“Success is not the absence of failure; it’s the persistence through failure.” – Aisha Tyler, American actor and comedian.
All in all, it has been an interesting week, at this end anyway. I got to attend the Bank of England quarterly breakfast briefing – although with all the action last year, this was more than a quarterly meeting! It seems that they have determined that quarterly will be enough for 2023……let’s hope they are right.
I also had one of the most interesting conversations I’ve had for some time – a real rarity, the chance to meet someone who I knew a bit about, someone who has followed a very similar but very different path to me in life, with a different approach, but with many of the same conclusions. The only regret from such an interesting conversation is that it hadn’t happened 20 or 25 years ago!
The common theme that runs through both of those events is persistence, and I wanted to write this piece as a half-macro, half-reflective supplement, to give readers something to think about as they digest their Sunday morning coffee, or breakfast. I’ll kick off on the macro side of things.
Last week’s supplement went into some detail over the recent Bank of England report. What do they expect for the economy, a bit about construction, the resultant effects on the property market, and the likes. What I got from this week’s meeting, and an offline chat with the local representative, is what I always get – some more clues, based on what’s said and also what’s not said, and some further clarity – alongside a few “curve ball” style thoughts that pop into my head.
I noted last week that the language has changed somewhat, as it always does as situations evolve. Now – alongside noting the number of risks to the upside when it comes to inflation (i.e. it SHOULD be falling, but there are a whole load of things that could happen to send it back upwards again) – we also have the notion of persistent inflation. Long gone is the chat around it all being transitory – long term readers will know I’m over 2 years into telling anyone who would listen that this wouldn’t be a transitory phenomenon. It’s somewhat embedded – of course it is – and just how embedded is not known.
The rep also fielded a particularly articulate and difficult question – a drum that has been banged in a number of quarters, which somewhat misses the point but nevertheless is worth addressing. It was framed thus: “If all the inflation has come from cost increases (what we call cost-push inflation), then raising rates won’t solve this. Therefore raising rates is wrong.” I chatted with the rep after the meeting about our respective takes on this – he said that the central bank has to see the inflation/interest rate environment as a correlated one, i.e. the more inflation goes up the more interest rates need to go up to contain inflation, regardless of the source; I said that it is a non-binary issue with some elements from either camp, cost-push and demand-driven (global energy demand, for example, is above where it was before the pandemic – although the energy markets have also experienced cost-push inflation), and that not raising rates to quell demand regardless of the source of the inflation would not be responsible central banking (so, we are on the same page overall).
What this also tells you is that if inflation is persistent, and I think that’s a racing certainty – the questions will be around HOW persistent in terms of length of time, and also in terms of “new floor value” or equilibrium level in a post-covid economy.
The post-covid economy is seeing lower participation rates of labour (at least in the UK – the phenomenon has been more temporary in European markets, but looks more permanent in the UK) – it also expects very little productivity growth and as a result, very little actual growth. Investment from businesses – largely dramatically reduced since 2008 – is also still difficult to come by. The fear is always that the “low-hanging fruit” has been picked – a bit like the discoveries of oil, or gold mines, or anything equivalent. Everything left is harder to come by, takes more effort, and costs more.
This sort of fact keeps prices higher, and also keeps them rising. When the price is higher for any resource, the cost that can be undertaken to extract it can go up, and so can the research efforts – but the research is unlikely to keep pace with the price rising.
Similarly, as we go into this challenging environment (almost certainly a recession, and it would be that we are already in one if last quarter’s figures get revised from 0% to -0.1%, that’s how tight it is) – wage rises are far and away above growth, and above productivity growth – although they are well below inflation depending on the measures used. This means that households have less real (after-inflation) income to spend, but (in my book anyway) are very likely to consume pretty much 100% of any pay rise. People need the money in order to even attempt to retain their standard of living from 2019, let alone 2021. The maths (for the vast majority of households) doesn’t add up.
This is where we get to my question (which I asked offline) to the rep. How many times in the past have we seen a recession which begins with unemployment so low, and the labour market so tight, and had wage rises above inflation (that’s the prediction the Bank is using for the end of this year – wage rises still in the 6% or so area, inflation in the 4% area)? It just doesn’t add up to me. The answer that came back was a very interesting one, that basically took into account the fact that the data is imperfect for helping to forecast how the current situation would play out, and this is why the forecasts are very wide at the moment in terms of their possible outcomes – double the width, or more, of previous forecasting graphs in less uncertain times (when we “only” had Brexit to worry about, for example).
The answer to my question above, of course, in reality, is never. This is where you are left somewhat second-guessing which one of the market forces trumps the other. There’s no precedent for this situation, so heuristics have to do the job for us to an extent, alongside a study of post-pandemic economies from very different times.
This does mean, of course, that wages could collapse (feels unlikely at the moment), OR, inflation could collapse because demand collapses (people do get paid more, and decide to save it rather than spend it). Both look quite unlikely. This is just one good example of why when inflation is persistent, it becomes difficult to deal with. What breaks first? The alternative is that cost push inflation goes away (in commodities it largely has done, APART from energy where it has been frighteningly high, is now a fair bit lower, but has risks still there in terms of geopolitics and just in terms of availability of cheap energy in the modern world), which would be ideal, but this still leaves the remnants of the wage-price spiral and debate. We could also see lots of people come back to the labour market – a reversal of the great resignation – that’s what Europe has seen, after all. Participation rates are back where they were before the pandemic, whereas in the UK they remain a percent or a shade more behind – in fact, they were at all-time highs in January 2023 (not a typical precursor to a recession, I might add).
All of this goes into a great melting pot called the macroeconomy. These ingredients have never been seen before, in these quantities (or much like it, to be honest) and that’s what makes the puzzle so very interesting, but also so very difficult to solve. Definitive pronouncements are difficult (or overconfident) – trends such as hiring freezes and then layoffs (that’s been the tech company focus for the last few months, with some big cuts announced this week) – but although tech rules the roost in terms of the market indices given that FAANG, or MAMAA (Meta, Alphabet, Microsoft, Amazon, Apple in case you haven’t heard that one before – not what stock market investors were calling for in 2022, although it might have sounded a bit like that) are just so massive in their market capitalisations.
Tech, you can argue, is a special case. They had so much growth inspired by the pandemic – and things looked so incredibly rosy. Gigantic stock market gains. A lot was given back in 2022 as things came back to earth, and the world hadn’t changed forever – even if the number of people working from home had trebled, and “hybrid” work was now an official “thing”. They also don’t employ many people, as a rule, for the size of the company, and had always been allowed to recruit in advance. They do follow one rule though – once public, the share price is their true master – and the market loves nothing more, after a warm bath, than a big, fat round of cuts.
Other companies in a lot of other sectors have been struggling a lot more to recruit, in reality. Job vacancies in the UK at the end of last month, whilst falling from the peak, are still more than 30% higher than they were at any time in history before the pandemic. Is tech the precursor? That much isn’t clear, because of the mega-overperformance in 2020 and 2021.
The real question that remains over the direction of travel in 2023 – and there really is no particular clarity, to risk repeating that point – is which of these phenomena will be persistent? All we can do is keep our ears to the ground, fingers on the pulse and I will be attempting to follow all of this, every week, right here. Why? Because I’m persistent, if nothing else.
This offers a good break to discussing persistence at the personal level, as I alluded to at the start of this week’s article. It is perhaps the most fascinating phenomenon of all, because there is very little that makes the playing field unequal, when it comes to this particular character trait. Of course, there are always obstacles, but when it comes to persistence, the most important point will be self-determination, or self-will.
The early bird catches the worm, or so they tell us. True? Perhaps. But many a trailblazer has been copied or swallowed by a “fast follower” – Amazon, eBay, Facebook to name but three – they were not the first movers. They learned from others’ mistakes – they lurked – they did their own thing – but all had founders who were, and are, extremely persistent amongst other characteristics.
I don’t know of any industry where this applies more than individual direct property investment. It is the easiest I’ve ever come across to dismiss, or deny, the success stories of those who are willing to share them. There’s danger – of course – because the industry also has a nasty habit of attracting near-sociopathic “gilders of the lily”, to say the least – those overstating their experience, prowess, portfolio, level of financial freedom, number of ferraris, etc. etc. It is easy to lie – although it isn’t THAT hard to check things out for yourself, in this world of limited company investment and the level of transparency that exists.
It’s also easy to believe “everyone’s at it”, or that this or that “can’t be done” – whereas, in reality, it can almost all be done – but the one trait needed is persistence. There are a dozen cliches that could be wheeled out here – “if they accept your first offer, you didn’t offer low enough” (sometimes, but not always, true in my view) – or “if you are a BMV buyer, you must be going around ripping other people off” – I’ve heard plenty of these, and less tasteful variants, over the years. In reality it is a failure to really understand the mechanics of transactions, people, life and property – and what is sometimes traded off against purely the price of an asset. Let alone how difficult it can be, occasionally, to value these things – and how much risk can be mispriced in this industry.
The famous global consultancy McKinsey – the gold star on any consultant’s CV, 2-3 years there will open so many doors you will be spoilt for choice – test persistence above almost anything else. There’s a near-auto rejection policy for your first application. Your second might have a couple of percent greater chance. There are plenty of stories out there online about people getting in on their 15th try, or similar. Why? Because they have persistence, persistence that 99.9% of other people likely don’t have – or don’t apply to their career.
The person that turns up – the person that does what they say they are going to do – the person that makes that 9th phone call to check in on the progress of that deal, that sale, that planning permission, that important life event that the vendor mentioned 8 months ago – what do you think that person gets? They get results.
Is this an innate quality? Ah – the famous nature vs nurture debate. It seems unlikely, to me. You can be told lots of wise things by your parents, or your teachers, or your peers when you are younger – and will view them with varying degrees of scepticism. Parents – usually treated with the most disdain, despite them having the most skin in the game to really care about how their children end up. It might take years, or decades, of reflection to realise some of the true wisdom of some of it. Some of it, too, might have been nonsense – although likely well-intentioned nonsense. The reality, I’d suggest, is that as usual – there’s a little from column A and a little from column B – it can most certainly be a learned behaviour, and if you look at those who have been successful, really successful, in almost any field – the first thing they did was turn up. Again, and again, and again. More than the others. Did what other people weren’t willing to do. That’s persistence.
This can easily bleed over into a whole number of other traits, and personality types. Confidence; intellectual ability; integrity; agreeableness, or lack of it – there are many, many more. However, it stands almost alone as something that can be independent of nearly all others – only you stop you from turning up, from believing, from keeping going, from making those follow-ups count, from attending that networking meeting, from reading that book (or listening) all the way to the end, from seeing some of the faintest chances through to their conclusion. Persistence will serve you well, and is at your purview – you are, and always will be, the master of your destiny when it comes to persistence.
“Persist until there’s a restraining order” I once heard a well-known property guru say. Whilst I’m not sure I’d want to frame it like that, you get the point. Wrapped in persistence is the fact that it will take something significant to stop you from getting what you want, from achieving your goals. I’d rather frame it thus: “Don’t subsist, don’t just exist, but persist, until you triumph.” It’s not over until it’s over – a boatload of examples exist in history, folklore, popular culture and in business more than any other. Even in that phrase I like to end on each week, there’s more than a hint of persistence……keep calm….and CARRY ON!