So we await The Chancellor’s announcement on growth this week. It’s important that Boy George does not just spend his time blaming the previous incumbents and playing politics. I can’t be the only one bored with the school yard bickering in the House of Commons; which seems to be a series of repetitive, vacuous lines trotted out just for the media sound bites.

He should rather be looking to inspire the country and emphasising that we could in fact make some positive progress – Britain, although damaged, is certainly not doomed. Following that, he must lay out a credible means of getting growth going. There are of course many of the tax issues I have discussed before, whereby negative and regressive taxes could be swept away with little cost (like Stamp Duty on property transactions for example) and which in my view would encourage a greater spending and movement of money through the economy.

However, a separate key area is that of bank lending and the cost of borrowing. The Bank of England believes that the Quantitative Easing in 2009-10 probably reduced marginally the “risk free interest rates” or gilt yields. Technically interesting (if true) but that would have been of little help or solace to the majority of company borrowers, as their commercial rates would have been very different from government rates.

Under Project Merlin the banks signed up to lend a given amount, but this was never going to really succeed unless you also define at what margin. Many banks claim to have been lending more, but some have been counting the rolling over of old or renewing facilities as new loans – which is bending the rules somewhat, in my view. However, the message I hear back from middle company Britain is yes, some are being offered funds “but not at that margin or with those arrangement fees” and others may have had their facilities renewed but at a higher cost. That is to say then, that anything QE may have done to the gilt yield has provided no benefit to the vast majority of potential company borrowers.

In fact as banks have become risk-averse, margins and fees seem to have risen and it seems lending to private non-financial companies has fallen. So did QE really work – by which I mean did it have a real effect in the commercial market? I think the answer is probably no. However what I can’t answer is what would have happened if the BoE had not tried QE at all.

In my travels around I am not finding many companies teetering on the edge; rather ones who have adjusted to the straightened times and are surviving. Some are even doing quite well – but not as well as if they had had further access to finance cash flow support from the banks. I just don’t think the politicians get it! Perhaps it’s because most of them have never worked in business or had the chance to experience the risk, the fear and excitement of running a real company. I would say that perhaps they should get a life but actually perhaps I would be better to say “get a job – or at least a proper job”.

So rather than just carping, what about some more constructive thoughts? Well I would go back to the idea of increasing the lending scheme by guarantee, but this time not through the banks, who have seem most reluctant to operate this. Better, then, to go directly to the accounting corporate advisers who often have a far greater relationship and knowledge of their company clients than the banks. It seems strange because in the past, this was the relationship that the bank used to have with their company clients. So it is the banks that have changed, not just in terms of product and service but also in terms of personnel. Where are the corporate bank managers and directors who could read a balance sheet, understand trade terms, both domestically and internationally, and evaluate risk? Answer – that layer of management was stripped out and retired. Thus not just the people but the expertise was removed. Mr Chancellor you are talking to the wrong audience – bypass the banks.

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So it’s been 25 years since Sid was “told” to go and buy British Gas shares. It was a brilliant advertising campaign made all the more ingenious by the fact that it was and still is illegal advertise the buying of shares. However, of course if you are the government I suppose you can get away with anything! My lasting memory actually was one of complete and utter confusion. Only the year before, we had been through Big Bang (when new investment had been allowed in to break the traditional cartels of the stockbrokers and jobbers), and quite rapidly the trading floor was emptying as the majority of deals became electronic, or at least phone based.

The main problem was that the leading lights of the London Stock Exchange were dazzled by the new speed of trading and flashy screens, but failed to consider that nearly all the trades were to be settled with paper share certificates. The result was an avalanche of paper and a settlement crisis that required a Gordian knot solution. To this day I strongly suspect that there are unreconciled settlement accounts within various stockbrokers who ended up having to estimate the number of shares that they were trying to deliver for settlement. Black bin liners were purchased along with brown tags to write on the professional phrase of financial diligence and accuracy “thought to be in the region of 100,000 shares”. I was also able to witness an open back truck driving down the Embankment in London with more black sacks loosely tied up, and a glorious sight of share certificates being blown out of the back of it and drifting down onto the pavement. Yes this was a truly electronic market – it had short circuited!

As for Sid, he did rather well, and got three companies for the price of one, with National Grid, Centrica and BG, all of which would provide a healthy profit along with some decent dividends. No such luck though for Railtrack shareholders. A good reminder that shareholders are there to take the risk in the hope of some return. Bank shareholders should remember that now. There is absolutely no reason why bank shareholders need any bailing out. We may need the banking system, but you may not need the banks themselves. If the politicians had had the courage of their convictions (now there is a good term for some of them) they would have carried out some dynamic surgery on RBS three years ago, and we might have a more functional bank now.

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Oh yes and speaking of convictions, why do we allow convicted felons and to sit in the House of Lords? And don’t believe the tripe about Lords being unable to to lose their seats and titles. Parliament has primacy over all law, including the Lords.

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And finally… I am grateful to my friend and past colleague Anthony Peters for this glorious commentary on the calibre of intelligence in our industry.

Albert Einstein dies and goes to heaven only to be informed that his room is not yet ready.
-”I hope you won’t mind waiting in a dormitory for the time being, which you’ll have to share with four others,” said St Peter.
-”Zat is absolutely no problem at all” said the affable Einstein.
St Peter led him to the dormitory where he is introduced to the current inhabitants.
- “Here is your first roommate. He has an IQ of 180″ said St Peter.
-”Zat’s wonderful, ve can discuss particle physics!” said Albert.
-”And here is your second roommate. His IQ is 150.”
-”Zat’s wonderful too, ve can discuss cosmology!” said Albert.
- “And here is your third roommate. His IQ is 120.”
-”Vunderbar! Ve can discuss Newton and his theory of gravity!” said Albert.
-”And here is your last roommate but I’m afraid his IQ is only 40.”
Albert smiles benignly at him and says, “So, vere do you think ze markets are headed?”

Frankly I think 40 is a bit generous.

Have a good week.

Justin A. Urquhart Stewart
Director
Seven Investment Management Limited