Richard Northedge

Here’s my hot prediction for 2009: house price inflation at 10 per cent. Yes, that is a 10 per cent increase, and yes, I do mean 2009. Halifax figures for the year to November were still showing prices down by 1.6 per cent — but believe me, by the end of this month housing will be showing double-digit growth. To be honest, this is not really a prediction: the 10 per cent increase in property prices across the country is already in the bag. While the statisticians at Halifax and Nationwide have been reporting annual falls in the market, their raw data shows a full-blown boom. The last year when prices rose by 10 per cent or more was 2004 and they collapsed by nearly 19 per cent in 2008, according to Halifax.

Richard Northedge says the FTSE’s dismal performance since the millennium will deter a generation of investors The familiar fallback for fund managers when shares falter is that investment is for the long term. But how long is long? December marks the tenth anniversary of a stockmarket peak that has never been seen again. Money invested in the 1990s will be showing a loss more than a decade later. How long must investors wait for equities to come right in the long term? In fact, the FTSE 100, the index of leading UK shares, is lower this week than in 1997, shortly after New Labour came to office.

One of the oft-repeated excuses for high executive pay is the need to compete for top talent in an international market. A scan through a list of heads of FTSE 100 companies certainly shows just how many boards go abroad for their boss: 41 of the UK’s top 100 chief executives are foreigners, including three who are now naturalised Brits. They come from 14 different countries, from Mexico to the Ivory Coast and India. But a market ought to be a two-way exchange, and while we import senior managers from overseas, where are the British businessmen heading foreign public companies? There is a serious trade deficit in boardroom bosses.

In the autumn of 1984, solicitors were allowed to advertise for the first time, but if the public failed to spot their modest announcements it was probably because the newspapers were awash with a much more unusual publicity blitz. The government was selling half of British Telecommunications, as the phone company was then called, and it needed the help of people who had never previously owned a share. The BT flotation was the start of a phenomenon that was as much a part of the decade that followed as Bros, the Pet Shop Boys or Wham! Buoyed by a bull market, the government used the BT model to sell £80 billion of nationalised industries, balancing the government books and creating a new generation of equity holders. BT was not the first privatisation.

ITV shareholders did not wait for Sir Crispin Davis to be appointed chairman before saying publicly they didn’t like him. No wonder people are thinking twice before putting themselves forward to head our major companies. Even salaries of £500,000 plus share options have left supply well short of demand in the ‘C-suite’. A large number of companies have been searching for a chairman this summer but the pool of candidates seems noticeably small: the same names are touted for each job and the rejects join the next shortlist as soon as one vacancy is filled. Davis, former chief executive of publishers Reed Elsevier, was mooted as chairman of J Sainsbury before the headhunters called him about ITV.

Dividends — the directors’ cut At least the savers whose interest rates have been squeezed still have their money in the bank. Shareholders, by contrast, are seeing their dividends slashed after also suffering substantial share price falls — and there is no compensation scheme to cover their lost capital. That is a risk of equity investment but there was a time when cutting the dividend was the last thing a company did; now it’s top of the agenda as soon as business gets tough.

Next year will be a good one for anniversaries. A century since Lloyd George’s People’s Budget, 60 years since Attlee’s devaluation, 25 since inflation swept away the ha’penny coin and £1 note. And it’s the golden jubilee of the reverse yield gap. Yet the reverse yield gap will not be present at its own celebrations. This pillar that has supported the basis of equity investment for the past half-century has suddenly disappeared. Since 1959, shares have consistently yielded less than gilt-edged stocks. But now it is government bonds that are again paying the higher return. The reverse yield gap has reversed.

So many ways to say we’re in trouble Without an Inuit thesaurus I have no way of checking how many words the Eskimos really have for snow, but each day’s newspapers reveal just how large a lexicon we have for an economy going into reverse. Recession, depression, downturn, decline, disinflation, slump, slowdown, squeeze, freeze, meltdown, bust, crash, crunch, collapse, for starters. But when the economy was booming the only word we heard was, well, boom. I could add in all those euphemisms beloved by ministers such as ‘testing times’ and ‘difficult conditions’, but why are there so many terms for a shrinking economy but such little choice when it grows?

The real economy has taken only the first step towards recession but the housing market has already clocked up four successive quarters of negative growth. Indeed, house prices have now fallen further in 13 months, according to the Halifax, than they plunged in the whole three years of the 1989-91 crash. And like the rest of the economy, the housing scene is still deteriorating. But for those who see the glass half full rather than half empty, from now on a series of signs will justify a degree of optimism in the housing market. We’re probably not halfway into the property slump yet, but we should be very soon — and from then on, the market will be coming out of recession rather than going in.

To anyone born before 1980, the idea that the state would own a large part of the economy was normal. The ‘mixed economy’ was a typically British compromise between American cut-throat capitalism and the incompetent communism beyond the Iron Curtain — or at least a compromise between the socialist leanings of the Labour Left and the free-enterprise mantra of the Tories. Such was the tug-of-war of ideologies that the British steel industry found itself nationalised in the 1940s, returned to the private sector in the 1950s, re-nationalised a decade later and re-privatised in the 1980s. Yet despite so much of the rest of the UK economy falling into public hands over the past half century, banking has until now escaped.

If Britain’s housebuilders really want to sell more homes, they ought to slash their prices rather than lobby the government for packages like last week’s ill-conceived attempt to boost the property market. That’s what the rest of us have done, but while prices of all other houses have plunged, new homes have still been selling for more than they did a year ago. When the Halifax announced that the fall in house prices had reached double digits in the year to July, the figure that failed to catch the headlines was that new homes had gone up by 1.1 per cent over the previous year. Are we really to believe that new-build is the oasis in the housing market desert — or are the builders playing tricks? There is indeed sleight of hand by the housebuilders.

So Britain is talking itself into recession. Keep chattering. If people want a recession, let them have one, so that the rest of us can benefit from it. This is not a suggestion that cold showers do us good or that a spell of reality in the housing market is overdue; it is a reminder that when other consumers have lost their confidence, the bold can take advantage of their apprehension. Slumps mean opportunities. When the majority are out of the market place, the brave can go there without being crushed or outbid. This is the time to be counter-cyclical. If for the past five years no builder even had time to give you an estimate, next year you will be swamped with workmen undercutting each other to win your job. Want a new carpet?

The Financial Services Authority has had only two chairmen since its creation in 1997, and as the Northern Rock debacle happened on the watch of the second incumbent, Sir Callum McCarthy, the model for his replacement is inevitably the original holder, Sir Howard Davies. On that basis, Adair Turner — Lord Turner of Ecchinswell — ticks all the boxes. Both are former McKinsey men; Turner followed Davies as director-general of the CBI; Turner is a visiting professor at the London School of Economics, where Davies is now director. Both sit on the board of Paternoster, a private company that buys out corporate pension funds. Their kids even attended the same primary school. They are from the same mould. But while Turner ticks all the boxes, colleagues warn he is a box-ticker.

‘It is somewhat ironical,’ the chairman of the Financial Services Authority told the Treasury select committee investigating the Northern Rock crisis, ‘that one of the responses is to try to seek from the rating agencies even more work and even more assessment.’ The paradox intriguing Sir Callum McCarthy was the suggestion that credit-rating agencies, having failed to predict Rock’s troubles, should now also produce liquidity reports on banks. MPs on the select committee — about to produce a report that will be highly critical of the financial regulator — may themselves think it ironical that, having equally failed to foresee Rock’s fate, the FSA is being rewarded with an expanded role.

Most hotel-group bosses like to be at the opening of each new property in their chain. Some claim to have slept in all of their establishments or even to have spent a night in every room. Not Andrew Cosslett. His company is the biggest hotel group in the world. It has 572,000 rooms in more than 3,800 properties and is opening a new hotel every day of the year. Cosslett, the 52-year-old chief executive of InterContinental Hotels, has not yet visited all of his existing estate. ‘I couldn’t even keep up with the ones we’re opening,’ he admits. And the task will get harder. ‘We’re opening one a day and signing up two for the pipeline.’ There are now 1,400 hotels in that pipeline, being planned and built.