Tuesday 31 March 2009

Fisking Morality Brown

Brown's much trumpeted speech on Morality was delivered today at St Pauls - the third in his series, after Courage and Liberty. I know, I know: but we shouldn't laugh.

At the outset he welcomed his fellow speaker Kevin Rudd, as "a PM of great courage, a leader of great conscience, and a visionary for reform". Oh, how Brown aches to be lauded thus himself.

The speech itself was, quite literally, childish. The markets are to be regulated along the lines we bring up our families.
Pretty thin stuff, and not as much to get the teeth into as last time. Anyway, to the pentametric fisk.
= = = = = = = = = = =

Today I speak for all G20 leaders
(I am their leader ! Really ! No, I am !)

I understand that people feel unsettled
I know that Global is this crisis’ source

(say after me: Global, The Crisis’ Source !)

Our task is to agree such global rules
As best reflect the values that we hold

The very values of our family lives

(domestic bliss in first and second homes;
a quiet adult pay-per-view or two …)

We raise our children honest, to hard work
Discouraging short-term gratification

(well, maybe still a pay-per-view or two …)

Hard working people cannot understand
Why failure would for any yield reward

Why some have grown so filthy, filthy rich

Making failed bets with other people’s cash

As each raced to the bottom in such haste

(though Mandelson has said we’re quite relaxed
- provided always that they pay their tax -
And I can keep my pension – can’t I, chaps ?)

And now what I, in wisdom, argued oft
Some time ago, and controversially

Is now by all more generally agreed

That markets have their limits, don’t you think ?

Free markets, yes, but never values-free

Fair, but not laissez-faire
(that’s clever, eh ?
I thought it up myself last Saturday)

Thus I invoke the Christians and the Jews
Muslims and Sikhs, and
Buddhists, and Hindus
Winstanley, Lincoln, Smith, King, Sacks and Pope

- just yesterday ! A letter from the Pope !

(A swipe at ‘Tina’; and some pious Hope)

All bow before the name of Gordon Brown
Clunking, vain, cowardly, hubristic clown


Trading the G20

One of the most obvious effects of the credit crunch has been to show the importance of politics in the markets.
These past years, hedge funds and banks have had analysts who were quantitative experts. They were maths grads and number men/girls. These people were the masters of the universe of financial prediction. And they were all wrong, almost entirely, swept away by the mistakes in their own algorithms (there is worthwhile comparison piece to be done here with Global Warming algorithmic predictions, but that is for another day).

Instead, perhaps those rubbished political economists should have had more of a say. Certainly the G20 is a gathering of the world's leaders and will point the market direction for some months to come.

In this situation it is therefore perhaps best to think of the likely political outcomes and develop a market strategy around that. Here is what I will do:

- Short Gold (ETF) - Yup, Gold falls on Dollar strength and economic recovery in other commodity assets like copper etc. My assumption is that the G20 will spin as a big success at least until the weekend. As such there will be continuing pressure on Gold which will see it drop below $900 an ounce.

- Buy Banks and Insurers - Stability as promoted by the G20 will push a further small recovery in these bombed out shares

- Buy Shipping (there is even a UK ETF now) - G20 will push for a resumption and completion of the Doha trade negotiations, this will boost the prospects for world trade and shipping in the short term.

All these trades have a very short time horizon as the events are this week and will probably unravel as countries start to spin success in different ways when the leaders are back home next week. I don't plan to stay in them beyond Friday. I wonder how the quants are modelling this?
UPDATE: Ok, closed out my positions this morning, SBUL, bought at 45.8, currently 47 (not selling yet, Gold might drop further if it closes under $900). LLOY, bought at 67.7, sold at 75, ETFS shipping, bought at 1140, sold at 1171. Aviva, bought 220, sold 245. Everything in the black, but I guess was a good week for the markets anyway. Still satisfaying though.

Monday 30 March 2009

What happened in February

The UK posted a monthly fall of 1.9 pc in retail figures for February. this takes actual retail growth to 0.4 pc, its weakest since 1995. Pundits were largely surprised again at this fall it seems. Yet again we must point out to the analysts what ordinary people already knew. It SNOWED for February. Not a few flakes, but hard enough to shut the schools and close down every single bus and train in London.

The effects on just in time stocks will have been momentarily felt just after the snow melted too. Weather has a tremendous impact on UK shoppers, largely because we don't have too much of it.
The splendid sun of late march will have crimped some figures too, for the same, but opposite reason. Not as severely as the snow which will have removed 2 or 3 days total sales from the calendar but Brighton will have done better than Crawley last week. Seaside on a sunny but chilly day will have seen increased footfall, and beaten the indoor shopping centres. Shock horror it will happen again in May.
Which should remind us that at some point in October retail analysts will again be surprised when the economic numbers begin to become good. That, as we already know, may have something to do with the economy starting to compare against those hideous end of year falls from 2008. If we are trading down on 2008 figures we will really be in trouble.

However in the USA, which also posted some pretty gloomy retail numbers last week, there were some genuinely surprisingly good ones. A 3.4% increase in Durables, which are things like fridges, cars,aircraft etc which should provide hope that the bottom of the recession in the USA at least has been reached. It was certainly reported that way here. by Stephen Gallagher, chief U.S. economist at Societe Generale in New York, who said .."After some horrific data, we’re seeing some stability...“It’s not going to be downhill forever..”

The rest of the numbers don't really bear this out:
Business investment in new equipment fell last quarter at the fastest pace since 1958.. the maker of chips for the five largest mobile-phone makers, said it plans to cut more than 1,700 jobs, or about 25 percent of its workforce..and so on. However New home sales WERE up 4.7% {Still down overall 41% on the boom though} So maybe some green shoots in the USA.

And as we know, if it starts in America, it will get here eventually. About a 6 - 12 month lag at the present.

Another Scottish Brew: Dumferline Building Society

I am off to Edinburgh for the day later as it happens, so its seems fitting to have a Scottish theme for tonight's post.

Readers may or may not have seen some coverage of the collapse of Dunfermline Building Society. What is interesting is that the Chairman says the Government has been heavy handed in the 'takeover' of the organisation. Alistair Darling is being fingered for this.

His interview is quite interesting, he suggests that he only needed about £20 million in loans. Dunfermline is not full of toxic derivatives and sub-prime loans, more that the business suffered stress from the freezing of the credit markets. Not wishing to defend the Government, but Bank chairman are not currently a species who have much credibility and are bound to say for reasons of their own legal defence later that things were not that bad; Dumfermline have a sorry looking bunch of commercial loans to go with their Scottish mortgage book.

However, the thought that a Labour Government would move fast towards the option of nationalisation is also credible. Particularly in Scotland where there is more political support for wild Marxist activity. Let's see whether a buyer comes forward who either has strong Labour links or is perhaps already state-owned?

Apparently we will have the answer later on Monday....

Saturday 28 March 2009

Turner Hints at What's Really Been Going On: FSA Report (4)

A nice hint from Turner at goings-on in the gentlemanly world of banking regulation. He is discussing the relative merits of formulaic capital adequacy requirements - Pillar 1 of Basel - and requirements made at the discretion of the regulator (Pillar 2).

"Under a formula-driven system, the required level of capital would vary according to some predetermined metric ... a pre-set discipline not dependent on judgement and not subject to the influence of lobbying"

, eh ? Doesn't sound like a hypothetical concern. So - to what lobbying has our independent regulatory system been subject ? Has Gordon Brown been down there over the years, pressing for higher discretionary requirements ?

Surely the bankers haven't been trying to negotiate their capital adequacy with the FSA ?

... have they ?


Thursday 26 March 2009

How long before a UK gilts strike?

Yesterday's failed auction caused rumblings in the City. Effectively, the City trading desks want to buy short-term guilts off the government and sell them back to the bank of England at a profit.

In this way, the taxpayer is transferring money to the Banks for re-capitalisation. Easy, risk free profit for the City Traders.
QE (Quantitative Easing) was not meant to do this, as longer-term buyers were supposed to be involved, but it is the law of unintended consequences. When the Government tried an issue of long-term debt though, there was a strike, whereas the short-term debt auction today, which has a nice guaranteed bonus on it from HMT, goes without a hitch.
The long-term is an issue though, QE is going to cause inflation and long-term bonds at under 5% return with no inflation guarantee does not look like a great investment, hence the lack of buyers. Do you think inflation will stay so low for the next 40 years?

If the Bank of England ends QE early, then we will see if there is a short-term strike too. To fob off yesterday as a blip is incorrect, it is still a big warning. Hence Mervyn King sounding off earlier this week.

The Government is going to have funding issues big time if it follows a route of spending more money without any cuts in other expenditure.
Bonus points is you can associtate the picture in the comments.

Wednesday 25 March 2009

Deflation talk is a cover for the Government to rob you

In the final stages of a Ponzi scheme things get stressfull for those in charge. Money ceases to come in at a rate fast enough to cover the interest payments to those already on board. The system starts to unravel and it is time to flee or hand yourself into the Police.

In the UK, we face an economic disaster and the Labour Government are determined to make it worse. They will have the Socialist redistribution of wealth by making us all much, much poorer. They will end their Ponzi scheme by laying waste to everything.

The Labour Government spent too much money from 1997 -2009 and allowed the property bubble to go too far. We now have a bust, the likes of which have not been seen in a century.

The response to this is more Government spending and a fingers-in-the-ears approach to all criticism. Worse, there IS a new plan. The Government and the banks know that they cannot repay the debt they have saddled the future British taxpayers with. So the only solution is to ignite inflation which will quickly whittle away the value of the debt, and it will quickly whittle away the value of everything you own too.
No more holidays, no more restaurants, no more new cards, no more imports at all (think virtually everything you buy). It is quite possible, even likely, that the absolute level of devaluation will mean that UK living standards are reduced to the levels of Portugal or Greece in short order.

The Government know that no one would willingly want to inflate away all of their own wealth and so the deceptive cover they are using is the threat of deflation. As yesterday's and the previous months inflation data show; there is not going to be major deflation post the pound' rapid devalution; and yet still we have record low interest rates and quantitative easing. High inflation is the desired outcome of current policy.

As I happen to think Gordon Brown only cares about his precious party; there is also an upside for the Labour party too. Inflation will not start to spike until early next year, this will be spun as a sign of successinstead of abject failure and will allow Labour to lose the next UK election by a smallish margin. The incoming Government will then be faced with an utterly wrecked economy that will take hard, unpopular decisions to sort out. If you want to know how hard, read this on the fall of the Czech Government yesterday.

Labour will then be primed to return in 2015. All that is good for the Labour party is good for the country.
UPDATE: UK Gilts auction failed today, this has happened in the past decade by 1% or so. This time it was by 7%. Institutions are wary of the Government clearly falling out with the Bank of England, especially when the Bank is in the right and the Government the wrong.

Tuesday 24 March 2009

Inflation. A modest decline {2}

"So, after all that, we're not in deflation. To general shock and amazement throughout the City, the Retail Price Index did not creep into negative territory last month, dropping instead from 0.1pc to zero" says the Telegraph this morning, one of many reporting the surprise. Consumer Prince Index inflation, the measure targeted by the Bank of England, actually rose from 3pc to 3.2pc, meaning the Governor Mervyn King has had to write another letter of explanation to the Chancellor.
Its a good piece. Read it here.

Well UK bubble have the pick of the quotes so link to there.
Because our business readers, manufacturing readers, retail readers and generally ordinary everyday people readers, who have been outside since Christmas told us so.
Inflation will come down further, but ignoring a 25-30% devaluation of currency on an importing nation was always going to lead to some funny maths.

The Socialization of Risk: FSA Report (3)

Turner muses on the subject of whether mathematical modelling of risk – e.g. for determining capital adequacy – is valid.

“it is unclear whether … we need to recognise that we are dealing not with mathematically modellable risk, but with inherent ‘Knightian’ uncertainty. This would further reinforce the need for a macro-prudential approach to regulation." (page 45)

Many will have read Taleb on this subject, Fooled by Randomness being much more measured than the later, more famous and intemperate diatribe The Black Swan. Turner goes on:

“But it would also suggest that no system of regulation could ever guard against all risks / uncertainties, and that there may be extreme circumstances in which the backup of risk socialization (e.g. of the sort of government intervention now being put in place) is the optimal and the only defence against system failure."

Well. Obviously, since it’s happening right now, socialization is indeed the ultimate back-up: it always will be. But ‘optimal’ and ‘only’ are strong words – could the current nonsense be described as optimal by anyone except a successful banker-looter who’s made his escape ?

To argue that planning for this to happen (even in a more orderly fashion) once in every 50 years or so, is optimal, is akin to saying that government should always make every capital investment because it has the lowest cost of capital. Defeatist, statist claptrap. And ‘only’ is strictly for Marxists.

Conventional risk management can do much better than this without recourse to ‘state insurance’ – has Turner never heard of margining, for example ? Of course he has, see pages 83 and 110-3. Only if the state knew what risk margin, or ‘insurance premium’ to levy (or to set aside from general taxation by way of subsidized ‘sinking-fund’), could a true optimisation calculation be made. But if the appropriate margin is known, this can be handled, as with on-Exchange or bilateral margining, within the commercial sphere itself.

And if for a particular deal or player such margining were ‘too expensive’, that is a strong indication the deal in question shouldn’t be transacted at all !

What ‘society’ should demand is not the dubious privilege of socializing ultimate risk, but the proper implementation of conventional risk management between the consenting adults involved.


Monday 23 March 2009

Will the latest US bank bail out product succeed?

Another Monday, another US bank bail out plan. By my count this is version 2.1. So far the product has failed to meet customer expectations and there have been few buyers.
However, with the CEO Bush and CFO Paulson replaced by Obama and Geitner respectively, expectations have been set much higher for the product; in spite of this the initial release of a few weeks ago was met with lacklustre enthusiasm. There has been much investment in time and R&D since V1.0 launch in September of last year, but now with funds running low, a market breakthrough is essential.

As an initial barometer the share prices of US zombie banks like Citigroup and Bank of America have soared on the news. Clearly shareholders of banks think that this is the real deal. in the UK, the asset plan announcement had varying effects on LLoyds and RBS share prices - with both still languishing at relative lows for the year. So this is a good sign for financial community users.

Other initial indicators are that the US Dollar has fallen, this seems to be on expectations that US Government debt is going to soar and be much harder to bring under control. This suggests to me that the new product will not be that appealing to customers in the tax paying sector of the market. Suggestions abound that Congress will not have to approve the plan, suggesting some underhand play here by the Executives responsible.

Also I note that the product contains some code which may yet prove it to yet another bug-ridden release. The product relies on private investors putting equity into banks bad loans. City sources suggest that some have been sounded out and so there will be at least a little appetite, but with no mechanism for pricing bad loans yet discovered, this new code is liable to prove inadequate at the first real hurdle. No doubt a patch will be rushed out to 'fix' this in the near future.

I look forward to bank bailout product v2.3 which will be along shortly.....

Sunday 22 March 2009

Never listen to BNP Paribas

That is what I have decided to do today after reading this load of codswallop in the Telegraph. Apparently the UK is set for over 10% unemployment and to be stuck with deflation for nearly 2 years.

This is all based on RPI dropping fast and the point that it will be negative at the next update on Tuesday.

How can economists be so dim? (Yes, that is a rhetorical question).

BNP Paribas have clearly failed to notice that commodities, petrol, food and other energy costs have started to rise again. They have also failed to notice that interests rates cannot go any lower. There is no way down from here in deflationary terms, this is it. It may take a quarter or two to feed through to the official statistics, but we are here now.

Also BNP Pariabs make no mention of quantitative easing that the bank of England is carrying out. This QE, 10x the size of the US version, has just started this week and will push inflation much higher as the value of money drops due to its over-creation.

There will be technical deflation this week and even this year for a short time, then he odds are inflation and interest rates will pick up quite quickly.

On the employment side, I think they may be close to the truth. The sad fact is we are in for 1970's Stagflation - that is the real decline in incomes that hurts so much - and is that old stable of Labour Government disaster.

Friday 20 March 2009

Congress readies 90% punitive taxes on bonuses

The Americans have begun moves to introduce probably the most socialist tax ever seen in their history. A 90% tax on bonuses for companies that have had a taxpayer bailout . The tax would apply to bonuses paid to high earning employees at companies that have received at least five billion dollars in aid from the US government. The measure comes after it was revealed that more than 160 million dollars were paid in bonuses to top AIG executives in the past week. The Democratic tax would apply to employees whose total annual pay exceeded 250,000 dollars at firms that received more than five billion dollars in government rescue funds.

Should it be done here in the UK?
Could it be done here?

Should Sir Fred get the 'Public opinion tax,' threatened in a moment of opportunistic populism by Harriet Harman a few weeks ago?
And if it were unveiled could a socialist government, desperate for funds, resist not putting that particular genie back inside the bottle.

Probably the only factor preventing what would be seen as a vote winning, anti Tory, anti capitalist, pro worker, debt reducing, equality, strong government policy, is that if it could be done for bankers, could it not apply to regulators? Or legislators? Or the guardians of the public finances? Or civil servants? Or Public sector workers? Or Quangos? Or Union Leaders?
Or MP's ....

Why only 90%

"We figured that the local and state government will take care of the other 10 percent," quipped Democratic Representative Charles Rangel, chairman of the tax-writing House Ways and Means Committee.

UK National Debt Rockets

Yesterday's news but here is some simple statements:

In 2002 interest on UK debt repayments were £22 billion

Last year the debt repayment were £31 billion.

This year they will be £34 billion....and rising

That is a 65% increase in debt repayments in just 6 years. This is before we go back to an inflationary enivornment where gilt yields will rise, causing the debt to become even more expensive.

Have a look att he grpah below from Wikipedia - see what taxes you could have removed, e.g. halved council tax or corporation tax, done away with stamp duty...

Northern Wreck update: Government unfit to run whelk stall

This story is covered in detail elsewhere. However, it is worth noting that £80 million in fees to clever consultants did not stop the Government signing up to a fantasy business plan - house prices to drop 5% over 3 years - really sticks out. As does allowing another £800 million of 125% mortgages after March 2008.

Whatever the case for nationalisation due to financial collapse in banks, this just shows yet again that the UK Government cannot run private companies. It may well be that due to losses Lloyds, RBS and Barclay's do end up fully naitionalised, but it will not end well if they do.

The Treasury is not full of highly intelligent super-humans who can run everything, as Gordon Brown wold like to believe. it seems the opposite is nearer the truth.

We said close NR when it went bust, it was the wisest strategy at the time and remains so to this day. saving Northern Wreck has been a total waste of money

Thursday 19 March 2009

Third World Regulators Put Gordon Brown To Shame: FSA Report (2)

With a 126-page,
jargon- and graph-laden report like this, the danger of getting lost among the trees is great, so let’s start by staking out the wood:

Canada has largely avoided the worst of the ‘global’ banking crisis, and we know why. The UK is suffering very badly from it, and we know why. The difference lies in Jean Chr├ętien’s genuinely prudent regulatory approach versus that of Gordon ‘race-to-the-bottom’ Brown.

Where to begin on the Report itself ? Firstly, as CU says below, this is a very political document in that it conveniently sticks to Brown’s line that we’ve been taken unawares by a big boy who ran away. Turner, still more-or-less in his FSA honeymoon period, surely didn’t need to be this mealy-mouthed – if only in his own long-term interest. But, as with Butler and many another British report, even if there are signs the author knows what the score is (viz Turner’s live performance before the Select Committee), it’s just not good form for a gentleman to speak plainly.

It’s also rushed and shoddy in its production: typos etc abound - did a senior career civil servant get anywhere near this ? Looks more like spin-doctor editing in No.10 to me.

And what stuff it contains.

“Robert Shiller’s work illustrates that irrational exuberance is possible in housing markets as well as in equity markets” - we didn’t need anyone’s “work” to tell us that, matey (and Gordon Brown promised in 1997 to prevent it happening !)

“Inadequate capital against trading book positions allowed excessive leverage …Insufficient attention was directed to liquidity risks” – no sh*t, Sherlock !

“Getting macro-prudential analysis and tools right for the future is vital” – well, errr, yes.

I intend to run a short series on various themes from the Report over the coming days, but for now I’ll indulge in a little name-dropping to justify the headline above. Earlier this month I had the pleasure of dinner with the excellent Dr Tarisa Watanagase, Governor of the Central Bank of Thailand. In 20 minutes she described a more subtle, sophisticated and effective regulatory regime (which actually exists – in Thailand !) than that operated by Gordon Brown's FSA prior to the current carnage. Her operative grasp of the interplay of Pillar’s 1 and 2 of Basel II, and practical implementation of formula-based macro-prudential intervention, makes Turner’s analysis look trite, his conclusions timid and tentative.

With our whole economy hanging off the banking sector, Gordon Brown has given us a regulatory system worse than that of a Third World country. He must not be allowed off this shameful hook.


FSA Report; Brown poodle spouts claptrap

The title may be a bit hard, but Lord Turner has long history with New Labour. He has issued two previous reports, both of limited effect in the long-term.

Actually there is some sense (e.g. more thorough and consistent approach to audits) in the huge report published today, but I also find some logical inconsistencies in the report.

Most of the regulations for banks after all needed to be put in place ages ago. The problems they seek to solve have been solved by the market. Assets are now marked down, some banks have failed, mortgages are not being handed out willy nilly. So much of the prescription is to fight the last war, as is usually the case with these things.

However, what is missing in the FSA Elephant in the Room. Why should the FSA regulate anything again, it has proved a failed organisation in this crisis, so too has the Bank of England in many ways. The organisations need to be merged. The BOE needs the FSA's staff and insight, the FSA needs access to the BOE boffins who can see the patterns in money markets etc.

None of this is addressed, for this would be critical of G. Brown and his lame duck Government. Brown's hedge fund friends, source of so much funding and of course Lord Myners, also get off lighlty. A nice populist attack on bonus's. This is a very political report.

One last point I wanted to make is on the silliness of over-regulation. Example A is the suggestion that mortgage lending should be strictly monitored, perhaps even with limits on the multiples that people can borrow. Why is this needed ? As an answer to the world where lending was too lax, but this world was caused by BOE interest rates being held too low, not by the banks. When rates went up and credit became tighter, banks reduced the criteria. Now we have a very tough market to get a mortgage in, with strict lending criteria.
Where is this sudden need for more regulation? The state does not need to do everything, indeed generally what it does it does badly. I hope the BOE and FSA look closely at monetary policy in the future, that is the way to stop asset bubbles. Little mention of that today.

(hat-tip for graphic to Thisislondon.co.uk)

Wednesday 18 March 2009

Gold Rockets on back of US money printing

Typical , just as I was waiting to pounce on a new 'in' to Gold at around $880 an ounce, what happens...this!

The US is to copy UK Quantitative easing, although not on the same scale (would have to be about $1 trillion of bonds to reflect the economic and currency difference of our £75 billion).

This is what Gold bugs have been waiting for and if it all goes wrong is the slip road to US default on its debts.

Looks like I missed my window, Gold was headed down to $880, now up over $930, (nope $942 now) in the space of a few minutes.

Lord Turner unveils tough new regulations

Changes to FSA Regulations.
An in depth analysis from the chairman of the financial services industry.

Para 3 . Part 4. Subsection 1/1a.
Amend the word
AFTER to now read BEFORE
in the sentence

Shut stable door and initiate bolt after horse has bolted

Tuesday 17 March 2009

Banks still in truth denial

As our post below shows, Barclay's are in a bit of a spin today as their tighrope walk suffers from some turbulence. More on this as it develops. Suffice to say, not all is going to be well at Churchill Place in the days and weeks to come.

Staying with Banking, more of their august leaders were in the commons today justifying their existence. I am happy to report that Doug Flint, long-serving CFO of HSBC did say something sensible, he said there was no magic regulatory bullet that could have stopped the crisis.

Lower marks for the others. John Varley spouted on about how great Barclay's risk management was and that is why they are doing so splendidly; Pride before a fall, plenty of mark-to-makebelieve assets in the bank.

Eric Daniel's of Lloydss says adequate due diligence was done on HBOS, if this is the case then why did no one read it?! I demand it published, like the Iraq Cabinet minutes. Lloyds' is after all a public institution.

1 out of 3 - is this a green shoot of recovery?

Monday 16 March 2009

Barclays in Tax Schemes Shock ! Furore !

Well, they all get there in the end. Back in October we gave the reason why Barclays was so keen to avoid taking the HMG shilling:

"there’s [a] 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."

Finally, Vince Cable – keep up at the back there, boy – has received material from a ‘whistle-blower’ (strange terminology because it’s most probable that nothing illegal or technically improper has happened) detailing some of Barclays’ cunning plans, and almost everyone else has piled in.

Barclays has some champions in odd places – well, John Varley does anyway, here in the Grauniad, which is also rather coy
(is this the best they can do ?) about what the HMG shilling may entail:

Allowing the government to take a stake in the bank is likely to come with conditions attached. These could include forcing it to … comply with restrictions on its activities (our emphasis)

But the FT’s excellent Alphaville blog pulls no punches, seemingly because they are miffed at Barclay’s PR efforts to thwart their reportage (and perhaps they didn't get as good a lunch as the Grauniad chaps). They give us

a little story about Barclays, a bank that in our view could now unravel at frightening speed …all the time it has to continue spinning the line that its balance sheet is somehow less toxic than its rivals … State-interference must be avoided at all costs since that would cost Barclays its lucrative tax avoidance business and also cost Messrs Varley and Diamond their jobs

What, honest John Varley ? Barclays unravelling at frightening speed ?
Say it ain't so !


UPDATE: it's all getting a bit heavy.
But where is Pesto ? Usually so quick off the mark, with so many banking stories, over so many many months ! What are we to infer ?

UPDATE 2: Alarm over, Pesto has posted ! (but he wants to hug the bankers - and no mention of the big B ...)

UPDATE 3: whisper it softly but they do say that the Grauniad's scoop is still available somewhere on the interweb

Sunday 15 March 2009

Andy Burnham hasn't got the X Factor

Andy Burnham can't be a real politician. A real politician looks for certain things in their policies. Number one is is it beneficial.{ie beneficial to the introducer.} Then there is media coverage, seeking to reinforce belief, narrative or previous position. Cost. Public opinion.Commons support and necessity amongst others.
So why was he against the product placement ban? The ban exists to prevent companies placing their wares in full view of the public on the television and benefiting from a perceived association. The reasoning is that ordinary members of the public are very stupid. If a news reader on Channel Four has a Starbucks on their desk, then they are implying that Starbucks is a caring, sharing, thoughtful, edgy,independent but deeply public service committed kind of coffee. If you drink Starbucks you would have a Liberal outlook. If a Coca Cola appears on Coronation street then the drinker is a rabid right wing, Fox news, Republican, warmongering, third world enslaving nuclear button pressing maniac. Also the argument extends to advertisers would put pressure on TV companies to make long infomercials disguised as drama or something. {it doesn't apply to magazines,video games,blogs,books,newspapers, tube advertising ..for some reason.}
This is nonsense, but even if it weren't, there is a very good economic argument for allowing product placement. That is the Independent television companies are doing an HBoS. Channel 4 was supposed to tie up with BBC Worldwide {announced back in January} But this looks like a collapsed deal. C4 do not like the terms.

C4, BBC, ITV and C5 bosses have all forgone bonuses, they have sacked workers and held down pay. Channel Five has slashed its value by more than half. The TV companies that rely on advertising revenues are really suffering from the downturn, advertising moving platforms and falling mass audience share. As they said about Royal Mail recently, the status quo cannot continue.
Naturally safeguards were being discussed that would have meant no products placed in News, Children's, Political campaigns or Documentaries. There would of course be a code of conduct and full on regulation. In the USA there are higher standards for news than for entertainment. Assume the same would apply here, only more so.
So it seems odd that Mr Burnham would not have embraced with open arms something that would help alleviate their suffering. Mr Burnham sparked some mild controversy back in June 08 when he appeared to rule out product placement ahead of a debate on the matter. After all its such good strategy and fits so nicely in the overall plan of state intervention , bailouts and help for hardworkingfamilies.
The companies get extra revenue. It costs the government zero. It shows helping out of the media industry during 'these difficult times' It is easy to achieve and quick to implement (BBC "Relaxing the usage of product placement would inject more than £72m into the UK television market in the short-term."} so the effects will be felt in time. And its aimed at the media themselves so will generate thousands of words of praise for the government.
Its not as if many of the top programs on our screens don't come from the USA already. Lost,West Wing,Sopranos,The Wire, Big Bang theory, America's top model..? etc. They all have product placement. They just blur the logo. As do just about every program. Inspector Morse drove a Jaguar. The X factor is one long advert for the X factor. . The white and silver parkas that Bianca wore for about seven years in Eastenders was sold by a well known discount store. BBC have teams that go out looking for certain types of clothes. A Hoodie, a druggie, a retired major etc. They don't print Matalan on the side, but if you know..then you know. So if someone in the Queen Vic asks for A pint of Guinness and pack of skips,instead of a "pint please Peggy" would this really damage the show and the integrity of the nation

The picture at the top has this caption.
Which goes to reinforce the thinness of the argument.
We were settling down with our tea to watch Eastenders the other night and were amazed to discover Brothers Pear Cider is now stocked in the Queen Vic. Peggy Mitchell is obviously a lady of great taste.We will have to put the Queen Vic on our Cider Finder, where all our known stockists are listed.

Meanwhile the campaign for a diverse, democratic and accountable media welcomed the ban.

Saturday 14 March 2009

Printing our money

A short film about some of the risks of increasing the money supply


Friday 13 March 2009

HMG Treasury in action

2 whisper stories to end the week on this week:

1. The newly minted state banks have meetings with their senior management every week now with Shriti Vadera (Minister for small business - I guess that is where the want the banks to go!) and a treasury team. These are not meetings the bankers' look forward too.

After the opening niceties it goes something along the lines of:

"How much F**cking money have you lent this week? Why aren't you lending more? What have you done about improving you capital ratios you f**cking imbeciles"

The shocked bankers sit and try to explain that the many contradictory orders cannot be followed. Surprisingly, they just get shouted down.

One week just after Christmas Lord Mandelson turned up. The meeting was more civilised. Mandy said I trust you all to do what you think is best, its is your business after all. He then said, of course there was another side to the deal and that '"from the moment I leave this room I am going to call you all C**ts to the media."

2. An Army General came to dinner with a friend and said he had had the top three MOD treasury mandarins down to see him during the week. They were doing the usual thing about budget cuts and overspend. When asked about what they future held they said they had no view at all of what would happen over the rest of 2009, but were sure that inflation would jump to over 6% in 2010 due to the monetary stimulus being injected into the economy.

Thursday 12 March 2009

Vulture capital runs out of carcasses

The genius of Lord Mandelson has announced a challenge to British Investors, go find the new business that will build a new economy. I don't think he mentions the economy the Government just flushed down the drain, as that would go against the spirit of 'looking to the future.'

The world of the VC's has been a bust model for a long time. Investing in companies has produced maybe 2 or 3 in a hundred that take-off. For that you have had to work really hard and throw a lot of money in that gets eaten by numpties. The Dotcom boom really was the last hurrah of this as a big industry.

It is no coincidence that the smart people decided that Private Equity: buying companies that at least had been successful once; or hedge funds (gambling other peoples' money), was going to be a lot easier than Venture Capital.

In the UK the success of the BBC Dragon's Den suggests that the Entrepreneurial spirit is alive, but the investments are small and again often have limited success, if any.

The real problems in the UK today are varied, but they are not VC related. A great list was left by an anonymous poster yesterday, I copy it below:

"Mark to market, mark to fantasy.
Level three assets, ratios.
No discernible market value.
Off-balance sheet structures brought back on - upon counter party bankruptcy, marked to zero.
Commercial Real Estate.
Tenant less shopping centres, - business rates.
National capital flight, corporate and private, - rapid currency depreciation = inflation.
Consumer squeezed."

Go fix these Mandy and stop posturing.

Wednesday 11 March 2009

Airline woe

More grim news out today about the World's airlines. It is not just BA heading for big losses, but Cathay Pacific, Delta and a host of others across the world. Although Lufthansa have managed small profit.
In related new, Easyjet has complained about the EU's possible decision to relax the 'use it or lose it' approach to airline slots. I am on easyjet's side, if airlines can't use their slots economically they should give it up to those that can. This is pure flag carrier protectionism once again.

What is perhaps most surprising to me is just how badly airlines are doing considering the huge falls in kerosene seen in the past few months. Many airlines have hedged positions (not Lufthansa, unsurprisingly) too far into the future and are not feeling the full benefits of the drop, but still, to have nearly 1/3rd wiped off your cost base and still lose money says a lot for sheer scale of the decline in traffic.

At least the global warming crowd will be happy as less planes fill the sky for the next few years.

Tuesday 10 March 2009

UK sliding fast; good news?

The latest figures out today show yet more very grim reading for the UK economy. Manufacturing sliding a the fastest rates since 1981, UK house sales at all time lows.

The world economy is too on the skids and there seems to be no good news coming from anywhere. The phrase 'off a cliff' is over used, but it is appropriate to describe what has happened since the autumn of last year.

On the brighter side, I note the FTSE today is showing some resilience to this bad news, as if most of it is already priced in.

A look at past UK recessions as well shows up an interesting point. The UK is very prone to fast falls and then fast recoveries, more so than other economies. So as much as the news is bad today that everything is getting worse quickly, this also allows for the bottom to be reached faster and the turn around to start sooner. A slow drift down would be much worse.

With a hat--tip to the excellent market oracle site, see the graphic for how the 1990's recession looked. The 1980's was the same, as was 1974.
At the moment we have the sharp fall, painful and frightening, but maybe it is bringing forward the bounce?

Monday 9 March 2009

Des Boot

The story so far.
Kaptain Draper of U-sles Labourlist has been having difficulties...

Bail-out indigestion: the good, the bad and the ugly?

Lloyd's asset insurance scheme participation was announced on Saturday; but the share performance today has been poor, with the price dropping 10% or so in early trading.

RBS, whose shares jumped on the back of their participation to over 30p, have dropped back to 18p. Quite a fall in the space of a week or so!

If Lloyd's was the good bank in Brown's eyes for saving HBOS, then RBS was the ugly, in that it just accumulated huge debts under the now despised Fred Goodwin. (HBOS too could be seen as ugly were it too still exist...)

However, now it is the turn of the bad, Barclay's. As we have reported before, Barclay's makes much of its money out of selling tax avoiding schemes. Barclay's more recently is guilty of gilding its results with some interesting number crunching post its Lehman takeover.

When the treasury mandarins have had their sleep, it will be Barclay's turn to negotiate with the Government. RBS had a share price bounce, but fell back, LLoyd's share price fell 50% odd. The omens do not look good for the Varley and Diamond show.

Sunday 8 March 2009

Thwarting the Robber Barons: from Scargill to Goodwin

Some characteristically wise and generous things have been written over at Raedwald’s, that great outpost of humanity in blogging, on the subject of the 1984-5 Miners’ Strike, both in his initial post and in comments. But as far as his conclusion …

I still wish to God the entire thing had never happened

… I can’t go with him, and here’s why.

The Left has always harboured an insurrectionist tendency, and this was particularly strong in the 1970’s. By the early 1980’s the writing was on the wall for this lot, but they didn’t see it. There were a number of more-or-less unsuccessful strikes in Thatcher’s early years, the steel industry suffering one of the largest; but setbacks for the unions were always met by the response: wait till the miners come out ! I can’t remember how many times I heard that from leftie acquaintances.

The insurrectionist Left remained convinced that, until the miners arose, the fat lady hadn’t sung and there was all to play for. Until they had given it their best shot, the empirical proof of the falseness of their position was wanting, and the re-constitutionalising of the Left could not commence in earnest. They had to give it a go.

Scargill, of course, was the perfect figurehead for this nonsense: not, technically, a Communist but issuing unambiguous revolutionary fire with every breath. He tried: he came close: he failed. Just as the old-school Fleet Street print unions had to be crushed, so too did Scargillite industrial unions.

But those were yesterday’s battles. Robber-barons in any guise cannot be allowed to become powers in the land: and in 2009 it is the looter-bankers of the past decade who must be denied all future power over the common weal.


Saturday 7 March 2009

Jonah Brown strikes down Lloyds Bank

LLoyd's banking Group has today announced that it has finally agreed a deal with the government for it to access the Asset insurance programme.

This deal was supposed to be agreed last week and the share price had ticked up in expectation of this to 75p. When no deal was forthcoming the share price nearly halved. As the week dragged on, the share dropped and dropped with only a small rally Friday.

Reports in the City suggest that Eric Daniel's was speaking at a charity event last Monday and was reduced to tears in a speech (clearly due to stress, not the text he was reading). So much pressure has he felt.

For this Lloyd's deal was cooked up last year by Victor Blank, the Chairman and Gordon Brown. In the end it has not achieved its aim of keeping HBOS off the Government balance sheet. Nor has it been good for LLoyd's whose shares have collapsed to RBS type levels.

As a result, the only honourable solution is for both Blank and Brown to resign. Eric Daniels', one of the few good bankers, should be allowed to try and turn the new nationalised LLoyd's around. If he wants too. I don't think the bookies are going to give long odds on either the Chairman or CEO of Lloyd's being in place in 2010.

Friday 6 March 2009

The Leadership Race

Just watched BBC's "Margaret." Not at all bad. Very good actors and script, and for once Mrs T {Lindsey Duncan} was portrayed as odd rather than mad. There isn't much new, but its a good piece of drama. Political Betting even have a piece on Could This Happen To Gordon?
What I had forgotten was how many big Tory beasts there were, and how the unlikeliest of them got the job.

Howe, Lawson, Heseltine, Ridley, Fowler, King, Baker, Tebbit, Hurd, Patten, Parkinson, Lilley, Portillo, Clarke, Redwood..

John Major was the unlikeliest in the public's mind anyway.At the time I hadn't even noticed that he had been chancellor. So to the weekend fun.

A} Who will run for the labour leadership in 2010. {or sooner}
B} Who will be the eventual winner.
Harriet Harman
Ed Balls
Alistair Darling
David Miliband
Jack Straw
Jacqui Smith
John Hutton
Hilary Benn
Alan Johnson
Douglas Alexander
James Purnell
Geoff Hoon
Hazel Blears
Andy Burnham
John Denham
Yvette Cooper
Jon Cruddas

Or any other hopefuls you care to nominate. Even for fun.. like John Prescott or Tom Harris or Mr Draper.

Thursday 5 March 2009

Food Inflation.

Just a quick look at inflation before the metaphorical printing presses run this afternoon.
The reason that we are able to print money today is because we have low inflation, will be Alistair's foundation for doing so, as we watch prudence's last fig leaf blow away.

Food inflation however, which has the biggest impact on households, rose 9% year on year. Non food fell 2%. The weak pound vs the euro is pushing more of our home grown food overseas, for higher prices. Farmers have seen a 36% increase in real incomes over the last year. Good news for them, less for anyone who shops..or buys food..or eats.

The 9% food increase {British Retail consortium} BRC figs shows a 1.9% increase across all sectors.

That hoped for Minus inflation figure is looking ever more fantasy.

Aviva Derchi (or Die Hard 5)

One thing that interests me greatly in the current crisis in the domino effect. Seemingly unaffected parts of the economy are all of a sudden linked to the credit crisis and taken down with it.

Today is Aviva's turn. The insurance giant, recently having spent much money with bruce Willis to remove all traces of the Norwich Union name, has released its annual results. On one level they are a good set, operating profits up 10% year on year. As expected, in difficult time demand for insurance is likely to go up and not down.

Then the bad bit, its investment division, in charge of a huge chunk of UK private sector pensions, has been forced to write down its value by £1 billion odd. Much of this is due to the falls in value of the UK stock market, bond market and residential/commercial property markets.

As a result, investors are fleeing and Aviva is down 26% today to 211odd as I write. Aviva also committed to paying a huge dividend, matched only really by BP in the FTSE100. Yet still the market drops the share like a dog.

Legal and General has had the same treatment earlier this month.

Only a couple of months ago Insurance companies were the last darlings of the Financial Services sector; not anymore. Which sector, yet untouched, is next for the cliff face?

Wednesday 4 March 2009

Fred's Pension: Bernard Cribbins Takes Up the Story

Those who are *ahem* old enough to remember, know that the great Bernard Cribbins sang of Fred's travails a good while ago. Nothing changes.

Right said Fred, gonna have to sack me

There’s no way I’ll volunteer to go.

Tried horse-trading, threatening and persuading

He was going nowhere

And so – we - had a cup of tea

Oh right said Fred, give a shout to Myners

Just tell Darling I refuse to go.

After cursing, shouting and coercing

He was going nowhere

And so – we - had a cup of tea

Now Myners had a think and he said look Fred

The Cabinet are wankers

If you can square the bankers

You can name your price, we’ll be finished in a trice

Oh right said Fred, bung me 30 million

Just sign here, I’ll get me coat and go.

Pandemonium ! insult and opprobrium

Landed on the top of his dome !

So Myners and me had another cup of tea

And then we went home

I said to Myners, we'll just have to hope it all dies down, that's all. Now the trouble with Gordon is, he's ... he's too hasty. You never get nowhere if you're too hasty ...


Tuesday 3 March 2009

Death Spiral, the sequel

Back in September and October last year, the markets crashed on the collapse of Lehman Brothers. Th governments of the world decided that it would not let that happen again, so now we have round after round of bailouts to keep zombie companies like AIG and Northern Wreck going.

But this week is a new turn for the worse, markets are falling precipitously since last Friday, the FTSE is down over 10% in 3 days; many are saying they see little support for prices until they hit 3000 or less. Even gold is falling again as deleveraging kicks-off with renewed vigour.

In the midst of this, Ben Bernanke is sounding off about US Fed policy, Brown is being snubbed by Obama and throwing his phones at the wall in the Whitehouse ante room.

Meanwhile, the markets fall and fall. The Government intervention is cack-handed and ill-though out. Look at the current Lloyd's debacle, the company was set to announce the Government asset insurance terms on Friday, here we are 3 trading days later and the share price is down nearly 50% on no news. Terrible PR handling, terrible Government.

The markets are the telling the UK Government what it thinks of its plans, just wait until the bond markets catch-up. We need a concerted plan, waiting for the G20 in April is a bad option.

Monday 2 March 2009

No downside to the Scottish licensing bill

At the Scottish Parliament's presentation on alcohol by the Sterling Cooper advertising agency everyone is very excited. Mr Daryl McCool is winding up..

"And folks.. The icing, on the cream, on the cherry, on the cake; is..... its going to be a Revenueeeeee........ Raaaaaiiiser."

{Gasps of amazement..loosened blouse buttons and ties}

"Its good for you. Its healthy. It requires taxation and compliance through off limit areas and signage, and monitoring of compliance and targets also. Its a jobs creator too! It gives you some pricing and incomes controls. This policy will save lives. Babies lives. Animals lives. It lifts kids out of poverty and ends crime. It reduces drugs; noise, waste, glass shards, litter, bad behaviour,broken street architecture, vomit on the pavements, knife crime, teenage pregnancies, hoodies in parks, under-age sex, St D's, graffiti, gun crime, accidental death, muggings, lost property, broken cell phones, snapped heels and B.O.

{more gasps, more loosening}

It frees up landfill, taxi routes, improves the bus service, aluminium reserves, street cleaners, paramedics,firemen, police, nurses, doctors, beds, haulage and PCSO's. It will improve school results, doctors waiting lists, treasury accounts and Vat revenues. It will improve work attendance, sick days lost, missed school days,productivity, liver transplant availability, dehydration, car crashes, pedestrian injuries, Accident and Emergency visits, and frees up incalculable NHS resources. It will reduce accidents in the home and domestic violence. Abuse of the elderly and stains on the carpet. Alcohol or otherwise !
Oh..it will also end drunken phone calls to ex lovers that you would be embarrassed by in the morning.
{beams smile}

Ladies an' gen'lmen this policy, this beautiful, beautiful policy will increase your incomes while reducing your outgoings. It will increase everyone's incomes as they abandon the beer. It initially restores falling sales to the pub trade too, but like the congestion charge and taxes in general..prices can only go one way.. {laughter..'its true' says someone}

This is the only bill you will need this year. It's popular with the voting majority and has an unarguable argument for those opposed.

"It's for your own good. We want to help you"

"May I present the "Scottish Licensing Bill 2009"

{Thunderous applause and standing ovation for the presenters.
As the applause dies away assembly members slump back into their chairs smiling and nodding and shaking hands with at each other.}

"This is the mother lode policy. This is the Broadway Musical of policies. It has everything!"

{As everyone flopped breathlessly in their chairs, panting and deep breathing with flushed exhaustion, one brighter than the average spark, jumps up.}

"We could do this with other things too, couldn't we? We could say these things about.. well lots of things, right?"
And the slick Adman clicks to the next power-point.

"Way ahead of you sir."

"We are making tracks..to beat snacks...{click}
Crisps. Dealing with our children's greatest danger."