Wednesday, 31 December 2008

HAPPY

NEW

YEAR

Thanks to you all for reading and commenting throughout 2008. Without your comments this blog would not be half of what it is; without your visits....

Hope you all make it into the New Year safe and well.

Look forward to seeing you back in what is going to be a rollcoaster of a year; 2009

2008 Predictions - How did it all turn out?


OK, so in 2007 we had a stunning year, getting three quarters of our predictions right. This year has been the most eventful of my life so I doubt we are going to do as well. On New Year's Day we will have our predictions for 2009. Today is a review of 2008:

CU's first:

1. "shares will end the year in the 6000's just as now" - ooops. Shares at 4400. What was I thinking. I lost here too, my share portfolio for the year is 20% down - better than the market, but still a horror show. Last few months I have turned it around (was 50% down at one point) by being a lot more bearish....

2. "On the currency front....it will be more like 1.80 to the dollar and 0.70 against the Euro by mid-year." As predictions go this was spot on, even better I said after mid-year would be unpredictable!

3. Politically in the UK, there will be no election and Gordon Brown will still, unfortunately, be Prime Minister this time next year. Tick

4. "The UK Housing Market will slow much faster than most economists are predicting and the overall rate might touch 20% by the year end. Those viewing the market are not factoring in the role of psychology enough into the falling market." Official rates vary here from 12% to 18%. However, estate agents I know say real reductions are 30%. Overall, I said it would be worse than people thought, I was right.
5. Barak Obama will win the Democratic nomination for President and then go on to be elected as the 44th President of the USA. Tick, when I said this Hilary was clear favourite. My odds on Obama were 3-1.

6. "Northern Rock will be nationalised (officially, it already is in many ways) as ways to try and get a private buyer founder. This will be the biggest government crisis and will cost Alistair Darling his job as Chancellor in 2008." Well, half-right. It was the biggest crisis until October, but Darling remains and things got a lot worse. No tick.

7. The credit crunch will continue long into the year and the credit retraction will cause a recession in the US and below inflation rate growth in the UK, which will only just avoid the two consecutive quarters of negative growth that defines recession. No Tick! things got far worse after Lehman's in October, but dodgy Government figures nearly got us out of technical recession.

8. The UK Government will raise taxes quite heavily, probably on motorists and luxury taxes, in the budget to try and balance the books. There will be more public sector strikes as the government attempts some desperate controls on the spending tiger it has unleashed. No Tick, massive wishful thinking on my part, perhaps this idea was a year to early. I never imagined the spending unfunded binge would get like this!

So for CU 4/8, big disappointment from last year...Must do better in 2009 (personal finances demand it)

Now for ND...

1. France will formally propose an EU nuclear power policy, which will include the EU picking up the tab for decommissioning. This has happened in proposal, not sure if it will get approval, although the EDF buy of BE makes it more likely. Tick

2. after the Olympics Russia will make a provocative intervention in another country, just to prove it can -wow, huge call spot on, bonus tick I say.

3. there will be unrest in China, and the government will feel confident enough to suppress it, even during the Olympics - yup, hear of Tibet? Tick.

4. gold will go above $ 1,000 and oil above $ 100 (but not for long) - perfect calls, tick.

5. shipping freight rates (a major component in bulk commodity prices over the past few years) will collapse - perfect, 95% down from their highs now. Tick.

6. there will be a return of the lengthy 1970's style strike in the UK public sector (hey, I agree with CU on something !) - No tick, a year early per chance.....

7. the US balance of payments will improve considerably - umm, oh dear, some issues with this one to do with the global meltdown. No tick.

8. sub-prime losses and spill-over consequences will amount to $ 0.5 trillion. Can't give a tick for this, likely losses now $2 trillion and counting. Do you remember just a few months ago when a trillion dollars was a lot of money?

9. sovereign funds will run riot in collapsing western equity and finance markets - and the $ will be welcomed rather than resisted. This is a tick. the SWF's got hammered when they tried to run riot, but nonetheless they are still getting in and will do more as prices fall. Brown went begging to Saudi....

ND 6/9 and a bonus tick. I will follow his advice more closely this year that is for sure.

C@W overall 10/18 - 55% down from 75% last year. Not so hot as last year but considering the insanity of it all we did good. The calls on Russia, oil, Gold, UK housing and freight rates were particularly good.

Some of our commentators had a good roll too - see last year's comments for a few gems

2009 predictions to come....

Tuesday, 30 December 2008

Inflation coming like a Train


Went to renew my monthly season ticket today and asked what the price changes will be from Jan 1st. Up from £109 to £122; only an 11% rise then.


Luckily inflation is falling so rapidly that the Bank of England can reduce rates down to 0% in the next couple of months.


As this small anecdote shows, there is clearly no rise in prices at all at the moment in any sector, hence the ability to reduce rates to 0%.


I wonder what my company will say if I ask for a salary increase to match these increases....


Monday, 29 December 2008

Normal Service Resumed


The UK markets opened at 8am today and so do we here at Capitalists@Work. Hope you have all had a nice little break and are fully re-charged to face the interesting times that will be 2009.


If you thought 2008 was interesting, wait until you get a load of next year.


Still, with Christmas cheer still fresh in the memory, let's try not to laugh at those less fortunate:



Here is a story about Ski Chalet owners in Chamonix, ruined by the collapse in the Pound (the one that the Government keeps denying). Poor dear, it appears one man in the story may have to cut his price and only make 100% profit in 7 years. Let's hope the slopes of Chamonix don't give him a bad break.


Then here too is a report on Gold. All the Gold bugs are saying 2009 will be a Golden year. Much as I am one, let's hope not. if Gold rises it means there are massive problems in the world. Today for example, the rise in Gold can be measured in the number of causalities of war. Nice bunch of optimists to hang with those Goldbugs.


Finally, spare a thought for Russia. The crowning glory of Democracy since 1991. Forced to devalue the Ruble yet again as the oil price crashes. Russia has burnt through 33% if its huge reserves of cash in 3 months. We can only hope President Medvedev can pull through and still maintain support to win future elections....

Wednesday, 24 December 2008

Festive fun. What's your prediction?

Festive fun. What's your prediction?


Festive Fun



What’s your view on


1} Will RBS survive intact during 2009

A] Yes. Totally

B] It will need to merge with another institution

C] It will be taken into “Temporary public ownership”

D] No. It will collapse and many, many branches will close


2} Will 2009 see..

A] A short downturn with a recovery by April

B] A serious slowdown but recovery by September

C] A recession, deepening until at least November

D] A Depression, with no sign of recovery by 2010


3} Will the unemployment figures in 2009..

A] Never top 1.5 million

B] Steady at 2 million

C] reach 3 million

D] Exceed 3.5 million


4} There will be a UK election..

A] in spring 2009

B[ In Summer/Autumn 2009

C] In Summer 2010

D] There will be no more UK elections


5} Barak Obama will successfully

A] stabilise the US economy

B] Take over the toxic debt from the US banks

C] Improve relations with the UN

D] None of the above


6} UK house prices will

A] show a 10% gain by 2010

B] fall 5-10% by 2010

C] Fall 15-20% by 2010

D] Fall by more than 25% by 2010


7}A major ….. will fold by 2010

A] Retail Chain

B] Airline

C] Car manufacturer

D] All of the above


8} The pound will…. By 2010

A] Rise to 1.95$

B] Rise to 1.80$

C] Rise a little to 1.60$

D] Fall below 1.30$


9}Which country will be best placed to enjoy 2010

A] UK

B] USA

C] Germany

D] China


10} VAT will rise to … in 2011

A] 17.5%

B] 18.5%

C] 19.5%

D] 20+%


If you scored mostly A’s you are expecting a big turnaround in 2009 and some real improvements and plenty of good news. Other mostly A’s include Gordon Brown, The BBC, The Labour Party, and Alan Sugar. A’s are rushing to the shops on Boxing day in the knowledge that these crazy prices can’t last beyond Christmas. A’s are planning on selling their house as soon as possible and buying another bigger one to capitalise on low interest rates. A’s are taking out loans and investing in the stock market before it rises early next year.



If you scored mostly B’s you are expecting a downturn that should be over by the end of 2009, with good things planned for 2010. Other mostly B’s include Alistair Darling, The Guardian The Liberal Democrats and Robert Peston. B’s are looking for bargains in the shops and on line, whilst scaling back on their holidays because of the exchange rates. B’s are looking to put an extension on the house while there are plenty of cheap builders about.B’s are thinking about putting savings into government bonds.



If you scored mostly C’s you haven’t much hope of anything more than a few green shoots by 2010. Expect a difficult year ahead. Other mostly C’s include David Cameron, Iraq, Channel Four and the IMF . C’s are going to the sales to buy necessary purchases like warm jumpers and heavy coats. C’s are Just hoping to hold on their existing home.C’s are paying off some debt and thinking about putting savings into gold.



If you scored mostly D’s you are expecting things to get much worse, then a lot worse. Other mostly D’s include HousePrice crash forum, Vladimir Putin, speaker Martin and Bob Quick. Avoid sharp objects and medication this Christmas and get someone else to light the oven.

D’s are investing only in canned goods and primus stoves this season, which they are putting into the motor boats that they bought with the proceeds of their house sale, now just waiting for things to turn really ugly before they cast off from this this island forever.


There wern't to many D's among you were there?



Merry Christmas and an enjoyable holiday to all our readers.

Tuesday, 23 December 2008

Giant Ponzi scheme uncovered at the heart of the UK

Shocked to the bone is all I can say, what a sad story to break over the Christmas period;

There has been a dark conspiracy at work in the UK for over 10 years that has finally succeeded into putting millions of our fellow citizens into penury. Worse still, this terrible crime has many facets, so even those who thought themselves clever enough to avoid the obvious deception have now been caught by the more refined versions. The basics of the scam go like this;

1. A mysterious body known only as 'The Treasury' started many years ago collecting monies from all her majesty's subjects, promising in return fantastic rewards like free world class schools, free world class health care, green power stations, magnetic trains and rocket cars. As these promises came to naught, they expanded them into the realms of complete fantasy.

2. To continue this con, the leader, known only as 'Mr Brown' decided to get some of the subjects onside. He invited them into a special club, known as the 'public sector' where pensions would be gold plated and they would be rewarded simply for encouraging membership the Scheme. Tomorrow's children would pay for today's rewards, an exact copy of the great original Ponzi ideology. To keep all in order, Mr Brown exponentially added to the numbers of these 'public servants.'

3. Despite the above, many subjects continued to prosper and were not considered by Brown to be contributing enough to his scheme; the scheme was running short of money and was predicted by many outsiders to be bankrupted within a few years.

4. To gain more control of the 'Private Sector', Brown ordered his front organisation, comically called 'The Bank of England' (in a copycat of Nigerian 419 scams), to keep interest rates low and artificially boost revenues to the scheme.

5. This then enabled a whole new part of the criminal genius of the plan to begin. The low interest rates caused a boom, private sector workers were encouraged to invest in 'shares'. These consisted of pieces of paper of no intrinsic value; The shares then 'crashed' in 2008 causing huge losses to the private sector.

6. Mr Brown was now able to step in, declare he had 'saved the world' and take over the remaining private UK banks. These were then forced to buy 'treasuries' from the Government and pay extra funds into the scheme in the forms of preference shares.

...but this is not over. Mr Brown is still at large and it is feared the last part of his scheme may still be to come. Allegedly, Brown is unhappy that some money still remains outside of the scheme. He plans a final assault on the Pound Sterling. This paper currency has been in circulation for hundreds of years and is an unsuspecting victim of the Scheme. Interest rates will again be dropped, a 'run on the pound' will lead to hyper-inflation and the remaining money outside of The Scheme will have become worthless. Everything and everyone will be subservient to Mr Brown.

Really, this complex, long-term plan makes Madoff look like a rank amateur.

Monday, 22 December 2008

Blog Drinks Xmas 2008

UPDATE Tue 4pm: Due to family emergency CU may not be able to attend, ND will do the honours...

Late notice, but for those of you not window shopping in the Xmas Sales tomorrow, CU and ND will be drinking the (meagre) blog advertising revenue here as quick as we can from 18.30. All welcome. If you want more directions etc just email me; my address is in the side bar.

More Tools ? What the Bank Really Needs is Balls


The estimable Robert Peston writes today that the Bank of England doesn’t reckon it has the tools for the job. Apart from the obvious point that we have only one genius to blame for this, we should consider what the Bank’s Gieve says in the Pesto interview:

"we need to develop some new instruments which sit somewhere between interest rates, which affect the whole economy and activity, and individual supervision and regulation of individual banks"

Pesto himself plumps for counter-cyclical capital adequacy:

"it would have to be a mechanism to prohibit or at least discourage a lending splurge during a period of sustained economic growth, such as a formulaic stipulation that banks have to hold more capital relative to their loans and assets during the good years"

As stated before, I have a simpler suggestion: enforce the current CapAd rules, with some serious analytic attention being paid to risk. Under Basel and the CAD, CapAd should be a function of the individual bank's exposure, and market conditions. OK, in good times some aspects of the latter are, or seem to be, benign. But properly analysed, exposure in a crap book like Northern Wreck’s is ugly at the best of times: and it wouldn’t be difficult to identify appropriate market-condition warning signals – based on the rather interesting "case-study" we have before us.

But enough of the technicalities. In simple terms, what the Bank needs is "some new instruments that sit somewhere between" ... the stomach and the kneecaps. The equipment the BoE is really lacking is balls.

ND

Saturday, 20 December 2008

What a Difference a Month Makes - eh, Polly ?


Here she is in November, spinning for Brown for all she's worth:

"Even if unemployment reaches 3 million, that still leaves 90% in secure jobs. Most people will suffer not at all in this recession: on the contrary they will do well as prices fall and the real value of their earnings rises" - Polly Toynbee, 25 November

"
Reasons not to despair: anyone on benefits and state pensions gets a 5.2% rise when inflation may hit zero. At worst, 90% of people are in secure jobs and pay rises may exceed inflation" - Polly Toynbee, 29 November

Well, she got a bit of stick for those two: and so ...

"
Unemployment makes people ill, like a plague sweeping the country, devastating families in its wake ... it has always left behind broken spirits: some lose the will or nerve to work, others prefer unemployment to facing the fall in status in a lesser job. It's always the young unskilled in most peril: create another lost generation and we store up social calamities rolling on to their future children" - Polly Toynbee, 20 December

What price consistency, eh ? Can't wait for her 2009 predictions. Her forecast for 2008 ?

"
I hazard the guess 2008 may be another year when hyperventilating gloomsters have exaggerated"

Here's hyperventilating ...

ND

Friday, 19 December 2008

Gordon's Letter to Santa


Dear Santa
I have been a very busy boy this year.I have tried to be good but have had trouble sometimes telling the truth. But I know you won't mind.
My advisers said I needed to be seen to want a lot of trendy things... I think I remembered them correctly
  • A Bent Ten watch
  • Artic monies empty-three download
  • Quantum of physics for X-factor360
  • Pravda Shirt size XL
  • A Wee smurf board
  • Eye Phone
  • Hugo Bros aftershave
  • Samson r510 lapdance

But what I really want is..

  • Rubber Nokia 6610 unbreakable {carphone warehouse} -£123.12
  • smile on a stick {toys r us} -£3.99
  • Purple beret for Sarah {Sue Ryder shop} - 50p
  • Thick of it box set {amazon} -used -£12.56
  • Superman costume {Woolworths} £20.00 now reduced to £7.45
  • Scientific calculator {display must go up to a trillion trillion trillion trillion} -?
  • Flash Gordon DVD {HMV} -£4.87
  • The Rise of political lying book by Peter Oborne {amazon} used -72p
  • My very first joke book {Amazon} - £3.99
  • Angela Merkel voodoo doll {shucswinter.ge} - £19.99
  • Grecian 2000 formula - £6.56
  • “The Audacity of Hope” Audiobook- Barak Obama {waterstones} £12.99
  • Camouflage suit and tie for my trips to Afghanistan
  • £1,500 billion in gold

And anything else you think I might like or need in the comments

Will China, Germany and Japan cause the Depression of 2009?

"Mercantilism, which reached its height in the Europe of the seventeenth and eighteenth centuries, was a system of statism which employed economic fallacy to build up a structure of imperial state power, as well as special subsidy and monopolistic privilege to individuals or groups favored by the state. Thus, mercantilism held exports should be encouraged by the government and imports discouraged."


The current trend in the soundbite political discussion of the current economic crisis is that it is all the USA's fault and to a lesser extent the UK's fault. We have had too much easy money and built up too much debt, created asset bubbles and ruined our own economic prosperity.
What is often overlooked is that it takes two to tango. Much of the money has been lent to the US/UK by those who seek to export their goods whilst seeking a high current account themselves. The three biggest culprits for this are China, Japan and Germany. All have employed policies which seek to boost export demand whilst not worrying about their own internal demand. This has created a lopsided world economy. Similar in a way to the 1930's - but then it was America who was the large exporter to the world and Germany was the main debtor country; oh, the irony!
China in particular has huge export subsidies to its industries, a controlled exchange rate to the Dollar financed by buying US government debt and a myriad of other taxes and charges which have aimed to build up its own industry. This 'competition' has destroyed the manufacturing base of the UK and US. Germany and Japan are also guilty of this, but using high-technology instead of low.
However, China and the other states now also face a terrible dilemma. Manufacturing is collapsing as fast as banking across the world as demand dries up. To stimulate demand in the deficit countries the Mercantilists' need to provide funds to their export markets; only now there is a big risk the money sent will not return home with the same value that it used to have.
In many ways, the Mercantilist countries have more to lose if international trade collapses.
Apologies for the long post, but the above needs considering carefully. Other countries are complicit in our mess, despite their high-handed speeches now.
In the 1930's the US decided to go the route of protectionism to try and maintain its industries. This had the opposite effect to that which was intended and the US suffered the worst meltdown of all the advanced countries. Deficit UK came off the gold standard and muddled through with much less damage.
If China continues to peg the Yuan to the Dollar (which hammers the biggest consumer of all too, the euroland countries), refuses to do more to stimulate demand and continues with export subsidies then the world WILL face a new Depression.

I have hope that the next G20 meeting will come to a new world trade agreement, that alone would ensure that we do not return to the 1930's.

Thursday, 18 December 2008

Meddlin' & Muddlin' - Mandelson Pepares to Pick the Winners

Of all people in the universe, whom would you most trust to pick industrial winners ? Whose incorruptible neutrality and proven judgement would most be suited to deciding which companies live, and which die ?

Yes, Peter Mandelson is on the case.

"In a series of lectures and interviews, Mandelson is trying to shape a new set of criteria for government intervention – including a firm's general viability, the strategic importance of its sector, its technological and research standing and the impact its failure would have on jobs in the supply chain, regionally and nationally.

He also suggested in a speech last night that there was
a case for looking to see if government should invent a new bank or resource from which business could access risk capital"

And as the queue of supplicants winds around Whitehall, there are many months of these life-and-death judgements in prospect.
Won't he be enjoying himself ?

ND



Tuesday, 16 December 2008

Royal Mess


Seeing how the rest of us are rapidly returning to the 70's it is appropriate that the archetypal 1975 business model, the Royal mail is in the news.
A tale of underinvestment, old fashioned and outmoded working practices, mistrust, large losses, public sector pay scales and pensions, weak management, unfocused business plans, heavily unionised strike prone workforce, secrecy, lack of clear data, ignorance of the competition and a true 'them and us' attitude Royal Mail has mostly allowed the intervening decades to drift by unnoticed.

To be fair they made progress towards modernisation and changes to the sort of working practices that a fleet street print worker would have envied. However with the unbelievably bad and unnecessary decision to allow mail liberalisation early, the ability to generate revenue to modernise equipment and pay for generous redundancies was lost. Royal mail must subsidise their competitors.

But what exactly is the purpose of the latest Lord Mandelson announcement?
Having persuaded James Punell to stop his pensioner angering, business destroying pension card removal plan, Mr Mandelson is keen to keep the USO, as binning it makes business sense but would be a horrendous vote loser.
If Royal mail went to a five day a week delivery they could shed 1/6 of the workforce immediately. If they offered a regional pricing service rather than a flat rate they would be in profit. But this appears not to be an option.

No sane private business would take on a £7bn pension deficit {that is £7bn BEFORE the credit crunch/investment crash have been factored in} so it looks like the government will take over responsibility for the pension. Not to odd. they are the only shareholders. It is a public sector utility like any other that need their pensions funding. But why get into this at all?
The Hooper report is out..Its the usual bad news.

Lord Mandelson has recommended a part privatisation. This has been met with cheers from the Tories and surprise from
Labour MP's who were pretty surprised and probably rebellious as they have a manifesto commitment to keep royal mail in the public sector.Plus judging by their comments so far many have understood the real problems of the unfair regulatory framework .
And the Unions have reacted as expected. Badly.
Does Labour no longer need the money from the CWU? Or does Lord Mandelson know that the CWU behaves like a battered wife and after rushing to complain to the press they will eventually fund the Labour party again at election time, no matter how mistreated they are.
Post Office counters, which Lord Mandelson has just saved, earn around 1/3 to 3/4 of their revenue from royal Mail. To lose that would close four out of five post offices say the NFSP

And what is the point of selling off the profitable parts of RM to the Germans Dutch and the French and keeping the loss making parts? Surely that will give a future government no option but to abandon the Royal Mail and the Post Offices as a massively unprofitable business that loses the government thousands of millions of pounds a year?

Or is it a pension raid? Take over the £22 billion Post Office pension fund and add it to the governments books.Reduce borrowing by £22 Billion at a stroke, even though they will have actually increased it by £7+ billion.

Or is it the EU postal regulations making way for an EU postal service?

Or is it just selling a chunk of the governments stake to TNT to raise some cash for the very empty government coffers?

Is it that the election manifesto commitment to not privatise royal mail will shortly expire so now is a good time to begin talking about a repositioning


Or is it just more of a government that is getting through the crisis by taking it one day at a time?

Fed runs out of Ammo

The US has reduced its interest rate to 0.25% or less. The lowest it has ever been. A true test of monetary economic theory. Will it revive the economy? Will it actually kick-off yet another asset bubble ( in gold maybe..)?

The key question is, what do you do when you run out of ammo? What rocks is the Fed going to throw next?

2009: Brown's Bank nationalisations


Some intriguing snippets of news are leaking out that make for grim reading for shareholders of UK bank stocks. last week the dreadful HBOS announced it losses on corporate loans were in the extreme zone. As such, an analyst has pointed out that the joint HBOS/Lloyds bank will be heavily loss making and is likely to be nationalised next year.


The government too has been making plans, Robert Peston has blogged on some of the key long-term changes being made, in addition I see that the IMF are also suggesting that Government's get more radical in their approach to the credit crisis.


If the Government wants banks to lend more, it will have to give them more money as they are not going into risky business in this environment. More money means either printing it or borrowing from future tax payments. Either way it will mean the Banks too have to give more of their capital to the Government and the taxpayers 'suffer.'


2009; Nationalised Banking, I hope Labour are honest enough to put it in their election manifesto...

Monday, 15 December 2008

UK house prices to fall 30%..or more

Much shock in the press todat that the senior exec at Barclay's could say house prices could fall 30% top to bottom.

As usual, those with a stake in the game are up in arms about this 'talking down' of the situation.
On the other hand, I am surprised that the pretence is still there that prices will remain so high. It is quite likely house prices will fall 50% (and this is for residents, if you wanted to buy a house in euro's or dollars then the price is alrady down over 50%). There are less mortgages, less jobs, less credit, there is less appetite for risk and less money on savings rates to allow people to build up a deposit; the outlook is bleak for the forseeable future.
Anecdotal information from Esate Agents say prices are already down 30% if you actually have to sell and this is before large numbers of foreclosures hit the market next year. Prices are after all what people want to pay, nto what people hope to sell for - a difficulty in doing polls on prices which has yet to be ironed out.

Even a 50% fall leaves prices at the top end of the long-run pricing index at 4.2x average salary.

When average the average house price gets closer to £100,000 than £200,000 will be the time to buy. Currently it stands at a 25% odd margin over this. Still much time to bide therefore...

Sunday, 14 December 2008

Madoff - Could it happen in the UK?


Madoff, a name few on this side of the Atlantic will have heard of until the last few days. For those who have not read this amazing story; effectively a top wall street firm has been found out to be a Ponzi scheme. $50 billion has been lost to investors, and maybe much more as the investigation is only just starting.

Mr Madoff contributed a lot to politicians and even was an adviser to the SEC, the US regulators. Over the weekend, the victims are being announced. Many already stricken banks and hedge funds who will now face possible disaster in the coming week. Santander has said its clients have lost $3.1 billion. Bramdean, run by high profile city slicker, Nicola Horlick, has lost hundreds of millions and the share price will no doubt be pummelled further tomorrow.

The story is amazing and another sign of the height's to which Wall Street excess had been allowed to reach. Madoff's company had been on the SEC list for a check, but they had not round to it.

So could it happen in the UK? The answer is yes. There are many similarities here with Northern Rock. A business with a flawed model, totally unable to operate in a market. The staff all working hard not knowing the true crisis at the business. The Finance Director resigned and nothing was done. The auditors ticked all the boxes, the FSA looked on without taking any real action.

Yes, the FSA regulator has sacked the staff and tightened up its act now. But how much more could come out in the future? The reviews they do are on a 3 yearly basis. Hopefully nothing on the scale of Madoff will come out here, but the world has turned up some pretty strange stuff in recent months.

Friday, 12 December 2008

Dunnell and Scholar - Heroes for Our Times


In an age of crumbling values and virtues, ladies and gentlement I give you ...

Sir Martin Scholar, and Karen Dunnell ! True heroes for our times.

Can these two worthies start a return to integrity in government ? It has to start somewhere, and perhaps this is it - a revival of integrity in statistical reporting. They know the score, and they don't look the compromising type to me. (Wha
t does Sir Martin whisper to his NuLab-insider son Tom ?) Enough of the Government's pernicious mis-use of statistics - and their lies and their damned lies while we're at it !

Coupled with Gordon Brown's latest world-saving exploits being knocked down into 4th, 5th, even 6th billing in the evenin
g news broadcasts - displaced by the tale, inter alia, of these chaps and their principled war on his cynical, arch-NuLab abuse of statistics - and off the Saturday front pages altogether, this is a great spin-free start to the weekend. ND

One word quiz


Just been on one of those "Blue skies " away days. This one was more of a grey skies with black clouds looming but that's the weather forecast for the next few months. It finished with the now almost obligatory feedback form. Last question

IN ONE SINGLE ADJECTIVE HOW WOULD YOU DESCRIBE THE PERFORMANCE OF TODAY'S STRATEGY FOCUS TEAM.

I wanted to put "predictable" but settled for "burnishing" as the most misleading I could think of before heading for the exit.
The weekend quiz

IN ONE SINGLE ADJECTIVE HOW WOULD YOU DESCRIBE THE PERFORMANCE OF

Gordon Brown

David Cameron
Harriett Harman
Alistair Darling
George Osbourne
John Prescott
Nick Clegg

I offer...

GB Ogreish
DC Anemic
HH Shaky
AD Eunuch
GO Callow
JP Weighty
NC Keen

In the comments please..

Love Of Money Is ... the root of some of our troubles


In boom times the general atmosphere of largesse encourages greed, incompetence and misbehaviour on an epic scale. Think of the Shell executives who, seeing Enron awarding huge bonuses for growing the company consistently at 15% p.a. for a decade, decided they deserved the same: and (since Shell was already too big to grow at that rate) rigged their oil reserves data in order to qualify.

Boom times also help disguise, or at least distract attention from, what's going on. But not any more: have a look at these two stories and marvel. First, from
our own neck of the woods:

"Individual payments of up to £1m have been handed out from the public purse as a "golden goodbye" to dire
ctors at the loss-making nuclear holding group BNFL. David Bonser, executive director for human resources and a key figure in the development of BNFL's troubled Thorp reprocessing plant, received £1,046,350 compensation for ending his employment last month, on top of an annual salary and bonuses worth £577,112 for the 12 months to March. Two other directors left with well over £1m as the company was wound down"

Then, this extraordinary US tale of a $ 50 billion ponzi scheme that's been running for years at the heart of Wall Street (hat-tip Sackers) - can it really be true ? It seems so.

To say that these type of games can no longer be afforded is a rather mild way of putting things. We are in for a long overdue period of puritanism. (After Xmas, that is - of course !)


ND

Thursday, 11 December 2008

The pound in your pocket..is a Euro!

Hopefully the Anti-Terror squad will not be around to arrest me for this. But it has to be said, there is a sterling crisis now. Not next year, but now.

Every day the pound has weakened this week against the Euro. The Tourist rate is now 1.08.

Ouch.

I Hope no one is planning a holiday abroad. I was in Italy in the summer and the paltry rate then was 1.25 I found the relative costs of meals etc to be the same as in the UK. Now it will feel very expensive to go to Europe indeed.

The Pound may well fall to parity with the Euro and the Dollar in the coming months. IF that came to pass it would really mark a new low never before achieved in history for the UK.
At some point in a Sterling crisis the Bank of England will have to do something; that something is raise rates. However bad the recession and all the economists predictions of 0% rates the reality may well be that we have to hold rates above the Euro-rate and Dollar-rate to defend the Pound.
Why defend the pound you ask? Well, imports, of which we have lots, will become very expensive fueling high inflation, which would necessitate raising rates anyway. The boost to exports from a cheap currency may be welcome, but so far there is not much evidence of this being a boom to the economy. Crucially, for a Government set to borrow billions of pounds, a weak currency will cause a gilts strike as foreigners will demand a huge premium to maintain their investment or will not by the gilts at all; this issue would be negated by a stable currency.

It will be interesting to see the political and economic reaction to this over the coming weeks. below are the 2008 charts for £ vs USD and Euro:




Wednesday, 10 December 2008

Bad News, Darling


The Pre-Budget Report seems a long time ago even now. The UK Government promised to spend our way out of recession, pushing annual government debt to 8% next year (EU guidelines are for 3%, crazy says EU's Trichet).

This huge spending boom and a set of interest rate cuts would see of the worst of the recession (and set the stage for a 2009 election?).

Here we are, not quite a month later and the latest economic forecasts have the economy shrinking at 1% or more in Q4 2009. Why is this so bad; well Darling, my beloved badger of a Chancellor, had said growth for the UK would be .75% for 2009. Well, so far it looks like this:

Q1 at .3%

Q2 at 0%

Q3 at -.3%

Q4 at likely -1%.

Add those up (there are some technical issues that mean this does not quite work, but the gist is near enough) and you get to -1.3%.

That is a huge variance to .75%. It is over 200 basis points out. Each of those is a fall in tax revenue and means more borrowing for the Government.


And so, we will see whether the fiscal stimulus works by mid-2009. The issue is that even if it does, the Government's borrowing forecasts are already shot and we will be even more in debt next year that they planned for. Despite this Brown and Darling criticise the Tories for suggesting we live vaguely within our means. Appalling.

ChristmasShopping; Swoopo Scam-tastic


Came home to find Mrs CU frantically 'bidding' on a shopping website for Xmas pressies. On closer inspection this is a genius mathematical scam; who says degrees are not worth every penny.

Basically, you buy 'bids' for 50p from Swoopo, then bid on items like Wii's for say £20. The bid only ends when no one else bids, otherwise more time is added to the 'countdown' clock. In theory you can thus win an item for a 40p bid. Also, every time someone bids the price of the item increases by 8p.

The genius is that every bid makes Swoopo 57p and because of the way the bidding works, it is often the case that they get thousands of bids per item and still sell the item at a discount to retail - but pocketing £1000's for each bid.

I can't see they do anything illegal, except have designed a rigged game that dupes people into thinking they can 'win' cheap goods when in reality there is little or no chance. They don't let you see how many people are bidding to make any kind of informed judgement, So Caveat Emptor here. My other thought is that this is clearly a gambling website and I do hope they pay the gambling taxes and operate under the gaming act like other online gaming companies - they market themselves as entertainment.

Great scam though, wish I'd thought of it!

Tuesday, 9 December 2008

Sales down but that means higher sales?

Poor shopper figures in November point the way to a ‘back-to-basics Christmas’
British November same-store retail sales values fell 2.6% compared to the same month last year

Its hard to know what's going on in the world. Even harder when this is being reported by BBC radio 5 live as "the fear of a Christmas slowdown hasn't materialised as figures released by the BRC show shoppers are spending in the stores"

Yet the November figures show that this is the first time sales have declined in two consecutive months since the survey began in January 1995.

If we just look at how the google headlines are coming out;
BRC figures indicate retailing under pressure:MarketWatch
Economic slowdown: A bleak Christmas:Edinburgh Journal
Britain's high streets face their bleakest year for four decades: The Times
Consumers tightened their belts even further in November:FT
High street sales have seen an unprecedented fall despite heavy discounting :Telegraph
British retail sales fell at their sharpest annual pace in more than three years :Guardian

and even BBC business news has
Retail sales 'fall still further'

5 live have been desperately trying to sound upbeat after a few "Spinners" erm I mean "listeners" complained that it was too gloomy. Every broadcast on the economic front has to have a sunny upside.Even if there isn't one.

They should just stick to the sport...

Monday, 8 December 2008

Gold in 2009: Bullish or Bearish?

Gold has been the conversation talking point for many investors over the past year. This post is inspired by a conversation at FT Alphaville on the subject. The difficulty with Gold is that the world is filled with 'goldbugs.' These are a set of people who sell gold for a living and write ramping posts or columns to boost the price/demand for Gold.


Against this are arraigned the forces of..well....not many people; there are very few bearish views to be found on Gold which makes for a one sided debate.

And yet Gold has not been an unqualified success this year, even in the most unstable times of my lifetime which would suggest a flight to safety and 'traditional' stores of value. Gold started the year at $800 an ounce and looks like ending it there or thereabouts. It hit $1000 in March (I sold then!) and went as low as $710 (I bought back in at $715). Overall, the performance is much better than equities, down 40% odd compared to Gold's level pegging.

But next year, great things are expected of Gold. The Gold bugs proclaim huge inflation from the 'quantitative easing' (printing money to you and I) now going on in the West. Yet the deflation scenario suggests Gold will not do so well, it may even suffer as it gets dragged down by the end of the commodities bubble (which is after all, what has happened in recent months).

Finally, and most intriguing, is the dark conspiracy theory thrown out by the gold bugs. In a world of fiat currency, Gold is a threat. in the 1930's it was confiscated by US President Roosevelt. There are signs that something is awry, the paper price of Gold is very different to the price quoted if you actually want some delivered. The discrepancy by the conspiracy believers' is that the the Governments of the world are holding down the price by intervening in the paper markets. They are also not printing so many coins as they used to that is for sure.

Normally I am not a great believer in conspiracy theories; but the ramping of gold in the media all this year should have driven the price up more than it has. Deleveraging certainly has pulled it down, but I find it surprising its price has traded in such a narrow band throughout such a stormy market.

Deflation should mean next year is not a 'Golden one;' but my hunch is that the economists will be proven wrong on this and 2009 will be a good year to hold gold. What do you all think?

Sunday, 7 December 2008

Gordon turns the screw on the Councils: Exclusive

Working on my theme of the week, unintended consequences, here is an exclusive to Capitalists@Work. No doubt the media will pick up on this later in the week.

The issue is the rapid interest rate cuts by the Bank of England. Rates have fallen from 4.5% to 2% in just a month; this huge change is said to be the cure to our recessionary problems

However, like in the Icesave case, Councils have been monitored by the Government to make the most of the money they collect. As part of doing this they have done all sorts of 'sensible' things, such as depositing money in high-yielding interest accounts like Icesave.

Now there is a new problem, Councils, Companies and all sorts of other organisations have 'hedged' their interest rate position through the use of interest rate swaps. However, these were hedged against rising rates. Falling rates means the loaning organisation (Banks) can call in the loans or charged penal rates.

This is very similar to the position Mitchells & Butler faced recently, which nearly bankrupted the company.

The net effect is lots of cash calls on Council's who have hedged against rising rates. Now they may have to sell assets in a tough market to raise the cash or borrow more to repay the loans - with Banks today charging very high rates, if offering any money at all. Banks desperately want the money to bolster their positions, they are not going to be lenient.

This is yet another example of what happens in a crash as Mr Drew pointed out so brilliantly a while ago. Actions are rapid and not thought through. What can seem like a good ides, like letting Lehman Brothers go bust, can turn out to be wrong very quickly.

Watch what the Government's does carefully, they don't know what they are doing....

Saturday, 6 December 2008

Honda Hits the Formula One Crash Barrier


. . . and F1 hits the lobbying trail again.


Always a source of pride, this country plays a dominant role in the technology that drives motor racing. Messrs Eccelestone and Mosley, who also drive the sport, are local products as well.
And they've always known the path to the door of British politicians: so the words "Lord Mandelson met representatives of the industry on Friday" bring a wry smile.

Yes, Peter Mandelson, is "
under pressure to protect the thousands of engineering, hospitality and logistics jobs that provide the support network for formula one after the collapse of the Honda motor racing team."

Let's see now: we bail out Formula One, to save jobs in, err,
- Australia

- Malaysia

- Bahrain
- Spain
- Turkey
- Monaco
- Canada
- France
- ... you get the picture

No, I think we can safely say this is one for the UN. Or the IMF. Or the World Bank. There couldn't be anything Max Mosley could suggest to Lord M in order to obtain special treatment. Could there ? Lord Mandelson ... ?

ND

Friday, 5 December 2008

Moses


Peter Mandelson says Brown is "like Moses".
"People really do look to him like some Moses figure who is going to lead them away from this economic mess to the promised land,"said the prodigal son.


He may have a point.
Moses was tasked by God to deliver the Hebrews from slavery. After the plagues were unleashed on Egypt, he led the Hebrew slaves across the Red Sea where they wandered in the desert for 40 years. Despite living to 120, Moses died before reaching the Land of Israel

So, just 38.5 more years and we'll be there.

Moses had the 10 Commandments too. A bit like his earlier 5 economic tests for joining the Euro.
{tourist rate Euro is 1.09 today so nearly there}

Any ideas for Brown's new 10 commandments ?

Thou shalt not covet thine neighbours mortgage protection insurance
Thou Shalt lag thine water tank