Crash Course...

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Is a major crash imminent? Well not yet, says Phil Draper.

APRIL 2004

So is a crash for boatbuilders just round the corner? Well I can no longer see one clearly that’s for sure, although I wouldn’t have been that optimistic a few months back.
Why’s the market still holding when perhaps it is overdue a contraction?
I believe the reason for the continuing health of this market is locked into low interest rates — not just here, but throughout Europe and globally. And I just don’t see them changing much now, at least in the short to medium term.
Macro-economic theory seems to have adjusted over the past decade. In the past adjustments to interests were often too late and too heavy-handed. Remember it was only six or seven years ago that interest rates across Europe looked low at eight or nine per cent! Now base rates in my home country, the UK, are only four per cent, and they have been nudged up just a couple of quarter points recently to cool excessive consuming spending that has been largely funded by borrowing. And in the Euro-zone and most other major boating markets around the world interest rates remain even lower.
The mechanism at work is simple. For a start, with interest rates low, saving is certainly discouraged. Link that to poorly performing stocks and shares and the incentives to buy rather than keep hands in pockets are clear. Of course, all these mentions of interest rates are not to suggest that our business relies solely on consumer credit. It does not. While for some the ability to borrow cheaply will clearly play a part, for many more their wealth, or perception of financial health, is merely a reflection of consumer activity lower down the ‘food chain’.

“It is not only a case of the rich getting richer, but very probably everyone else getting a bit richer too...” 

Ironically all the gloom and doom of the past few years has probably kept rates nice and low — which has almost certainly boosted our business, not dented it.
It may be controversial, but I suggest that if there had not been a 9/11, an Afghanistan and Iraq War, or the shaky stock markets, things would have probably overheated long ago. Then interest rates would have gone up — probably like they did in the old days too fast and by too much. And had that been the case, we would probably all be far less positive today!
As it is, consumer confidence through much of Europe is still in pretty good shape. The only exception to this is probably Germany’s performance as a market over the past decade, but there are undoubtedly other reasons for that, so I don’t believe it disproves my theories at all… So while interest rates stay low, I reckon Europe’s boatbuilders will see no nasty crash, just a gentle rise and fall in markets reacting to domestic whims…
As to why it seems less small boats and far more bigger boats are being built these days, my initial assumption, without to much thinking about it, was that it must be a case of the rich getting richer and the poor are getting poorer — that old chestnut. But think about it. Who exactly is getting poorer these days? The most primitive parts of the third world are certainly no poorer than they have been. And everywhere else standards of living are steadily getting better. Indeed in Eastern Europe and China in particular industry and prosperity are progressing at a terrific rate. No. The simple truth of it is that, generally, it is not only a case of the rich getting richer, but very probably everyone else getting a bit richer too… And that must surely bode well for the long-term future of our industry!

© Phil Draper