Just when I am thinking of writing something different after last week’s topic of ageing baby boomers, the Office for National Statistics releases a flood of new information http://www.statistics.gov.uk/CCI/nugget.asp?ID=6 It seems that the oldies are now in the majority with more people over the age 60 than under. I am not quite there yet but having grown up with so much emphasis on youth, this is quite ironic. I see what were the “teddy boys” of the 50s and 60s still doing their stuff on the dance floor at ceroc on Tuesday evenings where you will find me at Great Portland Street http://www.ceroclondon.com/new_page_7.htm. What started off as French Jive 25 years ago, has developed into its own genre and of course is a great way to keep healthy and much more fun than the treadmill at a gym.

One saving grace for the population numbers and structure is immigration but as ever, this is a sensitive topic. For example, for decades in the UK there has been an emphasis on Arts education at the expense of the technical. There is a sort of prejudice about having a job where you get your hands dirty which for some reason does not seem to be so prevalent in the North of the UK. Discussing this with a German student a few years ago left him speechless when he found that there were hardly any apprenticeships in this country – “Who will build your Mercedes?” he asked me later. All this has led to a chronic shortgage of engineers now often filled by people from eastern Europe where engineering is better regarded. The immigrants who come are of course usually younger than the UK average age of 39.6 years, and this helps redress the ratio of working people to older (non-working) people. Not for nothing are 80 per cent of the words in the English language of foreign origin, giving English the largest vocabulary of any language in the World but some of the most illogical spelling too.

Keeping in this cheerful vein, two German economists slate the UK’s economic performance calling it a sham http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/10/22/bcnuksham122.xml The Government is basically subsidising our current lifestyle with ever increasing borrowing which means our grandchildren will end up paying for it. Economically, this Government has painted itself in a corner and the only thing which will save the Chancellor’s bacon is an economic boom. But 700,000 extra public servants since 1997, the red tape that goes with it and ever more stealth taxes reducing people’s net incomes render this only possible in an Alice in Wonderland scenario.

The above seems to be manifesting itself in the opinion polls where the Tories have over 40 per cent support which has not been seen since 1992. Irony pops up again as this started with the idea of raising the Inheritance Tax (IHT) threshold at the Conservative Party conference in September. Reducing IHT or raising the threshold at which people start to pay, is the worst sort of tax policy even if it is popular. To get strong economic growth which will raises people’s standard of living, it makes far more sense to reduce taxes in the productive part of the economy rather in than the situation where people inherit or get something for nothing.

Christmas approaches and it will be November next week. I am pleased to say I have booked tickets to see my chums in Thailand again so will miss some of the festivities here but note that several of my friends are making similar arrangements.

As another stocking filler, if history is your thing rather than the economics recommendation of last week’s blog http://www.georgeemsden.co.uk/?p=105, may I recommend The Command of the Ocean by N A M Roger ISBN 0-141-02690-1, A Naval History of Britain 1649-1815? The reviews are superlative and it won the 2005 British Academy Book Prize.

Students of economics will recognise the author of the heading as John Maynard Keynes, architect of the post-war economic system set up at the Bretton Woods conference in July 1944 which lasted into the 1970s. This system provided the foundation of more than 50 years of economic growth and prosperity i.e. we have had two generations who have not had to go to war, so living standards have never been so high.

War is incredibly expensive http://money.cnn.com/2003/03/17/news/economy/war_cost/ or to put it another way, ALL the wealth of the World’s two richest men Bill Gates and Warren Buffet would not even pay for the current Gulf War 2 for a year. Post war growth seems to be faltering now as the generation born after WW2 from 1946 to 1964 the “baby boomers” looks forward to a long life in retirement. The first official baby boomer to reach retirement age (60 in the USA) applied for her state pension last week http://weblogs.chicagotribune.com/news/politics/blog/2007/10/social_security_reminds_baby_b.html

The baby boomers have to be supported by somebody where their State Pensions are concerned, and in the western world this means a smaller and smaller working population supporting an ever larger and longer living, retired one. This shift is due to better health care where we are all living longer and the Pill enabling women to plan when they want to have a baby. As a result, the birth rate has dropped, in some countries to below the 2.4 children per family needed to maintain the existing population. No more do we hear stories like my mother told me of a lady who had ten children and ended up with only one grandchild. When the Welfare State was first introduced in the UK in 1947, there were something like 20 working people to support each pensioner. The future ratio could be about three working people.

Part of the problem is that the Basic Pension Age is far too low as the origins of the standard pension age of 65 go back to the nineteenth century, see my blog Pensions and Bismarck http://www.georgeemsden.co.uk/?p=30 Raising the Pension Age to 70 for example, would mean that about 27 per cent of men and 17 per cent of women dying before receiving any pension benefit, so this would be very unpopular. If 65 was the “correct” pension age in 1947, then it ought to be about 71 now as increased life expectancy adds about one year to average life expectancy each decade http://www.georgeemsden.co.uk/?p=88 If you are feeling brave today, you might even wish to check your own average life expectancy http://www.gad.gov.uk/Demography_Data/Life_Tables/Interim_life_tables.asp – but please be sure you check your horoscope first!

Getting back to Keynes, he made a lot of money for his own King’s College , Cambridge by investing in Stock Market but this was not without mishaps. He lost his inheritance of a few thousand pounds in the Stock Market and was only bailed out by a banker friend of his which enabled him to have a second go. These days trying to beat the market is increasingly difficult perversely, because so much more research, information and number-crunching or computing power is cheaply available so no one really has a competitive edge here anymore.

Using information is also different. Years ago, when I was doing A Level Economics one of the standard textbooks was Guide to the British Economy by Peter Donaldson. One tiny footnote in the book about Stockbrokers for example, mentioned that being in this position enabled the Stockbroker to be in a very good position to do some good deals “for himself”. Dealing in this manner, on what is sometimes called “inside information” is now a criminal offence.

Beating the market or rather the futility of trying to do this, was the theme of the two day investment seminar I attended at The Park Lane Hotel last week. Here are a few home truths about investment:

a) the best return in the long run comes from investing in equities or shares.

b) again in the long run, the performance of fund managers tends towards the mean i.e. good and bad fund manager performance tends towards the average

c) ergo, if you can keep to average market or sector performance you can do very nicely thank you – certainly a lot better than staying in safe investments like cash or government securities. The latter may be fine for a short while but anyone who stays in them for a long while is an idiot. The killer here of course is inflation, as Keynes said: “Lenin was right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.”

The subtext though to achieving decent investment returns seems to be Passive Investing which will be the theme of future blogs.

To close on a festive note, and if economics is of any interest, may I recommend Dr Strangelove’s Game by Paul Strathern – A Brief History of Economic Genius ISBN 0-241-141134-6 as a stocking filler? This book transforms the often dry subject of economics into the much more interesting foibles and lives of economists.

Sunday finds me driving down to Lasham for a glider versus airplanes aerobatic contest but the weather has had other ideas and the hangar doors are being closed when I arrive. Friday and Saturday saw two good flying days and one of the airplane competitors is still parked on the edge of the perimeter track near the clubhouse. This one is a jewel of an airplane a Pitts Special, finished in a striking red livery and my guest and I wander over to have a look. The Pitts Special is a fully aerobatic plane originally designed 1943 by Curtis Pitts an airline pilot. It comes in several different types, with different wing sections, engines and numbers of seats and has gained more aerobatic awards than any other plane around. Different wing sections affect its performance when flying upside down and the choice of one or two seats gives you the choice of thrilling just yourself or someone else as well.

It is very much a pint-sized airplane but this particular one has a quart-sized engine and propeller on the front giving it rocket-like performance. The big two-bladed prop has a huge spinner covering the constant-speed unit (the equivalent of an automatic transmission on a car) powered by a 185 bhp engine fed by a 20 gallon tank. The latter gives it a two hour range but surprisingly, the pilot says that is the maximum he would want to fly it without a break. Limited space above the knees caused by the large tank means a sitting position with straight legs – OK for a short while and when throwing the plane around the sky, but not comfortable for a long period.

Not wishing to distract the pilot from his pre-take off checks, we withdraw while he eases his hold-all and shoes into the tiny luggage locker behind his head. Take off later is quick and our waves receive a wing rock in return followed two seconds later by his continuing the climb in a knife edge position with the left wing down at 45 degrees so the plane is flying on its side as well. Levelling out allows him to accelerate for a bit and do a 200 feet vertical climb rolling and turning left at the top away from the airfield – no one else is flying. Turning left again, a lot more height has been gained and we get another vertical climb with a wingover at the top, a vertical dive straightening out into level flight and a slow barrel roll to the right.

We just missed the departure of a two-seater Pitts owned by a friend of his who does joy rides for airheads like me http://www.freestyleaviation.co.uk/ and methinks I will treat myself. They are both members of a small exclusive club of 5 or so Pitts Special owners in the UK who whizz off around the UK at weekends or pop over to the Continent calling themselves…………The Pitts Artists.

Back on the ground, I have attended four lodge meetings in two weeks as guest and it is nice to sit back and relax. Being due for the chair of of my own lodge Neptune No 22 next year it is time to be thinking about filling the various offices and organising some social events – as well as the agenda for the four meetings during 2008 apart from the Installation meeting in January. My most spectacular visit is to the City of London Installed Masters’ Lodge meeting held in the magnificent Plaisterers’ Hall in London Wall. This meeting is notably relaxed compared to ordinary lodge meetings where people might be nervous, and the Secretary manages to have us in stitches at times while going through the normally rather mundane apologies for absence, for example.

The highlight of the meeting is a talk on Masonry and the Military given by a retired Brigadier. As an introduction, he tells of his involvement in Gulf War 1 when he was posted very quickly from Germany to the Gulf. The logistics here are staggering with the ground forces using for example, 5 million litres of fuel and 5 thousand tons of ordnance each day over supply lines up 1,000 miles long compared to the 100 plus miles that were the norm in Europe during the Cold War.

Perhaps as reminder that my throat is not fully recovered yet, a tickly little cough starts shortly after the talk starts. Little sips of water do not help and it gets worse. The embarrassment is excruciating and my eyes are watering. I look for a way to slip out quietly but there is no escape. Mercifully, after 10 minutes my vocal folds settle down and I am spared further stares as other people seem to start coughing instead of me. The following week, the voice therapist tells me that this was probably caused by the air conditioning.

The speaker mentions that Masonry is emerging from the shadows. There seems to be an increased interest among a younger generation where the traditional values it offers seem to fill a gap. Much of the recent secrecy is a holdover from the 1930s when they were persecuted in Europe.

In the UK there are now 64 ladies lodges and one of my lady contacts might be interested in joining. It reminds me of the interview I had before I joined. While waiting outside for my turn, I sat with a lady mason who told me two things – firstly, that I would meet some very nice people and secondly, that I would have a lot of fun. She was right on both counts.

Continuing with the main theme, Masonry spread around the globe largely with the British Empire with the first lodge in North America being established in 1736. After the American Declaration of Independence in 1776 there were freemasons on both sides and in battle, a Lodge’s warrant and regalia were sometimes lost to the victor’s side. On one notable occasion, these were returned under a flag of truce on the orders of George Washington – himself a mason. The battles continued until 1783 when the Treaty of Paris which ended the American War of Independence was signed in what is now the Lansdowne Club off Berkeley Square http://www.lansdowneclub.com/home/about_the_club Perhaps we should add the signing date 3rd September, to our diaries as well as 4th July??

The Round Room where all this took place is unchanged and thank you Bruce, one of my American clients for showing me this recently.

My second visit to the voice therapist again finds me high in the new UCH Building on Euston Road. My verbal update shows a good improvement in my voice and I am given an explanation of how the voice works to explain the logic behind the exercises. There are three fundamental components – initiator, restrictor and resonator. In humans, the initiator is the diaphragm, the restrictor is the larynx where the cancer was, and the resonator is the nasal cavity described to me in glorious detail in September http://www.georgeemsden.co.uk/?p=96 In a musical instrument like a clarinet for example, the initiator would be the reed, the restrictor would be the finger-holes and the resonator would be the long tube or body. Previous treatment has concentrated on the larynx so the exercises are focused more on the other two main areas.

I am told to sit upright in a chair, hands on knees and take a deep abdominal breath i.e. pushing out the lower stomach without puffing out the chest. I am told to exhale with an Ooooooooooh then opening the mouth to an Aaaaaaaaaaaaaaaah keeping the sound in the front of my mouth above my tongue and not deep in my throat. This is to be done mornings and evenings and for 1 – 2 minutes only.

The various pills, algae, supplements and minerals that have been rattling though my intestines for the past few weeks seem to be beneficial as I am told that my recovery is one of the quickest he has ever seen and as a result, I am spared another session with the worm up my nose.

During the session, I am looking at the voice therapist and trying to ignore the glorious gliding sky in the distance which is plainly visible through the panoramic window. In gliding parlance, it looks like a 300 or 500 day, meaning that a flight of 300 or 500 kilometres would be possible – not a bad day’s flying in a plane without an engine. The giveaways are the towering cumulus clouds in the distance which have broken through the temperature inversion that normally limits their vertical development and firm bottoms. Just so no readers get the wrong idea here, I am referring to Bottoms of clouds rather than any other sort and an explanation is called for.

Gliders stay up mostly in currents of rising air which are called thermals generated by the Sun’s heat on the ground. When these rising currents of air reach the condensation level, the water vapour condenses to water droplets visible as clouds. In a strong thermal cloud formation, the bottom of the cloud is firm and distinct – hence my excitement. When you are climbing in a glider under one of these clouds, the lift gets stronger as you get nearer cloudbase. The cloud bottom itself is concave, like an inverted saucer or soup bowl. You can be climbing in clear air for example, looking down at the rim of the cloud sometimes with plumes of white vapour being sucked up into the cloud as well. It is a sight that never ceases to amaze me and probably explains why I have never bothered with a power pilots licence.

Later in the week, I see the Dietician who is similarly pleased with my recovery and I am told that we can now work together on gradually reducing my weight. Cancer treatment results in an increase in metabolic rate so food is burned up more quickly. People who have cancer treatment and maintain the same food intake will lose weight so I have been eating desserts and chocolates for example, which normally do not excite me very much. Now that my system has settled down it is safe for me to lose weight and since I am happy with my current food intake, I am told to increase my activity as a way of achieving this. Swimming and dancing are back on the agenda again – hooray!

One minor annoyance since the RT stopped, has been a toothache brought on by a glass of white or rosé wine – a completely new reaction for me. The philosophy of Dilys’s http://www.colonichydrotherapyuk.com/ complementary treatment has been, healthy gut, healthy body. Going to the dentist and getting anti-biotics would kill the flora in my gut which I am extremely reluctant to do. As an alternative, tea tree oil is recommended to be taken on some dental floss and rubbed under the gum of the tooth concerned. In my usual fashion, I overdo the tea tree oil and over about 40 minutes, the taste of it spreads through my mouth, down my throat and into my stomach making me feel quite ill. Half a tub of plain yoghurt and some wholemeal bread helps a bit but I fall asleep after having several pads of tissue in my mouth which gradually soak up the oily taste. The toothache goes and next time I get the amount of oil right.

During my six months of medical attention, I have sometimes mentioned complementary treatment to conventional practitioners and vice versa. In a legal or litigation context, opposing sides might meet or at least try to establish “areas of common ground” before going to court and throwing bread rolls at each other. Sadly during my treatment, my hopes of a willingness among the two medical camps to find any common ground have been misplaced, and reactions have invariably been dismissive of the other side’s point of view. The appointment with the dietician is a first and very welcome exception. I am told that the Aborigines have been using tea tree oil for thousands of years, and that she is quite happy for me to use it.

QUOTE of the Week: Artificial Intelligence is no match for complete stupidity – from the programme The Garage when a BMW is brought in for servicing

Fans of Chris de Burgh will recognise the song which is probably an allusion to the old Greek myth where you had to pay Charon the ferryman to ferry your soul across the river Styx to Hades, the land of the dead. Since financial advice often covers more than one generation, perhaps this morbid introduction is quite appropriate.

But instead of a silver coin placed under the tongue or on the eyes, payment for financial advice in this life comes in two forms – direct (fees) or indirect (commission) and feelings among professionals are quite diverse.

This issue is one of several interesting ones covered at a recent meeting hosted by the IFP http://www.financialplanning.org.uk/ One is the definition of Independent where some say, advisers who take commission as payment for their services should not be allowed to use this description – only wholly fee-based firms. A thought occurs to me.

“Why is it OK for Stock Brokers to be paid by commission but not IFAs?” We are both doing the same job.

It would be interesting to have some feedback from other professionals here.

In the same vein, Motley Fool did some fantastic publicity a few years ago when they started. They appeared on Bloomberg TV with their jesters hat and made a very powerful point about advisers being paid by commission – IFAs being paid by commission is a bit like your GP being paid by the pharmaceutical companies they said.

But now their attractive and functional site, with some very well written articles http://fool.co.uk has lots of click-throughs for all types of business which presumably pay them something for the business generated? If that is not a commission, well what is? They do have fee-based subscription service for picking shares (one option £15 a month) but it would appear that the bulk of their income is now commission-based. Be happy to be corrected here…..*

Another interesting issue contained in legislation currently going through Parliament, is Multi-Disciplinary Practices which will allow Solicitors for example, to have in-house Accountants and Financial Advisors offering a full range of financial services. Since areas of expertise overlap in all 3 disciplines, this is a logical and welcome development.

However, one part of the meeting which makes the hairs on the back of my neck stand up is a comment that some small legal practices apparently have small portfolios invested directly in equities which are not really managed at all. They were set up years ago and a stock broker probably picked a few Footsie companies and left it at that. This is a very dangerous strategy and even if the companies are blue chips, is unnecesarily high risk.

Most people are aware that equities give the best long term return but the short-term variations frighten them. Investing directly in equities at decent prices means dealing in decent amounts so one can get a decent buying or selling price as the case may be. If the amounts are too small, few market makers will quote, the difference between the buying and selling price (the spread) widens and the brokerage is a higher portion of the amount invested or sold. In essence, investing small amounts directly in equities is uneconomic. Just sticking to blue chips does not guarantee safety either as the sad story of GEC shows. GEC under Sir Arnold Weinstock where the share price peaked at £12 was one of the manufacturing giants of the UK, famous for its £1,500 million cash pile and no debt. Through a series of disastrous investments at the peak of the dotcom boom, it ended as (not far off) a penny share.

Unless you have a decent six-figure sum, collective investments like unit-trusts, OEICs and investment trusts offer a much better spread of risk.

And just to cheer you up here http://www.getrichslowly.org/blog/2006/07/07/twelve-financial-truths/

* my draft article e-mailed to them 20 September has elicited no response.