Friday 31 July 2009

Baby Day the Third

Baby boy no.3 today for Mrs Slicker. All went well and now we have three children under four, so I can't see very good odds of me surviving to Christmas 2009.

Two weeks paternity leave so may be blogging more or less, depending on whether or not this baby decides sleep is for wimps...

Do you work for the Military or the Church?

Weekend Fun

P.J O'Rourke's "God is a Republican"

I have only one firm belief about the American political system, and that is this: God is a Republican and Santa Claus is a Democrat.

God is an elderly or, at any rate, middle aged male, a stern fellow, patriarchal rather than paternal and a great believer in rules and regulations. He holds men accountable for their actions. He has little apparent concern for the material well being of the disadvantaged. He is politically connected, socially powerful and holds the mortgage on literally everything in the world. God is difficult. God is unsentimental. It is very hard to get into God's heavenly country club.

Santa Claus is another matter. He's cute. He's non-threatening. He's always cheerful. And he loves animals. He may know who's been naughty and who's been nice, but he never does anything about it. He gives everyone everything they want without the thought of quid pro quo. He works hard for charities, and he's famously generous to the poor. Santa Claus is preferable to God in every way but one: There is no such thing as Santa Claus.

Redone for the UK

The Private Sector is a 19th century army while The Public sector is the monasteries.

The Old Army is harsh. It doesn't care whether you are paid equally or more or less than your colleagues. The Old Army isn't interested in your aspirations, just your ability. It may keep you if you are foolish, or lazy or stupid or gullible, but only because it has a use for you. It doesn't care about your family or your old age. It will tell you to shape up if you lag behind and cut you loose if you don't.
The Old Army gives the orders and expects you to obey. If you don't, it will have you shot. There is a chain of command which you must follow. You may move up the ranks either by family status, wealth, power, political connections, merit, service, changing regiments, volunteering for special assignment, bravery, purchasing a commission, casualties amongst superiors or a battlefield promotion on the field.
The Old Army expects you to start at dawn and work until dusk. It expects soldiers to work on the way to work, and on the way back, and to be available at any time.

The Old Army despises complacency. It loves the rule book, but will throw it away if necessary, and it happily breaks the rules of war to gain advantage.. The Old Army fights the regulations of the Old Church and obeys them only grudgingly. The Old Army expects speed and action. It insists on punctuality and demands a uniform. The Old Army will give employees functional work barracks and as much kit as it thinks they need, and it believes it can afford. The Old Army appoints commanders to manage its various platoons and companies and regiments and expects them to use their own initiative to solve the problems.
The Old Army is prepared to send employees anywhere in the world at a moments notice and expects them to go without complaint. The Old Army must guard against finding itself fighting with obsolete equipment and outmoded doctrines or it courts destruction. The Old Army expects victory. Defeat is not an option. Medals and bounty are for the victors, dishonour and dismissal for the vanquished.
Except at the very top,where a seat in the Lords is another option for success or failure.

The Public Sector is like the Old Church.
All encompassing, all pervading and interested in every aspect of the congregations lives. From birth, to procreation, to death, all must be examined and regulated and recorded.
The Old Church believes it is not enough that they are pious, they must be seen to be pious too. The Old Church offers limited assistance to the poor, funded by large tithes from the rich. The Old Church is a force for good. All believers are welcome, while non believers are heretics and should be burnt.
The Old Church likes to reward themselves with modest comforts. Holidays, benefits and pensions. Fine art, sculptures, architectural buildings and rare books. But it restricts its dress to sackcloth and sandals.
The Old Church believes in having as many members as possible. The Old Church is the nations paramount landowner and collates the data and keeps the records that help to maintain its power and wealth.
The Old Church craves order. It reads from the Holy book and independent judgement cannot be tolerated. It relishes committees and believes a theological discussion can resolve any number of problems. It loves symbolism and sermons and it dislikes change and is comprehensively risk averse. long meditation and reflection are the necessary prerequisites for action. A good thought and a good intention count for as much as the good deed itself.

Clergy may move up slowly, through long service and death. None are released.
Time is an elastic concept. A project may take centuries to complete, or never be completed at all. An Abbey may take generations to build and consume treasure in quantities that the local populace could never conceive while a donation box sits on the site as there will always be a need for more .
All are welcome, the sick, the lame , the afflicted. The Old Church believes in equality of all without regard to status. It gives equally to all who beg at the gates. The Old Church has a spiritual role as well as a physical role to play. It is guardian to morals as well as welfare. It is there to teach, to heal, to punish, to encourage or to forgive. The Old Church writes the rules and sets the ways in which all must live and work. It is a provider for all. The Monasteries do not need to ask who shall provide?
The Lord shall provide.

Thursday 30 July 2009

What Did the Olympics Ever Do For Them ?

Never mind the much-debated ‘Olympic Legacy’: in the middle of Gordon Brown’s recession, what about the here and now ? Real help for real people ? British jobs for British workers ? Here’s the official story:

"Up to 30,000 construction jobs will have been created on the Olympic site in east London by 2012, according to the Olympic Delivery Authority. The workforce on the Olympic park and Olympic village is expected to rise to 11,000 later this year, from the present level of 3,315. • 23% are local residents • 57% are from London • 9% were previously unemployed before finding work helping deliver the Games and 51% of these workers live locally"

The ONS offers all manner of statistics shown by local authority. So how about the impact of the Olympics on job prospects in the benighted boroughs of Newham (where most of the facilities are being built) and neighbouring Tower Hamlets ?

Here are the unemployment data for the period 2007 - 2008, when the recession had yet to bite deeply but Olympic construction was taking off. Neither the UK overall, nor London as a whole, saw very much increase. But the two boroughs in question, both in a worse position at the start of the period, saw significant increases in unemployment.

The off-hand response is obvious enough – if you want a job done properly, get a Pole. But seriously, how can HMG square this with its rhetoric ?

Footnote: for completeness it should be noted that over the same period unemployment fell significantly in Hackney, and remained flat in Barking & Dagenham. What local factors am I missing ? Am I reading these numbers correctly ? Or are they all just fictitious ? What is going on here ?


JJB and Blacks

Two of C&W picks for struggling retailers 2009 award are still struggling; Blacks Leisure and JJB.

has warned that its financial performance will be below market expectations after renegotiating its working capital facility with Lloyds Banking Group for a further 12 months. This leaves them without the resources to re brand the weak Boardwear {surfing} concept stores into the more successful Outdoor {camping}outlets.

JJB have been in the news for a bizarre story that says, a
ccording to The Telegraph, Mr Ashley is to issue legal proceedings against JJB after one of its security guards hired for its AGM allegedly ‘tailed’ one of Mr Ashley’s representatives in a dangerous manner on the M61 motorway. More worrying for JJB are these results:

Low stock results means empty shops. A large restocking exercise will further erode profits. 26.5% down isn't too catastrophic if, as it seems, they have been selling last years stocks.
But it must improve in the fourth quarter.
Overall retailers have performed above expectations. Since the Woolies collapse only a few high street names have disappeared.Chain stores cut stock levels very quickly and responded aggressively to the downturn.
In 1991 I remember a major shopping precinct where 25 out of 40 shops were empty. I have not seen anything like that devastation today. Partly because the chains are so much bigger. The bland 'everytown' high street is its own saviour, spreading the risk. Retailers have been able to secure their funding and renegotiate their debts, failure of which seemed the most likely scenario for their collapse back in January. Sadly, the lousy summer will almost certainly show a retail drop, on the back of the early summer's retail rise. But its all 1-2% stuff anyway and not worth worrying about.
If quarter 3 can be level then quarter 4 should show increases in sales.
Remember, the recession really started hitting right about now last year in the US.
Retailers MUST show increases in like-for-likes for Q4. They are facing their softest figures for years.

"The American consumer is 70 percent of this economy, and if the consumer hits a brick wall and stops, then the economy all across the nation will be in serious trouble."
July 2008

Wednesday 29 July 2009

Yahoo mess

Who would have thought a few years ago that Yahoo would end up in such a mess? It is just like imagining that Google ends up teaming with Microsoft too in a few years. Yahoo had brand, the main search engine, a great leadership team, great technology, Silicon Valley credibility...the lot.

Another old timer in a bad way is AOL. Once worthy of a $100 billion merger, now worth maybe 5% of that. The world of tech moves fast, it is one reason I stay away from tech share prices. Too much disruptive technology to make anything a sure bet.

Ferro vile mess

What a mess BAA is these days. This was a Government owned company once upon a time, privatised and sold to the Spanish at the height of the boom. The clever Spanish construction conglomerate, Ferrovial, borrowed fortunes (up to £10 billion) to take-out our national asset.

Now they are left with a declining asset, debts they can't pay, a Government who have promptly ordered the break-up of the company and general misery.

My heart bleeds for them. Careful what you wish for when buying trophy foreign national assets. The one downside for the UK is that our London Airports can be denuded investment, but we have a regulator to at least make sure something gets spent, let's hope it remains up to the task.
Not long now until Ferrovial gives up and the airports are back in British Private Equity hands I should imagine...

UK Manufacturing success - Rolls-Royce

All ye who say the UK does not produce anything, I give you Rolls-Royce, king of the automotive engine world. Ever prepared for world armageddon, they are upping their factories and investment in the UK as well as getting involved in some timely greenwash chic.

Good to see this.

The FTSE fell for the first time in 11 days today, quite a ride up - I opened a short position for the way down, up 2% so far.

Tuesday 28 July 2009

"FSA Clears Oil Speculators": Hmmm ...

The WSJ reckons the FSA is limbering up to "clear" oil speculators against the accusation that it is they who have caused recent oil market price swings and (which is not the same thing) volatility. This, at exactly the moment when the CFTC is said to be about to make that very case, reversing their previous position.

I was fairly adamant that it wasn't the speculators, until about 9 months ago when, despite my strong a priori inclinations I began to have doubts:

- the run to $147 bore all the hallmarks of a ramp

- starting last year, the front end of the WTI curve started being self-evidently distorted by dysfunctional ETF activity (covered extensively by Alphaville; go to their
Commodities tag)

- Brent is a very strange, non-canonical market and the underlying physicals are
becoming less liquid (again); so notwithstanding excellent overall liquidity there are ample grounds to be cautious.

There's another, ad homines issue: the FSA - sorry to have to say this - is notoriously ignorant about commodities (*sounds of gasping in the wings*). They have been silent on a whole range of glaring commodities 'issues' over the years in a manner that makes one conclude they just don't really care ('no widows and orphans in oil trading, old chap!'), and/or they really don't know what's going on. The Treasury certainly don't, and nor do HMRC, which leaves us ... where, exactly ? An OTC free-for-all, that's where.

Let's see the respective FSA and CFTC reports in due course. The former will probably be very short indeeeed.


Monday 27 July 2009

Her Majesty May Not Have a Lot to Say ...

... but she's a pretty nice girl, and she does ask cracking questions - like, why did no-one forsee the recession in detail ?

So the British Academy have
had a crack at the answer. In amongst the courteous waffle it is pleasing to note they finger the pressure for lax regulation (prop. G Brown) - which is not quite a reason why no-one forsaw how it would all end, but it deserves being said again and again.

The Grauniad has posed the same question to its readership, offering them 3 sentences to complete the task. I'd give a small prize to jimbob1, whose third sentence (which again doesn't technically do the business) is:

"politically influencing, via the FSA's light touch regime, banks to extend 125%, no deposit, 7 x income mortgages to people who could not afford them".

Anyone here got better (succinct) answers than jimbob or the Academicians ?


Privatise the profits: LLoyds Banking Group

Lloyds Banking Group has had a fairly good couple of weeks on the stock market,. The market has gone up 10% in the last two week, Lloyds has gone up 25% in the same time. Why could this be?

Well for one, the bank has been hinting at making a profit in the second half. As one would expect though, there is more to this than meets the eye, as actually profits are being 'brought forward' (what a great new Labour spin term that is!) to help Lloyds now. Later come the losses when hopefully the economy has recovered.

Secondly, the end of the process of putting loans into the Government's Insurance Scheme is nigh. Here Lloyds have made a huge winning bet. All their worst loans are going into this scheme - so most of HBOS in fact. As taxpayer's we are responsible for 90% of the losses. So the most Lloyds could ever lose is £25 billion, but it is likely to be far short of this, even in worst case models.

Thanks to these two events, even the bearish banking broking community is upgrading Lloyds to a buy at 80p odd. taxpayer's are going to lose their shirts and shareholders are going to to well at his rate; therefore if you want to help mitigate your future tax rises, buy some share in Lloyds or RBS!

The losses are being socialised; go private.

Sunday 26 July 2009

Chloƫ ? Kelly ?

Congratulations to Chloƫ Smith !

Elected to Parliament in her twenties ... boyish short hair ... elfin grin ...

May not be than
ked for pointing this out, but ...

Saturday 25 July 2009

Political Changes

After the Norwich by election some of the points that arose after the MP expenses scandal raised themselves again. The main being nothing much has changed. The anger has cooled and been replaced by disillusionment and apathy. Chloe Smith ran a good,modern,{air quotes} inclusive,campaign. She had the freshness and earnestness to carry it off too. I expect it will become the template for all parties MPs election strategies come the big one.
Local issues, bound to the parties national message.

After the expenses explosion the Prime Minister had a unique opportunity to get the people to engage with their politicians. But week after week, due to his own weakness in eloquence and his inability to credibly defend his position, openness and debate are shut down wherever possible and replaced with spin and obfuscation. A master, like Lord Mandelson, can play a weak hand with skill and charm, but many of his colleagues cannot and few people are convinced.
Tony Blair managed to make his statements sound like the truth. Gordon brown manages to make his sound like he is lying.

Gordon's hope lies in policy making. He can make the dry announcement and his associates can do the presentation. But he needs really bold ideas.The feeble, watered down standards bill won't do it. A bit more radicalism needed..

He could try..
Fixed by-election timetables.
Speaker must resign as an MP, and a by-election held.
Speaker must come from an Independant or a third placed or lower party.
At PMQ's only opposition MPs may table questions.

Or ... your suggestions welcome.

Friday 24 July 2009

Bull Run

The image above perfectly describes the market situation today. The FTSE has had 10 straight gain days (assuming it is up today). It means the index is nearly flat year to date. Given all the bad news this is an impressive feat...for now. However, the sentiment of everyone I come across is that this is a blip and come September things will unwind again.

What has amazed me recently though is the lack of people on the bull run; so many seem out of the market. A good example of this is the gold and dollar price. Both these rise when fear is high and at the moment both of these indicators are showing a lot of fear of equities and bonds. Volumes too are low, although this time of year they always are.

All I can say, is what a miss for those who have ignored the equity rally. The party will end and equities will fall, but to miss the boat altogether is poor trading judgement.

Thursday 23 July 2009

How do MPs spend their holiday?

Joining in with
Man-In-A-Shed's Silly week's posts

I thought that readers should know about the difficulties of being an MP during a recess.

Our Kingdom asks How do MPs spend their holiday?

MP's are not on holiday. Dear me no. We are hard at work. I dug out my diary for last year and decided to use it as a template for this year. But a few problems emerged.

Simpson's Pies, the finest offal substitute in Britain, has shut for the summer. As has the Kaiser-Kobayashi Car plant. Shame really, they were always good for a tow bar or a new set of car mats for Ms Q's 1.6 Tdi Soze.
Normally I would hold some out and about surgeries in the villages. Hard to find a venue though. The post Offices have been closed down. Many village shops have gone under pressure from Tesburys supermarkets that have been using the fall in land values to expand ever further. Local libraries have been closing for years now, there is barely one left outside of the main towns. Medical facilities have merged into super Poly Clinics that aren't that local and are too busy to be a venue. Village halls are in disrepair as the lottery fund decided on 20ft stone sculptures of..well stones, instead of new slates for the roof. The local pub was a good meeting point but since the smoking ban and alcohol taxes they have gone too and taken many of the people in the smaller hamlets with them. Some have shrunk so far we could hold a meeting in a phone box. Except they have also been removed . So this year I shall ignore the ungrateful voters of England and focus on the importance of the EU and world trade.

There are plenty of overseas quangos and conferences that need attending. Even more than last year.
  • Traffic and road pricing schemes - {St Kitts}
  • Global warming effects on dairy produce - {Bermuda}
  • Hydro electricity is our future - {Dubai}
  • I don't have time to fit in the union modernisation {Darlington} but the safe height of CCTV poles revised to comply with Eu reg 2369/094.98b. {Copenhagen} may receive a visit.
Then I shall spend some time boosting the economy of the UK with a bit of John Lewis shopping, before that door finally closes.
Then two weeks working hard for the constituents of Fromage-Sur-Mer. Helping to boost the EU economy by purchasing local produce such as wine and oysters and sun tan lotion. Then the holiday home in Marbella needs a visit. Just to soak up the last 5weeks of the recess and to investigate those awful Spanish Practices.

You wouldn't find that sort of thing operating here.

Wednesday 22 July 2009

Russian Bogeyman: Last Refuge of a Miliband

Writing to promote his Energy Strategy, Ed Miliband conjures up the shade of JFK with this rousing and topical call:

"Forty years since the Eagle landed on the moon, the idea of a new Apollo project has become shorthand for how we should tackle climate change: politics forcing through the technological limits, a decade-long push, and a nation unified for a shared goal"

Hang on there, JFK's main aim was to put one over on the Russians ... oh, wait a bit, Ed's got some more motivation for us:

"Two-thirds of the world's gas is in Russia and the Middle East, but renewable energy is homegrown"

Do we still really need a Russian bogeyman to stir us into humungous levels of public expenditure on grandiose schemes ? Oh, and with the UKs only big wind-turbine manufacturer gone belly-up, just how homegrown are these plans ?


hat-tip: englishhermit

The return of Mergers and Acquisitions

There are many reasons for thinking the stock market will continue to fall after the recetn rally; what has been an impressive 8.7% on the FTSE this week.

As ever it is not just economic news which drives the markets, but political too.

This article in the FT could be a key one for the next few months. China is set to expand its acquisition strategy in resources, oil and financial services. With the still beaten down prices of Western Assets and the burst commodity bubble, they would be wise to get a move on and buy soon.

The £2.3 trillion they have to spend is quite a war chest. This no doubt makes some stocks on the UK markets look ripe for take-over. In particular oil and gas and resources companies are a tthe fron tof the queue, Caledon Resources may be first and yet there is still a discount to its expected sale price in the current share price. Another could be Dana Petroleum and perhaps even a move to break up Heritage Oil's merger with Turkey's Genel.

In the smaller caps, Africa has been a recipeient of much Chinese attention so many of the companies there which are developing and exploiting resources may well be fair game for a Chinese take-out.

Even if the markets do turn down again, these plays are going to keep this sector relatively strong, unless oil prices go back to $30 again from the current $60.

Tuesday 21 July 2009

Maths and the Libel Laws: So Sue Me

Our libel laws deserve ridicule: and Nick Cohen often writes well. But he’s screwed up this time as he claims to have identified the reason why academic mathematicians don’t criticize the work of quants in the banks:

“the quants never understood that the uncertainties in calculating risk were so great, all attempts to measure them were dangerously misleading … but [mathematicians] are not going to speak out for a reason readers of this column will guess: [they] fear being hauled before the libel courts”

This is the merest tosh, but it’s convinced the Speccie:

“Very good to see Nick Cohen banging the drum for the reform of the libel laws. He raises the case of the mathematicians who dismantled the economic models of the bankers who destroyed the UK's financial system. Ministers have urged them to speak out, but they are wisely wary of the libel laws”

Where to start ?

(a) the maths (qua hard sums) conducted by the quants is impeccable, nay, of the very highest standard
(b) no bank ever publishes its models (quite the reverse!): there is nothing detailed to attack
(c) the ‘flaw’ always boils down to the same thing: believing in forecasts (in the case of the stuff quants are working on, typically this will be estimates of future volatility and correlations)
(d) there is no shortage of authority, from Keynes, Galbraith, Drucker and the irascible Taleb, to the most basic risk management textbook, to tell you forcefully that no-one knows what volatility etc will be in the future
(e) "all attempts to measure risk" are NOT "dangerously misleading" (though Taleb can be in his wilder moments)
(f) the quants themselves certainly don’t believe in forecasts – they are mathematicians !

Of course, banks misuse the (impeccable) work of their quants to justify ... anything they fancy. We know this. We know they should punished.

But if there’s a reason why academics are reticent on the subject it’s the usual one – they are angling for jobs / research grants / sponsorship from banks! Simples.

Just to be clear: any banker who bases risk management around belief in a forecast, is a ******* moron. So sue me.


Government Spending meltdwon: IMF beckons

Just for the avoidance of any doubt, check out this short BBC article. The Government has borrowed £13 billion in June, up from £7.5 billion in June last year.

So borrowing is more or less doubling. At the same time tax revenues have fallen £32 billion.

So, bag of fag packet exercise:

Total tax take likely to fall about £40 billion after adjustments to end of this year.
total government borrowing to double to £150 billion (minus the £70 'expected').

Structural deficit (this is the money being spent for which there is no income, equivalent to the spend over your monthly salary payments) - c. £120 billion.

So whoever gets in Government are going to have to slash that much public spending, for the record that is nearer 20% than 10%. My bet is still that the IMF will have to do this when our politicians bottle it.

Surely after this, Labour can never win power again?

Monday 20 July 2009

Sell in May 2009; no by George

The strategy of sell in May and go away is a city lore that comes true more often that not. Whilst the summer silly season lasts it is hard to see the markets move on low volumes. Just at the minute though, a renewed rally is taking shape. The FTSE was up all last week and the index is up again today, over 4500 to its highest level of the year.

To date that would have been the right as per usual, the FTSE drifting from 4414 down to near 400 over the summer; but since last week things have changed. There is definitely a change in sentiment, even the dreadful business that is CIT has been handed a lifeline today.

The FTSE is now back up over its May high and heading North. With all the positive vibe, this rally may well last into August. The index is currently over its 50 and 200 day moving average if it closes at this level today then there will be a sustained rally.

Moreover Lloyds bank has been buoyed by the news George Osborne may not break it up. How much of a signal is that the government is finished, when comments by an opposition politician move a share price by 5%+!

Sunday 19 July 2009

What the pilots say.

Having spent the weekend with some Army & RAF types I sought out their views on the helicopter arguments. It seems that they are annoyed about the news coverage. They felt it made them sound like whiners. They would have preferred the generals to get the deals done behind closed doors.

When asked if we actually needed more helicopters in Afghanistan the answer was Yes, but not many more. I quoted the numbers of extra troops and extra helicopters and pointed out the disparity. The flyboys replied that they were carrying out twice as many sorties as before. They were using their aircraft and aircrew to greater effect than they had been. But what they actually wanted was spare parts. They said that the spares shortage was critical and led to many out of service helicopters. They couldn't believe that the spares shortage from 2001 was still ongoing. As the men said, this is the easiest and cheapest bit. Far cheaper than new helicopters.

{Not many headlines in spares though. I expect the shortages are to do with Just In Time sourcing and maintenance budgets being kept at peacetime levels but..}

A helicopter that is grounded now is twice as damaging to operations as it is performing twice as many tasks. The helicopter pilots were angry that the spares had not come through and claimed it has been a priority for both army and airforce for years, but has not been given the political priority it warrants. They stated that the 6 Merlins, bought from Denmark in 2007 and still yet to deploy to the theatre, purchased because...well because they were available, were not suitable and not really required.
All of the pilots wanted spares, not new machines. Not even Future Lynx, which they do not rate.

Not too surprised there. These were Army and Airforce guys. The Navy want the Future Lynx. Also these pilots currently fly the Lynx, which is a poor performer in Afghanistan. A Westland engineer assured us that the Future Lynx was being fully tested for operations in Afghanistan.

What they all agreed on was that they want is Chinook. These big helicopters can do all the jobs of the smaller ones, can have armour bolted on as needed, can drop into combat three times as many men as a smaller one. The pilots said that the argument that smaller helicopters can land on a smaller landing zone is a bit of a myth because, although they can, the army want the soldiers to land together, not scattered on small LZs. So they often pick a big LZ . The big, twin rotor, Chinooks carry far more cargo than the Lynx. If it loses a wheel it doesn't topple over like a three wheel craft does. {This is quite common apparently.} It has an excellent flight record and the pilots say that what does it matter if you send a big helicopter on a small helicopter job. The Americans do it all the time. {I suspect the answer is cost.}
Update. The Sunday Mirror says Gordon Brown is going to send Chinook helicopters to the region. Hooray!
Only it is going to be one or two new ones. Hmmm. I got the impression these pilots were talking of about thirty Gordon. Still, its a start.
{another one}

Saturday 18 July 2009

Quatitiatve Easing: Alchemy at work

If house prices are stabilising, this is one of the signs that low interest rates and quantitative easing are working. Now the question becomes...when to stop? How to prevent hyper-inflation and not a double dip bust?

This is no mean feat and and one that will require much thought and swift policy. Sadly, we have a regulatory mess and a fag-end Government, so I don't give us much chance. The alchemy of money for nothing to boost a housing bubble is a nasty brew.

Walker Report: 15 Years Behind the Times

Quite a month for fat - and fatuous - official documents. Brown's own Reforming the Financial Markets; Milband's Energy / Climate Strategy; and limping in third, the Walker Report on governance in banks.

For limp it is - not an item of substance that couldn't have been written 15 years ago, I have the Governance Best Practices textbooks to prove it.

Our leftie chum Tom P has posted several snippets at Labour & Capital: time here just for a quick comment on the Risk section. Walker gets off to a flying start with:

"financial risks are the principal risks of any BOFI business"

Well yes - particularly as he seems to consider it a given that investment banking and spec trading will continue to be integrated with retail banking and deposit-taking. But then he lets the Non-Execs off the hook:

"The NEDs on the [Risk] committee cannot be expected to be able to replicate the industry expertise of the executive team ... commonsense should be expected from the NEDs"

If commonsense is all we ask of NEDs on the Risk committee, they'll be bamboozled every time
. And that's even after a backbone transplant...

If this is the best Walker can come up with, there really will be little to prevent a re-run of the last disaster in a few years time.


Friday 17 July 2009

Energy Strategy (2): Plan B Needed

There is one good thing in Miliband’s programme, and it’s not new: Smart Metering. The more we know about the micro-details of energy usage, the greater the opportunities for smarter actions, of all kinds. Smart Metering will be one of the reasons why the reductions sought from homes, offices, shops and factories will, as we said yesterday, be feasible if not actually modest.

But when we read about using electricity (instead of gas) for space-heating; when we hear that Miliband has decided to go easy on the aviation industry because, you know, it’s every worker’s right to travel RyanAir for free; when he implies that
(as the Grauniad puts it, in an editorial aptly entitled 'Green Dreams') it can all “be achieved without depriving people of the comforts of their present, carbon-intensive lives” - we know we’re in Wonderland.

And here’s another big flaw: there is no mention of the UK’s burgeoning population. Since we don’t know to within 5 million what it actually is today, and since Alan Johnson doesn’t much care what it’s going to be in future, how can little Miliband (or indeed any other Minister) plan intelligently ?

This may seem a minor point, but it leads to a bigger one: get a look at this (also from Miliband’s masterwork).
Global emissions are in any event predicted to peak in mid-century. This is because the global human population is predicted to peak then, too – it’s a demographic thing. This, at very least, gives serious pause for thought. In the interim, would several decades of serious amelioration / adaptation be a practical alternative to a very, indeed prohibitively, costly mitigation programme ? I’ve no idea, but I doubt it’s been seriously considered.

It needs to be, because Miliband’s strategy is a reductio ad absurdum. Assuming it's the Tories who will be handling the mess, they had better be working up Plan B.


A future in Blogging 2.0

I attended an interesting event yesterday, hosted by the FT Alphaville team. These guys (and gals) are probably the best business bloggers out there at the moment. So they should be, with a staff of six and the FT behind them.

However, the debate was about what to do next and many of the bloggers in attendance were at a loss for what to do. Some fundamental questions still remain unanswered, why blog? Should it make money? What do you want to achieve?

The great thing is that everyone has a different answer, some want fame, some want to just express themselves, others are promoting a product or company of their own; many are journalists.

Perhaps most interesting was the twitter split. When I get the chance I have a great idea for twitter which I want to see if I can make work and whether it is legal. However, the split was on the bloggers' having time to do everything. Fine for those in new media 'journalism' industry to go on about gadgets, widgets and twittering. But for many there is not enough time to try and use every available channel.

In this respect I think the professionals in the end will beat the personal blogs who do it just for fun. They have more time to use the new technologies, more access to good content and better presentation. As such, blogging will stratify with a very long tail. Niche blogs are simply not a business model, but perhaps are useful tool for raising profile.

Let's see how many of the Big Brother contestants start writing blogs when they are evicted to test the theory.

Thursday 16 July 2009

Energy Strategy: Ed Miliband Runs the 3-Minute Mile

Some months ago we wrote:

If someone asks: how could an athlete run the mile in 3 minutes?, it is arithmetically correct to reply: by running 30% faster. But this would not be a sati
sfactory answer.

But it is the answer Ed Miliband gave us yesterday in a suite of
some 20 documents, centerpiece of which is the UK Renewable Energy Strategy, purporting to guide us to 80% carbon emission reductions by 2050. The stuff relating to the last 25 years of this period is the merest science fiction (e.g. generating more electricity than now, but all of it with zero emissions), and actually I have no problem with that: none of us knows what technologies will be available then.

It’s the rubbish relating to 2009-2025 that bugs me, and in particular one very specific area. Miliband is looking for some entirely feasible emission-reductions from the two-thirds represented by transport and buildings (heating) sectors, but proposes to t
urn the screws to a fanciful degree on the other third, Power and Heavy Industry. And here, in one of his handy graphics, is how that 3-minute mile is to be run (click to enlarge):Note how the really impressive reductions start in 2013. Where do they come from ? Here’s another chart (my annotations), playfully headed “The UK is likely to have sufficient generating capacity (sic):
If you look at the accompanying data, the trick is obvious: (1) a massive wave of as-yet unidentified ‘renewable’ power-plants kicks in, starting 2013. This is handy in two ways: first (*fanfare*) it solves the problem of where the electricity is going to come from when (2) the fore-doomed nukes and old coal plants close (see this blog passim), and second, since the lead-time for these plants is 3 years, the fact that no-one can point to them in 2009 doesn’t mean they aren’t all going to start construction next year !

And thus does Mr Miliband propose to run his 3-minute mile. Let’s hope the Tories have something more rational to offer in due course. More tomorrow.


5 Green Shoots, sitting on the wall

The FTSE jumped nearly 3% yesterday and stands near the 4400 level, going over that would signal at least a short term-up trend. Which would be nice.

I am in the camp that we may see a big dip in the markets come September and conversations in the City suggest I am in the majority with this view. On the other hand, the 'Herd' is generally wrong on both the upside and the downside. Here are 5 reasons things may actually be at the bottom:

1) Goldmans makes a stonking profit, as does Intel. Big US corporates showing signs of life is a good thing for their economy and Anglo-Saxon economies as a whole.

2) The Gold price has been very stable, at around $930, for sometime now. Also gold buying pressure is slowly dropping off, which suggests less fear about global conditions.

3) The papers are full of the Banks making too much money, yes it is true, but also this means they will have better capital positions to return to health.

4) Land Securities, a major UK property player, is about to start making moves in the UK commercial property sector again. For the first time in 2 years, another sign of bottoming out.

5) Chinese growth is rebounding and their dodgy figures will show 8% growth this year. Together with US and Indian growth, this give the world hope that there will be large export markets to target.

Wednesday 15 July 2009

So far so good: Guido up 34%, Cityunslicker 150%

I note Guido has a post today on his investment performance year to date. he has done pretty well, as he is a very shrewd chap when it comes to bonds, less so on gold.

Gold is much harder to predict this year though with all the monetary stimulus, I have given up on it too for trading purposes this year, even though last year it saved me in the crash.
Guido' strategy has been to invest in bonds, mainly going short on gilts. Given the UK's parlous financial position, this is very sound, hence his returns.

My strategy was to invest in bombed out banking and resources stocks for the most part. I bought RBS at 10p, Lloyds at 50p, for example and sold out at well over 100% up on each. I also bought Barclays at 70p and sold at 85p - ouch, they are 300p now!

On the resources side, investments in heritage Oil and Tullow have done well, and then currently I have a plethora of minnows, such as EMED, ACU, AFE, PPA which I have high hopes for, despite some current big paper losses amongst that lot. Finally my single biggest investment is the property company Minerva - bombed out due to its huge debts, I have faith that the banks will roll this over and also that the major City developments are going to be in demand. The shareprice is currently 14p, the company has traded as high as 400p. Should be a fund ride.

Tuesday 14 July 2009

UK inflation down; whereart thou, green shoots?

Figures released today show the relatively stable CPI inflation rate down nearly 20% on last month, from 2.2% to 1.8%. This measure has long been discredited as it removes housing costs which are the biggest single component of most peoples' outgoings in the the UK.

The RPI is much better and this shows a drop from -1.1% to -1.6, drop of nearly a third.

The UK is definitely in a deflationary tailspin and the numbers are going to get worse. Only a year ago oil was at nearly $150 and today it is at nearer $50. There is a huge drop to be factored in over the next 3 months. CPI itself may well go negative for a time.

With this is sight, there is no chance of the UK raising bank rates, nor really do I think the Bank of England will stop Quantitative Easing either, despite the respite they have given in the past month.

It is a big jump to see hyper-inflation from here, it may come to pass if too much money is pushed into the system to try and heal it. However, it looks as if the monetary stimulus is increasingly pushing on a string. The debts need to be paid down and the economy (including Public Sector) needs to re-balance to adjust the the new size of the market.

Shame the Labour government wasted all our money in the good times as now would have been a very propitious time to spend more public money to keep us going; sadly, as we are broke this is no longer an option.

It is a long way up from here, years not months.

Monday 13 July 2009

Helicopters. The oppositions new attack weapons of choice.

"Future Lynx is exactly what the Fleet Air Arm need to replace their old Lynxes. These Lynx aircraft will need replacement in the next six years", so we should be seeing these in about 2008 by that reckoning!"
Speaking in 2002, the defence procurement minister Lord Bach.

The go ahead to begin designing and building the Future Lynx, now designated Wildcat, was not given until December 2008. Up to then there was a real possibility that the entire project could be scrapped. So just the prototype has been built although critical milestones have been met. The military helicopter will not be in service until 2013-2015 at the earliest.

Future Lynx, in typical MOD fashion, will be a multi-role, multi-purpose helicopter for both the army and navy. It will be able to be a transport aircraft for up to 9 infantrymen, a small cargo carrier, an anti submarine platform, a reconnaissance aircraft, Medevac, and an air to surface anti ship platform.
Critics complained at the time of its announcement that the cost of supporting Westland {AgustaWestland, the Anglo-Italian helicopter company owned by Italy's Finmeccanica} would be expensive, around £14 million a piece compared to £4-6 million for an off the shelf alternative.

A good selection of the arguments for and against off the shelf can be found on this forum
Slightly overlooked though is the fact that the MOD are trying to get one helicopter when it should be buying different types. Our multi role efforts usually mean 'adequate at some tasks, indifferent at others.' Wildcat will be no different. The army wanted a light chopper with good anti missile defences for recon and transport and a heavy one for missile, ground support. The navy wanted a fast agile, modern sensors and ASW weapon load craft that could fit on our smallest frigate landing deck.
If WA can get anywhere near the two different aims, while still being able to fly in tropical and arctic climates they will have done very well.

Normally off the shelf look so much better value to us at C@W. Thinkdefence think it would definately have made sense to buy foreign. However helicopters are one of the few bits of military kit that actually have a very useful peacetime role. Our tanks, fighter jets, submarines, and artillery are useless except for war. Helicopters have uses from flood rescue in this country to food drops in Africa to air sea rescue. Developing a capable product would produce valuable exports. The old Lynx was sold to over a dozen nations in its naval or land based role.
The contract is only for 62 anyway. Of those only 34 are for the army.

Bob Ainsworth talked of the £6 billion spending on helicopters "In coming years" which is just the same current spending and Westland money that's already been announced.
Having a new helicopter fleet arrive in 2014 will be of little benefit to the generals and soldiers tomorrow. In the meantime our existing airframes and parts are being worn out and need replacing.

Bob talked of "huge" increases in helicopters in Afghanistan. A smokescreen for there being many more helicopters in theatre that came from Iraq. Sadly for Bob, the troops came with them too, so the ratio didn't improve. Bob Ainsworth again points out the troops have to get out to fight. Heavy armour won't save them.
Of course troops will die. Many more in an offensive. But there is no need for the blokes bringing up the rations to get killed too, if the bully beef could be flown in.

The real problem today is the one that the Lib dems and Tories are accusing the government of. The £1.4 BN cut in helicopter spending in 2004.
At the height of TWO wars, each with terrain that makes airlift essential, the then chancellor, the current PM, decided to cut helicopter spending.

Liam Fox the shadow defence minister said
"Brown was to blame, particularly when it comes to the shortage of helicopters. That was a Treasury decision when Gordon Brown was Chancellor."

It was Gordon's decision back then that gives him his difficulties today.

RBS & Lloyds to public sector for years

The UKFI has outlined it strategy for the two banks it bought last year (well, 3 banks really if you include HBOS). The answer is sensible, but not pretty.

Due to the high prices paid relative to their current worth today, these banks are going to be in state hands for a long-time to come. It looks like it is expected to take them 5 years to earn enough to be re-privatised.

The talk of profit for the taxpayer is duplicitous too; I doubt the full calculations of the costs of increasing public debt so much are factored in. They may sell out of RBS at 70p a share one day when their average buy-in was 65p and claim a nice profit. But it won't reflect the cost of the public finances of administering the banks for so long, borrowing the gilts etc.

However, it is still a sensible move in that trying to get out of the stakes in the short-term would cause uncertainty in the markets. What is done is done and best to live with it. We don't need any more great ideas like telling the world we are going to sell all our gold and sinking the market in advance of the sale!

Sunday 12 July 2009

Capitalist Bees @ Work

These fine creatures are Leaf-Cutter bees, hard at work in the Drew garden this weekend.

They are clearly Capitalists:

- industrious
- vital for the natural economy

- keen on private property

- each has its own home, but gets on fine with the neighbours (see photo)
- co-exist happily with other capitalists, viz the Drew family, and the Mason bees (the ones whose front doors are grey paste rather than leaves)

- will sting, but only when severely provoked

At present they take a dim view of home ownership, echoing Alice Cook's opinion, and accordingly prefer to rent from me. They are excellent tenants.


photo (c) NickDrew 2009

Saturday 11 July 2009

Gordon's Strategy Captured: "Extend & Pretend"

Americans are so good at coining really excellent phrases and here’s a cracker, perfectly capturing Brown’s strategy for dealing with the financial crisis ...

Extend and Pretend

... meaning, to push a problem out into the future, close your eyes to the inevitable, and kid yourself everything will be all right.

This being a financial blog, and writing as an old deal-structurer, there’s extra resonance to this: one of the most venerable tools of the trade is known as Blend & Extend. This is where the client has a short-term problem with a deal. As a short-term fix, you sell them a swap or something that extends further forward in time than the original deal, and which is in-the-money in the near term (enabling them to ‘blend’, or dilute their immediate difficulties) but at the cost of being out-of-the-money in a later period. Difference being, that with proper mark-to-market accounting there’s not much chance of pretence about what’s going on.

Hat-tip for this to Bryan Marsal of the restructuring firm Alvarez & Marsal, currently unwinding Lehman’s (good luck mate!). He was being interviewed on CNBC here – why don’t we have TV like that, BTW ? The neologism arises in the context of bankers doing short-termist stuff like Gordon: and of course mark-to-market accounting has conveniently been suspended just now … so pretend away gentlemen !

For a government with an AAA rating, almost any problem can be postponed. But, like Nixon's deal for quitting IndoChina leaving South Vietnam apparently intact, Brown's QE is merely delaying the day of reckoning.

Extend and Pretend. Love it.


Friday 10 July 2009

How well do you score on the new UK citizenship test.

PATENTLY has put up a link to the Official practice citizenship test

C@W have another one

Your citizenship test starts now

A} Who holds the record for the most appearances in Eastenders

  1. Ian Beale
  2. Pat Butcher
  3. Lofty
  4. Mark Fowler

B} Which tube line is generally regarded as the worst

  1. District
  2. Bakerloo
  3. Northern
  4. Central

C} Where does the English Assembly meet

  1. York
  2. Leeds
  3. Swindon
  4. Nowhere

D} If you need to report a crime what should you do

  1. Dial 999
  2. Dial 0847 number for out of hours police service
  3. Write to your MP
  4. Visit the appropriate police post on the days when it is open

E} If you believe you have swine Flu you should

  1. Call NHS direct
  2. Stay at home and do nothing
  3. Phone the newspapers
  4. Visit doctor to obtain Tamiflu

F} To get your child into one of the best schools you should

  1. Live within the catchment area, have siblings at the school already, have special needs.
  2. Pretend to live in the catchment area
  3. Child has an excellent record of academic and social achievement
  4. Study hard, take out a loan, get a PhD, work long hours in the city, marry similar,take out giant mortgage, put children into private education.

G} Who won Britain’s got talent in 2009

  1. Paul Potts
  2. Susan Boyle
  3. Diversity
  4. Gordon Brown

H} Britain went to war with Iraq in 2003 for which of the following reasons

  1. To prevent Al Qaeda operating there
  2. To topple an evil dictator
  3. To prevent weapons of mass destruction being used against the UK
  4. No real reason

I} A British train is considered LATE if it is delayed in excess of

  1. 2 minutes
  2. 15 minutes
  3. 10 minutes
  4. 25 minutes

J} The ruling party {Labour} controls how many of the 34 county councils in England

  1. 0
  2. 26
  3. 7
  4. 33

K} The Prime Minister of the United Kingdom needs to be elected by the people.

  1. True
  2. False

L} A bank holiday in the UK is usually spent

  1. In traffic
  2. At the sea side
  3. At a DIY store
  4. In traffic on the way to a DIY store by the seaside

M} The average wait in an A+E hospital before seeing anyone

  1. 5 minutes
  2. 15 minutes
  3. 4 hours
  4. 24 hours

N} Tax Payers in the North East have seen their council tax bills__ since 1997

  1. Double
  2. Triple
  3. Quadruple
  4. Half

O} The Public Spending revue is held

  1. Every year
  2. Every other year
  3. Every three years
  4. No longer held

P} The main religion of the UK is

  1. Shopping
  2. Sex
  3. Christianity
  4. Football

Q} In England it is traditional to drink

  1. Vodka and Red Bull
  2. Bacardi Breezer
  3. J2O and Southern Comfort
  4. To Excess

R} In England the unemployed are also called

  1. Chavs
  2. Property developers
  3. Bankers
  4. Estate Agents

S} In the UK lunch is taken

  1. Between 1pm -2pm
  2. Between 2pm- 2.05pm
  3. At the desk
  4. Lunch is for wimps

T} In the UK people are encouraged to eat five portions a day. What does this mean?

  1. No one really knows
  2. Mars bar, cheese stick, crisps, Coke, Big Mac
  3. Five unspecified amounts of fruit and veg
  4. Five portions of chips



Answers A.1- B.3 C.4 D.4 E.2 F.4 G.3 H.4 I.3 J.1 K.2 L.1,2,3OR4. M.2{for an assessment} N.1 O.4 P.1 Q.4 R.{any} S.3 T.1 or 3.