Do As I Do, Not As I Say

A work post. Terribly dry and boring, but then I am a terribly dry and boring person. Try to stay awake if you can please…

There’s been a heck of a lot of talk recently about governments and consumers getting into a mighty big mess because they’ve sold their countries’ souls to the Devil and borrowed to fuel a mighty spending binge. Our average entrepreneur Joe Shmoe has mortgaged his house up to the hilt in order to fund the photography business of his dreams, and now that the Great Recession is here, he’s hanging on by the skin of his teeth.

But wait just a dar-gone minute, Mr Shmoe before you throw in the towel, dissolve your company and hand your keys back to the bank. Soon, very soon, you will surely reap the rewards of your follies. That $40K studio refurbishment with fluffy blond assistant, hot-tub and 50 inch plasma screen that you borrowed and guaranteed against your home was actually a mighty fine idea. No matter that your company is on the brink, your fluffy blond assistant has deserted you because you haven’t paid her for two months and the water company has cut off the water supply to your hot tub. Hang in there Joe! You were right to splurge on credit cards so you could fund expansion of your fabulous photo business. Oh yes you were. Now please do take a moment out from hiding from the bailiffs and let me explain why.

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I love these back shots - this one's above my bed

Many moons ago when I was a very green junior accountant, one of the very first things we were taught was that debt is cheaper than equity. It’s amazing what rubbish they teach accountants nowadays isn’t it? Small wonder that the world is in such a mess. Anyhoo the truth is that debt finance is actually safer from a lender’s point of view. Debt is cheaper for two reasons. Firstly, because debtors have a prior claim if the company goes into liquidation, then that debt is actually safer and hence debt investors demand a lower rate of return than equity investors. For your company, this translates into an interest rate that is lower than the expected total shareholder return on equity.

Second, interest paid is tax deductible (unlike equity dividends) and a lower tax bill effectively creates cash for the company. Not only does interest have to be paid before dividends, but also arrangement costs are usually lower on debt finance than equity finance and once again, unlike equity arrangement costs, they are also tax deductible.

Are you lost? O.K. Well, let’s consider an example (Caution! Basic accounting theory may result in boredom-induced-coma – do not attempt without a glass of chardonnay – it all makes more sense after alcohol, I promise):

Consider if you run a small photography company and you need that $40,000 loan to bail you out, keep you fed and pay the rent for your shiny new studio. Now let’s assume in our wildest fantasies that your bank would actually agree to help you, then what are your options? Well, you can either take out a $40,000 bank loan at a 10% interest rate or you can sell a 25% stake in your business to your neighbour for $40,000. Then suppose your business earns $20,000 profits during the next year (pushing it, I know, for a photography company, but bear with me.) If you had taken out the bank loan, your interest expense (cost of debt financing) would be $4,000, leaving you with $16,000 in profit. Conversely, had you used equity financing, you would have zero debt (and thus no interest expense), but would keep only 75% of your profit (the other 25% being owned by your neighbour.) Thus, your personal profit would only be $15,000 (75% x $20,000). So from this example, you can see how it is less expensive for you, as the original shareholder of your company, to issue debt as opposed to equity.

Voila! Debt is cheaper than equity (mostly.)

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But what if you have been very wise, saved steadily all your life and you now have a spare wad of dosh and you don’t think it’s the wisest option to stuff it under the mattress? What do you do with your life savings in order to keep your nest-egg ultra-safe and support you in your old age?

Well, whatever you do, don’t give it to the banks 'cos they’re all going bust (plus they give a terrible ROI nowdays) and if you entrust it to your professional investors then (unless you use Stephen's) most of them will charge you stupid rates of commission and probably use it to buy into a “multi-level debt instrument” which is gobbledegook for them squandering your dosh on any high-risk endeavour they fancy, and BTW there’s no guarantee that you’ll get your money back (I used to audit some of these investment companies – believe me, many of them just wanna have fun gambling with other people’s money –it’s great work if you can get it. ) Of course you could give your money to a nice sensible pension scheme instead but that’s just another way of giving it to exactly the same reckless financial advisers to blow howsoever the mood takes them.

So what options do you have left? Well, you could always be saintly and pay off your debts, but then you would be a numpty because the way our governments are going to get out of this ghastly mess they’re in is to borrow and mortgage our countries to the hilt and then “print money to service the debt and use inflation to run it down.” So why not be like the government and spend, spend, spend? After all, what’s the worse that could happen? You go bankrupt. However in the UK the new bankruptcy rules mean that you get to keep “essential items” like that plasma t.v. and hot tub that you borrowed for so recklessly on your credit card last year, plus your debt will also written off after a year and you can then go carry on with life as normal.

Think I’m kidding? Sorry, but no. This is exactly what a friend of ours did. Boggling but true. He didn’t get to keep his fluffy blond assistant though – she still left him. Mind you I don’t think he cares that much – after all he can watch “Who wants to be a millionaire?” on a very cool 50 inch plasma from the comfort of his hot-tub.

It’s a strange world isn’t it?

Now…where’s the phone number of that hot-tub company again?

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All images are of Roswell Ivory

Fiddling While Rome Burns

Yesterday our Government announced its pre-budget report. Basically we’re going to stave off the recession by borrowing and spending our way through it. UK National debt is going to double to £1 trillion, and taxes will inevitably have to rise to pay for it - not until 2010 though, so Uncle Gordon says not to worry, let’s spend, spend, spend while we can. It’s for the good of the economy you know. Borrow and spend for Christmas, happy in the knowledge that you’re supporting your fair nation! Your country needs you!



The British media isn’t buying this one jot, of course. It won’t make any difference what the Government does. People will refuse to spend because they simply have no money. In some ways the British people rather like recessions. It’s seen as good for the soul, a way to demonstrate that national fighting spirit and British stiff upper lip that you hear so much about. Magazines and newspapers are full of articles telling us that austerity is good for the soul, how to rediscover traditional family values, how to bake cookies to save your marriage, dig for victory (no, wait, that one was a while ago now.)

To be honest this saintly attitude is really starting to grate. I’m fed up to the back teeth of being told I should purge myself of consumerist cravings. I’m not allowed to enjoy shopping any more. Retail therapy is seen as a cardinal sin anywhere, even in yummy mummy circles. No-one is permitted to buy anything. Thrift is the new style. No more ladies who lunch; now it’s budget biscuits and the horrors of instant powdered cappuccino (bleh!) at each other’s houses, where we earnestly discuss the best ways to darn your kids’ school blazers and how great the school second-hand shop is (to be fair, I practically live there.)

Oh give me a small break. Men might be genetically predisposed to “hunt and kill” as part of their leisure activities (and for the Love of God, let’s not go there again) but we females are wired somewhat differently. Many anthropological studies of primitive societies (both in modern day and from studies of our ancestors) have shown that the female gender is predisposed to gathering of food and resources. Throughout history, families have depended on womens’ ability to supply food and clothing for the family’s sustenance…the latest delectable root, the tastiest berries on offer at the latest supermarket. Yes indeedy, we busty stone-age laydeez have a natural talent and predisposition towards sniffing out a quality bargain. For the last 10,000 years that is what we have been trained to do: Shop till we drop.

All this is building up to me going on a major blow-out Christmas shopping spree. You can tell, can’t you? I can justify anything if I put my mind to it (one of the benefits of legal training.) Truth be told, austerity might be good for the soul, but it’s as boring as hell. Squishing my inner consumerist is not making me a better person, it’s going against my very nature, not to mention upsetting our dear Uncle Gordon (who desperately needs my shopping addiction even more than I do.) Uncle Gordy knows that I am genetically hard-wired to go forth and gather valuable resources for my family. Preferably pretty, sparkly pink ones, wrapped in shiny Christmas paper.

I refuse to deny who I am. It’s a matter of survival. My family and my country depend on me to provide for and sustain them. Time to go wild! (with Rich’s credit card of course. I might be shallow, but I’m not totally stupid.)

Gone shopping…See ya later.

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Stone Age Mama hits the shopping malls in style. Scary, no?

Later: No good. Couldn’t do it. Damn and blast this conscience of mine! I blame Charles Hugh Smith, whose latest blog post I made the colossal mistake of reading over morning coffee just before I embarked on my shopping extravaganza. Nothing like reading about our impending world doom to dampen that festive shopping spirit! Methinks Uncle Gordy could learn a thing or two from Charles. He’s utterly brilliant (Charles, not Gordon.) Read him if you dare.

Boom, Bust and The Seven Cows

Various friends have written to me regarding the recent financial turbulence and have asked me for my view on what I think will happen. Well, sorry guys, I’m no prophet. No-one can see the future.

Right?

Then Pharaoh said to Joseph, "In my dream I was standing on the bank of the Nile, when out of the river there came up seven cows, fat and sleek, and they grazed among the reeds. After them, seven other cows came up—scrawny and very ugly and lean. I had never seen such ugly cows in all the land of Egypt. The lean, ugly cows ate up the seven fat cows that came up first. But even after they ate them, no one could tell that they had done so; they looked just as ugly as before. Then I woke up."

Then Joseph said to Pharaoh, "The dreams of Pharaoh are one and the same. God has revealed to Pharaoh what he is about to do. The seven good cows are seven years, and the seven good heads of grain are seven years; it is one and the same dream. The seven lean, ugly cows that came up afterward are seven years, and so are the seven worthless heads of grain scorched by the east wind: They are seven years of famine."

Genesis 41 - Pharaoh's Dreams

Previous empirical analyses of U.S. stock index prices show overwhelming evidence of a seven-year wave in the stock market that is part of the overall economic cycle. This cycle is synchronized with the widely known Kondratiev wave that is thought to be fifty to sixty years in duration. The economic cycle runs through four main stages on about a seven year cycle. It goes boom, bust, stagnant, recovery and then repeats ad infinitum.

The economy last hit rock bottom in November 2001. Despite the amazing global economic expansion since then, seven years later (give or take a month or so) here we are again.

According to the economic theorists, this would now put the recovery at around 2015, which by sheer coincidence (?) is what Suze Orman (whom Stephen called the “seer of seers”) predicted in an unguarded moment.

Seven good cows, seven bad.

Who says the Bible can’t predict the future, eh?

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Amy

And that’s the last I’m saying about money matters for a while. Many of you will no doubt be relieved to hear it.

(BTW, in case anyone is wondering, no I'm not religious.)

Money Mayhem

What has a front has a back. The bigger the front, the bigger the back.

Macrobiotic theory

Sorry folks, no photography today. I know, I know, this is a photography blog, not an economics blog. However I’m a money-woman by trade, so I’m just sitting back today and watching the financial world collapse around my ears. So far the FTSE 100 has fallen 5% today. The Dow Jones is about to open. Things are going to get pretty nasty.

Hot on the heels of Fred and Fannie, Lehman’s could be enough to trigger a catastrophic economic collapse, similar to Black Thursday which triggered the start of The Great Depression. Am I being overly alarmist? Well, that rather depends on how the US Government reacts to this latest crisis.

Barack Obama commented that the Lehman bankruptcy posed "a major threat" to the US economy. Of course he blamed the Bush administration's economic philosophy and said, "This turmoil is a major threat to our economy and its ability to create good-paying jobs and help working Americans pay their bills, save for the future and make their mortgage payments." No kidding, Barack. Really? So how are you going to fix it, eh?

One thing’s for sure, the fallout from this ongoing financial turmoil will be huge. Socially, financially and politically, the world will never be the same again.

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Althaia contemplates the latest banking collapse

Furious about Fuel

Petrol (that’s gas to you Yanks) is set to tip £1.30 a litre this week. That’s approximately $11.70 USD an imperial gallon in US-speak. Gulp!

As my favourite economist Merryn Somerset Webb wrote this week, each litre of petrol sold in the UK is taxed at a flat tax of 53.65 pence per litre (for US currency, that’s $4.83 USD per gallon) which is one of the highest fuel taxes in the world. On top of that, we also pay VAT (sales tax) of 17.5% when we buy fuel, not just on the cost of the aforesaid fuel but on the tax too. So we pay TAX ON TAX! Of course, we are paying out of income which has already been taxed twice (income tax and national insurance, which isn’t insurance at all, it’s just another tax.) So how many times has my tank of fuel been taxed? Three or four? (I’m losing count.)

In the UK, people are cutting down on car trips, and in rural communities such as ours, people can’t afford to heat their homes. That’s O.K. at the moment because it’s summer, but what happens when winter bites? Last month our village was riddled with thieves stealing heating oil from domestic oil tank stores. People are getting desperate.

Fuel costs are affecting folks all over the world, of course. Everyone is suffering, so we’re not alone. And it’s causing food prices to rise too. Our major supermarket Tesco is rationing rice this week - in the U.K.!?! Astounding. But everyone knows things are getting bad. This is not news. This is reality, and as the saying goes, deal with reality or reality will deal with you.

So what does this have to do with photography? Well, the oil situation probably might not affect many of you yet, but for us personally, like many other U.K. photographers who shoot for fun, we have young to feed and we’re perilously low on dosh. Putting it bluntly, we are self-employed, and we fund Fluffies from our spare cash. We do it 'cos we love it, and we adore making art (or trying to make it anyway.) As it stands today, we have two more shoots booked. After that our photographic reserves run out, and there will be no more new nekkid chix gracing this blog unless some kind laydeez decide to lend their beauty for the higher purpose of creating Art. Failing that, you’re stuck with my ass, I’m afraid (the rest of my body has left the building.)

Oil is predicted to top $200 a barrel by Christmas. As Starbuck from Battlestar Galactica says, “We’re completely fragged. Where’s it going to end?”

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More Alexis from a couple of weeks ago.

An economic fashion post. No nudes either. Yikes! Grim stuff.

In case you’ve been wondering what on earth has happened to the blog this past week, I’ve been celebrating a week of economic and artistic doom and gloom. Yes indeedy, recession fever is hitting the UK pretty bad at the moment. Economic statistics are miserable, our Prime Minister is miserable, the unwashed masses are broke and miserable, and most importantly, fellow photographers and artists are universally and extremely broke and miserable.

This nationwide aura of gloom will undoubtedly be reflected in all areas of society and art. Despite the fact that photographers and artists tend to go for the Te audire no possum, musa sapientum fixa est in aure approach (I can't hear you. I have a banana in my ear,) nevertheless it’s inevitable that wider economic worries affect artists’ moods. The tendency at the moment is towards dark art (hurrah! My favourite!) and I suspect this sombre trend will be reflected in most areas of art, including writing, painting, photography and even in the world of high fashion and couture. So you might well be feeling colourful and summery now, but having had a peek at the winter fashion collections in Vogue, I can honestly say that doom rules. Severe cocktail dresses, tailored suits, sharp conservative attire, all in varying shades of black (with a teensy bit of white ruffles.) It’s like the catwalks have been taken over by the cast of Ally McBeal. Everyone looks like lawyers or accountants.

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Rowena acting all prim and proper for the Winter Collections

Art reflects not just current styles, but also how we feel and what is going on in society. Leatrice Eiseman of the Pantone Color Institute has noticed that when folks become more concerned about the state of the world, they become more conservative in their tastes. She thinks that wearing sharp and stylish black clothing makes people feel more in control, more empowered. This makes sense. As a colour, wearing black shows you are taking life (and your planet) seriously. Black is sober, practical and makes the wearer feel more intellectual. It shows society that you are sensitive to the problems in the world and that you dress accordingly.

The old adage is that if you want to know the imminent economic fate of the world, then look at fashion. Like other artists, fashion designers are the ultimate psychics. It has always been thus. Coco Chanel designed the iconic little black dress just before the 1929 economic crash, the drab punk look evolved just before the 1970’s oil crisis, and the Goth movement (ah, fond memories!) developed just before the 1980’s UK recession and property market crash.

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Genuine bona fide Goth model from the Scott Church workshop. No idea who she is, but we call her Elvira

When times get tough, people want clothes which are austere. They want dark colours and classically cut clothes that are going to last several seasons because they won’t have much dosh to throw at their wardrobe. I could be wrong, but I also think this could be a moral reaction to the last ten years of spend, spend, spend. The winter fashion this year may well precede a full-blown consumer backlash due to the proles’ growing revulsion against excess, waste, consumerism and cheap 'n' tacky Chinese imports.

Fashion design, an art-form in itself, is getting sombre on us all. It is a psychological mirror for the masses. Expect both your art and your wardrobe to be very dark indeed this Christmas.


Looking on the bright side: For a boring old accountant like myself, after a lifetime of having the fashion sense and style of a hairy warthog, for the first and only time in my life this winter, I can at last realise my dreams and be a trendy fashion icon!

Hurrah! Bean counters rule the world!

Standing At the Helm

Sorry about yesterday’s wallow in doom. I don’t know what came over me.

Sheesh.

It's unlike me to be so maudlin.
(To those of you who missed it, count your lucky stars.)

The economy forms a large proportion of my day-job, and I guess being constantly soaked in negativity can really kick the crap out of me sometimes. Yes the world economy is in a nose-dive. Things are going to get really, really bad. Even more reason then for me to concentrate on making this blog an oasis of escapism and positivity (for our own sanity as much as for you folks.)

An accountant’s job is to stand at the helm of the ship, and steer her business (and blog) through the choppy seas, and bring them both safely out the other side. Yesterday I guess I temporarily fell overboard.

In future I promise to try to refrain from talking out of my ass, and concentrate on having a bit of fun.

Why the fate of the world rests with Ohio

So it’s Hillary for president then.

At least that’s my outside bet. But hey, what do I know?

Well, I’m an accountant, so my reasoning is mainly financial. (Yes money is boring, but I’m boring, so live with it.)

The US is in recession.
Yes, it is.
I’m sorry for all you die-hard optimists, but please let's all just get real for a moment.

The U.S. lost 63,000 non-farm jobs in February, the biggest drop since the start on the Iraq war, and overall, the private sector shed 101,000 private sector jobs in January alone. And there’s no end in sight either. Inflation and the general economy are worsening. When people are broke, they can’t pay their mortgages, which means more pain for banks, who in turn are more reluctant to lend money and when they do, it will be at a higher rate, which in turn means less dollars all round. And as the US stops spending, so the poor starving Chinese citizen will end up losing his job too, as US imports will also decline dramatically over the next year.

The eminent economists Ethan Harris and Jody Clarke predict things will get gradually worse, both inflation and unemployment will continue to rise, despite the Fed continually cutting rates, and the end result will be negative growth by the end of May.

Forget about the war, after all, no-one’s talking much about Iraq any more. All talk is of money and how it affects the average US citizen. In particular, please spare a thought for all those blue collar workers in the depressed US manufacturing heartland (N.Y. Pennsylvania, Ohio and in-between), who are feeling extreme pain in their wallets. Life for them is unrelentingly grim at the moment. Their jobs are being increasingly outsourced to India and Taiwan, and many of them are starting to blame the North American Free Trade Agreement (NAFTA) for their misery.

Enter into this gloomy scene the immaculately coiffured, blond haired witch, who will make it all disappear with a zap of her magic wand…hurrah for Hillary! She’ll swoosh in on her broomstick to save the day.

Barack lacks economic experience and he's dodged the NAFTA issue completely, but our future Madam Prez Hillary, saviour of the morally upstanding white proletariat worker, has pledged to renegotiate the same treaty that was once championed by her husband. The result? Ohio and the other swing states (once Bush devotees) are now so desperate for change, for hope, they will fall under her evil spell. Muggles beware!

Not convinced? Need another reason?
Well, it is popular knowledge amongst political analysts over here that however Ohio votes, the world follows.

Of course I could be wrong about US politics, and let’s hope I am. But if The Grand Sorceress is indeed ruling the world this time next year, then you can be sure I’ll be blaming everyone in Ohio…

A Perfect Storm

At the high risk of annoying my beloved Don, I must regretably report that Morgan Stanley is the first bank to issue a full blown recession alert for the US, warning of a "perfect storm" for consumers as the housing crisis spreads.

In a report "Recession Coming" released yesterday, the bank said the credit crunch had started to inflict some serious damage on US companies, resulting in a sharp slowdown in business investment. It predicts that the Fed's interest rate cuts are too little, too late, and that a recession is inevitable.

The "R" word makes Don and I argue. Oh dear. I really do hope that his fluffy economic view of the future is right, for all our sakes, but for now I remain firmly Chicken Little. In the meantime ladies and gentlemen, place your bets.



I resolved not to blog about economics any more. Clearly I blew it.
Here's Lou-Lou, ready to beat us pessimistic economists into submission.