Saturday, 28 February 2009

Mr Haskell Goes to France. Goodbye: English Rugby Doesn't Need You

So after many months of huffing and puffing, James Haskell is off to Stade Francais (“my decision to leave Wasps had nothing to do with how much money was on the table”). Two other England internationals from Wasps – Riki Flutey and Tom Palmer - are also headed across the channel.

But not so many weeks ago it looked to be an even bigger exodus because fellow England players Danny Cipriani and Paul Sackey were also part of the awkward squad at Wasps, all pressing for infeasibly large slices of the capped salary pot. Ill-advised, because the cap is what it is, and a full squad has to be fed from it. In the event, Sackey didn’t really have his heart in it, and Cipriani is just a talented young man easily swayed by authority-figures: both will probably stay.

Word is that Wasps’ much put-upon management team will be pleased to see the back of the overbearing Jonathan Haskell: he ‘manages’ his son’s career (check out the unintentionally amusing website and the ghost-written Guardian pieces) and is said to have been whispering large numbers to the other impressionable lads. The Times reports that veteran Wasps loyalist Lawrence Dallaglio was charged with negotiating the retention of the malcontents. What they don’t mention is that when still a player, Dallaglio voluntarily sacrificed his own very legitimate salary aspirations to allow for attractive money to be made available to the talented youngsters like Haskell and Cipriani in the first place. What the great man thinks of the Haskells père et fils is best left to the imagination.

Far be it from C@W to criticize a chap for making as much money as he can, or taking business advice from his dad. But Rugby isn’t Soccer, and the club ethos isn’t comfortable with blatant careerism, as supporters’ chat forums clearly show.

Oh, and the RBS money won’t be flowing quite as freely in future either …

ND

Friday, 27 February 2009

Its my Right, said Fred

Weekend fun.

Sir Fred Goodwin has plenty of time, and money, to enjoy his retirement in the sun. What will be on his MP3 play list as he waits for the now boarding sign.
{open pics in new windows for sound}


RIGHT SAID FRED - "DEEPLY DIPPING" - "I'M TOO SEXY FOR MY SHARES" - or maybe






RICH ASTLEY'S "NEVER GONNA GIVE IT UP" ?





-THE SATURDAYS COVER OF DEPRESSED MODE's - "JUST CAN'T GET ENOUGH" perhaps the new RBS theme?

Who else might have some appropriate hits in their ears?


Ed Balls might have - PINK's "SO WHAT"?



Or Lord Ahmed GUNS AND CRONIES "SWEET TRIAL OF MINE" with the superb guitar solo and chorus of "where did he go now?"




Lord Mandelson may have BRYAN HYLAND's "SEALED WITH A LEATHAL KISS?"

What sounds have been downloaded by this week's news makers?

  1. Gordon Brown
  2. Alistair Darling
  3. Barack Obama
  4. Robert Peston
  5. Stephen Hester
  6. Vince Cable
  7. Jack Straw
  8. George Osborne
  9. Jacqui Smith
  10. Sir Allen Stanford

Thursday, 26 February 2009

Conspiracy central: Peston covers for Brown?

Watching the news cycle today BQ and I have decided it has all worked out nicely for Gordon today. A huge news day, RBS having yet another bail-out and Lloyds to come tomorrow.

But what is the big story - Peston's Fred Goodwin RBS debacle. Amazingly too, letters from Paul Myners have come to light tonight too. It has all the hallmarks of a Mandelson type honey-trap.

Interestingly, Peston posted soon after the FSA yesterday had said that Brown was to blame for the light touch regulation that has got us into this mess.

As we know, Peston has a direct line to No10 and No11. I agree that Sir Fred is a ghoulish figure at the moment; a Karen Matthews for the banking classes. it is also a non-story in the sense that Goodwin has no legal reason to have to hand the money back.But today there was a lot of Government mess to get through, yet all the bad news fro the Government barely made the end of the broadcasts and will be buried well in the papers tomorrow.

How convenient.

RBS & LBG to the races

And so it was done. The Government has capitulated before the markets. RBS has been given another £13 billion to try and stave off full nationalisation (read bankruptcy), on quite generous terms. Darling is saying taxpayers will profit, just like Northern Rock, eh?

I can see the Government's view on wanting to keep a sliver of shares on the market, as this will let them know when to sell-out of their shareholding. Whisper it, but this is a big improvement on what has gone before. But really, RBS's end of term report today was actually worse than expected.

Massive losses, ABN acquisition not only written down but the remnants written off for sale. This is a corporate disaster worse than either Mannesman or GEC Marconi. Now that is going some.

Yet the share prices of the battered banks flew today (N.B. CU currently holds LLOY shares) and may well do tomorrow. I think the market wants good news and is not prepared to dig to view the long-term picture.

RBS, maybe LLOY, are zombiefied and we are following the Japanese plan for 10 years of economic stagnation at best. Now that the Government has put the debt of the banks on the national balance sheet, I can't see what is holding them back from full nationalisation...in the US it seems momentum is behind the push to sort out Citi and BOA.

I am still against full nationalisation in the UK; not on pure ideological grounds, on competence grounds. The government have already proved with Northern Wreck that they can blow money just as well or better than the Bank executives. Plus the other key economic test as well, If Vince Cable is all for it, it is bound to be wrong.

Wednesday, 25 February 2009

At Last: the FSA Bubbles Brown

Turner and Sants of the FSA appeared before the Treasury select committee today, and finally fingered NuLab as the architects of Britain’s financial woes. I don’t see how Brown can dodge this one when normal hostilities resume.

Among the highlights, reported by Pesto:

'The FSA [will] be increasing the capital requirements for the trading activities of banks by several hundred per cent. This means that the securities trading and investment banking activities will become more expensive for banks, much less profitable. Banks will be deterred from engaging in the kind of financial engineering that led to the creation of all those poisonous, subprime-based investments. It implies that the FSA got it wrong to a mindboggling extent.'

Indeed. The FSA always had the power to set capital adequacy levels, at the stroke of a pen. So why didn’t it do so in a way that made stupid business too costly to contemplate ? The Grauniad picks up the story:

'Turner said: ‘All the pressure on the FSA was not to say why aren't you looking at these business models, but why are you being so heavy and intrusive, can't you make your regulation a bit more light touch?’ There was "political philosophy" under which the FSA was told to avoid being "heavy and intrusive" and asked to be more "light touch".'

And we can name names. Brown, of course, but also Blair, who famously said in 2005:

'Something is seriously awry when the Financial Services Authority … is seen as hugely inhibiting of efficient business by perfectly respectable companies that have never defrauded anyone.'

This was always in the public domain, of course, but the point hasn’t really been rammed home. Looks like it might be now - if Newsnight this evening is anything to go by.

ND
= = = = = = = = = = =
Amusing footnote:

Pesto's piece on the www is headed FSA Admits Huge Mistakes. The URL suggests his working title was something different ...


http://www.bbc.co.uk/blogs/thereporters/robertpeston/2009/02/fsa_says_we_were_worldclass_ni.html

Wordclass what ?! Answers in the comments...

Rewardng failure


Peston has a great story here. Sir Fred Goodwin, the man who may well turn out to have bankrupted a bank and a country - has at 50 been able to retire on £650,000 a year.

Talk about rewarding failure, RBS have done a Jack Welch. The Government will make noises about how they want to 'claw' back money; but it is highly unlikely to be able to do so.

Sir Fred is laughing all the way to the bank...given what he knows do you think he still banks with RBS?

Tuesday, 24 February 2009

Royal Mail in a spin


A lot of spinning being done over the part privatisation of Royal Mail.

Firstly the government rushed to publish a letter on the state of the companies pension scheme without it apparently, having been seen by some of the trustees.
“There is a political dimension to this letter. There is a meeting of the trustees next week which is now going to be very interesting." said an anonymous trustee.


Secondly, there is only one shareholder at Royal Mail. Alistair Darling is his name. For the scare stories of the government, claiming that pensions just won't be paid, would mean that the UK would have to be bankrupt.
{OK Ok I know.. but officially bankrupt I mean..IMF bankrupt.}
How could a government not pay the pensions of some of its own employees, while continuing to pay teachers, doctors and MP's ? It is politically inconceivable that any government would allow the scheme to go bust, so no one believes the threat for a minute.


Thirdly a main plank of the privatisation argument is its the only way to save the universal service. Well the current postal model is what has undermined the USO.. and anyway would its loss be so bad. Pay for distance i.e. the real cost of postage..What's wrong with that?
Also there is a great desire to cling to a Saturday delivery. If, as RM say, letter post is falling,why the need for a Saturday service at all? It would be a massive, massive saving to RM not to have to work and staff weekends.


Fourthly privatised companies in Europe are much more efficient says Peter Mandelson. Undeniably true. But they also charge considerably more. The real cost of the UK 36p 1st class is around 44p. Thats the break even. £1 + £2 mail won't be unusual.

Regardless of whether the privatisation of the mail is *ahem* the right thing to do, it seems an unbelievably bad political strategy.

More than 145 Labour MPs have signed a Commons motion opposing the proposals. The CWU is also very hostile to the plans. the Tories have welcomed them and will give full backing, and votes, to the proposal.

What kind of strategy is this?
At a time when banks are being given billions every day, and bailouts for companies in the red is the new black, a few billion to clear the deficit would go almost unnoticed. Dressed up as "British jobs for ..." or "Keeping employees in work is our main aim during this.. etc."

To pick a fight with your core voters {public sector posties}, your backbench MPs, former and current cabinet ministers{Peter Hain is absolubtely against and BBC reporting a split in the cabinet and Daily Mail running the story too} is bizarre.

Harriet Harman, one of the PM's frontrunner replacements, apparently involved in the row, so Gordon is giving her more room to position to oust him.
Upsetting the CWU, a £1 million+ backer, who may just decide to give the money to the Lib Dems, further angering the rest of the Union bank rollers, splitting the public on an issue, privatising a company that is Labour to its core? When its likely that the Tories would do it for you after 2010, driving voters towards, rather than away from Labour.


At a time when the polls are showing a collapse in support and a party clinging to just its core heartlands with just 28-30% rating, having to beg the opposition to bail you out of a vote, that your own supporters are against. The outcome will almost certainly be strikes. Timed to coincide with the June euro / local elections no doubt. Postal votes..forget them. DHL can't deliver the voting forms as Royal Mail deliver the final mile.

What kind of political strategy is this?
Is TNT or DHL giving a bung {er..I think you mean donation. cu.} to the party?
Have the printing presses jammed and there really is no more cash?
Is Mr Brown having an Iraq moment where its become a leadership decision and can't be altered?

There must be another reason. It can't just be because Peter Mandelson really does like getting mail on a Saturday, can it?

Northern Wreck rides again


Covered in depth elsewhere I know, but the sums mentioned just do not add up and I have not seen too much coverage of that. Wreck received a loan of £27 billion upon nationalisation, then it has received a further payment of £3 billion as I understand, plus another of £2 billion which has been hidden as an equity loan.

In return the Wreck has repaid £18 billion of the loan; benefit to the taxpayer but not the mortgage market the Government has now realised (screw the market I say, it needs to fall, but that is for another post)

It has also made a loss of £1.4 billion this year.

So, Wreck still has just under £9 billion of our money, £3 billion of which I understand is really accounted for as good will impairment and so gone forever. Wreck may have lost £1.4 billion, but the taxpayer has really lost £3 billion.

Now we are going to pump another £5 billion in for mortgages of up to 90% - given even the average consensus is for house prices to decline 12% this year, then any money lent at 90% will have to be accounted as a loss in the short-term. More capital will then have to be put in to balance the books.

Hence Northern Wreck is still on course to cost us up to another £15 billion in losses, having already accounted for £3 billion. Plus more money put into it in the future is guaranteed by this 'business plan.'

It is a disaster, the nationalisation of it was a disaster as I said at the time, the new policy of subsidising a falling house market is utterly without merit.
Why are the people doing this not being held to account? Why are the mainstream media not seeing the insanity and wanton wasting of billion in these ill-thought out measures?

Monday, 23 February 2009

Fisking Gordon: a Two-Finger Exercise for Monday Morning


Brown's weekend essay doesn't seem to have gone down very well, but it's still worth a couple of minutes on a Monday morning to see what's going through his brain.


Tough times like these test our character and values as a nation.
A standard Brown formulation we’ve fisked before. Read: … tests my character and values, an attack on me is an attack on us all.

I understand and share people's anger towards the behaviour of some banks. But anger on its own does not offer us a solution
I’d like to direct your anger away from myself. But, since it’s likely this won’t work, please remember there’s no point being angry.

Starting last week with RBS, we are changing the bonus system
But then again, we mustn’t be too hard on people who were trying their utmost, must we ?

Better governance of banks: their boards must have the expertise and power to challenge management
No matey, what they need is the brass stuff.

Where banks are speculating, long-term capital requirements will have to be higher.

Stroke-of-a-pen job for the FSA; always has been. So why the reluctance ? …

This should not be at the cost of Britain hosting big international banks
… ah, now we’re getting there ! The famous regulatory race to the bottom that was your principal concern for the period when you were Chancellor: how revealing that it’s still uppermost in your thinking.

We want to see loans made … to first-time buyers and those on middle and modest incomes who wish to buy their home but who have not been able to save a huge deposit …we have asked the Financial Services Authority to look at how in the future we should control new mortgages for more than 100% of house value
So, despite all the weekend spin, we are not ruling out high LTV mortgages at all.

Well, hey, we need that property-owning feelgood factor back in time for the next election -
how do you think I won the last one ?

ND

Sunday, 22 February 2009

Tradin opinion for the week ahead


Friday's meltdown in the DOW and S&P suggests that the recession has a way further to go yet. Stocks and shares may recover first, but the end does not seem to be insight yet. Still most of the weekend has gone and we do seem to have had Bank of America or Citigroup nationalised yet.

On the UK front, the FTSE is quite near the lows of last November, but not as close in the US. This is likely because there has been some comeback in commodities and this has helped the index to trim its falls.It is easy to see the only way is down at the moment.

Gold has breached $1000 in no time at all, even though the dollar is still strong. Normally Gold rises as the dollar weakens. I think it likely that Gold has risen to quickly, even though I remain a long-term gold bug. Quite likely there will be a r e-trace of $100 or so in the near future.

On the home front focus will be on the banks again at the end of the week. But the insurers are also looking sickly. RSA, Aviva and mainly L&G took big hits this week. In the febrile atmosphere of the markets there is big overshooting. I think L&G, which is not faced with any real issues, has been massively oversold compared to its peers, even though Insurance as a sector will suffer in this year of recession. Equally, Aviva is generally gets a big rebound whenever it dips below 300p. Worth looking into those for a short-term horizon. I don;t currently have a position in either of these or gold at the moment.

Friday, 20 February 2009

Gordon Brown's birthday



Friday Fun

Today is Gordon Brown's fifty eighth birthday.


Happy birthday from all at Capitalists@Work.


When he blows out the candles on his cake, what will he be wishing for? A sleepover from Obama..A rise in the FTSE...An embarrassing sleaze scandal for Ken Clarke..Rise in house prices..Harriet Harman to slip on a discarded Milliband banana skin. Peace and goodwill to all men..?

Or do you have some other thoughts on the one thing he would really like to come true?

Lucky post 888 or Disaster Capitalism?

This is post number 888; which if I were Chinese would be very lucky indeed. However, capitalists tend to deal in cold hard facts rather than wishful thinking.

Instead, the report today is that a very gloomy week has taken a decided turn for the worse; and I am not talking about the mist and fog covering the City of London today.


The DOW closed down at a new bear market low last night of under 7445. This effect of tLinkhis has dragged the FTSE down 2% this morning so that it sits at just under 4000.
7 weeks into the new year and we are already 12% down on the main market; by contrast Gold shoots ahead up by 25% (huge overshoot on the upside but still...).

The main reason for all of this a combination of government hyperactivity across the world coupled with total ineffectiveness of said activity. Brown, Obama all of them need to calm down and start announcing thought through policies rather than knee jerk reactions; the current medicine is not working. There are seeds of good ideas in bank recapitalisation, regulating CDS, cutting interest rates...let's hope they get done properly.

Thursday, 19 February 2009

Turnover isn't profit.


Thornton's, the chocolate people, have reported a sharp decline in half-year profits as deteriorating high street conditions forced it into extended periods of discounting. For the 28 weeks to January 10th Thorntons experienced a 39% drop in pre-tax profits despite an overall sales increase of 1.3%.

Thorntons are also blaming Woolworths for the decline in sales, something that we felt would happen last year. Woolworths effectively forced DVD/Sweets/Toys/General goods stores to slash 20%-40% off prices just to compete with the wholesale administration clearout. We thought that the slide of discounting would be particularly bad news for card retailers.
Clinton Cards has voluntarily decided to enter talks with its lenders to renegotiate its debt, believed to be around £72 million. The debts, which are held with Royal Bank of Scotland and Barclays, comprise a £60 million working capital facility plus a £12 million loan facility. 6,000 jobs are at stake.
Clinton's rivals the
Cardfair and Card Warehouse chains closed down, without the Woolies fanfare, in January of this year with the loss of 1,400 jobs.

As stated previously retailers won't sell goods for no profit. As the Thorntons example shows, generating a lot of turnover just generates a lot of VAT payments. Store prices are NOT falling. Water charges rising by 4-5% too. So
we are going to start our money printing without the hoped for - 0% inflation.

Radical pound devaluation strategy begins


Here we go then. I postulated some time ago, before all the talk started I may add, that there was a window for printing money in a real deflationary trap. The basic idea being, that with money being destroyed by the collapse in asset values so quickly, then the replacement of it into the system will not cause immediate hyperinflation.

However, the markets are not going to take this lightly and the Pound will sink further. This is now being actively encouraged by the Government. I cannot remember when Government last public wanted a lower currency ( I don't think the 1992 ERM crisis can be referred to here, as it finished the Tories for a generation, I am sure they did not want that). It is perhaps a sign of the times that we are to be congratulated for being amongst the first to join the race to the bottom.

However, the window the Bank of England have is actually very small. Despite all the assurances, CPI inflation is not negative and may only be so for a quarter or so this year. The UK is not Japan and the weakened Pound will ignite inflation.

The key here is that hyperinflation does not happen over many months, it happens very, very quickly. The Government and Bank of England are courageous try the 'Quantitative Easing' experiment for now, but I would suggest one very small burst at best is enough to see if it works or not. Further efforts will kill the patient due to political interference.

Tuesday, 17 February 2009

ANOTHER Whistleblower Tale: it's the FSA, Lloyds TSB and Brown - Again !

Here’s an interesting conjunction of people and events, redolent of other recent banking revelations.

In 2000, Scottish Widows de-mutualised, being bought from the policy-holders by Lloyds TSB. In common with other assurance companies (most famously Equitable Life), SW had exposure to the Guaranteed Annuity Rate problem.

The exact purchase-price was to be calculated after transfer to Lloyds TSB according to a formula, and at a point in time was estimated in the prospectus to be £5.4 billion, subject to a cap of £6.1 bn. Part of this was to be held in a new 'Additional Account'.
As explained on page 23 of the Demutualization and Transfer Policyholder Circular:

the additional Account [is] intended to protect the With Profits Fund against the consequences of a future fall in interest rates, including increases in the costs on meeting policy guarantees … the balance of the Additional account will be paid out over time as a terminal bonus on Transferred With Profits Policies, to the extent not needed to meet contingencies ….

Would ordinary SW policy-holders have understood from this small print that (a) it all hinged on the outcome of the then-pending Equitable Life court case (not mentioned); and (b) as much as £1.5 billion (as it actually transpired in 2002) would end up being used in this way and therefore not paid out to them by way of a terminal bonus ? (amounting to nearly 30% of what they might have been expecting)

I could argue it both ways. However, whistle-blower Graham Milne of Lloyds TSB came to the view that the Circular illegally misled policy-holders. He was duly suspended and, one year later, fired – sound familiar ?

Just before he was fired, the FSA responded to his claims, dismissing them - doubtless to the satisfaction of Lloy
ds TSB. The FSA Managing Director responsible was Carol Sergeant, a personal appointee of Gordon Brown’ssound familiar ?

Just as Milne was being fired, guess what happened to Sergeant ? One month after she dismissed Milne’s complaint, she was hired as Chief Risk Director at … Lloyds TSB ! Six months later, for good measure, she was awarded the CBE: and then made a Trustee of the charity Public Concern at Work (motto: Making Whistle-Blowing Work). After all, she’d been responsible for launching the FSA’s whistle-blower policy !!

I am not making this up.

As Nick Robinson blogged recently:
beware the City merry-go-round


ND


Update:
Blogger seems to have buggered the links - but you can easily see what they are meant to be

Inflation. A modest decline


Inflation fell fell slightly in January to 3%, from 3.1% in December. Economists were surprised having expected a fall to around 2.7%. Rises in the price of household equipment, such as furniture, clothing and footwear, nearly all imported and bought with a very weak pound, have offset falling prices in energy bills. The energy bills didn't fall nearly enough. Neither did fuel, which missed out on the VAT cut. Alcohol prices have risen, pushed up by tax increases.

Retailers, as we long suspected, did not continue slashing prices beyond the point where they made any profit, opting for a longer term strategy of lower sales/higher profits. They have also reduced stock levels. There is not that much stock to clear. Food prices remain quite high.

Inflation will come down this year, but its going to take longer than the MPC think. { predicted CPI inflation will drop to 0.5% this year and will remain below its 2% target for two years.} The rush to slash prices at Christmas, when the heaviest footfall is recorded is completely understandable. To have expected retailers to continue slashing prices when footfall is at its lowest point is less understandable. Prices will fall,along with inflation at quarter two, with the sell off of the quite large stocks of 2008's summer goods, unsold due to the second lousy summer in a row, and the very start of the fell bad factor.

The wounded Bear; Russia's economic crisis

Russia has been having an economic meltdown to make Gordon Brown jealous. The foreign cash reserves, built up and crowed about, have been depleted by over 30% in just a few months.

The economy, based on extraction (i.e. selling mother nature), is in freefall. The budget, set to expand for military use, has been severely undermined. It is set for oil to be $95 a barrel and not $35. Some big changes will need to be made and Putin is pushing his President forward to take the flak. Even the Oily-garchs are out with their beggin' bowls in Moscow.

Last summer, Russia invaded Georgia, the height of hubris it has proved. Not only did the world shun Russia for its act, but the resource boom failed at the same time. The Rouble has collapsed and continues to do so, the economy may go from 10% growth to 0% or even recession.

There is a dangerous side to this though, as demonstrated by Georgia. Russia is prone to acting out nationalist fantasies; a re-run of Galtieri? The wounded Bear is also very unpredictable. It may make for an interesting challenge to the new US foreign policy. Ukraine beware.

Monday, 16 February 2009

Sunday, 15 February 2009

Another week of Banking to come...


As if plenty of people are not bored with banks already, after last Friday's Lloyds/HBOS announcement there is more to come this week. Paul Moore has more which might undermine Gordon Brown further, if that is possible and speculation like this, on RBS will continue.

The last couple of weeks was interesting as the short sellers cleared out of the UK banks and the share prices recovered somewhat. It will be interesting to see if they dive back in on the Lloyds/HBOS news of whether the risk of nationalisation keeps the stocks too toxic even for short-selling.

And then there is the bonus row, which surely can't last much more of the media cycle as it is getting very tedious now...

Friday, 13 February 2009

Those who are about to lie, salute you.


Those who are about to lie, salute you.

The older champion arrives, bloodied and scarred from a lifetime of in-fighting. His heavy sheaf of protective statistics held in front of his chest and turns his scarred visage across the Colosseum. He appears weary. But he is still the champion; still deadly. His younger opponent, fitter and faster has a lighter armour of wit and repartee, not weighed down with his past like the elder gladiator. He is twice as quick on his feet. But one clumsy blow from the heavy mailed clunking fist of "The Great One" could shatter his confidence and bring him down. The rough and tumble of debate, the tricky obstacles to a career, a path strewn with pitfalls, close-in hand to hand combat and verbal sparing. Bread and Circuses. Let the games commence.

This weekends task is to give Sky 1 type "Gladiator" names to the following people in this weeks news.


Gordon Brown
David Cameron
Nick Clegg
Vince Cable
Fred Goodwin
Jacqui Smith
Ed Balls
James Crosby
Boris Johnson
Sarah Tether

{ Here are some of the Sky Gladiator names as an example.
Warrior-Spartan-Doom-Goliath-Siren-Cyclone-Panther-Oblivion.. All a little bit gay nightclub. We're sure you can do better...}

Friday happiness

CU rather snowed at work at the mo. That in itself is probably a good thing on balance.

Here is some more good news, evidence that China is coming out of a relative decline. Other key info is that their electricty needs are picking up and there seems to be a bottom in commodity and shipping prices.

The US looks like it will pass the Obama stimulation too. This may or may not be good for their long-term government finances, but for us in the UK with the US as a big export market a boost to their spending power can only be good.

So, at last some signs that things are not going to get worse and worse forever. Even better, France and Germany, those great lecturers on the failure of the Anglo-Saxon Capitalist model, are themseleves sinking into economic decline. It would take a heart of stone.....

Thursday, 12 February 2009

Gazprom Lifts the Gaiety of the Nation


In the gloom of a British winter, where better to turn for a morale-booster than the comedy turn that is Gazprom's annual London press conference, where we are solemnly informed that

"Gazprom plans cuts in European exports if gas demand slumps"

As opposed to ... continuing to stuff the gas into the pipes until they burst at the seams ? I'm trembling already, but it isn't with fear. Or the cold. Yes, Gazprom, your exports are indeed going to fall. And then, this:

"Gazprom aims to invest $2.5 bn in development of Nigerian gas"

Hint to Nigerians: it's one of those 419 scams, you know ? Gazprom has never been known to put its hand in its own pocket. Ever.

UPDATE: Gazprom have responded wittily to the (annual) rumours they are going to buy Centrica. It wouldn't be a cash offer, in any case: to repeat what we said above - Gazprom has never been known ...

ND

Wednesday, 11 February 2009

JJB gets the boot.


JJB the sports retailer said it will appoint administrators to its unprofitable Qube and Original Shoe Co. chains, two months after plans to sell the units collapsed. Original Shoe Co. is a retailer of branded clothing and footwear operating out of 64 stores, while Qube sells fashion footwear from 13 outlets. Together, the chains employ about 270 full-time workers and 540 part-time staff.


JJB acquired Original Shoe from larger rival Sports Direct International Plc in December 2007 for 5 million pounds. Mike Ashley must be wishing he hadn't spent so much on Newcastle United and had more spare cash to buy them back. He will need 30 - 50 million pounds. He still may well make a bid. David Whelan, the founder of the Wigan, England-based company is interested in buying the chain’s 50 health clubs too.



Back in April 2008 JB closed 72 stores and axed 800 staff after adjusted profit before tax fell to £33.8m from £47.2m. In January JJB said it would make a loss this year.
Net debt forcasts of £60 million by the end of the fiscal year is almost double its market value of £33 million and that just doesn't look good.



Completely unfairly to JJB, as this could apply to many companies, but there was a cartoon doing the rounds a while back of an MD asking his execs
"Can anyone think of a reason why we are down trading?"
An exec replied...

"I think the current situation was possibly caused by either, bad locations, lack of sales, poor product purchasing practice, poor positioning of the Brand, lack of targeted marketing, management taking their eyes off the ball, insufficient training of staff and middle management, poor retail management systems,rising interest rates or lack of availability of capital from financiers?
Or maybe all of the above?"

I noticed a supplier to JJB posted that in the comments in an article about them

Bankers: Apologies Fake, Stupidity Genuine

It’s easy to diagnose greed and assorted wickedness from the Select Committee hearings – for example, the whole outrageous Paul Moore / James Crosby saga that, as CU says, will rightly run and run. (CU UPDATE: Crosby has resigned from the FSA this morning)

But I want to highlight another aspect – the circle-jerk phenomenon where everyone is, err … drinking each other’s whisky and gets completely carried away. Hornby says he invested his bonus ££ in HBOS shares (and has thereby lost a packet), and Goodwin avers he never sold an RBS share.

This exactly mirrors the behaviour of almost all the senior Enron execs, most of whose personal wealth was in Enron stock, and similarly sank with the ship. The notable exceptions were head trader Lou Pai, who (uniquely) insisted on being paid cash bonuses: and the actual criminal mastermind Andy Fastow, whose ill-gotten gains were invested in … municipal bonds (well, he knew the score better than anyone). Which kinda suggests that the rest were not calculating crooks, but were swept along in the excitement of the whole adventure. Ditto Hornby and Goodwin, by the same token.

This is doubly remarkable, because as any banker (and Enron exec) should know, the first paradigm of risk management is Diversification (the other two are Hedging and Insurance, BTW): indeed, in RM circles diversification is known as the only free lunch. These guys were so caught up in what they were doing, they ignored first principles, even in their own personal decision-making. They weren't just being reckless with shareholders' wealth, but with their own as well. That’s how intoxicating the game becomes.

And this is why we need regulators that are permanently ready to intervene. And this is why politicians who instruct regulators to turn a blind eye (Brown, Blair, this means you) are utterly, utterly culpable.
-------------
Footnote: a couple of interesting comments from the Grauniad’s Dan Roberts in their live coverage, one perceptive, the other unbelievably crass:

McKillop and Goodwin have so much gravitas about them that you can almost see how they managed to con us all out of billions of pounds

They've now wasted best part of half an hour on an arcane row about a supposed whistleblower at HBOS. I wish we could get back to the meat

ND

new footnote: Alex (comments) points to an alternative account of how Lou Pai made off with his Enron dosh

Wrong about the Treasury committee


Here was me thinking this morning that the bankers would smooth over any inappropriate talk, say sorry and disappear back to their mansions to live in champagne and shame.

How wrong I was, for Paul Moore's letter is pure dynamite; It is reported at length elsewhere.

The nub is though that HOS was brazen in trying to avoid whistleblowers. This has scandal like Enron and Worldcom written all over it.

Moreover, we warned last summer about the insanity of appointing the ex-HBOS head as the man to advise Gordon to save the UK financial system. Crosby was one of the blind leading the blind; he is not the man to lead us out of the desert.

This story will run and run; Crosby or his report cannot survive credibly.

Tuesday, 10 February 2009

Bankers: "No-one Foresaw" - Excuse Me ?!

The inquisition of the bankers gives rise to many fascinating points which we may pick up in future, but for now here's one I just can't resist. Their risk management systems were all excellent, of course; they all discussed risk ad nauseam in their Board meetings, they all did their stress-testing etc etc, but no-one foresaw ... in particular, no-one foresaw the [2008] Lehman collapse.

Well, obviously no-one that matters but, ahem, this from October 2007:

"Stress Tests - one problem is paucity of imagination: the worst we can envisage is what has happened before. When oil was last at $10 (1998!), very few companies were stress-testing for $80 ... who is modeling the collapse of a really big bank now?"

Modesty forbids ...

ND

Treasury Committe Bank interviews the Ego's


Much bruhaha today about Sir Fred Goodwin et al being dragged before the Treasury committee. Alphaville has a live session for those really enlivened by this.


Appparently, they may get Sir Fred etc. to say sorry. Wipee, well that all right then, isn't it?


The other part of the story, the ego, the dictatorship, the craven investors, the hubris of buying ABN. All this is well known. The event will be a sideshow.


Sophocles was writing this story 2600 years ago.


Monday, 9 February 2009

UK Charities nationalised



This has been happening for sometime now. However, the credit crunch has moved the agenda even further forward.

As people donate less to charity to look after themselves, the 'shortfalls' are causing problems. Charities are struggling for money and the Government has put another £42 million aside to help them with projects.


But how can the Government choose which of thousands of charities deserves help? Moreover, are the ones that need help not already proving they are not good at managing the money?


Personally, I resent being approached in the street by Chuggers who when questioned soon admit that their organisation is majority government funded. To my mind, they are bleeding heart tax collectors.


I am not anti-charity at all and I want people to give as much as they feel they can afford. But why should Government be donating my taxes to charity - why not let me decide where the money goes?


The answer to me is clear, 'Third Sector' money spent by the government goes to 'local initiatives' (see the BBC link). These are mainly in Labour areas and so much of this money is simple vote buying, dosed up with some hand-wringing morality.

Sunday, 8 February 2009

'Public Bank Bonus'


Alistair Darling was on the Andrew Marr show this morning, making it clear that the Government is going to have a quiet word with Stephen Hester about the RBS bank bonus's. The Labour tribe are in full swing in demanding that no money be paid out. The BBC mischievously says RBS is about to pay out £1 billion in bonus's for a bank that has lost £28 billion this year.

George Osborne was quite clear to say on the show too that senior management should not get the money this year.

This is a difficult piece of populism to avoid. No one who has lost their job due to recession brought on by the banks is going to be happy with people making six figure and more sums of money.

Now that RBS and LLoyds have such chunks of state ownership the politicians can get their fingers dirty just as they love too.

The easy answer surely is too defer money to be paid when the banks is back in profit, even perhaps to pay in shares that will only be worth anything if the banks are not fully nationalised and instead are sold back to the public sector.

This is the solution, I wonder why the politicians don't want to mention this and just concentrate on pure populist stands?

Saturday, 7 February 2009

Watching The Lights Go Out (3)


"Green light for 3 new power stations to power 4 million homes"

What's this, I hear you ask, are we saved ? Was Drew just doom-mongering (again) ?
4 gigawatts of lovely new capacity !


Calm down dear, it's only a government press release. 'Section 36 Consent' is permissive, but doesn't commit the holder to do anything - any more than EDF is committed to building new nukes (sorry Gordon, but they ain't - ask your brother). It's valid for 5 years and is, in effect, a free option to start building a power station in that timeframe. So even if any of these go ahead, with a typical
3 year construction period they could be starting up as late as 8 years from now. The crunch comes a lot sooner than that.

All these permits betoken is that the three putative developers like free options (as do we all), and anticipate (as do we all) that the price of gas is going to fall, but the price of power won't fall by nearly as much, if at all - because generating capacity margins are declining.

And worryingly so. The government
(when it isn't totally absorbed by sourcing new mobile phones for Brown) knows perfectly well that renewables and nukes are a bad joke, and are hoping upon hope that [a] developers will rush through the only things that can provide reliable electricity quickly and plentifully enough, viz gas- or coal-fired plant; and [b] it will mostly be gas, because the greens (wrongly) hate coal - see the lame rider at the end of the press release ("gas fired power stations produce less than half of the carbon emissions of traditional coal fired stations" - true but irrelevant).

But isn't there an optimistic angle - mightn't they start developing right away, so the new 4 GW is available by 2012 ? Certainly, the government would hope so - they are already planning 2012 power-cuts in the London area to ensure the Olympics get an uninterrupted supply !

But there's a strong reason to believe these 3 permitted stations won't be built any time soon. The prospective developers can't hedge their energy price expectations - i.e. they can't lock in declining forward
gas prices and more robust forward power prices; and they'd need to do this in order to secure finance. That they can't is partly due to the credit crunch; but also because, when the government allowed EDF (Gordon's brother again) to buy BE, they accelerated the malign trend towards vertical integration in the electricity sector. This has trashed liquidity in the power markets, making long-term hedges as rare as hens' teeth.

So - the French get BE; they commit to precisely nothing; a power crisis looms; the power market is hobbled. Ah, what it is to have a financial genius at the helm.

ND

Friday, 6 February 2009

Maths Quiz



Friday Fun

Numbers seem to be getting smaller these days. Used to be that £1 million would last a footballer all season or count as a decent bonus for a bank exec.
But since Northern Wreck the talk is of Billions. Trillions of Billions of toxic debt.
But what do these sums actually mean. Can they even be comprehended?

If you start counting now, out loud, "One..Two.. Three "without pause, you will reach the number 1,000,000 around about 1pm on Tuesday the 16th February, and you will have missed valentines day.

1 minute = 60 seconds.
1 hour = 60 minutes (or 3600 seconds).
1 day = 24 hours (or 86,400 seconds).
1,000,000/86,400 = 11.574 days.

So, today class, and in a departure from the usual national multiple choice curriculum,
how long would it take to count to
A} 1 Billion
B} 1 Trillion

And part 2.
The UK treasury expected to have to borrow only an EXTRA £118bn for 2010.{exceedingly unlikely to be that little..that was the November '08 fantasy amount} Excluding interest, how long would it take to pay off just this extra borrowing at £100 a second.{Answer. Depends how quickly you can get the printing presses to run}

UPDATE

If we wanted to pay down a billion pounds of the UK debt, paying one pound a second, it would take 31 years, 259 days, 1 hour, 46 minutes, and 40 seconds.


To pay off a trillion pounds of debt, at a pound a second, would take about 32,000 years.



About a billion minutes ago, the Roman Empire was in full swing. (One billion minutes is about 1,900 years.)



About a billion hours ago, we were living in the Stone Age. (One billion hours is about 114,000 years.)



About a billion months ago, dinosaurs walked the earth. (One billion months is about 82 million years.)


A billion inches is 15,783 miles, more than halfway around the earth (circumference).The earth is about 8,000 miles wide (diameter), and the sun is about 800,000 miles wide, not quite a million.


Tot
al UK personal debt at the end of December 2008 stood at £1,457bn.With Mrs BQ contributing to a healthy % of it.

Sound Pound for the weekend

The pound rallied strongly after yesterday's rate cut. This is the opposite of what normally happens, as lower rates mean that money is transferred out of a currency.

However the reason behind this is that the market assumed the bank of England would say more about quantitative easing - i.e. printing money. The Bank shied away from this, pushing the likelihood of this out by a few months.

The markets like this, printing money is a move of a very bankrupt country - see Zimbabwe, USA etc. Not the sort of thing the Pound should be associated with.

On the downside, we have deflation now, so if we were ever going to print money, now is the time. if we don't ever do it, well and good. If 'QE' happens in 6 months, when the worst of the deleveraging is over, then we will get 1970's style stagflation.

Don't be led by all the talking heads on TV and in the newspapers. Vince Cable on Newsnight was particularly bad last night, he is only feted because Osborne and Darling refuse to speak on Newsnight. QE is a bad idea but if taken is medicine for the worst of the fever, which is now. Not in a few months time....

Thursday, 5 February 2009

Bank of England Interest rate decision - 0.5% cut

The UK Central bank long ago lost control of monetary policy in the UK and we have been battered by the markets ever since. The pound taking a kicking and the stock market too. Even UK Gilts have lost their glean as international investors withdraw their money from the UK at record rates.

In the face of this, the Bank has decided to massively reduce interest rates, now down to 1.5%. Today another 0.5% cut is expected. I don't see this as having much effect on the real economy in the UK. It is not as if banks are going to cut the rates they charge businesses for lending in such a difficult environment. It may help to lower LIBOR - but no one cares about that anymore as no banks lend to each other anyway.

With real courage, the bank would leave the rate where it is, acknowledging that this phase of economic policy has reached its final point. The next phase is to replace bank lending to companies with direct government lending, this will stimulate the economy as is needed.

Done well it may even turn a small profit for the HM Treasury.

The bank need to wrestle back control from the markets and stop copying slavishly every US decision. Inflation is going to fall anyway, negative rates are not the answer - just look at Japan 1990-2008.
UPDATE: As predicted, they did the 0.5% cut.

Wednesday, 4 February 2009

Treasury Select Committee; Financial Media Circus

Today has seen the assorted wonders of our financial media, Jeff Randall (SKY), Robert Peston (HM Treasury), Alex Brummer (Daily Mail) and Lionel Barber (FT) brought before a treasury committee be grilled by MP's over their role in the economic disaster that has befallen us.

Some brief highlights / reactions.

- Brummer said the Daily Mail was laughed at for year about House Price Stories (surely not?). I am unsure as to whether a stopped clock is right twice a day or whether they actually need an apology from us all for laughing for so long.

- All of them claim to have seen this coming and warned everyone. Perhaps in future financial media will be more respected. For once I think this is both outrageously self-serving and true.

- Against bank PR machines, they stood no chance. Banks would deny the truth up until they were proven to be lying. This is also true and says alot about what we should think about what banks are still telling us today...

- The committee said blogs have lowered the standard of media reporting. Peston apart, they all agreed somewhat. How very dare they! The opposite is true, blogs post and muse in a way a salaried journalist never would.

- To end on Randall was definitive when asked about the future, the others prevaricated. Rather ruins some of the better points they made earlier to obscufate when actually asked a real question.

John Prescott's top fifty. {5} l


Continuing on. The last of John's fifty things Labour have achieved since 1997.

{ in the comments of I have been set straight on a number of issues, like waiting lists where I foolishly looked at NHS figures, but had no idea that there is a wait to be put on the list. D'Oh..imagine falling for that old fiddle BQ. There were more too, so maybe a post later on which will also include the Tories response to Labour's "What did the Millennium's do for us?"


41. New Deal - helped over a million people into work {At a cost of 3 billion pounds to 2007."Almost half of the young people who take part in the Government's flagship welfare-to-work programme return to claiming benefits within 12 months" Should have just given them the £300 each. Plus the figure is nearer 200,000 I believe. 800,000 people have been through the New Deal at least twice? Hardly a success. No credit}

42. Over 1.5 million child trust funds have been started { And a shocking waste they are. The idea that people would top them up has never materialised. Basically GB has given future 18 olds a deposit for a scooter. Why? }

43. Free eye test for over 60s {Free for all in Scotland. And free parking when you go to get them. + children, people on low income and people suffering from or predisposed to eye disease could always get them. anyway, partial credit, you should have just made them free for all.}

44. Five, six and seven year olds in class sizes of 30 or less {Really. My two are in classes of 31 and 33. Am I the exception? On the back of a fall in the number of children it was a pretty easy target. Shame that immigration damaged your numbers or you could have got a point.}

45. Free entry to national museums and galleries {Yep. should have shut the VAT dodge earlier than 2005, but it was a good cultural policy. Full credit}

46. Overseas aid budget more than doubled {So glad we can afford it! Money to India to help their cash starved space program. Money for China, to give them a lift because they aren't really a powerhouse. OK so its all about 'HELP' for our exports but really... zero credit except for excessive waste.}

47. Cancer death rates down by 12 per cent, saving 43,000 lives {lucky lucky.Health promotion though..so OK. Shame they haven't fallen equally on rich and poor though. Does that tell us something? And no it isn't BUPA.}

48. Cut long-term youth unemployment by 75 per cent {doubtful, very very doubtful. I see it on all the top 50 achievement lists, the Chancellor always bangs on about it, but haven't seen any evidence. Let's hold this one until you can provide the link, not the soundbite}

49. Free nursery places for three and four-year-olds in England, Scotland and Wales

{Great. A really good idea. Only slightly marred by the fact that its for 2.5 - 3 hours a day only. Just enough time to get the shopping,not really enough time to get a job. Still full credit}

50. Free fruit for all four to six-year-olds at school. {really? that's the clincher. An apple? well, if you say so.}

So there you have it. An unparalleled run of success and over achievement, all under budget and on time....or do you disagree ?

{for those who have taken issue with the few points that received a credit, think; Judge Advocate's wig and robes, horns and a forky tail plus a trident, smell of brimstone, cloven hoof footprints, fire,and eternal damnation.}


There will be no Bad Bank


This idea is not gonna happen.

A lot of ink is being spilled (or digitally rendered at any rate) over this idea. However the main issues with the bad bank idea, in the US or the UK, are here:

1 - It is very expensive. In the US they are talking $4 trillion. I don't think the bond markets have the appetite for that and neither to taxpayers. Even Magical Obama is not going to get that rammed through Congress.

2 - It will bankrupt all the banks. Yup, rather a key point. Bad bank gives prices to the assets that are currently without valuation. Set too low and then all banks will be bankrupted by mark to market accounting rules. Changing accounting rules is a dumb option of the first order - that would destroy all Western stock markets as all market confidence was removed.

3 - There is the Insurance scheme invented for AIG and Bank of America, also copied by Gordon Brown. This is less effective, but much less costly and allows Banks to remain in private hands. The force of inertia is strong with this one.

So, no doubt you will read many column inches about bad banks etc in the near future and how they are going to save the world or not; don't bother it is a theoretical cul-de-sac.

As I said before, what we really need is a 'bad country' to step up to the plate. Currently best candidates are Japan, UK and US; but I have a hunch a vote in the UN might go against Iran.