£13 a week explains the stock market boom

Aug 13th, 2013 | By | Category: International

“Sure, it wasn’t worth going to England to work, was it?”

The octogenarian looked at him and obviously decided that the worth of crossing the Irish Sea in the 1950s and 1960s needed to be spelled out. “I earned £13 a week when I lived in Brierly Hill, and I could earn more by doing other jobs in my spare time. I lived in a boarding house where there were fourteen of us. The landlady had offered me a place in  a room with three others, but they were a rough lot and I asked if there was a single room; she gave me a small room that had the immersion heater in it. I didn’t mind that, it was lovely and warm. We got a fried breakfast and sandwiches in our boxes for ten o’clock break and lunchtime and then we got our dinner when we got home. Our washing was done every week and left on our bed on a Saturday morning. Do you know how much it cost?”

It was impossible to guess.

“£3 a week”.

Quick calculations suggested that the landlady was perhaps not doing too badly from the deal. Fourteen times £3 was £42, even if each tenant cost £2 a week, there was probably £1 a week profit: £14 a week, £700 a year.

The doubter was not persuaded. “Sure, you wouldn’t have bought much with £13 a week”.

The man turned to him, “You would when you could come home to Ireland and buy land at £100 an acre”.

The Irish workers who migrated in their tens of thousands felt their labours well rewarded because the situation at home was so poor. The wages were probably very modest, but were being earned when the workers’ counterparts at home were earning virtually nothing. Young men in rural Ireland might work all week on fathers’ farms for a few coins to buy beer and go to a dance on a Saturday night.

The story helps in understanding what is happening on the financial markets at the present time. Things are so bad in major economies that governments are keeping interest rates very low in the hope of stimulating investment. Financial investors are like those Irish workers, they will think even modest payments are attractive because they can earn so little elsewhere; they pour money into the shares of companies that may pay dividends and, as they do so, push up the price of those shares. The stock markets around the world are touching record levels at a time of deep recession and the early investors are content with modest dividends which attract further buyers pushing the value of holdings of the established shareholders ever higher.

The emigrants travelled because of the weakness of the economy; the investors shift their money to the stock markets because of the economy. The workers who did well were those who got their money out and invested in assets that had become cheap, like land at £100 an acre. How long will it be before the investors decide to take their profits, to invest elsewhere, and start selling their shares leading to sharp falls in the market?

The octogenarian would understand the financial markets.

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