CREDIT CRUNCH - A PREDICTION FOR THE NEXT 18 MONTHS

A  PREDICTION FOR THE NEXT 18 MONTHS

I’m a bit of an Armchair prediction specialist – it’s partly luck, a little insight and the fact that I have worked in large organisations and kind of understand how they operate… I thought I would commit this one to the O’l Blog!

Now, I’m no ‘Martins Money’ but I want to make some predictions as to the extent of the Credit Crunch, The UK Economy, UK House Prices and Business Results. Eyes down for a full house… Let’s see if I’m right?

THE CRUNCH

We love a good recession, we do. It’s a bit like the Blitz, all of us in the same Poo and all of us talking about a common subject of hatred. The papers have done wonders whipping up the populous to almost a frenzy and we all went a bit ‘Bargain’ mad before Christmas.

Its Pay Back Time = The New Year brings a growing Credit Card problem, retailers in peril and a stifled recruitment market. I wanted to commit a couple of predictions to these pages -  Lets see what the future brings and how lose my Guess is to the truth of the matter…

RETAIL - WHO’S GONE?

When Woolworths called in the Receivers, people queued for hours to pay for products with 10% off, when they hadn’t been in the shop for years! Funny thing, if these same people had spent £10.00 a month in Woolworths for the preceding year, the business would still be going.

That doesn’t stop the fact that Woollies had lost touch with its Customers and had no focus or direction, but they ran an Online Media Empire and supply chain that was the envy of HMV… (Virgin Records amongst their clients).  

The structure of this business was its undoing and it amazes me that the Directors did not bother protecting one business from the other – Its All Very Strange – Some serious questions should be asked about the company structure and their Auditors, who should have sighted this a potential weakness???

MFI – No wonder, struggled for the past 15 years, bought and sold, MBO’s and Mergers, the business had nothing to offer and the arrival of IKEA was a ringing of the bell… “Time Gentlemen, Please…"

RETAIL - WHO’S NEXT?

W H Smiths – Smiths have been adrift for more than 10 Years. If the over 60’s were banned from this shop, they would fold within 24 Hours. Ask yourself, what unique service or product do they sell. They are not a Stationers, nor a Book-Shop or a Confectioners or a Post Office. They are not a discount seller and every product they sell can be bought for less from elsewhere in the High Street. Good bye W H Smiths.

Boots The Chemist – This business should have already gone, but careful management, innovative Club Card deals and complete reorganisation save this business and should have been the model for Smiths. 7 years ago I would have been sighting this for demise, but I think they took enough action to shed their deadweight and look forward to seeing them in our High Street in 2011. 

Superdrug – Eeek! The funny thing with a recession is the spending habits of the Masses. Life is about what you want, not what you need. Superdrug has become a discount seller that needs a bloody good cleanup. Discount doesn’t need to mean dirty! The staff in my local store all need to wake up and have a wash, the floor needs cleaning, the shelves are dirty and disorganised, you go in for shower-gel and need a bath on exit! It’s Grim!  If you’re a shopper who washes every day, you’ll probably justify the extra 8% increase on your basket and head directly to Boots!

Next – Lucky to see out 2009. Truly a business adrift. Women’s clothing of 100% Polyester and £40 a blouse??? What planet are their management from, it’s not Planet Retail, that’s for sure!!! NEXT!

M&S – They have a very strong UK management team and where the darling of the high street 2 years ago with there per-una (or whatever) label flying off the shelves. They only need to score one very groovy summer collection and will be back as the UK’s No 1 Knicker Seller extraordinaire.

M&S SIMPLY FOODS – What? You have to wonder who sold this concept to the Board of directors??? Its not just food… No, it is just food, and selling it like Porn is not going to make us pay £5.50 for a bunch o’ grapes – they just the same as Waitrose or ASDA’s. This was business destined to fail. Sorry M&S, but it wasn’t Sexy and even your £10.00 incentives still made us feel like we were visiting a sex shop when leaving your store.

A seductively deep charming Irish female voiceover…

“It’s Not Just a Chocolate Profiterole With Pouring Creamy Chocolate, Nigela Lawson with Cheeky Chocolate Sauce Dripping seductively down the side of her huge pouting lips, sprawled on a table covered in Spray Cream”  STOP – It’s just a Pastry Roll, covered in enough calories to kill a Buffalo. Your concept was doomed, Food Porn? Overpriced and sold as Sex Objects? You’re impressing nobody!

Well, it looks like I’m a bit late with this one, M&S have announced today the closure of this business…. Not a great shock!

WHAT OTHER BUSINESS WILL BE SQUEEZED IN THE NEXT 12 MONTHS?

Every Pizza Parlour in the country must be looking at how it’s going to survive the next 18 Months… They have been getting fat (Pun intended) on what is ultimately a large slice of bread with stuff on it. I live in a town with about 250,000 other people. We have nearly 20 Pizza establishments within my delivery catchment area. To guarantee survival, you need to be either the best know, the best advertised within your area or the cheapest. That guarantees 3 businesses. The others will all have a hard fight to survive.

Recruitment Businesses – A lot of the smaller independents that have been making money in the good times are just not well enough established to survive a downturn. The market will shrink, Clients will sign up to discount Supply Contracts with a chosen few and will stop taking calls form the desperate many. The Recruitment Market will naturally thin down.

PC Box Sellers – The UK has lost several Box Shifters in the last 10 Years, Tiny being the most famous. There are still many smaller sleeker businesses left and all must be feeling the pinch. This is a ridiculously tight industry with profits already shaved to the maximum. Expect to hear of many less in the market place by 2011.

Football Clubs. Can’t tell you who but look at the Debt Burden some of these clubs are carrying… It’s not the greatest leap to imaging bankruptcies.

OK, enough with who’s going… What about the Big Boys, the Blue Chips….

BIG BUSINESS – WHAT ARE THE CORPORATE’S DOING?

Right now, in hundreds of large businesses, from the middle management up, there is a mild form of personal panic. A Huge number of over mortgaged middle managers are sweating beads wondering if there job is safe.  Back from the Christmas holiday, they have had enough time to reflect and will either have a plan to make themselves indispensible or will be looking to find a ‘new challenge’.

The Head of HR has been looking at (Sorry to say this out loud, but…) Dead-Wood. The individuals who are least productive, least popular or the poor sods who are easiest to replace. Redundancy notices will be issued to the Department Of Employment and the staff concerned will be notified. Some have already taken a cut in salary (See the IT contracting community in London – 10 to 15% reduction in fees) and those lucky enough to survive will look hard at cost cutting, supplier fees and billing.

The head of accounts will be looking at all those ‘nasties’ that have been lurking in the books for years. Failed Projects, Incomplete purchases and buyouts, Losses and Write Offs, R&D flops, etc. All will be brought to the fore and described as Exceptional Losses and ‘difficult trading conditions’. It’s a funny thing, but this dip has given a myriad of business the ability to lose staff, write off old balances and have bloody good internal cleanup.

We will have to suffer every PLC making the most of this Profit Amnesty and declaring at least one full set of bloody awful accounts. Expect a shower of Dividend warnings (for any of you investors) and a much lowered income for the retired investor.

BANKING – Expectations?

The Retail Banking Sector will relish the thought of cleaning house and using the next set of accounts for getting rid of a huge pile of Debt-Poo… Goodbye Bad investments, Hello sexy new clean and shiny books for 2009-2010. Needles to say, frontline staff and middle management will face the threat of redundancies and job losses.

THE UK ECONOMY

As noted above, the FTSE will remain in really gloomy numbers for at least the next 9 to 12 Months. Commercial Property will remain vacant, the High Street will look depressed, and it will appear that we have reached and excelled the depths of 1991. This knock will continue to effect consumer confidence and spending.

But that’s just a short term view. Later in 2009 the FTSE will pick on the strength of promised results, businesses that slimmed will show quarterly improvements and the Banks understand that the Profit Amnesty will not be tolerated long into the future. After all, the Government needs to show a return on investment and these Government part owned banks (See RBS) will be under great pressure to turn this around quickly!

The recruitment market will be depressed for the first 6/9 months of this year but will settle (with high unemployment) into the last quarter.

Interest rates will settle around 1% by the end of this year and by Christmas 2009, the future will be looking a little bit brighter.

HOUSE PRICES

I think we all have to accept the fact that prices are going to continue to fall – but I do think that the rate of fall will slip to no more than 1% a month. I would imagine that by October this year house prices will be 8-10% lower than today. However, I would also expect that the average price will settle and may even increase in November, a trend that will continue steadily (although tentatively) through 2010.

SMART MONEY MOVERS AND SHAKERS

Most people with savings have a new distrust and distain for the Banking Sector. This makes their shares especially tempting for the brave few. Buying with a view of 5 to 10 year returns would appear like a sound investment while the market is depressed.

Property prices must be set for an eventual almighty increase as we still have a massive shortage of property in the UK. I would imagine the bargain hunters will be using the summer holidays scouting for a potential steal in August and September. But the art of these investments remains balancing Risk V Timing – You can be sure that there are some investors is already narrowing a potential investment portfolio and is constantly monitoring the numbers so they know when to jump back in. 

Sadly, no investment house I know of takes shirt buttons, so I’ll just be predicting and not buying. After all, if I were a hard core investment specialist, I wouldn’t share this information on a Blog, I’d be selling it!

DISCLAIMER

NB: Any investment made on the information noted above is at your own risk. Remember, any investments, interest rate, TV ratings, aeroplanes, political popularity, knickers, May go Up as well as Down. Always read the label, Wash at 40 Degrees, Do Not Dry Clean and for the love of god, if you lose a fortune based on any comment I have made, do come back an tell me all about it – I could do with a good laugh!!

Grumpy!