Sunday 31 January 2010

Theatre Review: ENRON

Enron, now in the West End having sold out at its two earlier venues, is without doubt top-notch, cracking theatre, as extolled by all reviewers. The audience is duly riveted and the interval discussions are animated. At one point the production was marketed as Enron – the Musical, and the show certainly deploys lights, music & action to great effect. It could be recommended for this alone.

But while succeeding brilliantly in creating a spectacle, the playwright Lucy Prebble has clearly aimed higher still, and it bears a bit of analysis.

The subject-matter is juicy. Over little more than a decade, a dozy gas pipeline company revolutionised first the energy markets in the USA, then commodity markets worldwide, propelled by one of the greatest business visionaries and implementers the world has ever seen (Jeff Skilling - now in gaol, unlike hoards of far more deserving bankers - is comfortably the equal of a Gates, and vastly superior to a Welch), aided and abetted by some of the strongest personalities ever to don a business suit or push-up bra. They were strongly opposed by the vested interests and old energy monopolies every step of the way, but they prevailed. They were doing amazing, explosive things in an explosive way. And in 2001 they imploded – corporately, personally, the whole shebang. Shakespearean, or what ?

Long-suffering readers of C@W will know that I approach the Enron thing with *ahem* close interest, and a clear memory. There is no point in splitting hairs over precise chronologies or characterisations – we can be generous with artistic licence, particularly if Prebble’s aim is to educate the audience on the business dynamics of what happened. And, since we are given potted explanations of mark-to-market accounting (yes!) and the ‘Raptor’ off-balance-sheet financing vehicles, it is hard to deny the didactic aspect of the play (though reading the Fleet Street reviews, some people come away thinking they understand stuff that in truth they do not).

But this isn't Finance 1.01, or even 9.06: there’s an attempt to explore deeper issues. Imagine a number of speeches in the same line as Michael Douglas’ famous “greed is good” in Wall Street, but more subtle and compelling – Skilling gives a defence of arbitrage, e.g. - and you are fast moving away from anything that could be viewed as simplistic, lefty anti-capitalism (ironic, since Sam West, truly excellent as Skilling, has a Trotskyite past). The concluding sermon suggests that human endeavour, and indeed civilisation itself, progresses via mighty booms and busts.

I suspect that different viewers will come away with very, very different readings. Some will see conventional personal tragedy. Some will see a morality tale. Some, yes, may feel they hear support for an anti-capitalist thesis; but others a hymn to bold capitalist risk-taking.

Personally, I’d like to see Prebble given a vehicle to explore the
subtleties and big themes even further. She’s done so well in what can be achieved in two hours or so, she deserves a 1,000 page novel - or a four-part operatic cycle. The subject-matter is rich enough to sustain it.

And then she would indeed need to get the characterisations and the chronology correct.


Saturday 30 January 2010

Pass the Pigs

Super new boardgames
Now in stock

Deluedo - Someone has murdered 150,000 Iraqis. Was it Miss John Scarlett, the Spy? Professor Plum, the schools secretary? Maybe it was Colonel Goldsmith, threatened in the library with a lead pipe? Or Reverend Blair, on the comfy sofa. With the cabinet?

Battleshits. - Classic game of sinking your opponents manufacturing economy.
Made in China.

" You sunk my balance-sheet!"

Pass the Pigs. - The hilarious game of MPs expenses. Claim as much from the trough before the public gets wise. Deluxe version features pewter hand painted character pigs. -David Chaytor,-Geoff Hoon--Jacqui Smith--Elliott Morley--Alistair Darling and the lovable Douglas Hogg

Snakes and Leaders - Climb the political ladder, but beware of snakes bringing you down. Don't hit the long McBride one that sends you right to the bottom.

Crappy Families - Install your relatives into the most imaginative positions possible. Special Advisor, Accountant, Secretary, Web Designer, Press Officer, Twitterer, Party Blogger or Personal Assistant. And all at the tax-payers expense. Fun and employment for the whole family.

Top Chumps - Peter Mandelson's Top Chumps A mixed pack of politicians, union leaders, journalists,commentators and broadcasters. Features characters from the hit Kids TV show "The daily politics.."
Pick from six categories.
Attractiveness, Competence, Honesty, Ability, Insanity.

More write ups needed in the comments for these and Scrabble - Twenty Questions - Jenga - Downfall - Go for Broke - Monopoly - Risk or any others.

Thursday 28 January 2010

A Night at the German Opera

We're going to the opera again at the weekend - German, this time ...
= = = = = =

Toni and Cheri, our two indefatigable seekers after wealth, have come to Germany in search of the fabled Golden Sinecure (Das Rheingold). They approach a fat German banker and Toni introduces himself. But the banker is not impressed – didn’t Toni lose office more than two years ago ? Ruefully, Toni admits this is true, and sings the lament Zwei Jahre sind dahin, Dulde, schweige, mein Herz! (two years, dude, and it still hurts!). He suggests that, for a modest consideration, he could make an after-dinner speech.

The banker is strangely moved, and offers a fee of $5,000. But Cheri, disgusted with this miserable sum, pushes Toni aside and gives the shrill soprano aria: Fünftausend Taler!... Träum oder wach' ich? (five thousand bucks ! – am I dreaming, or what ?).

Not for the first time, Toni is forced to apologise for his wife, and explain that she is just a humble Scouse lass on the make - Lass Er doch hören (she’s a bit of a whore). He stresses that other banks value his services greatly, singing Wie freundlich strahlt die holde Morgensonne (how generous are the shareholders of Morgan Stanley). He wheedles and pleads - even Cheri is shocked by his conduct, and in an aside sings: Gott, der du schauest! (God, you’re a shyster !)

Eventually the banker can stand no more, saying he must leave to confer with colleagues before he can make a better offer. Toni responds to the mention of more money with Wie schön ist doch die Musik (how beautiful – that’s music to my ears).

As they sit alone in the banker’s gloomy anteroom, a mysterious figure enters, and Toni regales the stranger with his woes: Ich suche vergebens nach Ruhe (I’ve been sucking-up in vain, all over the Ruhr).

Then he recognizes the figure: it is the ghost of David Kelly ! The phantom intones, in basso profundo: Bei diesem schlimmen Fall (by these slippery dealings, you will fall). Toni rounds on the apparition defiantly: he was right to attack Iraq because, well, because he wanted to, singing Ich war, wenn ich erwache (I’ll go to war whenever I please). But the shade is unmoved, and parts with a silent reproach. The curtain falls on Toni singing mournfully So bin ich verraten (so, that’s me f****d).


Question Time questions

BBC's Question Time foxed us a bit last week. 2 out of 6 for BQ. Only 0.1% growth could be more disappointing.

This week, try and guess three of the four, first to be asked questions.

My secretary Miss CD, last weeks winner of our Fantasy Question Time, will again be picking the top 4 questions for tonight's QT.

David Dimbleby will be joined in Basildon by Ben Bradshaw, Lord Lawson, Baroness Tonge, Jane Moore and Douglas Murray

1. Ireland - Peace process 2. Afghanistan, buying off the Taliban 3. Miliband and the faith school 4. More tolerant Britain. Homosexual acceptance.

Would the panel wear pyjamas to Tesco

And BQ
1. Iraq / Chilcot - Goldsmith testimony means arrest Blair
2. 0.1% signals the recession ends
3. Equality report. Harman and poverty = Tories
4. State of the Union address/Obama's bank proposals vs Brown's Tobin tax

Final question - Something about i-pad

Your guesses in the comments. Entries close at 10.30pm

Trading positions update

Since last year when you could throw a dart and make a profit in trading shares, I have reduced a little my number of positions. Plus I have a little more cash on the sidelines now, over 10%, to be able to exploit any sudden market fall (which will happen by mid-year, but it is too events driven to predict). However, we are not going in 2010 to have a big crisis like 2008 - so I would be amazed at a correction that takes the FTSE much towars 4500.

Anyway, in order of investment size here are my picks:

Name                                          Last price  Short/Medium/Long Hold   Price Target   Sell Event
Gulf Keystone Petroleum Limited     91.75                 Long                           250            Sale of Company
Minerva plc                                  71.25                 Short                           90              Letting of City office
EMED Mining Public Limited        12.5                   Long                           50              Start up of Mine
Ithaca Energy Inc.                         78.58                 Long                            120             price target
Heritage Oil Limited                     503                    Medium                       600             price target
Ascent Resources Plc                    5.88                   Medium                       10               Completion of Drills
FORTE ENERGY NPV                11                     Short                            20              JV with Aveva
Chariot Oil & Gas Limited            37.5                   Long                           100             Sale of Company
Xtract Energy Plc                         2.68                   Long                           4.5              Completion of Drills
Invista European REIT                26.25                 Medium                         45               price target
Kopane Diamonds                       12.39                 Long                             35               price target
Innovation Group PLC                13.5                   Short                            16                price target
Petra Diamonds Limited               53                    Medium                         80               price target

Wednesday 27 January 2010

Some Perspective on 'Breach of International Law'

As a rule I make a point of disagreeing with Dave Aaronovitch (dates back to when I knew him) but I’ll make an exception for his contribution on Newsnight yesterday - commences around 32:30 in. No-one raises the issue of whether Blair's actions in Kosovo were legal, do they ? he asked.

And of course they don't. All the hair-splitting about the precise ‘international legality’ or otherwise of the Iraq war is not really the point. It’s that on Iraq, Blair's judgment was faulty.

I’ve little time for ‘international law’. The strong ignore it freely along the traditional lines: “Treason doth never prosper” etc etc. Then they use it to prosecute the weak.

So what about international trade, of which I’m a big fan ? Easy. Bilateral agreements are struck, based either on trust where there’s a workable tradition to call in aid, or with the parties agreeing which legal system and commercial jurisdiction the contract will be subject too.

In the energy industry, in my experience this means: England; the legendary Harris County, Texas; New York; Australia; maybe Netherlands if you’ve a strange objection to common law (though why any businessman would, I can’t quite fathom); with Stockholm bringing up the rear for parties (= Russians) whose pride doesn’t let them near the wicked Anglo-Saxon courts. Wouldn’t touch German courts with a Rheinland bargepole -
or French.

How's it done in your industry ? Anyone got any other favourite venues for a bit of commercial-legal argy-bargy ?


Friday Update:
Aaronovitch is on the Daily Politics spouting his usual nonsense so I can go back to diskarding him uterly.

What Chilcot Tells Us About the Banking Crisis

Ringing bell-like through yesterday's evidence to Chilcot were the distinct echoes of what was happening in every bank's risk committee throughout the years of demented risk-taking excess.

"I am not used to receiving dogmatic legal advice" - Straw's rebuke to Sir Michael Wood is the authentic voice of Fred Goodwin and every other board- room bully, when faced with inconvenient advice from lawyers, accountants, tax advisers or risk-managers. "Why has this been put in writing ?" "Don't advise them that the legal issues are finely balanced" - the injunctions of executives prior to the non-execs being briefed.

And in banking there are rarely issues of war and peace, life and death at stake. How much more readily, then, will the professional advisers back down, slink away, and redraft their advice to be more helpful to their masters ?

This is the spirit of the age, of Fred Goodwin and Alastair Campbell, Jack Straw, Tony Blair and Gordon Brown. There's no mystery over how the Goldsmiths of the world come to change their opinions, or how the disasters keep rolling in.


National Equality Nonsense (rant warning)

More harumphing from me today as I listened to the BBC this morning.

"Britain among most unequal societies in the world"
"All the fault of the 1980's"
"terrible discrimination against anyone who vote Labour or may do"

(Ok, the last one maybe made up).

So I thought, let's see the form for this. Firstly it was commisioned by Harriet Harman - who could have written the conclusions without the report. You may as well ask me to write a report on benefits of capitalism.

Then I looked a the cronies she hired, a bunch of the usual academics with expertise in social work etc. So the report t is entirely self-serving, talks their own book and agenda. Why don't we ask bankers why they deserve their bonuss?

Then I looked at the summary. Apparently inequality has risen in the last 10 years? Why could this be, what huge changes have occured in the UK in the last 10 years - oh hang, on what about that record economic immigration and record numbers of asylum seekers accepted. Not mentioned, not even in passing.

No, it is al the fault of "class" and those evil parents who try and educate their children, bring them up properly, live in a nice house, try and get a good job and pass on these values to their kids. By doing this they destroy opportunity for everyone else, how else are the feckless to compete? Strangely the report does not mention the record emmigration of such people that the UK also has been experiencing.

Funnily enough though, off the top of my head I would have thought that is a chunk of the middlyingly wealthy leave and are replaced by very poor immigrants you would expect a rise in inequality for a couple of decades wouldn't you?

Of course the answer is more public spending and more intrusiveness to stop people bringing up their children nicely. No doubt somewhere today the call will go up to ban public schools, becuase of course, they are too good.

It is a total mixed up marxist horlix from start to finish, no wonder the BBC are going to run with it all day.

Tuesday 26 January 2010

UK GDP Q4 2009; 0.1%

Wow, that is a poor number. So much for Labour going to call an election on the back of the 'return' to growth.

And crocodile tears for the BBC having prepared for weeks on the Government's behalf a 'we are out of recesion day special.' (Love this headline, UK emerges from recession, repeat the BBC is not biased, the BBC is not biased....)

Worse to is to remember the comparison; with oct to Dec 2008  - the total financial meltdown and crisis. So we have as the UK only achieved a 0.1% better result than that. truly awful.

Even worse the cold spell of january will have knocked productivity so the Q1 growth this year may not be great either (although here the comparison is with a -2.0% result last year, surely we can beat that).

I have long said Quantitative easing will not end at £200 billion and this number confirms this approach. QE will continue until the election in some form, as the Government financing demands it in this time of fantasy budgeting.

By way of example, Government spending is going to fall this year from £670 billion to £650 billion - a sharp cut according to the Government. However, income is likely, at best, to be flat at £450 billion.

Final point, GDP measure includes public sector spending, in fact it is about half of the number in less difficult times. This suggests the private sector in the UK is deeply mired in recession still, with large shrinkage in each successive qaurter.

Monday 25 January 2010

Brown's Valantines gift to the UK. A February election.

Political Betting have rumours of a February election to be announced tomorrow.
Edward Heath lost his February gamble in 1974. Would Prime Minister Brown, not known for taking big risks, really call an election with so little backing him up?

Well, I would theorise that are some pretty good reasons why he might.
1} Things aren't going to get a lot better, they may get worse. The good Christmas retail figs {6%} masked a pretty dismal December {0.3%} with lousy economic figures for the April quarter, caused by the snow and the fragile recovery faltering. Plus the good, if a little spun, unemployment figures, are unlikely to be repeated with all the seasonal lay offs and some big real job losses already announced {First Quench - Corus - } now about ready to join the lagged statistics. More are on the way. Adams childrenswear failed again today.2,000 jobs at risk. Cadbury?}

2} Gordon can sidestep the leaders debates by going early. There's no time, and it isn't agreed. Even if he has to do some, he can insist on his format of 2/3 Labour audience which producers will have to agree, as will opposition if its just 5 weeks to go.

3} The move will rattle the opposition, especially the Libs and Nats who probably aren't ready. Labour can call on a union loan/gift for a war chest. Would Unite refuse? Who would they rather have in power. Gordon or Dave? Even CWU, who this government has tried to privatise still donate to the Labour party.

4} The Iraq enquiry is making Labour's chances harder. Some bad news on how unprepared the army was by procurement failures today, Goldsmith and the big Blair on Friday. A PR failure for Gordon Brown. But the Prime minister's own 'Cast Iron' guarantee can be neatly avoided. If he is fighting an election he can't be called..As stated in the Chilcot letter.

5} Gordon is televising the 'economic miracle' that sees the UK finally crawl out of recession. It hasn't been televised before. {0.4% is the GDP guess from the experts. If its ,say, 0.6% Gordon and Darling can claim they have steered the country through the economic icebergs and are the most trusted to go full speed to a safe, painless recovery.}
Today's ICM poll is just marginal enough for a hung parliament or feeble Tory win.
T:40% -La: 29% - Li: 21%
It can't get much better for Brown. But it could get a lot worse. Strikes are looming BA , Underground strikes, mail strikes...

This time the good news could launch Gordon to a hung parliament.

There are still plenty of options against. Odds still appear to be 40/1 so the bookies still fancy May/June. Tomorrow could just be yet another damp squib relaunch. We shall see.

To War in a Sieve

They went to war in a Sieve, they did,
In a Sieve they went to war:

In spite of all Hans Blix could say,

At Bush’s command on that fateful day
In a Sieve they went to war!
But when no weapons were found in the place

And every one cried, “You have no case”
Said Blair and Brown “we’re trusting to luck”

We don’t care a button! we don’t give a f***!
In a Sieve we’ll go to war!’

Far and few, far and few,
Are the scruples of Brown and Blair;

Their lies are bold and they’re shameless too,

And they went to war in a Sieve.

They went to war in a Sieve, they did
And totally unprepared
With not enough armour for soldiers to don
With too few choppers – the list it goes on
But Brown, he never cared.
And every one said, who saw them go,

"O won’t they be soon undone, you know!

For the list of shortcomings is terribly long,
And happen what may, it’s extremely wrong
To send our boys unprepared!”

Far and few, far and few,
Are the scruples of Brown and Blair…

The casualty figures soon started to rise,

The coffins they soon came in;
So to cover their arses they lied and lied
(No sign of remorse for the many who died)
And they gave the order to spin!
And they hunkered down at Number 10
And they lied and they spun and they lied again
”Though the charges against us be ever so long

Yet we’ll never admit we were rash or wrong.
While we have breath, we spin!”

Far and few, far and few,
Are the scruples of Brown and Blair …

(apologies to Lear)


China passes Japan into 2nd place

This will be the talk of the markets in the far East this week. after over a century of being outshone by Japan. China will emerge as the largest economy in the far east. Not only bigger than Japan but every other country too except the United States.

No doubt there will be more lengthy articles this week focusing on the how much this changes the political and economic balance of the world. My question is though, how can China avoid going the way of Japan?

Japan had so much going for it in the post-war world. A commitment to working hard, saving hard and supporting the Government. Ths made Japan rich. Then the lack of a balanced economy, a banking crisis and demographics caught up with it. Now Japan is stagnant and still seeking renewal after 15 years.

China certainly faces a worse problem with demographics, its one child law (a huge boon to the world as a whole let us not forget, reducing the huge over-population problem the world has) meaning it will get grey quickly in about 5 years time and there are far more ment than women. This greying will reduce China's ability to create domestic consumption and will also ensure the savings rate remains high

As mentioned I the FT article, the need to come off a dollar peg will cause a massive boom for China the likes of which normally end in a financial crisis. This may well be a theme of the next few years.

China will undoubtely overtake the US to become the world's largest economy, it has after all 5x the population. Will its people ever match income with Americans though?

Saturday 23 January 2010

Gulp...did Obama do it?

Courtesy of the Big Picture, this perhaps shows the future for the markets. The FTSE 100 has given up all its gains for the year so far. When the FTSE falls in January then it normally sets the trend for the whole year; last year being a notable exception.

Friday 22 January 2010

Obama and the Banker quick shuffle

Let's start with the basics. Politicians spend other peoples' money freely. When it comes to looking after themselves we have the expenses scandal. Bankers' are equally wreckless with clients money, investing in risky assets and trying to make big profits but not worried about losing too much. However, with their own money, i.e. bonus's recent days have shown that no matter how bad the effect, the money will be paid to the bankers.

Morgan Stanley allocated 62% of its income to staff remuneration this week - the highest ever in the history of investment banking!

So on the surface today's huge announcement by Obama that effectively Glass-Steagall was back and that banks had to be split up to reduce risk seems like a victory for the little guy.

However, Wall Street paid for the Presidency and the senior economic advisers are always ex-bankers.

What I think today's announcement is about is protecting the income of the wealthy. Investment Banks will now get out of the TARP and regulated system, where senior management remuneration is monitored and controlled by the US Government. Instead, the prop desk guys get to go to hedge funds where the remuneration is orgasmic beyond their dreams.

The Investment bankers can become partnerships or private companies and remuneration and bonus payments will disappear from public view. The public is left looking at utility banks where earnings are not so astronomical, although high.

Look at Goldman, I bet it can't wait to not be a bank holding company anymore, it never wanted to be in the first place.

All this US action will affect the UK banks, HSBC and Barclays will have had a blow to their strategies, especially the latter which bought the US Lehman operations.

This is a great cover for bankers keeping their earnings through a populist measure. Wall Street ain't stupid after all....

Thursday 21 January 2010

BBC's Question Time questions

Recently there has been a reminder to the audience that the BBC's Question Time panel does not receive the questions in advance, to various assorted gasps of amazement. How can the panel know the answers? They come with reams of notes. They must be prepared in advance!

Well, of course, it isn't that hard to guess the questions. Look at the news and look at where its being held. But it is difficult to get five out of six, in the right order, plus a fluffy quickie for the last question.

My secretary Miss CD, is a regular winner of our office Fantasy Question Time, so she will be picking the top 6 questions for tonight's QT from Milton Keynes.

1. Haiti - is the UK/USA doing enough
2. Freedom for Munir Hussain and the implications
3. Frances Inglis jailed for murdering brain damaged son - change to the law
4. Tories marriage tax proposals
5. Obesity treatment on the NHS
6. Assisted suicide in Scotland

Final question - Something about Avatar/Bafta

Your guesses in the comments. Entries close at 10.30pm

All The Top Stars On C@W

Long Firm, eh ? (I'm sure Foucault had something to say about the Zeitgeist.)

Tuesday 19 January 2010

Does this mean we can all use the corporate box at ''Park'

Northern Rock PLC {The Company} the new bank formed following the successful restructure of the Northern Rock business on 1 January 2010, can confirm that it is to become the main sponsor of Newcastle United Football Club says a statement on Northern Rocks website.

The new four-year contract will commence from the start of the 2010/11 football season. The total sponsorship value may vary, from £1.5 million to a maximum potential of £10 million, with payments phased over four years. The maximum potential will only be realised if Newcastle United is playing in the Premier League for the full contract period. The contract is subject to an agreed review point after two years and will expire at the end of the 2013/14 season.

Outrage from the Daily Mail with a nice quote from Taxpayer's Alliance. "Mark Wallace, campaign director of the Taxpayers' Alliance, said: 'I'm a Newcastle fan and even I think it's ridiculous. A bank that needed to be bailed out by taxpayers should be focusing on repaying that money."

E.ON: Slowly Getting Real, Long Way to Go

We said the other day that Gazprom is slowly getting real on the impact of the big gas surplus, and its best mate E.ON (EONGn.DE) - whom we’ve had a dig at recently - may be edging in the right direction too. Yesterday they published this revealing presentation, which contains some gems:

- they are renegotiating 80% of their long-term gas contracts; ‘clear progress is being made based on constructive, long-term relationships’ (what else would they say ?) and they are targeting ‘limited additional flexibility’ in these negotiations.

We’d surmised they’d been hurting and now we know: their European gas business EBIT is 33% down (and that’s just on realised losses – they aren’t likely to reveal MTM numbers). Hence the urge to re-negotiate. The correct ‘targets’, meine Herren, are (a) a lower base price and (b) gas indexation to replace oil indexation – OK ? But you knew that anyway.

- they reckon oil indexation is still justified by reference to competing fuels, and balances risk fairly (so why are you being forced to re-negotiate ?). Further, they reckon the oil-gas link has only temporarily come unstuck, and offer this graph ('TTF' = Dutch spot market):

What’s wrong with that ? Firstly, they make the cardinal mistake of interpreting for
ward prices as forecasts of future spot prices – which they categorically ain’t (there is evidence to this effect in their slide 30, correctly understood). It's only in steep contango because of the surplus. At most their graph shows a forecast crossing a forward curve at around 2013 – so what ?

More significantly, they assume the gas market will still be the same after a period of sustained oversupply: this is to be doubted. Much more likely, a viable spot market will have become established in Germany - the embryonic one is starting to eat their lunch already, as they admit! - after which no-one will quickly sign up for oil indexation again. As they also acknowledge, ‘gas indexed contracts are increasing’.

- they predict a very optimistic V-shaped recovery to their gas sales which, if it comes to pass, would indeed solve 2009’s take-or-pay problem. But will it ? They are bound to suffer a hit on market share after a couple of years of their competitors buying spot gas at half the oil-indexed price.

Let’s be fair, in several places (sometimes in code) there are signs that realism is dawning – and they’ve naturally to put on a brave face. Bottom line: prospects for that German spot market are looking better all the time. (And E.ON are trading like good'uns - trading EBIT doubled - they get the message all right.) Excellent news for the UK as we become ever more import-dependent.


Did Cadbury get a good deal?

Cadbury has been sold to Kraft foods today. No doubt there will be plenty of harumphing about another UK company being sold abroad. People seem to forge the effect is a net inflow of money in the UK, to staff, to banks, to pension funds; all of which can be re-invested in new companies.

Anyway, of more import that peoples' lack of understand about basic economics, is whether said shareholders have got a good deal. The best way of checking this is to understand how aligned the CEO's pay and mentaility is with a company. In Cadbury's case, Todd Stitzer is a lifer a the company, which would suggest he would not sell-out easily. he also get up to £448,000 in pay in share options and has done for many years. Big personal shareholders are good for a company when it comes to selling out, as they want the best price too.

On the downside, Todd is not a mega-shareholder as the Cadbury paid a huge bonus rather than more shares most year - Over £2 million.

I will leave the technical analysis of discounted cash flows etc to FT Alphaville. On balance it looks like the CEO was motivated to get a very good deal, Kraft reluctantly had to up their offer by 9%;  it seems like the first piece of M&A for 2010 has ended well for UK shareholders. That bodes well for 2010.

Monday 18 January 2010

Getting Behind Cameron on Education, Education, Education

In the late 1980’s I was part of a small group planning some research work into remedies for school truancy. We made a pitch for publishing our output to the Centre for Policy Studies and were interviewed by a couple of plummy types, who rejected our proposal on the crackpot grounds that truancy was a good thing.

Aside from nutters like that (neo-liberal ? anarcho-libertarian ? gated-community plutocrats ?), most politicians of goodwill and humanity (e.g. DK, see here) would agree that education is the primary vehicle for social mobility and general emancipation.

Conservatives would also surely say that we want children to be schooled in the middle-class virtues of hard work, discipline, fair competition, personal and team endeavour, and general all-round decency.

In order for this to happen, we need teachers who themselves embody the professional, middle-class life. Yet for decades, this has not been the case in much of the state sector:

- the sector is stuffed full of doctrinaire leftists, many of them with malign intentions;
- for a long time the pay wasn’t adequate for a teacher to live a middle-class lifestyle;
- teaching is not a profession at all in the recognised sense: its unions are producerist lobbies that have no regard for maintaining the standards of their members or the quality of their work (DK again);
- successive governments, particularly since 1997, have loaded social-work and social-engineering objectives onto teaching.

In consequence the percentage of ‘top graduates’ going into teaching has plummeted from the levels of 30-40 years ago - just one of many symptoms of Something Badly Wrong.

David Cameron is right to seek to turn around this horribly off-course supertanker. It will be seriously difficult. The eternal shame of NuLab is that they wasted 13 years in which they had the resources and parliamentary elbow-room to do whatever was right, however difficult. Cameron is likely to have neither: but he should still set out to do important things like this. If the turnaround on teaching is not to start in 2010, then when ?

Good luck, mate. This really matters.


To double-dip or not?

As we all know, double dipping is a horrible social faux pas to make, one of which can really see oneself drop in the esteem of your social group.

Yet the IMF is warning today that the advanced countries of the world are facing just this prospect - a double-dip recession. He forsees a drop in Government support for the economies and this to cause a double-dip recession; oh how his words will please Gordon Brown and Ed Balls.

On the other hand, Gordon Brown and Ed Balls spent years ignoring the wise warnings of the IMF, so just be aware when you listen to the newsbites that labour will create what a total sham it is now that Labour agree with the IMF.

As it happens, there is not a very big chance of a doubel dip recession this year in the UK. the reason for this is for a dip you need to have an up, or even a flat-line. The truth is the UK economy is sclerotic and bouncing along a very low bottom. There ain't much lower it can go. Even recent good Xmas numbers from the retailers (a prediction of 6% average rise my co-writer Bill Quango nailed) are a bounce from last years epic low.

Just to prove the point, the E&Y Item club has published today a grim outlook for the UK economy. needing exports and less consumer demand, but unable to generate either. Seemingly the economy is set to bounce along the bottom.

On the plus side, with unfeasibly low interest rates and printing money, there will be a continued boost to the monetary economy that will see us avoid a double-dip. To get growth though, we are going to need to cut excess budgets and lower taxes and regulation. More enthusiasm from our Political Leaders is needed for this.

Sunday 17 January 2010

... Buying Our Companies & Marrying Our Women

By way of an update to Thursday's post on Mandelson railing against foreign ownership, we now read that Chiltern Railways are to invest £250 million in a new mainline route to Oxford and the Midlands, cutting journey times by 20%. Excellent say I, it's a journey I often make. And private investment in ageing UK infrastructure must always be music to the ears.

It's to be financed by Chiltern itself, in return for an extension to its franchise.

Now, remind us who owns Chiltern ? Ah yes, Mr Mandelson, it is Deutsche BundesBahn. To whom a franchise extension can rather safely be granted, in contrast to some of the dodgy indigenous operators thrown up by rail privatisation.

So, Mandy, what was that crap about foreign companies being resisted by UK institutional shareholders ?


9:00 pm Sunday UPDATE: GDF bidding for International Power -
let's see what Mandy has to say about this one !

Friday 15 January 2010

Politicians@Work – the Best and Worst of Osborne

The strength of George Osborne, we are told, lies in his political skills. Tactically one can only approve of the way he has promptly seized on news of Darling's triumph over Brown in the matter of being honest on the need for budget cuts, to ratchet up his own rhetoric behind this convenient cover. Clegg having already spoken of the need for swingeing cuts, the Tories can thus portray themselves as being no more than part of the establishment consensus, with the prospect of defusing an otherwise uncomfortable election issue.

Unfortunately ... while Gordon Brown’s inappropriate smiling is legendary, the Boy Osborne is, if possible, even worse. Here he is on Thursday’s Newsnight (starts around 4:20 - screen-grab below), as part of his canny post-Darling plan. He is telling us that the awful lesson of the Swedish banking crisis is, we m
ust cut early and cut deep.

OK, we all know it is true, but we don’t want to hear it from someone giving the impression he’s really pleased to break this piece of news, and generally enjoying every minute. These things matter.

It may of course be the case that he was born with this infuriating grin, but we don’t need it playing on his chops as he jauntily announces gloom and doom: the effect is shocking.

By all means deploy Osborne for his student-union low political cunning: but for pity’s sake bring on Phil Hammond if there are interviews like this to be conducted in future.

Memo to Cameron: if you'd like, I can fix that grin for him ...


How Gazprom is Learning to Love the Market

We’ve chronicled their travails at length; but there’s hope for them yet. All those fretting about the suitability of Gazprom as gas supplier to the gentry should read this. Yup, through this sustained cold period, exacerbated by an uncomfortable shut-down of the large Norwegian Ormen Lange field, Gazprom has been selling gas to the UK via the Interconnector from Belgium.

Contrast this with 2004-05. Last week I suggested that, had the current weather struck then we’d have been much worse off. That winter, the Inter- connector saw import volumes fall to zero when the going got tough – despite UK spot prices spiking to 4 times the peak price this time around. Gazprom and key European players were boycotting the spot market.

What’s happened ? Firstly, as we’ve been highlighting for a year now, there is a bi-ig surplus of gas. Secondly, Gazprom has begun to realise that, much as they hate the very existence of the spot market and pretend it doesn’t really exist, sunk costs are sunk costs and decent spot prices are there to be had. If they don’t sell it to us, the Qataris will. So – despite their longstanding vows not to encourage the growth of liquidity in these markets – they’ve started to participate. Responding rationally to price signals is all it takes – and they have.

It comes to all of them in the end: Back in 1993-4 American gas producers vowed never to sell North Sea gas into the nascent UK spot market - because they remembered all too well how spot markets shook up their cosy little games in the USA a decade earlier. But a surplus intervened and they all ended up trading like good’uns. You can only suspend the laws of gravity for so long – and only at great expense.

Thirdly, Gazprom in the UK today looks very different to how it looked in 2004, when it had only a dozen or so staff. Now they have 300. Their end-user market share targets are still a little, how shall we say? - ambitious, but at least they are showing signs of becoming a real player.

Subversive stuff, the spot market – it’ll be Germany next.

So – how much should we worry about buying more from Russia ? Not a lot. We will always be much, much better placed than Germany for diversified sourcing, and they get by OK. As argued here before, the key is threefold: (a) to strike smart contracts – never a better time than now; (b) to force the laggard continental gas markets to open properly (Germany this means you – we can let the French bring up the rear); and (c) to get our trade-diplomatic ducks in a row.

We need more gas; we aren’t going to tolerate black-outs or hypothermia: so get it sorted. It’s eminently do-able.


photo (c) N.Drew 2009

Thursday 14 January 2010

Last Refuge of a Mandelson

This, from the Times.

Lord Mandelson will ask Britain’s biggest institutional investors to show ‘stewardship’ by taking a firmer line against opportunistic takeover bidders attempting to pick up listed companies on the cheap .. Mandelson waded into the battle for Cadbury last month, warning Kraft: ‘If you think that you can come here and make a fast buck you will find that you face huge opposition from the local population ... and from the British Government.’

They come in here, buying our companies and marrying our daughters … will someone remind Mandy that it is under foreign ownership that the UK mass-production car industry has blossomed ? And can anyone point to the
downside for UK citizens (or shareholders) of the successive waves of overseas investors that have overpaid, and overpaid again, for our electricity industry assets ? Oil and gas platforms in the North Sea change hands all the time - mostly to foreign companies - and no-one has ever noticed.

Then again, as the Times goes on to remind us:

Lord Mandelson has no statutory power to block Kraft’s bid

So, errr... that’ll be wrapping himself in the flag for election year, then.


Wednesday 13 January 2010

Deceitful Brown deficient on deficit and debt knowledge

Now there is a Sun headline you will never read. Nonetheless it is true to say that in Prime Minister's Questions today Brown kept up his meme of conflating the National Debt with the Government Spending deficit.

One is the total amount of money the UK owes, the other is the current overspend. Here is what he said, courtesy of the Guardian:

Bill Wiggin (Con) asks Brown if he regrets the fact that Britain went into the recession with one of the largest deficits of any major economy. Does Brown regret that?

No, says Brown. Britain had the second lowest debt in the G7.
You see Britiain DID go in with a large deficit, over 3%, but we also went in with a relatively low total debt, at 40%. Of course this 40% is now nearing 60% and headed for 80% or 100% in the next few years.

That is becuase of our enormous deficit. The answer Brown gives is telling though - where is his proud boast now about the 'Golden Rule.'

The truth is this is patheic, not answering a question at all but bringing up another topic which he just hopes will make the question go away and fool those watching. I notice the BBC fell for it straight away as their journalist was also economically illiterate:

1205 Mr Brown also promises aid to help the people of Haiti recover from the "devastating" earthquake. Tory MP Bill Wiggin has the first question - about the economy. Does the PM "regret" the level of debt before the recession? Mr Brown fires back with a list of countries Britain was lower than, in terms of debt.

Of course it is also quite possible that Brown does not understand the question and so it not being underhand; he is instead just an idiot. His economic track record as PM and Chancellor make it hard to discount this analysis.....

Tuesday 12 January 2010

The Utter Uselessness of Wind Power

Cold Weather Update

The principles have never been in doubt. Now, the cold weather of recent days has afforded a set-piece demonstration of the uselessness of wind turbines in the UK:
data from this handy source.

The contribution made by the current fleet of wind turbines has ranged from a little over 2% of total national requirements, to as low as 0.2% (low winds are often associated with sustained cold weather). This extreme swing is not predictable very far in advance, and forward planning must cater for the worst. When the degree of swing equates ‘only’ to around 2% of total requirements, the planning system can cope fairly easily.

This current wind fleet has a nominal capacity of 1.6 GW. The government aspires to see this grow to around 30 GW – almost 20 times greater. Let’s immediately acknowledge this isn’t feasible, in construction terms alone; but consider what a 10-times increase would mean.
There isn’t consensus on whether UK power demand is going to rise or fall in the coming years, so let’s assume it stays roughly the same. With no reason to imagine that wind predictability will change fundamentally, at 16 MW we’d be confronting hard-to-predict swings of around 20% of total national requirements.

Now engineers are clever fellows and there would be solutions to this problem. The two candidates currently available are (a) keeping 20% in reserve, in the form of coal and/or gas plants on permanent standby (this means actually running them at low levels of output, since plants can’t quickly start up from zero); and (b) access to large-scale hydro-power with plenty of spare capacity – since this can come online in seconds. This, in combination, is exactly how they cope in the big wind-power zones of Denmark and N.Germany – tapping into Norwegian hydro, and fleets of coal-fired stations.

There are plans afoot to bring a connection across from Norway to the UK. Well and good. But this will cost £££, as does running a coal plant in low-output mode.
(Incidentally, National Grid love this, because they will be forced to invest hugely - at guaranteed rates of return !) So – will wind plants be charged these costs; or the costs of developing a proper long-term solution (= efficient means of storing electricity) ? Nope, these will be borne by ‘the system as a whole’, i.e. you and me. Wind generators will continue to receive their current subsidies, and get a more-or-less free ride on the costs of balancing the system.

And can Norway back up the whole of Northern Europe ? Nope. So, that’ll be coal and gas for the remainder, pending some technical break-through on the storage front.

Happy ?


British Airways staff select their Jonestown

Yes, the Telegraph reports today that the BA unions are getting more revolutionary not less. They have seemingly been encouraging staff to sabotage the company and want a showdown. They have picked Kempton Park racecourse for a meeting to decide on a new stirke, having been thwarted by the Company at Christmas.

I am always amazed by lemming behaviour and how it can continue. I will continue to watch the story unfold. I doubt BA or its staff can really keep this level of antagonism up without serious problems for the company this year.

Monday 11 January 2010

Gordon Brown's Other Favourite Poem

Commissioned by Hatfield Girl - & apologies to Yeats:

A Tarnished PM Foresees His Moral Death

I know that I shall lose the vote

Sometime in March, or May, or June

Those ranged against me laugh and gloat

Those on my side think me poltroon

My country is extremely cross

My countrymen despise my name

No likely end can spare me loss

Or flood of tears wash clean my shame

Nor law, nor sense of wrong and right

Nor moral compass did I heed
A sordid impulse of pure fright

Drove me to base and craven deed

I balance all, bring all to mind

I've dashed their hopes, betrayed their trust

‘Son of the Manse’ by all maligned

My reputation, turned to dust


The curse of Debt: Manchester United

In these past few months, the debt position of the UK has been a much discussed subject. But of course the UK national debt is but a part of the overall debt structure of the country which includes all the private company debt as well.

During the recession some companies have been doing better than others in managing through these difficult times.

One outlier appears in the press today with its results announcement. This is Manchester United, the most successful UK football club of recent years.

Man U has reported a profit today of £41 million, but this alone is less than half of the money they sold Cristiano Ronaldo to Real madrid for. On a like for like basis, their loss is actually £31 million, compared to £13 million last year.

Why is this? Well turnover is up so perhaps they have been investing in the club infrastrucutre? But no, the extension to Old Trafford has been finished for a couple of years.

The real story is one of leverage finance. The owners of Man U bought the club borrowed  a huge sum of money and then mortgaged the club to pay back their loan. As such they have put only a sliver of equity into the business. Now Man U is sitting on at least £600 million of debt, some of it apparently at rates of up to 14.25%; equivalent to borrwing on a credit card.

What is staggering really is that man U have been in the Champions League final twice in the past 2 years  and won the Premier League. They can be no more successful in any meaningful way. Therefore with alll the prize money collectedrecently, their revenues are not going to shoot up skyward from here. Indeed a bad year in the Cup (go Leeds!) and the Champions League and their revenue will fall. Plus they do not have a Cristiano Ronaldo to sell every year.

Now the club are going to try and re-finance by selling a bond that will allow them to re-pay the most expensive debt (with a ncie fee for early repayment no doubt). Good money for the banks involved too.

This is sensible, but having to do this shows how far the clubs finances have been stretched by the use of excess leverage finance by its owners. The need for the bond issue is actually quite urgent to fix the finances; Somehow I doubt Man U will be paying any £80 million transfer fees itself in the near future.

Even with a new interest rate at about half of the current one, the club will still be making debt payments of about £30+ million a year - over 10% of its revenues (which are themselves likely to fall).