Saturday, 21 February 2009

Bottom Feeding

It's Saturday and I have spent the day bottom feeding.

In an ecosystem, a good balance of creatures will have a number of bottom feeders - those animals whose job it is to clean up the debris and waste in the ecosystem to allow for renewed growth within the system. Worms, ants, wasps, they all perform this vital function. They clean up the environment by removing waste in the ecosystem.

Exactly the same occurs in an economy. As companies cease trading, their assets are disposed of by the liquidators and administrators. In the current recession, we have seen a number of retail operations go into administration - usually with a great fanfare of job losses - only to come out of administration as the core business has been disposed of as a going concern. Funnily enough, there is little fanfare about the jobs saved - good news doesn't sell newspapers.

In recent weeks, we have seen Whittards come out of administration with 1,000 jobs saved (see report) and Adams has come out of administration with 1,900 jobs saved (see report). The bottom feeders in this process go under a sexier name - they are value investors. For some time, value investors have been buying in the stock market. The headlines surrounding Warren Buffet - possibly the most famous value investor - is a testament to this.

And now we see that value purchasers are returning to the High Street. January UK retail sales were up as shoppers took advantage of deep discounting by stores (see report). In this respect, we joined the trend today. We needed a new bed for our spare room, and managed to buy a bed normally costing £600 for £300.

We have wanted a new TV for some time, and we managed to buy one previously costing £450 for £370. Strangely enough, the TV that we bought was on sale for £350 two weeks ago. Perhaps there is a message that we ought to heed? Are retailers discounting less as people return to the stores?

This leads on to the key question. If we are seeing value investors purchasing assets for pennies on the pound, if we are seeing price sensitive consumers return to the High Street, then are we seeing the bottom of the recession start to emerge? Perhaps Baroness Vadera was right when she said that she could see a few green shoots of recovery (see report)?

For my part, I am now going to watch Ipswich Town thrash QPR on my new telly!

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