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Investment view

In capitalist society, the consumer is king. The aims of communism were very laudable – to the state all you are able to give and from the state only that which is needed – but human nature does not work like that. Even China now embraces consumerist ideals. Indeed, it seems hardly appropriate to describe China as a communist power any more in the sense of the ideals established by Marx and Lenin.

It is to consumers that the World Central Bankers have been talking through their aggressive rounds of rate cutting. The aim is to entice consumers back on to the streets. This week we may get an indication of just how successful this ploy has been – in terms of the UK, that is. A fair sprinkling of names familiar to shopaholics will be reporting their results this week, including Great Universal Stores – which owns Burberry and Argos – along with Heals and Harvey Nicks. Allders, famous for its duty-free shops as much as for its department stores, is expected to give a taste of what is happening in the wider world of retailing.

The trouble with deadlines is that some of these companies may have already disclosed their trading performance before you have even had a chance to open this paper. But this does not take anything away from the importance of the figures. It merely makes it difficult for me to attempt to forecast something that may already be in the public domain.

Anyone who has heard me speak at seminars will know that I set great store by the behaviour of consumers. Research in the US shows a direct correlation between the ability to spend and the performance of the stockmarket. Harry S Dent divined that American consumers are at their greatest propensity to put their hands in their pockets at the age of 47. This is not as irrelevant a statistic as you might think. If you know the birth rate, then simply adding 47 to the number of people born will give you a good indication whether there are more or fewer high-spending consumers around at any given time. Valuable material for marketing men.

Dent&#39s contention is that the baby boom in the US would ensure high consumer spending – and thus good stockmarket performance – well into the second decade of the current century. You only have to look at the age profile of Americans buying Harley Davidson motorbikes to realise that the contention is far from fanciful. Back-testing his theory – or even using similar criteria in a different market – suggests there is some merit in this approach.

Which brings us back to the monetary policies being adopted in the US, continental Europe and, hopefully, here. Spending is, quite understandably, associated with overall financial well-being but the truth is that many purchases are financed on credit of some kind. The cost of money is thus an important component of any consumer&#39s spending plans. Moreover, even if what is bought is not being financed through credit, there is the fact that other borrowing, most particularly mortgages, will impinge on an individual&#39s ability to go out and spend. If your mortgage costs you less, you have more available for discretionary spending.

So we should be looking at the figures coming out this week with particular interest. All the recent surveys suggests that consumer confidence has suffered badly in the wake of September&#39s terrorist attacks. Yet some sectors still seem to be holding up well. Electrical goods and the bottom end of the furniture market are cases in point, while central London and luxury goods have been hit by the fall-off in tourism and the desire of the American traveller to stay at home. All this is anecdotal evidence, though. This week should give us a real feel for what is actually going on.


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