EXCLUSIVE: The real economic outlook, from the insiders.

If you want to know the way, ask a policeman.



Sometimes, just a few opinions and actions from the Elite are enough to tell the sharper end of the commentariat what’s really likely to happen. For these are the people trying to keep law and order in the Wild West of speculative capitalism. And if there’s going to be a riot, chances are they’ll be the first to know.

Late last year, publicly the Treasury advice to investors was to get behind the Stock Market and accept that there would be low bank interest rates for some time to come. At the time, The Slog posted to the effect that this was somewhat specious advice – obviously designed to suggest a market bull-run was on the cards, and that the Bank of England was on top of the situation.

The closest thing to the horse’s mouth on such matters of insider reality is indeed the Bank of England. So it is instructive to look at what the Bank’s own pension fund has been up to. (There are a staggering actual and potential 13,280 BoE pensioners. The fund is worth £2.4 billion, and the average pension is an eye-popping £168,400. Nice work if you can get it…but nowhere near the Civil Service fund at £1.3 trillion).

While Alistair Darling was desperately talking things up way back in March 2009, this was the pension investment strategy actually in place inside the Bank:

‘the Trustees made a fundamental change in investment strategy, as a result of which the Fund’s assets are now predominantly invested in gilt-edged securities; that conservative gilt reorientation saw the fund up considerably this year, in a period in which other pension funds have been decimated’.

Perhaps a tad too much triumphalist crowing there (dodgy Government finances = rising gilt yields) but basically, BoE fund managers were telling the pensioners to stay out of the stock market and bet on inflation. They are giving them exactly the same advice today. That is, more rising bond yields, stay well away from equities, and don’t bank on an economic recovery.

Let’s face it, the more parlous Britain’s position is, the more Merv stands to benefit. Now that’s what I call a Hedge Fund.

But these aren’t the only clues available. Scanning the money pages over the weekend, I noticed a small piece dropping a big bombshell: from April this year, those on UK drawdown pensions will only be able to draw 100% of the annuity equivalent – as opposed to the longstanding 120% which (with assumed growth) was once the norm. Further, the DWP will now have the right to monitor such withdrawals every three years, rather than every five.

Governments don’t pull this kind of stunt for fun. Even though the libertarian in me says it’s none of their damn business as long as I’m not in debt, their point is obvious: they want to keep the minimum number of people from needing State old-age care.

But to reduce the maximum by 20% is draconian…as is the review period cut of 40%. It suggests that they don’t expect much fund growth and they expect people to be wanting more of the pension drawn off each year. Or put another way, stock market crash alongside rising prices: just what we wrinklies need after three years of zero interest rates.

When you consider that at the time of the 2008 nonsense, banks were allowed to trade with just 1% of their total liabilities held in liquidity, this degree of monitoring of the private citizen is, to say the least of it, a bit of a cheek. But beyond Whitehall, the signs from others with things to hide are just as disturbing.

Last week (I can exclusively reveal) the hugely successful Blackrock investment outfit was doing the rounds of fund management professionals. In private sessions with senior clients, they were openly admitting the view that both Portugal and Greece would default before the year end. They further expected a euro crash, and regarded complete loss of faith in the  eurozone as ‘highly probable’. Inflation, they felt, was now the big enemy in both the UK and Europe.

Not only does this reflect the implied view of  government outlined above, it has since been borne out by a number of events. The UK’s inflation rate (driven almost entirely by import costs from a weak Pound) has increased to 3.7%; and several reputable news agencies are quoted as saying that Jean-Claude Trichet’s new obsession is inflation. (Given the junk-bond purchasing of his ECB, this is hardly surprising news.)

Further afield still, fears about European inflation are also affecting commodity prices. “Amid fears of inflation spreading to the developed countries, based on previous trends and research, commodity-based stocks will always benefit from rising inflation” said Janson Nasrial, an analyst at Amcapital Indonesia. As the Shanghai Composite slumped 3% to 2706.66, Nader Naeimi at AMP Capital Investors opined that

“Worries about inflation will be an ongoing issue throughout this year. Authorities still have plenty of ammunition to fight inflation, but pressure on interest rates will act as a constraint on the economic performance of some countries in the [European] region.”

And then there is one’s own circle of friends and contacts. Said a top UK-based wealth management executive to me yesterday:

“Anyone with no investment in gold has his head in the sand. As far as we’re concerned, that and vital commodities are the only way left to protect your wealth. Other than that, it’s a question of waiting until the coming FTSE collapse bottoms”.

It is too easy to dismiss all this as doom and gloom. Five years ago, most people I knew thought my pessimism unwarranted. Today, if they still do, they no longer say so. There may be all kinds of reasons for that, but as ever The Slog is built on evidence, analysis and observation – not wild theory.

If it’s impossible to find a journalist who thinks Andy Coulson is innocent, he probably isn’t. If the LibDems leave PR as a deal-breaker out of their manifesto, they’re probably not committed to it.  If Bob Diamond’s actions contradict his words, he’s probably  a liar.

And if the BoE pension fund is in disaster scenario mode, the fund managers and senior bods probably expect disaster.