Do you make coffee at work or rather visit a nearby cafeteria?

I always loved the convenience of having cafeterias a stone’s throw away from my workplace but looking back this was expensive entertainment especially with many visitors and colleagues. Though, this was the only chance to have  a decent chat with them you know. More recently the situation has changed and because of the very high monthly costs I decided to start making coffee at work by myself. I didn’t buy any  fancy coffee maker, no. I just brought an ibrik (dzezve), a bag of ground Turkish coffee, an old kettle, some sugar, a few nice coffee cups and a coffee spoon. Yep, just a few tools/ingredients and I was ready to brew my first Turkish coffee in my office – without any Health & Safety issues that is!

Just a few attempts at brewing Turkish coffee in front of my visitors shows how very easy it is to break the ice without even thinking hard what to say.  I call this high-level simplicity networking extraordinaire. Isn’t that wonderful?  They are first of all interested in the method of brewing Turkish coffee but that is then topped up with an enchanted smell of freshly brewed coffee. Yes, it’s not discussing the business that breaks the ice, it is all about something completely different that seamlessly pulls people into their comfort zone.

You will probably agree that the method of brewing a perfect cup of coffee is one of the most important elements if you really want to enjoy the magic of this ancient beverage. Well, there is one more element that makes or breaks the moment. People often forget that serving a perfect cup of coffee is art in its own right. I’m sure you have had a chance to visit superb restaurants. Have you ever got coffee in a paper cup there? Probably not! Even more, they probably served it in a way that made you talk about it for a minute or two. Now, that’s what I am talking about and there should be no difference when you offer a cup of coffee to your visitors. It’s the first impression in the business world as well that counts. Here are a few tips:

- Use earthenware or glass cups or mugs. Why? The heat of freshly brewed coffee could melt wax from cardboard cups and affect its taste. On the other hand, it is very difficult to hold paper cups and they just look so awfully cheap.

- Coffee stays warm much longer in earthenware cups or mugs and they are normally far more stable.

- Always ask your visitor whether they like their coffee sweetened or without any sugar.

- Have some fresh milk always available but you can buy  some long life milk pots or sticks in case you haven’t got a fridge and a few sachets of sugar, and ask your visitor if they want some milk or additional sugar.

- By default you should serve a glass of water with coffee and visitors might be thirsty anyway.

- Serve only hot coffee and never re-heat it and I mean NEVER!

Storing coffee appropriately to preserve its freshness is crucial. The best advice for the office environment is to buy small amounts of ground coffee (3.5oz which is roughly 100g), store it in an airtight container and use it as soon as possible. Do not forget to close the container lid tightly immediately after every use.

Financial contagion spreading – What’s the solution?

It is a really exciting if not frightful time we live in these days. Greece’s financial disaster, hung parliament in the UK, Dow’s biggest ever point drop and I am just talking about the news today! Right, nobody can deny the seriousness of the financial situation as it is not only Greece to be worried about. However, there is a light at the end of the tunnel and the solution is actually quite familiar, particularly in the western world. I need to illuminate a few points of course before telling you what I believe this is.

Sovereign debt problem

Greece’s meltdown is the most acute but definitely not an isolated case as the vast majority of western governments are borrowing from financial markets for some time now. Of course, the size of the economy, its agility, taxation, levels of saving, financial discipline are just some of the factors that differentiate countries but sovereign debt is now endemic, and contrary to a prevailing belief not something that could be attributed to Keynesian altruism alone. Governments all over the western world indulged in the idea of ever growing economy, house prices and financial markets pretty much in the same way as the investment bankers did. They were extraordinarily reckless to say the least, didn’t prepare themselves for the looming disaster and now their only way out is borrowing/printing money to recoup losses from considerably lower tax income and bank bailouts. It is recklessness that has brought many of the western governments to their knees. They were way too greedy and wasteful during the boom times to be able to build sufficient buffer for the bad times.

Now you may or may not agree with the bailouts but it is too late to do anything about it. The problem with the Keynesian economics is that you should never temper with its course once unleashed or the consequences will be even worse, and there is plenty of evidence in the past confirming this. Should the governments let the banks fail? Of course they should, this is a fundamental requirement of the functional free market economy highlighting the Austrian School of Economics, although I do not agree entirely with all of its principles but I’ll talk about this some other times. The governments should not interfere with the economy but rather act as a social buffer when unfit enterprises go bust (including banks).

Light at the end of the tunnel

I need to make it clear that this will be presented from the point of view of current state of affairs. First of all governments should stick to Keynesian pumping of money into their economies for as long as they can, there is no return now or the damage will be unbearable and twofold – broke public finances and unhealed economy. Once the limit is reached and the recovery secured they should focus on fixing public finances (pretty much what the current UK government is working on at the moment). However, in the future they should stick to basic free market principles and allow reckless enterprises (including banks) to fail or else they will never change their behavior. Too big to fail should definitely be erased from the vocabulary.

The second point features far-reaching importance in my view. The governments should leave start up companies and micro enterprises completely alone, scrapping all the taxes for the first few years, paving the way for their growth. Their competitiveness should be secured in the early stages enabling small companies to thrive in the safety of the no-tax environment. The society in general should support and nurture the entrepreneurial spirit so that these companies could once become the major contributors to the overall economy. This is what America used to do decades ago and this is how the American success story began. Well, America seems to be astray at the moment but free entrepreneurial spirit is the most important idea that the US should export now and the western world needs during these difficult times.

UK house prices set to soar!

How much should we believe mass media in general? Looking historically, they all run to tell us what will happen next only to be disappointed because we often realize this eventually didn’t happen or even if it did, it was only here and there that they get it right. Why is that? Well, journalism is not what it used to be, I guess. Instead of having investigative journalism we are now consistently bombarded by populist gossiping shy of any objectivity. So why am I talking about this? Because I recently read one such bombastic headline in one of the popular UK newspapers stating that house prices are set to soar by at least 20%. Apparently they are not making it up because this is according to property experts, and they are claiming extremely low interest rates, cheap mortgages and a shortage of supply are to be blamed. Fine, but let me tell you why I simply do not believe them.

Interest rates

First, let’s take a look at low interest rates. We all know western governments have pumped hundreds of billions of dollars into their economies to ease the pain from the financial meltdown. Quantitative easing is the main method they are using yet we haven’t seen any serious inflationary pressures that would normally result from printing huge amounts of money. Why is that? The main reason for the lack of inflation lies in the so called production capacity utilization. In the past two decades the world has seen an unprecedented growth in China, India and some other emerging economies. The end result of this growth is that the world economies are now capable of producing much more than ever before leading to an enormous spare production capacity. Huge factories all over the world but particularly in China lay empty waiting for new orders. The Federal Reserves statistics show that in the US alone production capacity utilization in 2009 stands at 70.1% and is at its lowest since the start of the data series in 1988. In Canada the use of capacity in 2009 stands at 67.4%, also the lowest since the records began. China’s excessive capacity on the other hand is staggering with capacity utilization rates of just 76% for steel, 75% for cement and 73% for aluminum in 2008 when demand was at its highest for years.

So, what do these figures tell us? Well, it’s rather simple really. As long as the world has to deal with such a huge excessive capacity we will not see the inflationary pressures. That is why the western governments are so eager to pump the money into their respective economies. However, we are in 2010 now and industrial production is showing signs of recovery leading to higher than expected inflation. On the other hand, empty factories are rarely properly maintained and become quickly obsolete so the total capacity is now in decline, which will push the capacity utilization rates even higher. As a result inflationary pressures will soon become a major problem of the healing world economy and governments will have to respond by raising interest rates. How high will they go? Who knows, perhaps we may come back to rates above 10%!

Cheap mortgages

Mortgages are not cheap, period. While a typical bank in the UK for instance may offer a 4.5% mortgage you have to keep in mind that the Bank of England (BoE) base rate is just 0.5% which is NINE TIMES lower. In 2007 BoE base rate was 5.75% at its highest but the rates you got from your high street banks were only slightly higher. That to me makes mortgages comparatively more expensive to say the least and considering huge losses banks are yet to recover, it is ludicrous to expect mortgage rates will stay as they are in case BoE increases the base rate. Believe me, current mortgage rates will increase alongside increases of the base rate because banks need our cash. Then again, did you know that there is no upper limit for mortgage and loan rates? Banks can effectively increase their rates as much as they like. To illustrate, an increase from 4.5% to say 6% would add roughly 30% to your monthly installment. Figures may look ‘small’ but it is the rate of change that matters and in our simple example this change from 4.5% to 6% represents a 33% jump. Honestly, how many people would be able to bear such increases?

Shortage of supply

To relate the discussion to my previous point, Buy-To-Let (BTL) will be the most affected part of the housing market. Any significant increases in the base rate will literally wipe out a large portion of the BTL market. Why? BTL market profitability depends on rents and these have been stagnating for quite some years now. In fact, in many places across the UK rents are still in decline because there is a surplus of properties to let. Low interest rates are therefore the only major factor that has prevented a massive default of the mortgage-intensive BTL market. Most of the BTL owners have taken out mortgages to fund their ventures and for years they were relying on low interest rates and high rent yields. Circumstances have obviously deteriorated and just small increases of the base rate will force BTL ‘owners’ relying on mortgages to sell as soon as possible because they will not be able to bear the additional costs without increasing the rents. Of course, they cannot do this because the tenants cannot afford to pay higher rents and because there is a surplus of available properties. So in essence, the current status-quo in the BTL market conceals the real supply which will be unleashed as soon as the mortgage rates increase. We will then witness an enormous surplus of supply which will lead to the second stage of the house price decline we are witnessing at the moment. This is not going to be a crash but rather a very slow and persistent decline. Another evidence of this comes from housebuilders. House prices are still way above the long-term average and normally it would make a perfect business case to build as much as possible yet housebuilders activity is at its lowest since the WWII. Why is that? Well, they are cautious because they are aware of the simmering BTL problem. They do not want to build now because building is resource intensive process up front while profits are only generated once you sell a house several years down the line. In effect, if a housebuilder starts with a new development in 2010 they will not see any money in their coffers for at least a year or even longer and God knows what will happen with the BTL market during that time. It may easily implode releasing a tsunami of new supply to the market crashing the prices and badly affecting housebuilders’ sales. In such a scenario housebuilders will not only face decreasing income from sales but also increased costs for marketing. Consequences could be devastating and witnessing the first wave of decline they are certainly not prepared to burn their fingers any time soon again. It is simply less risky not to build anything at all than commit resources up front for something that may not even sell a year or so from now.

Some people argue that maintaining the status quo for years to come may actually alleviate the problem. This would be possible if the government would have an unlimited supply of money for at least 10 or 15 more years. Yes, the reality is different as we do not live in Alice’s wonderland and no matter which party wins the UK election today, it is imperative that they bring the public finances back to normal as soon as possible. Cuts are inevitable and will be felt over many years ending the status quo and driving a large portion of the BTL market out of business. House prices will steadily decline below the long-term average and stay there for some time before climbing back again. Will we get rid of  boom and bust economic cycles? I don’t think anyone can promise that but in complex systems things need to decline before they are booming again and so on.

Consolation

South Hill Park Mansion in Bracknell

We are definitely consumed by weather. It’s miserable today and so far every single person we met was talking about weather. It’s a Mayday bank holiday and we are preoccupied with our daughter’s ballet performance that happens only every second year. It is a big event, she is totally thrilled about it but then again I don’t find spending the whole weekend driving her back and forth particularly amusing, though miserable weather is making all the difference. You can feel that nobody is too concerned about losing the whole weekend, even chaperons look really relaxed despite the chaos around them. Weather can be a marvelous excuse for all sorts of things. For instance, I actually don’t mind sitting in the South Hill Park Theater’s cafe while watching greyness of the day from the comfort of an armchair slowly sipping my hot chocolate (I already had cappuccino in the morning). My daughter is thrilled, feels really proud and weather has come in really handy having at least some consolation for spending a day driving and waiting. It’s interesting how sometimes small things can make such a big difference. It’s all just a reminder that we don’t need very much to be really happy.

Garden: South Hill Park Mansion in Bracknell

South Hill Park Bracknell

Winter 2009/10

Plenty of snow outside! Some 9in in and around Berkshire. Picture taken from our living room.