The Reincarnation of Old Economies

In the dull grey light of an Autumnal dawn it can be quite difficult to envisage the dynamic
regeneration of those older industrial centres whose ageing factory sites seem inevitably
destined to be repackaged into ‘heritage centres’. History of course, is something to be proud of and something which can be turned into an active and contributory part of the economy, but historical sites and collective memory cannot on their own build the vibrant economies of the future.

Wrexham has been such a town. Rich with a history from the crucible of the industrial
revolution, this border town on the Welsh Marches has been put through the wringer of
economic change over the past few decades. Throughout that period its core industries of coal mining, steel production and brick making have all died out and left the town as the classic post-industrial failing economy. However, judge the strength of character of a town not by its difficulties but by its reaction - and Wrexham to its credit didn’t just wallow in its depression but took action to change itself.

Thus it came about that I was privileged last week to be asked to help open the Wrexham Business Week, which reflected their determination not to only change but also to promote their efforts as well - and also to show just how far they have come. Of course, they have had the ubiquitous retail developments and shopping centres but, although these are useful developments, they are primarily service areas and will be inevitably be affected by our next somewhat leaner economic decade of lower consumer spending as the nation learns again to save, pay down debt and finally remember that houses are for living in and are not gambling chips.

Wrexham has taken some brave initiatives and it is the strength of these actions that show the real mettle of the community and its leaders. Now with better transport and a growing technology park, new business and economic development is back on the agenda. Wrexham is a great example of what can be done and has realised that the real growth opportunities for the UK economy will come from smaller to medium sized companies and not the lumbering corporations of yesteryear.

To add to their prospects they even have their own railway company, the Wrexham and
Shropshire, which now provides a direct route back into London (Marylebone) for the town and for the first time in many a year. This is a bold and exciting initiative and I was impressed by the imagination of the company’s management into developing a new rail brand and service in the teeth of a nasty recession. They seem to be focussing on all the things I love to hear as a committed (in various senses) train traveller - service - improving times and punctuality, improving service with trained staff and good food and drink - even in due course being able to book your meals in advance and online.

Bravo for such initiative both for the town of Wrexham and its railway.

***

A financial area that may well show some concerns next year could be the Building Society movement. I have always had a lot of respect for the structure of these organisations, where their mutuality has provided the opportunity of some tangible connection between customer, and thus part-owner, and the actual operator of the society. This linkage can create great brand and business loyalty and, when working well, should also be a great marketing tool to attract and refer new business to them. Sadly however, I do come across some of them that have lost this connection and are corporate in all but name and structure. This is where the main banks have failed to really engage with their clients, and it should be an advantage for these mutuals.

The main problem for many societies at present though is a business one. At their best they are straightforward businesses primarily providing savings products and mortgages. The trouble is that both of these areas are under severe pressure at present. Savings rates for most are pathetically low throughout the market and the societies are finding it difficult to offer more competitive rates and attract more savers. On the other side, mortgage volumes, although off their low, are still well below last year’s levels, and thus both their businesses are being squeezed.

The result of this is that we are likely to see more mergers in this sector as a defensive move to reduce costs and benefit from any economies of scale. Some that find this difficult may be tempted to offer astonishingly attractive rates by way of desperation - if that occurs I would urge all to remember Icesave and the like - if it is too good to be true then it probably is.

***

Two warning lights just flashed on this week:

1. I am indebted to an old friend and ex-colleague Anthony Peters, who has proven to be a wise sage over the years, for pointing out one key indicator - 3 Month Sterling Libor has risen from 0.479% on October 10th to 0.60% now - that is a 28% increase. This is a clear indication of rising risk levels.
2. US mortgage delinquency rates and the percentage of loans starting foreclosure have leapt up and are now standing at record highs. With unemployment rising, and likely to continue to do so into next year, these levels may well continue to deteriorate before finally improving over the next few months.

Such risk measurements are sensible and logical forward indicators and should be taken account of - especially by those too enthusiastic bulls.

***

And finally... Russian police have arrested three homeless people suspected of eating a 25 year old man they had presumably killed and then decided to sell the less tasty other bits of the corpse to a local kebab house.

"After carrying out the crime, the corpse was divided up: part was eaten and part was also sold to a kiosk selling kebabs and pies," the Prosecutor-General's main investigative unit for the Perm region said in a statement.

Suspicions were raised when dismembered parts of a human body were found near a bus stop in the outskirts of the Russian city of Perm, 1,150 km (720 miles) east of Moscow. I note that no suspicions came from any complaints from customers as to the flavour of their take away meals.

Frankly, given the odours I come across in certain kebab and pie vendors around Shepherds Bush, it is merely confirmation of earlier nervous suspicions.

Have a good week.

Justin A Urquart Stewart
Director
Seven Investment Management Limited

For previous editions of our Weekly Update, please click here

This article represents a personal and light-hearted view from Director, Justin Urquhart Stewart of Seven Investment Management Limited, and is based on current financial news and events around the world. Its content should not be used for investment purposes and you should contact an independent financial adviser before making any investment or financial decision. Seven Investment Management Limited is authorised and regulated by the Financial Services Authority. Member of the London Stock Exchange. Head office: 23 Austin Friars, London EC2N 2QP. Telephone 020 7760 8777. Registered in England and Wales number 4092911. Registered office: 3 More London Riverside, London SE1 2AQ.