Federal Reserve says that the U.S. is over the worst.

It is very easy to start a recession. Basically you just need to convince enough people to stop spending money and the rest will very soon be history. Firms without orders soon start to lay-off staff, mortgages don’t get paid, houses get repossessed and house prices fall.

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Next the rent-a-gob industry swings into action and talks everything down, on the radio, television and press. More people stop spending and so the spiral goes on down.

Right now no one seems to be able to make up their mind. House prices, a key factor in the U.K., have fallen. Not a problem you might think, as long as you have no need to sell and just want to go on living there. But we are all mini speculators. Dinner party conversation can still include how much you paid and how much you made. At a political level here are a lot of people who dislike this and, for as long as I can remember, at every opportunity such as times when prices fall, we are cautioned not to expect to make profit out of property. Curious when there is a whole industry of property speculation expecting to make money out of just that.

Anyway, the good news is prices have been rising for the last three months. I recently heard three rent-a-gobs debating this on the radio. A realtor, the editor of a property magazine and an economist, none of whom seemed overjoyed. In the end, asked what it all meant, the economist, (I think) was looking forward to another 15 per cent decline over the next five years. The editor and the realtor reckoned on a five to seven per cent increase.

How people feel about their property does affect the window industry. If prices are down they will develop – adding extensions, conservatories or loft extensions all needing windows. If prices are up and they move house they are likely to do similar things – replacing windows and doors, building conservatories and so forth.

The problem that remains right now is money. The banks are still making us pay for the disaster they created. They always were an arrogant bunch. While the recession is over for them, as far as their much-talked-about bonuses are concerned, having paid themselves, there is not a lot left to lend to industry or individuals by way of mortgages. If you have a squeaky-clean credit record then you can negotiate a pretty good deal, otherwise, forget it. Actually we know someone who got turned down recently because he had no credit record. He had never had a loan in his life. In actual fact the credit agency gave him a very high score but he had no record of making repayments.

So companies that are cash positive are pretty much okay. There is still a lot of business being done, windows being made. I see a lot of evidence that both the domestic and commercial sectors are busy enough. The firms really suffering are mostly the equipment manufacturers. Fabricators are not replacing or up-grading equipment the way they did up to a year ago.

My overall impression is that people are bored hearing about it. At a consumer level there are bargains all over the place, restaurants are all busy and the pubs are heaving every night. As I said, house prices are going up again. While it is true that the U.K. government has run up a huge debt (it gave all of our money to the bankers) it is only money. Since The Bank of England was established in 1694, it has been printing the stuff whenever the government of the day needed a bit more, frequently to finance King William III’s wars with France. Sound familiar?


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