Money for Nothing!

How about earning something for nothing? Well if you are a British bank then it seems that you can! Following on from the frustration that many have expressed at the lack and depth of bank lending, my colleague Peter Sleep has uncovered an excellent graph which perfectly illustrates where a good proportion of bank cash is currently being hoarded!

You will see from the chart that there is roughly a balance of some £40bn usually kept by the banks in The Bank of England held as a form of special reserve account. On this they receive an uninspiring but quite reliable rate of interest of 0.5%. However, since the banking crunch the amount stashed back with the “Old Lady” has now rocketed up to something in excess of £150bn. As the one year Government Gilt is only yielding 0.35%, it is thus more cost effective to just leave it with The Bank of England with no risk and
without the fear of having some awful borrower not returning it. So it is hardly surprising that many banks aren’t lending so much when you really can get something for nothing. However, this may well, and probably should, change as The Bank could make their own deposit rates negative for the banks - thus they will have to pay for the privilege of keeping their money there.

Even if this does happen I wonder how much will really change?

Rather oddly the largest car manufacturer by volume of cars produced, listed on the London market is Manganese Bronze, the maker of the classic London cab. This national icon must be as synonymous with the UK as those deeply unpleasant tourist models of the Houses of Parliament. Although known throughout the world, it has never really been able to properly be exported with any success. I am told a failed foray into the US disappeared down one of New York’s famous potholes.

At a cost of somewhere between £30-40,000 these are not cheap run-abouts and in the recession not unsurprisingly demand has dramatically fallen over the past year by some 40%. However, there is now another attempt to try and make the most of this brand with greater overseas sales. A failed Chinese linkage back in 2002 achieved nothing but now a new Chinese shareholder, Geely, has entered. With a joint venture, Shanghai LTI, production has finally begun in China with the aim of selling around 1,000 vehicles domestically in the next year - and thereafter to start more aggressive exports. They will be sold at a much cheaper production cost (£11,000 I am told although sale price would presumably be higher) to potentially all other areas - with the exception the UK. So if you feel like a full and frank view of the state of the global economy with your driver, can I suggest this as an opening statement - you may however not reach your intended destination although he will no doubt tell you where to go.

The key question is whether cabbies around the globe want a higher value premium taxi in preference to the dull reliability of the ubiquitous Nissans and Toyotas that populate most Asian ranks? If it can achieve the ruggedness and reliability of a Land Rover, but with the lower cost base of Chinese manufacture, then just maybe this British badge can get a well deserved polishing.

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And finally... a story which I am told is true and certainly deserves to be has come to my attention. Mrs Merv Grazinski, a good citizen of Oklahoma City, Oklahoma, purchased new 32 foot Winnebago motor home. On her first trip home from a football game, she drove on to the freeway; she set the cruise control at 70 mph and calmly left the driver's seat to go to the back of the Winnebago to make herself a sandwich.

Not unsurprisingly, the motor home left the freeway of its own volition, crashed and overturned. Somewhat more surprisingly, Mrs Grazinski sued Winnebago for not putting in the owner's manual that she couldn't actually leave the driver's seat while the cruise control was set. The Oklahoma jury awarded her $1,750,000 PLUS a new motor home. Winnebago actually changed their manuals as a result of this suit, just in case Mrs Grazinski has any relatives who might also buy a motor home.

Have a good week.

Justin A Urquart Stewart
Director
Seven Investment Management Limited

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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.