Monday 28 February 2011

Some more of your T/shirts.

Superb Green Society effort From Alan, and an excellent bent nine bob note from the biggest Gif on the interweb, Lakelander.

Quote of the day

At the 2005 G8 summit one of the British delegation became so agitated with the Americans over their refusal to go along with aid to Africa and Climate Change proposals that he waved the financial assistance to Africa paper over a candle, where it promptly went up in flames.

The Americans remarked
"Pity it wasn't the climate change text as well. Then we could all go home."

The cancellation of African debts was duly signed up and saved the world's poorest countries about $1.5 bilion in interest. A triumph for the Labour chancellor.

Silver & Oil: Commodities Update

A couple of days ago one of our esteemed anons asked about alternatives for trading the silver market in the current chaotic conditions. We need immediately to register a couple of important points:
(a) we give no advice here & everyone must figure things out for themselves; (b) 'chaotic' is often a good reason for steering clear of anything, n'est-ce pas ?

Anon was raising issues around the potential for physical default if what many judge to be a short squeeze on COMEX silver persists. Anon and others seem to think the situation may be containable in March but could go critical in May. I don't have an opinion on that. But the old question of how reliable is paper? is worth rehearsing again (click on the C@W 'Trading' bar & go back to Silver posts beginning January 11). And here I do have an opinion: if you are hedging against Bad News (my personal reason for being long bullion), and that includes long-heralded market breakdowns - why would you rely on a paper hedge ?

If the answer comes - because it is in backwardation (as it has been recently) - we must immediately retort: of course it is, there's a premium on the physical ! And that's because ... etc etc. Indeed, it is rumoured that some holders of futures are being paid a premium - or 'bribed', as we might say - to accept cash settlement
at delivery instead of physical. Have a look at realized prices vs average 'market' prices (the amusingly-named London PM Fix !) for 4th Qtr 2010 as reported by Hecla Mining - hat-tip Anon.

In any case, the same investors were using paper when it was in contango, which is considered 'usual' for precious metals because they have a cost-of-carry but pay no dividend. I can only presume that people find it so much easier to trade & perhaps more significantly, get leverage, using
forwards instead of physicals. Seems like a lousy trade-off to me.

Anon went on to say:

"My thoughts are Junior Miners for investment purposes, but worries about price discovery exist"

Which brings us to oil, and CU's post of last week. Oil goes up, and AIM-listed oil stocks go down! How can this be?? All I can say is that a couple of years ago I researched the correlation between gold mining stocks and gold itself, and it was very poor indeed.

So disconnected are the bullion markets from precious-metals mining companies, that the spread between the two is a recognised trade!
One of the reasons may be that miners et al are often hedged, i.e. they are not actually exposed to the price of the underlying at all. Then again, just as Anon worries about price discovery, I worry that these bastards lie through their teeth when it comes to disclosing whether they are hedged or not. (This is certainly true of some energy companies, the sector I know best.)

To sum up: the poor correlation between commodities & commodity producers may be counter-intuitive, but when it comes to money, to hell with a priori reasoning - go with empiricism ! Sticking to facts is the capitalist way.


PS if any of this is gobbledegook, give a shout in the comments & I may be able to clarify.

Timing Is Everything

This, just arrived at my in-tray

The first long wheelbase versions of the Audi A8, including exclusive 6.3-litre W12 version, are now available in the UK with prices starting from £60,010.

And that would be oil at, errr, $112 / bbl ... Still, I expect its a very efficient 6.3 litre engine. As engines go.


Sunday 27 February 2011

Quote of the Day

"The regime being imposed on Ireland is utterly unrealistic. A depressed and deeply indebted economy with just 1.8 million people at work cannot underwrite private banking liabilities of €200bn."

Observer Editorial

What on earth do you think you're doing?

Entry from SCAN.

Saturday 26 February 2011

What would Gordon do? {5}

What would Gordon do? {4}

Need a good lines for Dave, Nick, Vince or the Tory-Led coalition in general.
Picture Links and slogans in the comments and we'll post them up.
{family friendly only!}

T/shirt compo entries.

Entries from Annonymous

What would Gordon do? {3}

Need a good lines for Dave, Nick, Vince or the Tory-Led coalition in general.
Picture Links and slogans in the comments and we'll post them up.
{family friendly only!}

Friday 25 February 2011

What would Gordon do? {2}

Need a good lines for Dave, Nick, Vince or the Tory-Led coalition in general.
Picture Links and slogans in the comments and we'll post them up.
{family friendly only!}

6 Nations: Those Rugby Songs Again

As readers will know I have England to win the 6 Nations (and to reach the WC final) which certainly meant whupping the Italians last time, and it also means putting France away this time. Shouldn't be a problem.

So, in festive spirit, altogether now-

Why was he born so beautiful ?
Why was he . . .

(or should that be - Swing high ... ?)


What would Gordon do? {1}

I may have missed the boat,
but I still think there's a market for these.

Need a good lines for Dave, Nick, Vince or the Tory-Led coalition in general.
Picture Links and slogans in the comments and we'll post them up.

{family friendly only!}

Feb '11 Trading Update - Cross Roads of Disaster

A very bad month for the CU portfolio. As readers may know, I don't subscribe to ND's obsession with Gold and Silver; much to my loss thus far. The Middle Eastern crisis has taken a big toll on major investment GKP. More worryingly there has been a huge flight from risk from smaller AIM plays. Some days my portfolio has been down over 5% on the day - a ugly sight indeed.

However, nearly all my share positions are for the long-term now rather than pure trading.

EMED - Waiting on opening their mine in Spain, Copper is at record highs when (and this could be Q2 now having slipped from Q1) they get the go ahead the company will significantly re-rate. Up and down terribly in the mean time.
XTR - Waiting on several drills this year, ANY success will re-rate the company beyond its 5p current trading top.
AST - Good progress but a poor recent statement has scared PI's and the market. Still likely to be successful in its quest to bring online the largest onshore gas play in Europe in Slovenia. huge buy at these prices.
IAE - Solid progress by the North Sea producer. May sell down more as price range top is 190's and it is close. Long term a very safe place for your money and isa-ble.
GKP - Blown to pieces by Iraq protests. Always a big gamble and remains so; but billions of barrels of oil make it worth the continued risk. Current sell-off looks overdone - price held at 133 key support.
CAZA - Onshore US gas E&P, new buy (very poorly timed by me). No political risk and good chances of success. Isa-able
XEL - incredible sell-off despite imminent news of reserves confirmation which will re-rate the company to 600p. Massive short-term buying opportunity and have been topping up. Suffers from flight to risk despite being North Sea play - bizarre.

Overall, I have been 30% at points up this year and now the portfolio sits at exactly 0.01% up. Further market falls will be painful as the shares I have picked are all leveraged to risk effectively. On the other side, a string of good news could see the portfolio up to my 50% target for the year in no time.

Thursday 24 February 2011

Question Time

This weeks question time comes from don't where and will feature we don't know who. But probably a Tory, a Labour, a Liberal, a journalist and a left or right wing weirdo.
{They leave it so late on QT website.}

YOU choose what you think the panel may be asked by the audience. YOU put those guess questions into the comments... points are awarded for accuracy, style, exclusivity, humour and sometimes just randomly. New entrants welcome and judged favourably.

Winner gets to pick whether to pick up UK nationals from the next foreign country to go tits up.

BQ chooses

  1. Cameron the arms dealer is a disgrace to the world
  2. RBS losses would be profits without bonuses
  3. Big Society. Should volunteers be sending a small flotilla to fetch stranded non tax paying oil workers.
  4. Inflation is about to go up even more. rate rise for April?
.I'm going for four questions to pick up the 0.5 bonus. I think Dimbleby nods off about 1/2 way through. Can't blame him sometimes.

Week 7 leader board - 24/2/11 - New Champion.

Malcolm Tucker -- 20
BQ -- 20
Timbo614 -- 18.5
Miss S-J -- 18
Botogol - 18
Hovis - 15.5
Nick Drew --15
Miss CD --13
Hatfield girl --12
Appointment to the board - 11.5
CU - 10.5
Dick the prick -10.5
Anon -9
Budgie 5
Andrew --4
Woman on a Raft -4
Blue Eyes - 3.5
Mark Wadsworth - 2.5
Alan -2

Taxpayers nearly there in RBS

Well the wind is finally blowing a little behind the great taxpayer owned Bank of RBS. The bank has announced its full year results today and is still loss-making; but well on the way to recovery.

Some key points for us taxpayers are that it is making good progress on reducing its interbank lending, good progress on selling off Non Core assets and is profitable in its main remaining businesses (ex-Insurance which it is going to sell).

To come too are the sale of the Insurance business and the close of the deal to sell 300 branches to Santander.

Whilst Ulster losses have accelerated and impairments on loans remain steady rather than falling, all is not perfect in RBS world. Also to make profits the bank is piling into Resi mortgage lending, which is very profitable at the moment and helps the image as there is a perception in the market of a lack of mortgage finance (the price of it is another issue....).

The big outlier is the cost of the Government APS Insurance, the £1.1 billion of this (which is taxpayer profit in effect) is quite a hit to the balance sheet. No doubt management is considering a way to get out of this but in choppy markets it may not be able to do so.

Now the Government can relax a little in knowing that given another year, RBS is going to make a profit and will have finally turned the corner. At that point the Government can start selling down its position as owner; hopefully via public offering, but I somehow think the profit of selling to Qatari's will trump this people power proposition.

Wednesday 23 February 2011

A Capitalist Salutes the Co-op

Democratic capitalism thrives on enterprising people experimenting with new ideas, inventions and business models. So, hardened skeptic that I am when it comes to 'green initiatives', my invective is directed mostly at those who would pour public money that way (certain long-overdue energy efficiency schemes excepted).

And it is a positive pleasure to read that the Co-op is mounting a major green push of their own devising.
Will it work ? No idea. Will any good come of it ? Almost certainly: they seem to be going at it with a will, and they are bound to prove or disprove something along the way - at their own expense.

Well, partly at ours, of course: it's entirely probable they will stick up some subsidy-attracting solar panels or the like. But in a spirit of
bonhommie I'm willing to overlook this and wish them luck. Hell, if they pay me enough I might stick up one myself.

The Co-op is a good place for greens (and carrots ...) We shall doubtless have to put up with more of their loonier outpourings, like their campaign against shale gas.

Never mind. The Co-op's early history was an interesting attempt to introduce a variant on the basic capitalist model, and it has not been without its successes.
Let a hundred flowers blossom: sounds red, sounds sort-of green. And it's a good capitalist principle, too.


Tuesday 22 February 2011

Clegg Compo: And The Winner Is ...

Well the 6 Nations were having a rest weekend, which clearly left plenty of energy for the Suitable Sentence for Clegg. No-one resorted to the obvious expedient of "you shall be taken from here to a place of lawful execution, where you shall have your privates strapped to a wind turbine etc etc" which is just as well because that's not allowed on blogs these days.

The blasts from a well-remembered past were enjoyable: little green giant's granny's not as green as I'm cabbage looking; and Budgie's Heinz Kiosk reference. Pogo's proposal was right on the money as regards macro-economic
analysis, if lacking somewhat in, errr, the green slogan department.

Yes, overall a bumper crop, well done everyone - but not everyone shall have prizes, this is Capitalism, right ? So, without further ado - First prize: winner gets to nominate a feed-in tariff for a power-generating technology of his/her own devising. (Remember how FITs work: the dafter the idea, the bigger the subsidy.) Second prize: a year's subscription to C@W. Third prize: a lifetime's subscription ...

And in 3rd place: Anon @7:18 with The winds of change will generate electricity that is too cheap to measure! This is so close to DECC's actual claims for the benefits of decarbonisation, I am left wondering whether Anon isn't Crapper Huhne himself.

In 2nd: Steven L with Bigger lecy bills, or the Polar Bear get's it! Steven - if only your punctuation had been as good as your instinct for populist prose. But get's isn't a word. Sorry.

And the winner ...

it has green and blue appeal; it ticks all Cameron's boxes (are we allowed to say that? - Ed); it is forward-looking; it is instantly memorable; it perfectly conveys the essence of policy-making by the greenest government ever; it ...

... is Alan with The Big Green Society 2050, work for free & hug a tree. [/ tumult]

Alan, you should be a regular at Mr Quango's weekly QT compo, you will quickly rise in the rankings! We look forward to a highly creative FIT, when you've invented the perpetual motion machine.


Oil Crisis on the Way

As Libya moves towards possible Civil War it is really starting to motor on the fear factor in the Oil Markets. Brent Crude which is used as the benchmark for 70% of trade is up very sharply over the past few days and now at over $107 per barrel.

At over $100 per barrel the price of oil starts causing big dislocations in World Economies. The price of transport goes up and causes inflation, the prices of goods have to go up as retailers can't hold down the rate of margin erosion.

Worse in this case is that the US Dollar will be used as a safe haven. Gold and Silver have gone up, but are not steadying out, albeit at high levels. With a strong dollar and rising oil prices there is no cushion for the World Economy.

As well as hoping the War in Libya can be avoided with Qaddafi leaving for the sake of the people involved, we need the situation to calm down or else the UK and Europe will be pushed back into recession. It maybe that this is the price we will have to pay in the short-term for the benefits of Freedom to accrue to the Mid East in the long-term.

Monday 21 February 2011

Libyan immense bravery reflects badly on UK Labour leadership

It has quite sickened me for years that the UK Government sought to suck up to the madman that is Qaddafi. Thatcher had the right idea for this kind of insane dictator. Blair and his 'moral' compass, along with Brown's ineptitude dragged Britain into Chamberlain style surrender.

However, it is another thing for the people of Libya to try and stand up to a regime that will turn machine guns and snipers on protesters. Quite incredible I have been trying to imagine what I would do in such circumstances - having the courage to protest in such circumstances is beyond bravery.

Hopefully, having seen the latest incoherent witterings from Qaddafi's son, the army will soon see the insanity of backing the regime and oust the Qaddafi family; but all hangs in the balance and there could be civil war as the Qaddafi's have only their money and military might to rely on.

Sunday 20 February 2011

UK Uncut

There are two excellent articles on the pure stupidity of those campaigning against Barclays not paying much tax in 2009; enought that I won't write the details here.

Instead, just to say that the Left's pernicious attack on the big tax paying, people employing, successful businesses is going to go very badly. Firstly, Chukka Ummana is blowing a lot of future contibutions to the Labour party. People won't forget the crazy theatrical grandstanding and they won;t forget who fomented it. One thing for the Marxist unions, another for the Opposition party.

Secondly, what is the ultimate purpose of these protests. People and companies are not going to pay taxes they don't owe. If anything, they might just give up the ghost and leave the UK altogether, taking the jobs with them to places more fixated on the rule of law.

Finally, we do have a Byzantinely complicated tax system. The Accountants and Lawyers are very happy about this as it helps them to advise their clients in expensive and long-winded tomes. Whose silly idea was it to make a really complicated tax system that the wealthy can use for legitimate tax avoidance? Oh yes, it was Gordon Brown.

Where are the protests against him...I think a sit in in his constituency office would be most amusing!

Saturday 19 February 2011

Compo: A Suitable Sentence For Clegg

Seems as though Cliché Cleggy is feeling frustrated at the lack of a catchy green slogan: from the Grauniad

Clegg told the meeting of cabinet ministers they were failing to get across its message that it was "the greenest government ever" because it raises taxes [sic], and that a form of words needed to be found - there is a view the government has been successful on the deficit because they agreed a line and stuck to it. Some civil servant is busy now working up a sentence that encapsulates what the government is doing on green growth.

So - your drafts, please, for a single sentence that does the green business for clueless Clegg.

Prizes next week.


Friday 18 February 2011

Silver Goes Berserk

For those many of you who view the bullion markets with skepticism or condescension, I have to say you are missing something, if only as a spectator sport.

I can't begin to summarise the goings-on: suffice to say that all hell is breaking loose in silver, which is up 7% this week, and nearly 20% since the end of Jan. FWIIW, I am still long, but could envisage some profit-taking soon.

But that's not really the point - it's the backstory. If you are prepared to suspend disbelief for a quiet hour's reading, I direct you to this bravura blog, and a conspiratorial Yahoo thread.

If any of it is true, then something is set to blow. I did say "if" ...


Only the BBC...

...could publish with a straight face this story about unpaid taxes. The too-clever-by-half reporter who has done this story only went and did an FOI request to see how much Councils were missing in underpaid taxes.

As this sorry excuse for a report meanders on it becomes apparent that at less than 2% its well within the realms of tolerance for any system; indeed it notes that 'cultural' issues in Scotland even help push up the numbers.

So the only fact in the story about £530 million is the one used in the headline.

I can't think why the BBC are so keen to focus on people who like avoiding their taxes? I wonder what the rate of non-payment of their villainous telly tax is this year? Last year they seemed to think it was 5%.

Thursday 17 February 2011

Question Time again.

David Dimbleby is joined in Barking by

Vince Cable,{Business secretary.Against the war in Iraq but for a 'war with Murdoch.'}
Yvette Cooper, {Shadow Home Sec, and wife of the lovely Ed. She used to be appalling, having to run from the commons to get advice when she couldn't answer questions from MPs. but has since become a much better performer.}
Michael Heseltine, { former Tarzan. Baron. Millionaire. Cameron supporter... Ageing, but still able to swipe a cub now and then.}
Nigel Farage. {Leader of UKIP, Stunt pilot and supporter of AV.}
and Victoria Barnsley {HarperCollins chief Exec. Businesswoman. Don't know much about her really. She should know her business questions.}

New rule!
As Dimby keeps allowing prattling, some QTs have only 4 questions. Players who only give 4 q's in their comments guesses will receive a bonus 1/2 point if there are 4 or fewer questions.

YOU choose what you think the panel may be asked by the audience. YOU put those guess questions into the comments... points are awarded for accuracy, style, exclusivity, humour and sometimes just randomly. New entrants welcome and judged favourably.

Winner gets to pick the next government U-turn.

BQ chooses

  1. Trees..Save the trees..and U-turns in general
  2. Yoof unemployment..too far too fast.
  3. Big Society. Now Cameron has explained it again we're all much clearer about it...sort of.
  4. Inflation and interest rates. Cooper's time to shine.
  5. European court telling everyone what they can and can't do. prisoners and paedos! Farage wades in.

Week 6 leader board - 17/2/11

BQ -- 17.5
Timbo614 -- 16.5
Miss S-J -- 16
Botogol - 15
Malcolm Tucker -- 15
Hovis - 13
Nick Drew --12.5
Miss CD --11
Hatfield girl --9.5
CU - 8
Dick the prick -8.5
Appointment to the board - 8.5
Anon -7
Budgie 5
Blue Eyes - 3.5
Andrew --2
Woman on a Raft -1

Quote of the day

"Hollywood is the only industry that preys on Wall Street. They make most bankers look like amateurs."

Harry Markopolos,
Madoff whistleblower

Wednesday 16 February 2011

Mervyn King Thinks a Forward Curve is a Forecast

Mervyn King is a moron, and I am very worried. Introducing the latest BoE Inflation Report, he delivers himself of the following tripe:

"In the light of futures prices for energy, food and other commodities, the Committee judges that a reasonable central view is that measured inflation will begin to fall back next year."

Elaborating, the Report states:

"The MPC’s central forecast is conditioned on futures prices for commodities, which are broadly flat. … Energy prices are assumed to evolve broadly in line with the paths implied by futures markets over the forecast period."

Saints preserve us ! Just because the word "forward" sounds just a teeny weeny bit like "forecast" - you know, two syllables, starting with F-O-R ? Would you care to check the evolution of past forward curves - for any commodity you like to mention - and subsequent spot-prices ? Forward curves are lousy estimators of future prices: if they were any good as estimators, who would ever need a hedge ?

Say after me, and then write out one thousand times: a forward curve is not a forecast. And then write out your resignation, in favour of someone who understands how markets work.


AST back in action

(hello, CU has been ill for a week you may not have noticed)

One of my long term share bets has been small European Gas explorer AST. This is a small company with good prospects in Eastern Europe and listed on AIM. It has no political risk so the danger for shareholders is in the execution by management. Sadly, AST has had its fair share of dusters and placings to hold the company back over the last couple of years.

However, the big news for the company was always is current gas drill; an RNS today suggests this has come up trumps. As the detail is less than perfect in the RNS, the shareprice reaction is a bit muted, moving it up to 9p. However, this is a real company maker, capable of more than doubling the shareprice when they get this huge gas find into production later this year. So there is still plenty of upside to come and now is not the time to bale out.

Shares have been a bit off this past month, so great to see some good news for one of the portfolio at last!

Tuesday 15 February 2011

Quote of the day

Channel 4's Dispatches investigates some of the 2,000 Muslim schools in Britain run by Islamic organisations.

"What was striking about the programme { dispatches} was how utterly, utterly alien the whole thing was. Here, in the county of Shakespeare, are children being taught in an environment – in manners, speech, clothes, subject matter and in fistful-sized beards – which is completely disconnected from England.
Ed West
Telegraph blog.

Never, never use 'The language of Shakespeare.'

Especially to try and make a religious point.
The Bard lived in a time of religious terror and extremism. The Armada wasn't coming here for Cowes week.

The Middle Classes & Mr Clarke's Uncomfortable Truth

Since the Blair-Brown spending spree kicked in, any educated middle-aged, middle-class lady at a loose end was able to become a ‘manager’ in the NHS. No formal qualifications, and rather little training required.

Just in case any of them are reading, to put ‘manager’ in inverted commas is not to diss the many ladies of my acquaintance who have followed this course: rather to indicate that the ‘programmes’ they run are, how shall we say, not always delivering bedrock healthcare necessities as would have been understood by Bevan, Bevin or Beveridge.

It’s not just the NHS. Who are the legions of small-firm solicitors who have fed off legal aid in pursuit of fatuous causes ? Of social workers who ensure that all manner of newly-minted ‘human rights’ are delivered ? Middle-class ladies, that’s who.

In other words, as government spending has soared out of control providing all manner of ‘services’ that could not really be described as adding to the GDP of the nation (or even, frankly, its well-being as properly understood), and though the ‘clients’ are frequently of the hoi polloi, as a cash transfer it has been significantly in favour of middle class ladies.

Which means that legal aid slasher Ken Clarke is indeed correct when he says that Middle England has yet to see the full force of what’s coming: disposable income in many a middle-class household is going to plummet - even if the Spectator thinks this is “one of those truths that should go unsaid”.

And for every protesting voice of a ‘client’ who is about to lose his or her service in t’Cutz, there will be another, rather more articulate voice of the about-to-be axed service-provider. The Budget could be very interesting.


Monday 14 February 2011

Cotton pickin' Market Watch

Cotton prices have jumped to a 150-year-high, rising to $1.90 per pound on Friday, more than double what it was a year ago and just ahead of the $1.89 record, according to the International Cotton Advisory Committee.

looks like 10% additional price hike on summer lines, not just the spring ones as we were forecasting at C@W.

"All of our brands, every single brand, will take some price increases," said Eric Wiseman, chairman and CEO of VF Corp., whose brands include The North Face, Nautica, Wrangler and Lee.

Ahh.... BQ's old firm from years ago.

Gaseous Solution

A quick Monday-morning post to start the ball rolling, as we find this encouraging headline in the Grauniad:

"EU could meet carbon targets more cheaply with gas than renewables, say gas firms"

Well they would, wouldn't they ? But it doesn't mean they are wrong: au contraire. And if any clearer sign were wanted that it's a buyer's market in gas just now, I don't know what more you could ask for than a bunch of desperate gas producers paying McKinsey to produce a report of that kind.

Crapper Huhne knows this, of course: as he said back in November -

"Left untouched, the electricity market would allow a new dash for gas"

And what would be wrong with 'allowing' that ? The first dash for gas called upon no public subsidy, was a resounding success, and reduced our CO2 emissions (and electricity prices!) by more than anything else we've done to date - unless you count the recession.

We know his answer. If you follow energy ministers' rhetoric of late, you'd imagine that everything they are doing is driven by security of supply considerations - the last refuge of a scoundrel. The second reason they offer is the unprovable claim to be reducing the price of electricity in the (very) long-term ("when we have decarbonised"); and they only mention decarbonisation as an objective in its right en passant. I wonder why.

Listen, Huhne, if you are so worried about security of supply you could rebuild the Navy several times over with the sort of money you are intending to raise for windfarms and experimental CCS projects on our electricity bills. And a damn' sight more useful it would be. Please, will Osborne intervene to put a stop to this needless inflation-boosting nonsense, soon, for all our sakes?


Sunday 13 February 2011

Quote of the day

"The Huffington Post is a brilliantly packaged product.
To grasp its business model, though, you need to picture
a galley rowed by slaves and commanded by pirates"

- Tim Rutten, LA Times

How unlike our own dear C@W ...

Saturday 12 February 2011

Told You The Russians Like A Joke

And it's not just Gazprom, either: Putin has 'em rolling in the aisles too (if they know what's best for them). Nice one, Volodya !

And on the topic of Putin, nice to see that others are latching on to one of the 2011 predictions made around the New Year lunch-table.

We must treasure him while we still have him.

It's the way I tell 'em

Buddy, can you spare a dime?

Many people know that a bankrupt Germany defaulted on its WW1 war reparations. They were set at about $750 billion at today's prices. Later revised to a more realistic $341 billion and then just before permanent default to a mere $81 billion. It didn't really matter what the loans were set at. Germany couldn't pay them, what with 100,000% inflation and the Wall Street Crash and all. Germany had repeatedly defaulted. In fact the first default was in 1922, just a year after the payments began.

Germany was also forced to hand over coal and iron and steel. It defaulted on those too. In 1931, and after a truly heroic effort it admitted defeat and defaulted 57 years early, having not made many payments anyway.. Keynes believed that default was inevitable as only serious tax rises could have raised the surpluses required to pay off the debt. But that wasn't a realistic possibility in Weimar Germany.

In fact raising taxes to pay off debt was a factor in the 1926 general strike in the UK.
In 1931 the UK still owed a huge sum to the USA for the money we borrowed to fight Imperial Germany and her allies in the Great War. Great Britain had borrowed from the USA and used 85% of that money to finance her allies. At the end of the war Great Britain was owed $8 billion dollars and owed the USA $4.25 billion dollars. {About $50 billion today} In 1932 Great Britain followed Germany and defaulted on those war loans. Forever. We never paid them back.
The USA considered that the world was going to hell anyway and the debt burden was going to mean poverty for all of Europe for decades meaning poverty for America with no other notable economies to trade with.. So, without, too much fuss and grumbling, they forgot about them and retreated into neutrality and isolation, even passing actual laws forbidding the US government from ever getting involved with Europe again.

That was until 1939 when great Britain and France again came knocking on Uncle Sam's door asking for some more loans to re-fight the Great War.

This time the USA stipulated we could have all the guns and butter we wanted provided we came and collected them ourselves and we paid cash up front. This has long been seen by the British as a terrible slight by our close ally.
But from the American's point of view here came the limey's again. Pleading poverty while sailing around in the world's largest fleet, holding a 1/4 of the globe as their export markets, still the world's superpower .. Well the Entente-Cordiale didn't pay for the last lot of loans, {that the US government had to settle with the creditors as the WW1 inter allied loans act had stipulated all loans be only for goods from the USA} and they dragged the USA's armies into that war.
The Euro-powers had insisted on reparations from Germany and Austro-Hungry that the USA was sure would cause financial disaster {it did} and then they rejected all Woodrow Wilson's fourteen point league of nations {forerunner to the UN} proposals.

In 1939 the USA was neutral and forbidden by law {1935 neutrality act} to supply any sides in a conflict with goods or weapons. There was a $700,000 {modern equivalent} fine for breaching the neutrality act.

The Commonwealth handed over all the cash and bonds and gold we had. We handed over territory and promises. Then France surrendered, the major British army was defeated and Italy joined in with the Nazis and their semi partners, the USSR and Japan. UK PLC was looking a pretty poor investment. When the USA was sure we weren't holding out on them anymore, they finally agreed we could have whatever we wanted to fight the Axis powers. And for free. All the ships and planes and bullets we wanted. Heck, the USA would even supply all the ships to carry it all over on.

Some people believe that the USA charged us for all the lend-lease equipment we used to fight the war and made us pay all of the loans for war material and basic foodstuffs back. This is untrue.

The USA passed an act that determined that in a time of crisis it could give anything to anyone it liked and if they returned it , the borrower didn't have to pay. If it was used, like wheat or timber or oil, it was also OK not to have to pay for it. If it was destroyed in combat like tanks or trucks or planes, that was a freebie too. In fact the Commonwealth and the USSR and Nationalist China only had to pay for anything they wanted to keep at the end of the war. Everything else could be returned. In exchange the British empire had to agree to technology exchanges and open up to free trade. Still a pretty sweet deal, because without it the UK would have quit the second world war in December 1940 when the money ran out. An extra sweetener was when the war ended the USA wrote off everything already shipped overseas to Europe, and Britain could pay just 10% of the price of anything that was due to be shipped that they still wanted.

So where does our war debt come from? The UK only recently finished paying off those war loans in 2006. Great Britain had assumed that the USA would keep giving us free stuff after the war. They didn't. This came as a bit of a shock. The nation was bankrupt. A $4 billion loan had to be arranged almost immediately at the ending of Lend-lease {one week after the surrender of Japan.}
The incoming Labour government had just promised a new home and a new hospital for everyone. How to fund all of this and still be a global superpower?

The 1946 post-war
Anglo-American loan was where the UK's war debt came from. Britain borrowed the modern equivalent of $53 billion from the USA and another $15 billion from Canada at a generous fixed rate of 2% payable over 50 years to end in the year 2000.{we were late paying it off having had a few suspended payments in 1956, 1957, 1964, 1965, 1968 and 1976} And as the loan repayments didn't start until 1950, the USA wrote off our owing balance of payments of around $8 billion{today's prices} from the knock-down, 90% off prices at the end of the Lend-Lease, that we still hadn't paid for. Considering inflation and the fixed interest rates, doesn't seem such a bad deal. If only a mortgage could be had like that!

But still..those yanks..OK, so they gave us $435 billion-ish for free in lend-lease, and another $65 billion at 2% but hey, they did make us pay for all the things we bought in 1939 and 1940. .. 'Special relationship' guys.. how about some more easy loans?'
There wasn't another easy loan. Instead there was the Marshall Plan.

The Marshall Plan was a US foreign aid program firstly designed to stop Europe collapsing into the poverty and anarchy that had followed the Great War, and secondly to check the spread of communism. All European countries were eligible for Marshall aid. The USSR refused any imperialist dollars. Shattered Germany rebuilt its industrial economy to become modern West Germany with this money. Former Imperial Japan rebuilt its industry too with money from a separate aid program for the Pacific. France built its modern public transport and power generation facilities.

But the largest recipient of 'foreign aid' was the United Kingdom. $3297 {millions} out of a euro pot of £12,731 at 1948 prices. {$46158 millions at today's prices.} Germany, the industrial powerhouse for the next 60 years, got a little under half. $1448. This was foreign aid. There was nothing to pay back.

Bit of a myth about the conquered axis powers being able to rebuild their completely flattened economies while the UK shouldered the debt burden for WW2 and so was stuck with its obsolete factories and transportation. We had the money, far more money, than anyone else. Almost as much as France and Germany combined.

Where the hell did all that money go?

Friday 11 February 2011

A Eurocrat With His Brain In Gear

Here's a graph to marvel at: it's the DECC modeler's view of how UK CO2 emissions will decline in the business-as-usual case. Impressive, huh ? A 60% reduction over 20 years and set on a downward trend beyond that - quite a contribution to cleaning up our act. So why is Crapper Huhne insisting we reduce emissions still further - by 80%, no less over the same arbitrary period - at astronomical expense?

Partly, I'd say, it's because he's a machine politician and he was set on by hug-a-husky Cameron to do just this. Just as with new nuclear power - which before the election he gave good reasons for rejecting - like a good soldier he's happy enough to go against his better judgment if that's what he's told to do.

But when it will be pain every step of the way, there is something willfully perverse about pushing even harder than your orders require. For Huhne is pressing Europe to adopt an even more extreme target for the earlier milestone of 2020 (a 30% reduction) than is required for the UK to meet its self-imposed 2030 goal (20% by 2020 is all that's needed to achieve 80% by the later date according to the same DECC modeling). In other words, he's not just lobbying for everyone else in Europe to follow us down this steep, rocky and most probably infeasible path (which one could understand: we might as well enjoy some fellowship on the long road to Hell). He wants us all to go further still.

Which is where the good Günther Oettinger comes in. Reported by the Grauniad:

The EU's energy commissioner dealt a heavy blow to member states that have been pressing for a target of slashing emissions by 30% by 2020, against the current 20%. He said the tougher target would force industries to move to Asia. "If we go alone to 30%, you will only have a faster process of de-industrialisation in Europe," he said. "I think we need industry in Europe, we need industry in the UK, and industry means CO2 emissions. We are willing to go to 30 % if big global partners will follow us, but if not we won't."

Herr Oettinger is from a land where they treat industry with the respect it deserves. Plenty of people advocate scrapping Vince Cable's Business Department and him with it, but if there's one last thing he should do before he packs his bags, it is to point out firmly that the only way these targets will be met is with wholesale de-industrialisation.

Oh, and of course with a net increase in CO2 emissions, which is the ghastly irony. Such large-scale manufacturing as remains in Europe is pretty energy-efficient these days. Which is more than we can say for a lot of the overseas industries that will cheerfully step into our (foreign-made) shoes.


False Economy - False Premise

The TUC backed False Economy is in denial. Denial about the need for cuts, if not actual deficit, denial. Steven_L highlighted this at at the Squeeze blog.

He supposed that between 1950 and 1979 the UK was benefiting from friendly, soft loans, made by the Americans. And he is absolubtely right. The cold war was on. The USA needed its liberal allies to be able to afford at least some sort of armies to defend themselves. Western Europe wanted to spend all the money on healthcare and schools instead of tanks. So the US allowed soft loans to let their overspending allies have guns and butter. But mostly butter. That lasted right up until the IMF came in as a result of the Americans having had enough of socialist experiments and calling in their markers.

The IMF crisis wasn't triggered by the lamentable state of the British economy, although that hardly helped. It was markets saying 'Good-bye Great Britain" that caused investors to lose confidence and the pound to slide until the humiliating loan become necessary. That does not appear to be mentioned by False Economy. It seems the graph doesn't show a problem with Britain's long term debt in 1976 either. Nope. The crisis that tipped the country into meltdown doesn't really get a mention. FE seems to believe that the markets aren't much of an issue. These are the False Economy graphs. And pretty economical they are.

UK national debt 1990-2010

We can see that while the national debt is higher than it's been for some time, it's still lower than it's been for most of the last century.

Not really. Not in the last 40 years.

Here's a chart showing national debt in 2008 for a range of prosperous countries.

National debt in a range of prosperous countries

Again you can see that there is nothing special about the UK's debt when compared to other countries.

And there are two other important differences between the UK and those in much worse circumstances.

  • First more than 70 per cent of UK government debt is held within the UK by things like pension funds. It is a mistake to think that our national debt is all owed to other governments or foreign speculators.
  • Secondly UK debt is more long-term than many other countries. On average our debts have a pay-back period of 12 years. Countries like Greece need to keep paying back debts and are forced to borrow more to make up for that. The UK does not face any problems refinancing its debts.
All these figures are at odds with other sources. Wikipedia alone has the USA 1st and the UK 2nd as the world's most externally indebted countries. The UK by 416%. of GDP. The CIA world factbook on public debt has the UK running slightly ahead of Germany. That's Germany who bailed out the EU and fairly recently had to do a rather expensive reunification. Norway is a long, long way behind the UK . There is no mention that Japan has had 20+ years of stagnation.

And why do the data only to 2008? Its 2011 isn't it?
Is it because UK national debt soared beyond the stratosphere after 2008?

National Debt as a % of GDP increased from 30% in 2002 to 37 % in 2007. This was despite the long period of economic expansion. From figures published September 2010, UK public sector net debt was £952.8 billion. (or 64.6% of National GDP) – Source: Office National Statistics.

Wouldn't want to show the national debt is now TWICE as bad as the piddly graph shows would they?

Using a historical context to say 'everything is fine..we've done it before' seems incredibly naive. There is no cold war. There are global markets. We aren't a superpower anymore. There is a European Union. The American's may decide they don't want to bail us out for a fourth time. Times change. The UK hasn't always got away with it before. There is no guarantee it would do so again. The consequences that the Irish/Greece economies have had to face are not considered. False Economy is just False Hope.

I suggest that the Squeeze's conclusions are mostly right and that False Economy's are mostly wrong.

Also missing is any mention of Britain's total default on its WW1 war loans, the Anglo-American loan of 1946, Lend-Lease or the Marshall Plan that all effectively bailed out the nation one way or another. But that's history, and history we leave for the weekend.