Thursday, 30 October 2008

"I see no HIPS?"



Pondering Mr Drew's post below on the likelihood of a snap election, and the comments, I can't quite believe he will do it.

In the days of the Battleships, when the Royal Navy ruled the waves, officers equipped their wardrooms with plants, chairs , tables, bars, and whatever little luxuries they could afford. A ship was judged by other sailors on the splendour of its senior mens quarters.
But, just before battle all the wood paneling and wardroom sofas and stuffed chairs, mess tables mirrors , carpets, paintings, sports equipment and trophies was disposed of, over the stern. Plus food, the paint, cleaning equipment, flammable material of any kind, sometimes even the crockery and utensils for 1200 souls would all be thrown over the side.
This was war. When battle was coming and the phrase "Clear the Decks" wasn't just to have a good working space. It was to prevent unnecessary casualties from shrapnel, wood splinters and flying pots, plates and pans. If you lost the battle the whole ship was gone, so what price a few cocktail cabinets?

Ships that had spent their peacetime winning awards for the pristine paintwork { the paint often paid for by the captain himself as war office supplies were so meager}, were suddenly painted a universal dull gunmetal grey for war.

This is what's occurring. Probably not a snap election but a preparation for war.
So the likes of 'family friendly flexitime' goes over the side with the gramophone and "700 new armoured vehicles for the troops" comes up the ammunition hoists.
Deception tactics like the high speed rail links between London and Birmingham, that will never be completed inside of 20 years, suddenly get airtime to take heat out of the Tory plans for a high speed link.

But the Tories need to understand that Labour is serious. Mr Brown, like a good admiral, cares only for winning the battle.He is prepared to take the Tories on. And preparing to win at any price.
Captain Cambell and Commander Mandelson have already been taken off the reserve list and given a command. That means even the most prized policy and deeply held socialist beliefs are not exempt from being discarded. See Mr Drew's list below for a sample of the already abandoned. So the Unions, Afghanistan, America, Lisbon, SATS, Scottish Labour parties concerns,PFI, tagging offenders or Student Loans, Public sector pensions, green energy, equality and diversity laws, immigration, lone parents and his own reputation for prudence can all go overboard with the expensive paneling if Mr Brown feels that they will not be needed, will be a diversion or may cause him damage come election time.

Cameron's Tories still seem to be hanging on to cherished policies like the fuel escalator or double the number of single rooms in hospitals. Maybe the Tories need to stop sitting around in the beautiful teak lawnchairs on the aft deck sipping gin and tonics and prepare to go to action stations dumping any clutter, dead weight, ballast, hazardous items or unnecessary policies or people over the side and get their "A" team on the bridge right now.

Because a big and bloody battle is coming, and Admiral Gordon is taking no prisoners.

Snap Election ? Why Would Anyone Think That ?

A couple of weeks ago, amidst the storm, NuLab quietly dropped SATS testing and 42-day detention, causing some to raise the intriguing possibility of a snap election before things get any worse. The idea has been widely dismissed: surely Gordon's learned his lesson etc etc.

Well.


Just in the last three days, we've had the following from ministers:

- prisoners are to have an altogether nastier time

- 'an end to bogus disability claimants' (again)
- 'equal opportunities for whites'
- hate preachers are to be banned (again)

- hints on a 'cap on immigrant numbers'

- a hint that the Heathrow 3rd runway is to be abandoned


OK, maybe just keeping their options open, but it looks kinda like a pattern ...


ND



Wednesday, 29 October 2008

Why Barclays Don't Want Gordon Brown's Bailout


As ‘negotiations’ continue between the authorities and a number of banks – notably Lloyds-TSB, RBS and HBOS - the terms for the great Brown Bailout have been seeping out. Bonus policy, foreclosures, lending to SMEs, dividends … Brown is in seventh heaven as he dreams of calling the shots in all these areas, and doubtless his shopping-list will lengthen if he feels he’s making headway.

HSBC is only too happy to be above the fray. But why was the smaller and apparently more precarious Barclays so keen to avoid taking Brown’s Bounty ?

My spies in the City tell me that there’s another price to pay for the Darling Dole: banks must forswear promoting and funding ‘tax schemes’. Long the bane of the HMRC, banks have had whole divisions beavering away
, on behalf of themselves and numerous clients, corporate and private alike, at wheezes to deprive the government of tax revenues .

And none more so than Barclays, whose clever (and entirely legal) tax schemes, particularly on the VAT front, are a significant business line. Some of their wheezes – that trick of avoiding VAT on new computer systems, eh, lads ? – have sent the HMRC into apoplexy.

So – it’s Qatari capital and freedom, for independently-minded Barclays; and Brown can keep his bailout. How long before Lloyds decide it’s not worth the candle ?

ND

Tuesday, 28 October 2008

Gordon Brown saves Russell Brand and Johnathan Ross







The Prime Minister broke from his high level summit meeting in Paris with President Sarkozy to make this monumental pronouncement on the worrying situation currently being experienced in the United Kingdom.


"I have become a sort of political Ricky Gervais lately. Popping up on soft chat shows to give my opinion on anything and to promote myself and my book {"No time for change." Hodder and Stoughton £19.95}, and now holding press conferences about people that I have never heard of. It is difficult to exaggerate the severity and importance of these recent events. Not since the beginning of the First World War has our light entertainment budget been so close to collapse. A few weeks ago the jokes on Friday Night with Johnathan Ross and The Russell Brand show started to dry up. And then yesterday the BBC went into meltdown. "said Gordon Brown, The Prime Minister.

"A terrible serious of unfunny and puerile pranks, that started in America with the likes of Lenny Bruce and Howard Stern, and spread across the Atlantic to engulf UK DJ's such as Chris Moyles and Chris Evans led to an attack on an EU national, working in the food and hospitality industry,and has required this government to take firm action. The government drafted in its own spin doctors and joke writers and bought up 50 billion pounds worth of shares in Johnathen Ross and Russell Brand to ensure the survival of the genre. The BBC's flagship stars have been taken into temporary public ownership until the crisis passes."

He went on to say..
"Ross Kemp and chat show host Russell Harty have been earning very large salaries and getting big ratings bonuses but it has led to a culture of irresponsible risk taking that has now bought television to the very brink of the abyss. The light touch of the Furious Satire Authority [FSA] have allowed BBC Radio 2 comedy to become largely unregulated."

So, I announce today, that there is a need for more boring television and radio shows."said the PM. "The popular BBC 9pm -1am Friday night slot will now be taken up with repeats of Last of the Summer wine, My Family and Terry and June. Radio 2's 10am Saturday show will be replaced by an extended Moneybox and a Quote-Unquote special. I have also called for much tighter controls by the regulator SWCHOF on Nick Ross and Jo Brand or whatever their names are. I believe these measures will restore public confidence in the mind numbing dullness of the BBC's offerings."

The PM then grimaced for the cameras before returning to make his apologies to the President of Slovenia who's speech he had interrupted to make this statement

Johnathen King, the governor of television, believes it will be a "long, slow haul".The BBC's stars have been propped up and actions taken to stave off their collapse but for millions of households the next year will be far from comfortable. Repeats of Dad's Army, Simon Scharma's History of Railway Tunnels and endless repeats of the Antiques Roadshow. BBC Parliament MTV and that silly carboot program are the only fare as the BBC struggles to get back on an even keel.

Later the Prime Minister called on all other European Union members to follow his lead and adopt "The Magnificent Brown Plan" in their own countries. Meanwhile billions of pounds have been wiped off the value of Johnathen Ross and Russell Brand and the stars popularity still continues to fall every day.

Losing financial morality; the dangers.


Mr Quango and I had an interesting debate last night. He was telling a story about a young lady he had met who was trying to get her money from Icesave to put into an Indian bank, because they had the best rates. She was very happy that the Government were guaranteeing that she could be gambling with her small savings whilst having no risk. In fact, she was being very economically rational.

Just as the Taiwanese are when saying that they no longer accept ratings by US ratings agencies on various debt products. Why should they trust what may well turn out to be actual crooks? The downside for the US is that if other countries follow this lead (China is making very strong noises today), the the US plan to issue treasuries to get through its debt problems will be busted.

Back to the UK, most people who have paid into private pensions in the past 3 years now would have done better to take their money to the pub. I would be willing to bet that ALL funds from this past year will have lost more less value than was paid in over the past year. Yet public sector workers paid from taxpayers money are 'fully funded' (debate for another day). Cui Bono?

Finally, the Government has announced that Keynesian economics is the are forward and that the busted policies of the 1970's will have different results this time. At a lower level though, it shows me that the Government chooses to live in a way that would bankrupt is citizens. Too much debt due to poor decision and living the high life, just change your own rules and open up another credit card. Suffice to say, I really don't rule out a call to the IMF if the crisis lasts another few months.

Overall, moral (rational!) probity in finance is a very important asset now being squandered by Government actions and regulations. World market swill make us pay for this. It is all very anti-small c conservative. How this will work out is beyond anyone to predict, but many of the measures we are seeing now are sowing bad seeds for the future.

And with that, I am off for a couple of weeks. Don't expect (too) many posts from me. I am sure Mr Quango and Mr Drew can keep you all entertained.

Monday, 27 October 2008

Economics the Guardian Way


Ashley Seagar, 'economics correspondent' of the Grauniad, has some uplifting thoughts about Feed-in Tariffs, the compulsory payments given to uneconomic types of power generation in countries such as Germany and, he hopes, soon in the UK:

"FITs work by paying an above-market rate for renewable electricity ... FITs are not subsidies but work to boost markets ... the FIT costs the average German family € 20 a year in dearer electricity"

Ah, that sort of non-subsidy.
Thank you, Ashley, we get the picture. And I think we can guess which 'market' they boost.

ND

Ukraine goes to the IMF; who else is in line?


The post I did a a couple of weeks ago on RISK comes true. Now the Ukraine is seeking quite a lot of cash from the IMF to help stabilise its economy. This adds to Iceland, Hungary, Argentina and others.

As such there have been no big country casualties yet, Russia would have been but for its large FOREX reserves built up through the oil peak of the past couple of years.

The IMF has $200 billion to lend and seems to have committed roughly $30 billion so far. To me the interesting thing would be if a country such as the UK was forced to go and ask for a loan. The loan would be so enormous as to overwhelm the reserves of the IMF. Yet it also seems unlikely that this crisis will pass without some larger victims. After all, it is the banks and financiers in Western countries who drunk the sub-prime/CDO/LBO poison the most.

The IMF needs much more funding if it is to be the answer to this crisis and I am sure this is high on the agenda of the 15/9 meeting.

Also on the Risk theme, Sarkozy is running around the world declaring victory for French State-Capitalism - signing up the Asian nations in his 'war' with USA/UK 'Anglo-Capitalism.' An ideological world conflict between the advanced nations?

The outcome of all this will be most interesting, no one I meet is in favour of less financial regulation and co-ordination - but will the solution be a return to the failures of the past or a brave new world order?

Friday, 24 October 2008

Planting trees in the magic forest
















The KPMG/SPSL Retail Think Tank (RTT) has unveiled its latest Retail Health Index (RHI) ratings for the quarter and its forecast for the next quarter (the essential Christmas quarter)

In a slightly odd statement they basically said "Its tough. Quarter three was not as bad as feared but quarter four will be much worse"
And then followed up with
the slightly Lord of theRings “It’s important to state that despite the somewhat negative predictions, we are not harbingers of doom. Yes, some smaller, weaker, just plain unlucky or poorly financed retailers will fail in the coming weeks and months... and those that fail will not only ensure radical changes to our high streets, but leave fallow clearings in the retail forests where new ideas, new products and new retail gurus will flourish”.

Lucky us.

The dead wood under financed old style retailers will all die and new well funded slick,modern, professional powerhouses of modernity and consumer choice offering excellent service will take their place. But even the best retailers are having tough times.
At like-for-like levels there is a decline, which has been the case for six of the last seven months. Inflation is behind much of the growth in food, and this is the main driver of overall performance. The non-food sectors continue to suffer, with all apart from footwear showing like-for-like falls and furniture and electrical and luxury foods being the worst hit.

John Lewis has seen a decline in weekly sales by 7.6% This included a decline of 9.6% in electrical and home technology.
DSG International {the old Dixons chain.. and Currys PC world} has seen a 7% fall in like-for-like sales. Rumoured to need to close 200 stores back in January these latest figures aren't great news if quarter four is to be worse.
Sports Direct International group reported that trading conditions continued to be the hardest that they had faced in its history.. And took time out to buy up some 5% of shares in ailing rival JJB Sports. Sports Direct have shares in Blacks Leisure and JD already.

Will this mean some mergers of existing companies? One big sportswear and leisure chain?

JJD Sports International?
John Lebenhams department stores.
M&Ext fashion and homewares
TK Primatalan?
Is this what the retail think tank really means by "new retail gurus will flourish"?


Time's up then...


Well, this is it. We have finally talked ourselves into a recession. For a long-time this could have been avoided with just positive thinking and everyone going out and carrying on a normal, but n0. Those nasty pessmists have had their dreams come true. I'd just like to thank those superior intellects who have stuck by not talking ourselves into a recession mantra:



Shriti Vadera (the real UK Chancellor)


Martin Broughton, CBI Chairman

Stuart Rose, M&S Chairman & CEO


This was just the first page of googling, there were 200,000 hits. It serves a useful purpose though, at least in the future one can be sure that none of the people who came out with this drivel know much about economics or markets and so can ignore their public statements.. Just as well none of them are in charge of our destinies, eh?

Thursday, 23 October 2008

Where will we go from here?

I have spent far too much time recently reading blogs, books and watching telly about the current financial crisis. However, it has made me take some decisions which are 180 degrees from what I was thinking a few months ago - events are moving so fast at the moment. I note even the FTSE predicitions market is NEVER right anymore, the betting is just pure guessing.

When I started this blog, I said its purpose was to explain complex financial issues to all, so with that in mind below is a snapshot of what next year may bring to the world and UK.


However, one year and a bit into the financial credit crunch some key decisions have been made that will shape the future for all of us. The banks were bailed out, something I would have been totally against this time last year, but in reality it was needed to stave off immiediate disaster. What was less clear is what long-term effects this will have on us all.


Some though are obvious, the great de-leverage continues across the world. So much so that for once, ALL financial bubbles are bursting at the same time. Not just UK property, but Commodities, Shipping, currencies, BRIC stock markets - everything. This has and is causing massive deflation in a very short space of time. All that excess money is simpy vanishing away and taking the prices away with it. It is also producing some odd effects; in times of stress, Gold is seen as a safe bet even gold is pushed in all the media these days as the only true safe haven. It is now 33% down from its high of the year and I shifted my ETF into short gold with some success last week. De-leverage will bring everything down in price for a while yet. How long it impossible to know, but it will be a few months more would be my guess. The FTSE won't reach 6500 for some time that is for sure, perhaps half of that if the de-leverage continues much into next year.



As this deflation bites across the world consumption will fall and there will be a deep recession. The next stage is potentially worse; there are 2 scenarios.


1 - All the money poured into the banks frees up the system and the world goes back to work, albeit with lower prices, less leverage and bigger public debts in the Western economies.


2- Too much money is created, people realise this and so inflation kicks-in at a very high level. this wipes out the debt, but takes all the savings with it. Worst case we get hyper-inflation, time to put money then into real things, houses, gold etc.


Which of these happens, or a milder combination of both depends on events not too far away. If the G20 meet on November 15th and agree a new bretton woods, then some element of stability will out and the worst of the doomsayers will be wrong. But the Governments have a very poor record of economic management in the crisis to date, so I think scenario two is a distinct possibility.

Wednesday, 22 October 2008

G-Upmanship: Riding Gazprom's G3 Troika

A 'Gaspec' to mirror Opec has long been talked about, and now we have the "Gas Troika" of Russia, Qatar and Iran. Where's it headed?

In case there might be any doubt, Ga
zprom's Chairman Alexei Miller has helpfully given a steer:

"the era of cheap hydrocarbons has come to an end, and the parties will proceed from this standpoint in their work"

Thanks, Alexei: and didn't you also
tell us in J
une that oil would hit $ 250 per barrel ? And, remind us, most of your hard-currency gas sales are indexed to oil, yes ? Oh, and the price of Gazprom shares recently ..? Well exactly.

Neither Qatar or Iran will have any undue expectations about getting Russia to observe any production quotas they might propose: not Mr Putin's style at all. No; and he's pretty miffed at being frozen out from the post-Georgia Top Table as G8 deliberations have reverted to G7: no-one seems to want his views on the economic crisis. No coincidence, we suggest, that he's also calling the Troika the 'Gas G3'. Gee-up, there !


But there is a serious point to all this. For a good few years to come, much of Europe is hooked on Russian gas. Collapsing oil-linked gas prices and eroding Gazprom credit-standings will do nothing to help finance the huge capital expenditures needed to keep this show on the road. Germany in particular can expect to be invited to bridge this growing funding gap: by direct investments, loans and perhaps renegotiating gas prices. Italy may get a similar approach.


The Troika may be mostly a vehicle for cutting a dash in the snow. But Russia's need for sustaining high energy prices in the coming downturn is more than a parochial concern, and we may all need to think of new ways through the wintry weather ahead. Christmas candles, anyone ?


ND



Tuesday, 21 October 2008

Meanwhile ...


... back in the country that's "best-placed to weather the downturn" ...


If this is what happens when Sterling LIBOR comes off a bit, watch out for when the Base Rate is cut.

ND


UPDATE (hat-tip BlueEyes)




Wow, it's hard to keep up




Lehman's Bomb Disposed?


Here is a link to the latest news re the Lehman's CDS close today. Perhaps after all there is to be no explosion? I did see this as well today though.

If tomorrow, when the dollar amounts are announced by the various parties involved, reveal no major losses (a small Hedgie should not be too much to worry about if it comes to it!), then this is a great crisis passed.

CDS may yet come to haunt the world at a later date if other big institutions go down, but for the moment this might be another sign that the credit crisis is past its worst point. LIBOR is coming down, money markets are opening up...what was that phrase? 'The green shoots of recovery.'

Now only a serious recession to get through and years of paying back the debt from the bail-out. In my wildest imagination I wonder if the scale of the bail-out would still be needed if less heed was paid to CDS rates. Traders looking at these were one of the main causes of the huge share price falls.

However, now the socialists have their hands on the throat of capitalism, they are not about to let go...

Debenham's shows the outlook for retail


Debenham's gave a retail update this morning, its sales are down 0.9% although it says it is gaining market share (its competitors are M&S, Next and John Lewis). Its debt burden, built by the financial wizardy of Private Equity ownership, is £994 million, down nearly £200 million from last year. The current management team are up for a near £50 million windfall between them from the re-float of the company after the Private Equity ownership.

But to do this it has had to cut its dividend to 0.5 pence per share (still not too bad with the shares now at 33p, less useful if you had bought them when it floated at £2 a share).

The story here though is of a company is pure stasis. It has too much debt to invest in any new products, stores or technology and it faces a tough consumer market in a receession. Yet good management may see it through, but this won't be the driver of the UK's way out of a recession.

It is a fragile company despite its size and history and as such it reflects much of the UK retail market. The share prices of this industry are under-pressure and it looks like it will stay that way with results like this.

Monday, 20 October 2008

Volkswagens and Autobahns.


Volkswagens and Autobahns. Spending your way out of depression is the new "big idea" at the Treasury, with borrowing to date reaching £37.6bn - the highest since records began in 1946. The claim is we will even have something to show for it at the end. The NEW DEAL is the New Hope but it wasn't just the Democracies who tried to spend their way out of the depression.
National Socialist big state spending planned to bring a car to every German family and 1,000's of kilometers of roads for them to drive on.

But did the Volkswagen deliver a Nazi triumph? Chancellor Hitler was very upset at the very small number of families who could afford a motorcar in post Wiemar Germany. German families were much poorer than their European and American equivalents and the high cost of imported fuel [mostly through Nazi taxation!!] made motoring prohibitively expensive. Plus the cost to manufactures of scarce materials like rubber made unit costs of cars high and they sold at around 1450 Reich Marks. The price and running costs of a motorcar in 1937 were equal to the entire disposable income of an average blue collar family. Adolf demanded that the motor industry emulate Henry Ford and get a car to the people. The price must be no more than 1,000 RM. The motor industry said it couldn't be done. But Dr Porsche insisted it could and cuddled up to AH. With the stolen funds and fire sale of assets of the old outlawed Labour Unions the Third Reich planned to build a car factory to rival the largest of American production lines. The factory would produce 450,000 cars a year selling at 990RM .

The press loved it and it became the centre piece of Nazism's claims to benefit ordinary hardworking families. Hitler promised to build a cheap car that almost anyone could afford. He gave it the name "KdF Wagen," which was known as the Volkswagen.
KdF was the abbreviation for "Kraft durch Freude" (Strength through Joy).


To buy the new Volkswagen or "people's car" a scheme was set up where a deposit of 5 RM a week was paid into a zero interest fund, with the loss of all monies in the event of default payments or withdrawal from the scheme.. Once 740 RM or 3/4 of the cost of the vehicle had been paid the car was delivered. In addition a compulsory two year insurance policy costing 200RM had to be taken out from Volkswagen. So in effect the purchaser paid the manufacturer in advance to make the car, and then paid the "balance" under the guise of insurance, and still had 250RM to pay after delivery. Still between 1937 and 1939, 270,000 people invested in this scheme. Between 1939 and 1945 another 70,000 people joined too. 275 million Reich marks were taken in deposits.

Todays quiz. No googling now..

How many Volkswagens were delivered or collected from the factory before the war's end in 1945.?

{Note .. the factory was put over to military vehicle and tank production in 1940 so very few civilian cars were made during the war. But you have the stats for the maths. Your time begins.......... .... .. Now}}

The Day Before


All quiet on the markets today, taking a little respite from last week's mauling no doubt. This week will be interesting to see if the hedge fund continue their massive sell-off of everything to pay for their redemptions. Also to see how insurers cope after the end of last weeks scare.


But really, everyone is waiting for tomorrow and the final Lehmans settlement. can this go off without setting off another major bout of financial turbulence? if so this could be the sign we are nearing the bottom of the crisis market (...just the depression market left to price in?).


Odd to have had a weekend without a bank failing though, not sure I can get used to that again.

Sunday, 19 October 2008

Phrases of the day...


Alistair Darling "At a time like this, it would be wrong to start taking money out of the economy, in terms of cutting back on spending, in terms of tax"

Translation: We will borrow from our future to pay for past mistakes. We will not make recompense now but force our future selves and children to pay for our misdeeds.

Yvette Cooper ""We need a more responsible approach to repossessions"

Translation: Now we control the banks they will do as we say. There is to be no allowance for market renewal in the housing market and unsustainable prices and ownership will be ensured whatever the cost to the taxpayer and market participants.

Phil Woolas " "We are going to be tough in implementing these policies. It is very important that the public are reassured that the authorities, including the Government, know who is coming into our country and who is leaving it."

Translation: our mass immigration policies have been deeply damaging to the country and everyone sees it and we want the votes of those who are unhappy about this, even though we will in practice do nothing differently in the future to what we have done in the past.

Sunday Times


Hat tip: Big Picture

Friday, 17 October 2008

What do we get for our recession

Continuing on a theme

Gordon Brown and the state has to spend the taxpayer's money on something. He neither knows nor can conceive of any other way of saving the economy. The New deal is coming. So given that at any moment all thoughts about restraining national debt are to be abandoned and the mother of all splurges is to be unleashed, what should the money actually be spent on? Equality advisers, firework officers and wheelie bin detectives are the usual non-jobs. But if we must spend, then isn't there something that we might actually need?

There could be 2+ million jobs required. We know Alistair Darling reads here.. {If only he was the real chancellor}. At the moment it appears to be windmills and loft insulation. The loft insulation not actually so silly.It is low cost, low tech and redundant trades people can be quickly re-trained and put back into work. But there must be something else. Something that, like cavity wall insulation, fits into the government's wider aspirations.

1]The refurbishment of schools has faltered badly. Construction was the first industry to feel the recession and those workers are the ideal ones to patch up the buildings, rubber mat the playgrounds, and expand the premises. Then move onto the armed service's homes that are a disgrace. Then the completion of the semi refurbished social housing stocks.
2] School diners has been something government is desperate to be associated with but has done very little to actively promote or even encourage. Spend a bit more and help the faltering pubs and restaurants get another string to the bow. Put kitchens back into schools linked to [1] above
3] Special Constables? With the police unable to cope with binge drinking and Home Office unable and unwilling to do anything about it, more 'officers' trained in basic policing? Able to help with Town Center policing and public dis-order.Some consider these Police as a waste of resources already.
4] Agriculture will suffer with the migrants going home. Some incentive to work the harvest next year? Another low skill area where people can be trained quickly
5] Or be smart for the future. What will tomorrows media studies graduates actually do? If money is being spent now, why not a full repayment of student loans for graduates who achieve their degrees in engineering or mathematics or medicine or whatever it is that we need? Won't help now, but will help for the future.
6] Job creation. Small business sheds workers very quickly in a downturn. Tax cuts or some sort of short term 'work grant' would keep more in work. Again, its wasteful, but the money is going to be spent anyway...
7] Future Lynx and a decent high lift capacity helicopter? A decent APC for the troops? New transport aircraft? All still waiting after years of delay from the government for the nod to go ahead.

8] There is no amount of money that couldn't be spent on the NHS. It would cheerfully swallow the bank bailout without even noticing. But there is a shortage of maternity units and midwives. Training and building needed.
9] Prison building... we could wait another decade or build some now.
10] Government funding for nursery schools would allow mother's to take those low paid jobs IF they earn more / hour than they paid in childcare costs. It sort of does it now, but only 2.5 hours/ day. What job can you get for 2.5 hours a day? Make it for 4 hours.


And..fibre-optic cables for our households.. motorway widening schemes .. old branch rail lines reopened if practical.. the military's falling recruitment due partly to pay....mining.. The estuary barrier power schemes if they have any legs.. the shocking waste of water through leaking pipes.. or maybe just for the social good the modernisation or even merging of libraries and post offices and day centres into efficient, modern, comfortable and pleasant places to go to. After all the money is going to be sent on something. Reopening all those recently closed swimming pools.
Or we could just build a giant email and telephone capturing database.

Your ideas and comments welcome as ever.

End of week: Predictions Results


Last Sunday I posted my thoughts on what I though would be a pretty chaotic week in the world economy; got that bit right. below are last week's predictions and in highlights the actual results:

- RBS. Barclays & Lloyds/HBOS will announce taking of the Governments' shilling before the markets open tomorrow. Despite the huge knock to dividends, this will temporarily support their share prices. The CEO of RBS will resign.

RBS has held up, LLoyds HBOS not so well, they may come back a bit if the Government allows Dividend payments within 5 years. Fred the Shred did resign. Prediction Accuracy - 50%

2- The markets will continue their downward trend as more bad news seeps out into reality. Perhaps not with the vigour of this past week and with a bear rally for a day or two, but downwards nonetheless. Lehmans fall-out will be main bad news to financials sector.

It was a nice Bear Rally, but unless the markets are up over 5% (currently 3%) by the end of Friday then my prediction was spot on. Lehmans fall out will be next week, post 21/10. Prediction accuracy - 90%

3- After the failure of the Sarkozy talks today (prediction), the Euro will weaken further against the dollar and pound. Serious questions will begin to be asked about its viability.

The talks succeeded by the standards of European agreements, but the Euro has fallen heavily. Prediction accuracy: 50%

4- Commodity sell off will continue, as will gold and silver to some extent as margin calls for big traders continue to force liquidation of assets. Maybe some respite by Friday, Oil will end the week under $70 unless OPEC cut production.

Commodities wrecked, oil at $66 a barrel. Gold ans Silver routed too. Prediction Accuracy: 100%

5- Questions will being to be asked of the strength of some UK Insurers as they are battered by huge markdowns to their assets; similar with large pension fund companies like BA and BT.

Insurers are down a lot this week indeed, RSA and Aviva more than the market average, L&G too. This was the front page story on the Telegraph today. BA and BT held up not so badly after last weeks decimation, but are still nearly off hugely. BA is 50% down on a MONTH ago and is heavily shorted.
Prediction Accuracy 100%

Overall Success - 78%. Do you agree?

Friday Competition: Pour Encourager Les Autres

A capitalist who's no longer at work ...


This unfortunate is Jeff Skilling*, quondam CEO of Enron: he is currently serving a sentence of 24 years, 4 months and paid a fine of $ 45 million.


Let's remind ourselves what he did: this is the indictment with which he and two other Enron officers were charged:

"engaged in a wide-ranging scheme to deceive the investing public … about the true performance of Enron’s businesses by: (a) manipulating Enron’s publicly reported financial results; and (b) making public statements and representations about Enron’s financial performance and results that were false and misleading … [and] enriched themselves as a result of the scheme through salary, bonuses, grants of stock and stock options, other profits, and prestige within their professions and communities ...
concealing large losses, write-downs and other negative information … masking the true magnitude of debt and other obligations …"

Friday competition
: can you think of anyone else - perhaps nearer to home - who might prima facie have a similar case to answer ? (no libel, please)


ND


* interest declared: Skilling is *ahem* a personal acquaintance ...

Thursday, 16 October 2008

Labour will make it worse


Robert Peston writes on his blog today that, according ot his sources (HM Treasury) the government is very panicked by the less than stunning impact of Jonah Brown's plan to save the world.

Some people may have said as much. However, the global situation has many problems that are going to take years to sort out and a heavy recession is inevitable. The success of the banking bailout is that we will NOT have a DEPRESSION. Sometimes success is the lesser of two evils.

One way to burden us through recession is through excessive Government spending. This is Keynes worst advice. It never worked in the US in the 1930's - GDP falls, Share prices and unemployment all stayed at around the same levels until the early 1940's. FDR's great Keynesian experiment was a failure. Why?
Because government's do not spend the money wisely. They buy helicopters that cannot fly and bridges to nowhere. Yet to do this they borrow from the future and maintain high taxes that increase the mis-allocation of scarce capital. I don't advocate huge spending cuts which traumatises the situation, but a big planfor public programmes is not the answer.
If Labour do this, they will undo the relative success they have had in re-capitalising the banks.

Wednesday, 15 October 2008

Watching The Lights Go Out (2) - Energy & the Crunch

This entertaining graphic is the EU’s official triad of energy policies. The environmental strand is wittily nicknamed ‘Kyoto’; the competition component ‘Lisbon’ (the energy liberalisation edict, not the Treaty); and the security-of-supply axis ‘Moscow’ (I think we can guess why …).

Notwithstanding the EC’s assertion that these are ‘balanced, integrated and mutually reinforced’, the triad was always under severe tension, and the twin events of Russian action in Georgia and the credit crunch are now stressing it to probable breaking-point.


In particular, security of supply has zoomed into pole position, with gas supplies in particular looking even less comfortable than after the Ukranian spat of 2006. Competition is only really being promoted now by the UK (and the pro-competition hardcore within the Commission itself), which sees itself being stranded at the end of a very long pipeline system.


So – what of the environmental strand ? Didn’t they insist at the Brown-Barroso love-in just this morning that it won’t get forgotten in the excitement ?


As we’ve often noted before, implementing the full “20:20:20” vision would cost a mint. Until recently, energy projects were still able to leverage heavily: but finance is now drying up, in energy as elsewhere.


At the same time, costs of steel, turbines etc have been going through the roof. We can predict that lending may over time become easier; that some costs will fall as the down-cycle kicks in; and that demand for energy will fall for the same reason, making some of the targets easier to hit by default.


However, at best there will now be an investment hiatus of months, perhaps years. And then the lights will start flickering: we are on a ‘just-in-time’ schedule for new electricity generation development, and there is no leeway. And there are only two emergency solutions. In the short term, there will be rationing and removal of environmental constraints. In the medium term there could be hasty commissioning of the only type of large-scale plant that Europe can be sure of building in a hurry and fuelling securely: coal-fired plant, perhaps as part of a Keynsian public spending splurge.


Or, there is the possibility of a major industrial downturn, on the scale suffered by Eastern Europe post 1989. It would help solve ‘Kyoto’ and ‘Moscow’. But probably not the solution the EC has in mind …


ND

Bear Market Rally Over?

Unemployment woes seem to have stopped the shares rally dead today. Sticking by my predictions for the week from Sunday (well, some of them are wrong already). Looking forward to Friday to see what the world looks like with its new socialist sheen.

A long way down from here, methinks...#

UPDATE: FTSE heading for 7% down today - total gain since 'bail out' = 1.1%. Close to call to have above the level of last Friday's crash by the time we reach this coming Friday...

Tuesday, 14 October 2008

Lehman's CDS settlement: Viva the markets!


Guido is linking to an announcement that the net position on Lehman's might only be $6 billion. Perhaps the CDS market is efficient after all and all the fears about trillion $ losses are just hokum.

That would be nice. Does not really explain the huge margin calls being made on Hedge funds though. The problem with this net figure then is that it does not disclose individual positions. Perhaps one bank has made $200 billion and another lost $194 billion?

The final announcement is on 21st October; Plenty of volatility until then.
If there is little exposure, then rather belatedly, it shows we can let banks fail if they are bad. Just as we have bailed out all of ours.....timing is everything.

Monday, 13 October 2008

Nationalising Scotland


It has been said here previously that the Scots 'cost' to the UK is too high and they should be allowed to head off to independence to relieve English taxpayers.

In the Telegraph today there is a leader on how we should all unite now and how silly Alex Salmond looked for saying Scotland could be like Iceland etc. All in all it is better that we are all in it together.

What a specious argument, here are the costs of the bail out so far:

Northern Wreck - At least £40 billion net exposure, maybe as much as £60 billion in the end. Current exposure is £100 billion gross.
Bradford and Bingley - At least £10 billion exposure
RBS - £21 billion
HBOS - £9 billion
LLoyds TSB - £5 billion
Barclays - £3 billion

So that is (rough figures) £78 billion versus £30 billion. But HBOS has Halifax and RBS has Natwest, significant English institutions, as well as many national insurance brands. So a true figure would be much less as even as independent an English Government would want to save its own banks.

There are plenty of reasons to want an end to the union or to keep it. This is not one of them

President Obama is coming


strong Dem Strong Dem (235)
weak Dem Weak Dem (47)
barely Dem Barely Dem (64)
tied Exactly tied (11)
barely GOP Barely GOP (26)
weak GOP Weak GOP (24)
strong GOP Strong GOP (131)
270 Electoral votes needed to win

Just to interrupt the Nationalisation of the Banking sector for a moment before anything else happens. The election for President of the United States of America is getting close. 3 weeks.
For those who haven't been following closely...

Republican McCain all votes 181

Democrat Obama all votes 346

Tied 11 votes

If Obama keeps All the Strong Democrat states he can lose all the weak and barely held Democratic voting states except for only say Florida and Virginia to become President. McCain needs to hold All his strong "Grand Old Party" seats. Then gain all the weak GOP and all the barely GOP. Then win all the tied states. Then win all the barely Democrat states and finally pinch another 18 electoral college votes from maybe Virginia and Maine to win.

If the polls were with him, it would be a massive task. They are not. The polls are giving Obama a roughly 8% lead.
According to Public Policy Polling, Hispanics are shifting towards Obama in large numbers. So its likely that Colorado {CO} New Mexico {NM} and Nevada {NV} will go Democrat and most of these figures have been similar long before Palingate started to turn swing voters off. .
So President Obama it is, baring something even more unexpected than recent unexpected events.

The Banking collapse not helping McCain as much as Brown then.



Brown gives banks a Red Card


Yes, in the end, he just had to play politics. The trumpeted bail out will be a disaster in the long-term for Labour. The manadarins at the weekend clearly got carried away with the tough talk.


RBS and HBOS are hobbled and effectively nationalised, what that means for shareholders we don't know yet in truth (shares crashing this morning...). Barclays and LLoyds have been strong armed despite protesting their innocence, at least Barclay's seems to have escaped the injection of direct Government funds.


Now RBS and HBOS are set to play to the Labour tune, more money for household lending etc. As we all know, once the Government starts interfering it cannot help itself. Beauracracy just feeds on itself.


Now Gordon is in his element, the banks have been humbled at the taxpayer expense. What is odd is that the Government seems keen to have, er, 'gold-plated' (appropriate for Brown) the demands to make sure both RBS and HBOS ended with over 50% Government shareholding.


I am all for the re-capitalisation of the banks, it was our only option. But the Government dithering caused huge share price falls and now the new issues are at such a level that the Government becomes the biggest shareholder and dictates policy. In fact, the step to full nationalisation is a tiny one from here...


This is 70's command economy time; Mr. Brown can seem strong and powerful. However, we all know where the 1970's command economy led to.


A better solution over the weekend would have been to work with industry to enable the comanies to survive in rude health rather than to get tough with taxpayers money. The Left don't think like that though, bullying comes to naturally to them.

Sunday, 12 October 2008

5 Predictions for the week ahead.

Last Sunday I wrote that the week ahead would be the most decisive of the decade for the world economy. Sadly I proved to be spot on. Stocks markets melted down in a way unknown for 20 years and more like 30 years.

We have been left in a mess and it seems there is little that can be done now that the patient is in severe cardiac arrest (that patient being the credit markets).

However, for the week ahead its seems to me as though some things will happen, others in the comments please and then we can see who was right next Sunday assuming we have power for our computers....:

1- RBS. Barclays & Lloyds/BOS will announce taking of the Governments' shilling before the markets open tomorrow. Despite the huge knock to dividends, this will temporarily support their share prices. The CEO of RBS will resign.

2- The markets will continue their downward trend as more bad news seeps out into reality. Perhaps not with the vigour of this past week and with a bear rally for a day or two, but downwards nonetheless. Lehmans fall-out will be main bad news to financials sector.

3- After the failure of the Sarkozy talks today (prediction), the Euro will weaken further against the dollar and pound. Serious questions will begin to be asked about its viability.

4- Commodity sell off will continue, as will gold and silver to some extent as margin calls for big traders continue to force liquidation of assets. Maybe some respite by Friday, Oil will end the week under $70 unless OPEC cut production.

5- Questions will being to be asked of the strength of some UK Insurers as they are battered by huge markdowns to their assets; similar with large pension fund companies like BA and BT.

So all in all, looks like a great week ahead. Hope I am wrong. My hunch is sentiment will turn around the end of October

Saturday, 11 October 2008

Quotes of the Momentous Week

By nationalising only two banks, NR and B&B, Darling has effectvely undermined the others. If he now buys their shares cheap, he must be guilty of shorting them. - Simon Jenkins
(and he'd like 650 other offences to be taken into consideration)

We've had some success in getting the price of oil down. - Gordon Brown

(and house prices, too ! pure genius)

At least Gordon's smiling. Everyone at Westminster has noticed that he's grown in confidence and stature during this crisis. Could he even be enjoying it ?
- Nick Robinson
(a small price to pay if it makes Gordon happy, I'm sure we all agree)

and finally, because it bears repeating ...

He's a deeply insecure person and he has quite a great inferiority complex which habitually he has compensated for by overspending, by compulsive spending, often with money that he doesn't have. - Lucy Beresford

ND

Friday, 10 October 2008

Who Could She Have Been Talking About ?

... and on the Beeb, too !

“Habitually, he stutters when he’s very stressed, he plays with his papers, he sort of shuffles them, he touches his hair.

Bringing Peter Mandelson back into play was a very Freudian ‘compulsion to repeat’ … it’s where people subconsciously repeat patterns from their past that are usually very painful patterns or scenarios or situations and I think that if you have someone who has brought a maverick back into Cabinet, someone with whom he has extremely complicated personal history, that’s bordering on self-mutilating behaviour.

He certainly needs self-love, he’s a deeply insecure person and he has quite a great inferiority complex which habitually he has compensated for by overspending, by compulsive spending, often with money that he doesn’t have, so the danger is that we collude with a lot of his dysfunctional behaviour.”

Don't feel quite so bad about the licence fee now ...

The Wonder of Woolies.


The wonder is what Sir Alan is doing investing in retail giant Woolworth's?

If we asked him does he think the market has bottomed out and its about to climb? Does he think that cheaper goods will be the order of the day now borrowing is over?Does he believe that this the end of the recession already? We would get the inevitable response "If you believe that, You're Fired!"

Woolworth's have been lurching along in the UK for a good few years now. A pretty poor set of results last Christmas on top of a slump of 3-4% in sales for 2007, a pre-tax loss of £99.7m for the six months to August '08, shares falling more than 80pc over the past 12 months and scrapping the interim dividend hardly inspire confidence. To alleviate their troubles the strategy for 2009 involves selling up to 120 stores, cutting a large number of products and job cuts and cost controls.

The problem with this strategy is job cuts and cost controls have been ongoing for at least two years now. There is only so much fat to trim, and no-one starts cutting costs with the leanest cuts. And disposing of stores in a property slump? Cutting product range has been proposed by analysts for years too, and this remedy is looking a bit like too little too late.

However Woolworth's have many excellent prime location, large unit size properties in great cities and towns and shopping centres where units of the size of a Woolworths rarely become available.
Maybe Sir Alan Sugar, who has a lot invested in commercial property, IS calling the market early but right, what with 10% of Woolworths led by the Icelandic retail Baugur group, and wants to be available if some very choice retail properties and the commercial distribution properties suddenly become available.

For those with some cash to spare there may well be a lot of Woolworths priced bargains to be had.

A week is a long time in global economics


Who would have predicted?

- Brown to buy ALL our banks

- The Dow to be below 900 and sinking fast enough to take General Motors down (they need to turn huge loans, not likely to get them....).

- Iceland to go bankrupt and screw our local councils, then we declare economic war by using terrorist legislation against them (oh, but there is NO law of unintended consequnces...)

- A global 0.5% rate cut to have no bounce effect on the markets.

- Gold to be nearly unchanged.

Phew, much more too. Next week should be fun. Today we get the results of the Lehmans CDS shake-out, who will get caught when the music stops?

Thursday, 9 October 2008

A real game of RISK!


I certainly enjoyed the odd game of Risk with my brothers when growing up. We all cheated so much it was hard to tell who had really won.

However today, we have a real game Risk taking place. Economic warfare is taking place across the world and there are some major causalities.

First we have Iceland, bankrupt and cap in hand to the Russians to try and keep going. Their assets seemingly confiscated in the UK to ensure our savers don't lose.

Next we have Pakistan, the rupee humbled and again the country brought the the point of default.

Who will be next? In most emerging economies, so long thought of as the new brave world, reality is coming home to bite. China may enter into a recession, Indonesia is again in trouble, Thailand is in both a political and economic mess. Even top performer Brazil has seen huge falls in its market and credit ratings. Russia has been forced to effectively close its markets (so much for my investor acumen...) for the past few weeks and they remain shut until 10th October.

But, for the comments, who is next? Will be it an emerging economy or will be it a more established Western one?

Who can name the dominoes?

Wednesday, 8 October 2008

"Preferred Stock" - Your Government Invests ...

So, our money is to be invested in bank Prefs, and the talk is of "investment" and "commercial terms" (though no warrants).

Here's what the market says about RBS prefs: for example, its 6.6% is
sue, traded on the NYSEPar $25, price @ close of business yesterday $5.25: yield = 31.4% !
6.6% seems such a long time ago, eh ? Let's check again this evening ... and then see what the 'Brown Issue' looks like.

ND


++ UPDATE 15:30 Has Peston been blocked from City screens ??? ++


Next please...


er, so the bail out has not worked for the 2 most at risk institutions in Barc and RBS. The share prices are still in freefall, the debt markets are still frozen.

Last night the US Fed started lending to corporates directly, this is another bullet we should try along with the interest rate cut tomorrow.


If these don't work then there are few more bullets left. Only really hyper-inflation to get rid of the debt. Ouch.


Labour may have just placed the biggest bet ever on a market and lost in double-quick time.


Let's hope not and that day works itself out.

Tuesday, 7 October 2008

End game approaching faster than the Government can cope with.

On just Sunday, which seems a lifetime ago, I wrote the world faced meltdown this week from a variety of factors. And Lo, it has come to pass.

Horrendous mismangement of the PR by banks and the Government has allowed a delicate situation to snowball into the worst banking crisis of our lifetimes in the UK.

RBS is now on the critical list. Either the Government 'does an HBOS/Northern Wreck' or we have a failed bank on our hands which will push the UK over a cliff and probably mangle our financial services business for ever.

I detest government intervention, but hold my nose when all our futures depend on it. Saving northern wreck was political, saving HBOS and RBS is not, a systemic failure would be more expensive than the bail-out.

I detest cack-handed government intervention even more, but that is where we are. There must be a huge day of reckoning to come for the Government and leading bankers when the actual crisis is over.

At least re-capitalisation is the right idea and the US have kick-started the commercial paper market. At the 11th hour I hope it is not all too late...

UPDATE: The deed will be done in the morning. Fingers crossed now. If this does not work the lights will be out soon.

Race to the end of the EU?


As is patently obvious the EU solution to the crisis has been non-existent. Where are the central finance functions to co-ordinate any plan? Where is the unity amongst the countries?

Ireland guaranteed, Angela had a hissy and then went and did exactly that a few days later. Now Denmark and Austria are following suit.

Yet the UK, Italy and Spain are reticent, whilst France boasts about leadership whilst providing none.

Some said the Euro-area was never a good single currency area. Indeed, it was the subject of my master's thesis in 1995!

But this crisis may perhaps show that the Euro cannot continue without radical surgery. perhaps the pro-Europe side will use this as an opportunity to gain the powers they need over national governments - either that or the EU will begin to break up.

Just a few months left after all to make my prediction of the Euro area falling apart by end 2008 come true.....

Monday, 6 October 2008

Meddling While Rome Burns

Ofgem has laboured for many months on whether rising energy prices represent hanky-panky and today its report is before us. As part of our usual service to readers we have pre-digested the full 4 MB for you all.

On the positive side: lots of goodies for energy data buffs; several sound micro-points on small-scale anomalies that might bear fixing; opportunity taken to bash the Continentals again for not liberalising their markets; and the inevitable conclusion (*portentous drum-roll*) "no evidence of a cartel"

On the negative, and doubtless in an effort to match the
dirigisme of the times, Ofgem has come up with something it calls "unfair price differentials".

And so, in NuLab press-release-speak, it proposes to "ban unfair price differences". (Does Alistair Campbell draft this stuff for them, or must the words 'ban' and 'unfair' appear in all edicts nowadays ?) More soberly, in the main text it suggests that "
differences in charges for different payment types must be cost-reflective", and they may regulate to that effect. The have particularly in mind to help "more than 4 million customers without gas who currently have no access to the most competitive tariffs" (viz, the discounts available for buyers taking both gas and electricity from the same supplier)

To make the obvious points:

- in an industry where all players use the same infrastructure for the same regulated fees, nothing is more likely to result in all suppliers charging
the same, than forcing them to be fully cost-reflective with no 'unfair' differences

- a discount for buying both gas and electricity would
prima facie seem to be an entirely cost-reflective proposition anyway

- free markets have a way of sorting out irrational price-differentials (provided they don't constitute predatory cross-subsidy etc, which is illegal anyway)

In this day and age we should presumably give thanks that they don't propose to re-nationalise the lot. Not much pleasure, however, to be taken from the trend towards micro-meddling. Back to your knitting, Mr Ofgem: check out the EDF takeover of BE for us properly - and do something to keep the lights from going out !


ND