Tuesday 31 July 2012

Capitalism Neutered

Here's a reflection of the state of British business in 2012.  As part of a barrage of favourable coverage of Centrica (8 pieces in 3 days), the ever-reliable Telegraph faithfully copies out a press release announcing:

Centrica and GDF Suez are to develop a major North Sea gas field, creating up to 4,000 jobs, after the Treasury handed them a tax break... The companies will invest £1.4bn in developing the Cygnus field, about 100 miles off the North Norfolk coast, and said 80pc of that would be spent in the UK.  The Government’s new tax allowance will apply to income from shallow-water gas field production, such as the Cygnus field. It will exempt the first £500m of income from a 32pc tax, saving the companies £160m. Centrica, which owns British Gas, said the tax break would “enhance the economics of the Cygnus project”, enabling it to proceed with the development ... Centrica said the allowance would enable it to proceed with the development of the Cygnus project, the largest gas discovery in the Southern North Sea for 25 years.

Cursory research into the Cygnus field reveals that is indeed a biggie - anywhere north of half a trillion cubic feet of gas, maybe 2 TCF.  It's in two geological intervals, the Leman and Carboniferous sandstones; in shallow waters; and can be tied back into an existing platform and pipeline system.  Most readers won't know the significance of this, so let me assist.

Firstly, 0.5 - 2 TCF makes it one of the largest gas fields ever found in UK waters - absolutely huge.  Fields of this size have supported the development of whole new platforms and pipelines to the shore, at times when the price of gas was very much less than today's, and drilling technology was considerably less effective.  Fields substantially less than one twentieth of this size have been developed profitably when they can piggy-back on existing infrastructure like this one can.  The Leman sandstones are very productive and contain gas of excellent quality.  The Carboniferous can be a bit more problematic, often with relatively high CO2 content, but the existing infrastructure that Cygnus will be utilising was designed to cope with it.  And shallow water naturally makes for easy drilling etc.  So on every count, Cygnus is going to be Very Profitable Indeed.

In other words, we can be 100% confident that developing Cygnus is a complete no-brainer for Centrica and GDF, and requires no tax break of any kind.  It is nice of Centrica to say that Osborne's largesse will “enhance the economics of the Cygnus project” - well of course ! - but to pretend that this is what allows the development to proceed is grotesque.

But hey, this is business in 2012.  You stomp down to Whitehall and announce that you will hold your breath until you go blue in the face, unless someone bungs you a sub. The civil service, always a sucker for a bit of special pleading, assures the childlike minister that a sub is indeed called for: it is promptly trousered and the company gets on with what it was always going to do anyway.  Centrica has form; but everyone is learning the game, and of course the nukes and renewables are even worse offenders.  The corporate version of the dependency culture, with a similarly debilitating long-term effect.

This, I suppose, is what you get when ministers have absolutely no real-life experience whatever.  Osborne, we know about; and as for energy minister Ed Davey: As a teenager he worked at Pork Farms pork pie factory and at Boots. In 1989, he became an economics researcher for the Liberal Democrats. 

And there you have it. Pathetic, really. 


Monday 30 July 2012

The canard of lowering interest rates

I have noticed of late the growing calls for further cuts in interest rates. Now, as I have a rather timely bought tracker mortgage this would be welcome on my own part; but really this is economic delusion of the first order.

If low interest rates are the answer...what was the question? Well, we have a balance sheet recession where there is far too much debt built up in the system. Lower rates would in theory help to give more time to those who need to repay their loans.

Even the Bank of England has not been convinced that this is the way. The reason for this is the Japan style liquidity trap it creates. Firstly, with no interest to be gained, nobody saves, this leads to less bank deposits - so banks hoard more money and make fewer loans. This is a liquidity trap. Secondly in the liquidity trap, because rates are so low, banks can't make a decent return anyway, so further adding to their desire not to lend. Finally, Quantitative Easing means they can make a nice small amount of money by just swapping monetary instruments with the Bank of England - so why bother with the real economy and real lending?

As if all this is not bad enough, if you are small lender like a Mutual, struggling to raise cash and having to offer high interest rates to attract depositors- whilst having no access to QE money - then you are finished as you can't raise money at 0%. We have already seen the decimation of the Mutual industry and this would probably spell the end for many Mutuals - how does that tally with the Vickers report aim of making banking more competitive?

And of course say you are a saver, this reduction in rates is very penal, rates being already far below the inflation rate which is likely to start going higher again son as food prices and Oil & Gas go up during the course of this year.

Interest rates are not the problem, the problem is too much debt to be serviced; this needs to be written off and the economy made more flexible. Maybe lower taxes would be a better way to provide the money to repay the debt or to reduce regulation so that new businesses may grow and prosper. The time for propping up the sick by juicing their rates is long-gone. It's time to face reality not try to resuscitate the debt patient.

Saturday 28 July 2012

Well?...What did we think?

Well? The opening ceremony?
A fantastic celebration of Britishness? Or a mish mash of ideas and themes?

It would be a brave person who criticises the ceremony. Its been well received, as it must always be.
I watched it all and ... well...for me ..it was, erm... 

I thought the forging of the rings was excellent. The rising towers was great, if a bit sinister. Branagh was terrific. I thought James Bond and a parachuting her majesty was a clever and amusing and unexpected.
But then..well..

Today the TVs and Radio are all talking about how proud the ceremony made us.
Not sure it made me proud. It wasn't the usual state choreographed, flag waving nationalism, uniform, march of history, festival of dance and military power.

It was certainly 'out of the box' thinking. Dancing Voldemort, TV shows, Mr Bean, Hospitals and some sort of phones4U number in the middle. I'm still not sure. I THINK I liked it.

The kids definitely did.

What did you think?

Friday 27 July 2012

Mr Draghi, are you wearing any clothes?

Markets have recovered off the back of ECB President Mario Draghi saying he will do everything to defend the Euro.

The thing is:

1) The ECB can't do much more without further agreement from Germany
2) Germany is on holiday
3) The problems in Spain and Greece can only really be fixed by a massive devaluation via Quantitative Easing - Germany will not agree to this.

So..what exactly is Mr Draghi going to do - what is his bazooka in the modern finance parlance? It is not QE or use of the ESM monies to buy bonds because he is not allowed to do this.

perhaps it is more Bond buying, this in the medium term is nuts. The ECB is going to own all this peripheral debt when the balloon goes up and be seriously bust as a consequence. Who can bail out the ECB when it has already called on all the funds of the Eurozone?

I think this statement yesterday, as much as it rallied the markets, sounds like the last throw of the dice to buy some time over the summer. I wrote earlier this week that August will be critical, its still looking that way.

Thursday 26 July 2012

Should we prick our bubble yet or sack George?

One of the main causes of the UK recession is our attempt to prevent a depression. By lowering interest rates we have stopped the property bubble from being pricked. Thus people are paying their low interest rates on their mortgages and not selling their houses. Lack of supply means that pent-up demand coupled with low building rates is keeping prices high. Plus new buyers have to save more for deposits and

as regulatory change has made the barrier to entry even higher - the days of 125% mortgages seems like a lifetime ago.

Overall, property debt is falling as people in the UK pay off mortgage debt - but this debt pile is enormous and the price of paying it down is the current, long, recession.

By not pricking the bubble, we are left instead with a slowly deflating economy - is this preferable to a crash and boom?

In the US, the ability to walk away from housing debt, in the form of jingle-mail, meant the housing bust has been very bad, but the economy has recovered quickly. In the UK we have a Japanese style zombie economy, caused to a large extent by banks sitting on assets with impaired values that they won't sell becuase the loans are still performing (i.e. payments are being made as the interest rates are low, the banks are still losing money though, as these rates offered in the past are below the banks cost of funds today).

It's easy to say sack George Osborne, but as much as he has made many errors, often by trying to raise taxes, his basic mantra that you can't borrow your way out of a financial crisis is sound. Spain is trying that, the USA is trying that - their national debts are going up much faster than ours, their economies performing only slightly better.

But is a bust the answer? I am not sure myself yet as it will be horrible. Chances are with the euro-crisis we will find out the answer in due course.

Wednesday 25 July 2012

The Chinese Are Coming, Part 94

I have a feeling we know how the comments thread will run ... but here goes, anyway.

Yes, not content at coming over here with their blandishments of shiny new nuclear power stations and marrying our electricity industry, the Chinese are buying up the North Sea.

Well of course they are.  Rather them than the French, eh ?   They are becoming Proper Players (these look like serious acquisitions), unlike the Russians who simply try to sucker people into their dark alley-ways and then mug them.

Let's not forget either, the recent Chinese acquisition of the LME.  I am told by my friends in the bullion industry that these busy Chinese chappies are planning to build gold smelters (in the East), and - here's the interesting bit - are applying for accreditation by the LBMA for the coveted London Good Delivery standard (the gold standard, indeed!) that is recognised worldwide.  (Most accredited smelters smelting, incidentally, are Swiss is done in Switzerland** see note below )  Not that any of the newly Chinese-minted bullion is likely to find its way physically to London - oh, no, it is intended for the Asian markets, the usual destination in a one-way global flow which transits London as the principle trading venue.  And London takes a substantial turn.

See, direct physical control isn't everything.  But as ranted here before, by all that's holy we need to defend what's left of our integrity.  Osborne, this starts with you - Heaven help us.


** Correction, courtesy of Timmy in comments.  I believe it's correct now.  But the Freudian spelling mistake stays! (h-t dearieme)

Tuesday 24 July 2012

Spain considering the endgame?

If we remember all the way back to last year, we will find that a European crisis is often very likely to happen in August. Policymakers are sat on a beach somewhere and there is no one to mind the till. Similarly markets have low volumes so any high volume days have a disproportionate effect.

August is a dangerous time, 1914 and 1939 are not propitious either.

And now we have the end game of the euro-crisis, at last, because wow have the politicians managed to string this out and waste billions, maybe even trillions of euro's in the process.

With Germany backing out of its agreement to bail-out Spanish banks, the price of their 10yr bonds has collapsed to well beyond crisis levels.

At 7.5% to borrow, the Spanish are not going to ever balance their budget. No Country could at that level for the kinds of amounts Spain needs. Add that to 24% unemployment and its time for something serious to be done.  Time to really consider leaving the eurozone.

The only decisions really needs to be around timing and stability. Clearly, all the Spanish banks will need recapitalisation and it will be in the interests of the IMF and Eurozone to make sure this happens, also a new currency needs to be stabilised. the traditional way would be a dollar peg and that maybe something to consider - although the argument for letting the peso find its natural spot is a strong one.

What will be interesting over the next few weeks is watching Germany lose its power. From bully to co-operative as the Spain and then Greece decide to take a nuclear option - this means so much pain for Germany and top avoid the worst effects they will have to co-operate.

How all this works out in the political system of the EU is just too hard to forecast. But without Quantitative Easing from the ECB there does not seem a way back for Spain.

Monday 23 July 2012

Nightmare on Threadneedle Street

A prediction. Since the LIBOR scandal merged into the money-laundering scandals merged into various mis-selling scandals it becomes increasingly clear that the compliance function in many a bank has become deeply, hopelessly compromised. 

(We know how this happens: bullying bastards like Fred or Bob or Jim or big-swinging Dick make it quite clear they don’t wish to hear from risk-managers or financial controllers or auditors or compliance officers because They Are All Nay-Sayers, bent on disrupting the pure flow of commercial genius and the rich personal rewards it deserves. Said controllers generally know what is going on; but they are only human, and fairly well paid to find creative ways of turning the blind eye – indeed, sometimes even joining in with the great game of fleecing everyone in reach.)

Now: here’s the prediction. In the absence of an effective compliance framework, quotidian rule-bending for financial gain must inevitably sometimes have merged seamlessly into serious, purposeful, creative crime. I predict that some really substantial outright thefts and frauds by bankers will be revealed in the coming months. 

I don’t mean big losses racked up by ‘rogue traders’, or lazy haircuts inflicted on pension-funds, or laundering the shady revenues of Mr Unscrupulopoulos – all of which are bad and costly enough. No, I mean naked billion-dollar thefts. By bankers. Like what Andy Fastow did in Enron – but magnified in proportion to the vastly greater means a bent banker has at his disposal when Compliance has become accustomed to looking the other way. 

The shocking thing is that in the UK, for the last 5 years (another Balls-Brownite innovation) the ill-informed and under-resourced Inspector Knacker has officially stepped back from involvement in cases of fraud by banking staff, whose employers are generally able to avoid criminal investigations provided they compensate customers in full.   Not good enough.

Watch, and shoot. Watch, and shoot. 


Friday 20 July 2012

Reshuffle {2} Who's not fit for purpose?

Not many people fancied Ken Clarke for chancellor on the last reshuffle post. But even fewer wanted George Osborne to continue. So Ken gets the job.
With reader apathy in play about what useless politician should get what non job, we'll skip on down past the list of ministers for nooks,crannies and corners. Ministers for Country and /or Western, etc, straight to the important ones.
Home Secretary Theresa May has not done well. She started brightly. Promised to cut police red tape. To make flabby cops get out from the admin block and onto the beat. Inflict tougher sentencing for menaces whilst in possession of a hoodie. It all came undone quite quickly.
The 'Tough on Crime' platitudes sounded a lot less convincing 15 years since they were first expertly, but insincerely, announced. Before long the ECHR and their poster boy, Abu Qatada, was making the UK look foolish. Mrs May looked particularly weak and  incompetent when her department didn't know what day of the week it was. Soon she had the immigration head in tears and arrivals desks with queues stretching all the way to the original departure country. Illegals absconding. Student disorder. Uncontrolled rioting. Full prisons and all the usual Home Office 'not fit for purpose' failures.
Mrs May has not fought her corner well. Shocked as I was to discover the super generous rates of pay and incredible pension deals of the police force, it is still an Olympic year. There had been the worst riots in 30 years. Public order protests are on the rise. Not just the usual tambourine band, free Pinnochet save the eels types. Serious, union backed and organised marches. All poised to disrupt the nation. And there have been a new band of 'Swampy' old style, hippy, campus sit ins.
Yet the police had to take a substantial, and wholly unwelcome hit from the public spending cuts. They did not react well. Theresa seemed unable to convince them that it was in their own interests. That if every copper got a £80,000 pension for 40+ years, police costs rise above budget, it would leave no police to police. Our police force would be a retired one.
Elected chiefs. Changes to hours. Changes to rest periods and a monotonous and largely disbelieved refrain from the home office that these cuts should have no impact on front line policing.
As in every public sector organisation, the bosses decide where the cuts come from, not the minister.
Certainly no cuts to the Chief constables Range Rovers. Not the all important diversity and equality unit. Not to the fishing teaches patience training days. But to somewhere where it hurts. Why she ever imagined it would be any different in the police as opposed to a district council is a mystery.
Now, the police really should have to trim their budgets. Should be made to face up to the pension reality that has been ignored by all parties for 40 years. But they should have had some leniency. Some capping of their cuts. Same with the border force. If you want people to present a shining example of a modern democracy to millions of Olympic tourists, its probably best not to axe jobs, take pensions and raise retirement ages first.
Anyway.. with cuddly Ken in the treasury, who could take her place?
Another woman would be politically preferable. The last two having not performed so well, the ladies now need a big success for the feminist cause. But a look at the current cabinet shows just five women. Four of whom { Sayeeda Warsi, Caroline Spelman, Cheryl Gillan, Theresa May} will be very lucky to keep their jobs in a reshuffle. And if they do will only be because it would bring up the misogynist Dave tag again if he knifed all his babes.
So that leaves neophyte, but capable, Justine Greening. Currently at transport following Phil Hammond's promotion after the Fox affair she was formerly a junior at the treasury. It would be a huge, huge promotion.
Well...she can't do any worse than May or Smith, can she?

Thursday 19 July 2012

Casual lies of Chuka Umunna

The thing with politics in this country at the moment is the more that politicans grandstand, the more they expose themselves to scrutiny and the less they stand up to it.

Let's take a small example in last night's Evening Standard. Left-wing Chuka Umunna has some dark things to say about the Banks and the current crisis.

"Barclays is the tip of the icebarg"
 "absurd to pretend Gordon Brown was regulator in chief",
 "the Amercians are saying there is a London Problem."

Strong stuff, controversial (at least the bit about Brown) and nicely populist. Only then he casually says that in his life as a corporate lawyer he found it weird to be involved in telephone number deals in the 1990's and worried about the leverage.

Now this bit is total lies from start to finish. Firstly, he did no even leave law school until 2001. So working in the 1990's? Really?

Then, he was not a corporate lawyer, as soon as he qualified at Herbet Smith he became an employment lawyer. These are not lawyers dealing with telephone number mega-deals. Possibly multi-million claims if for City Bankers, but generally nothing like that. Just compromise agreements and avoiding tribunals. Plus he left high flying Herbet Smith for a smaller firm pretty soon after qualifying in any event, who would not even have been dealing with such high profile cases.

Finally, he was worried about the 'leverage' - well in the 1990's this was not an issue and neither to my knowledge is it a big factor in employment law. So if he was worried it was in a personal capacity, but that is not what he was implying to the journalist.

So as per usual, a politician is spouting iff, accusing others of wrong-doing and worse, whilst at the same time casually mis-remembering their own career to suit their current viewpoint. Something that a shufty at his own faccebook page can confirm.

Really this guy is supposed to be a rising star? He is a third rate demagogue at best.

It's The Guardian for a Real Belly-Laugh

Here is a truly wonderful Grauniad treat.  They publish a piece on an experiment to reduce global warming in a controlled, scientific manner.  

Two Harvard engineers are to spray sun-reflecting chemical particles into the atmosphere to artificially cool the planet, using a balloon flying 80,000 feet over New Mexico ... to replicate the observed effects of volcanoes that spew sulphates into the stratosphere, using sulphate aerosols to bounce sunlight back to space and decrease the temperature of the Earth ... "solar geoengineering** could be an inexpensive method to slow down global warming"

Having waved the red rag and lit the blue touch-paper, they stand back and ... let the CiF comments roll !  

Page after page after page of utter garbage !  (with the odd intelligent comment for good measure).

If one could be bothered, there is a serious bit of sociological work to be done with that comments thread as a primary source.

Or we can just ROFLOAO !  Go, Grauniad !


** PS, there's more canny geo-engineering where that came from ...

Wednesday 18 July 2012

UK Infrastructure spending is the beginning of a very long journey

As the first nation in the world to industrialise, the UK also has a legacy of needing to upgrade infrastrcuture that is in place. It's much cheaper when you start again. The German example of post-war building and China to day show what you can do when you start with modern methods in a fresh start.

The UK has also historically always underspent on infrastructure and under-planned its requirements. The political system enables all hard decisions to be put off. For years here we have written about non-decisions on nuclear power, new runways or a Servern barrier. Governments of whatever colour can easily decide on a a review that handily will not report until after the next election.

And when big decisions are made like the channel tunnel or HS2 planning laws, NIMBYism and apathy mean it is all very contentious and takes an age( mind you the Channel Tunnel did go bust o maybe the naysayers had a point...). Smalller projects fair better, enabling schools and hospitals to be replaced, albeit at eye-watering cost via PFI.

So the Government's decision to try and pump some more money into infrastrcuture spending is a good idea whose time came about a year or two ago, still better late than never. Although, as the Government has no money they are trying to be it by selling an soververign gaurantee insurance rather than direct spend. Whether this will entice private comapnies determined to hang onto any cash we will see.

Plus of course, so much of Government spending is not this type of capital investment. Billions go on social welfare, including the crazed tax credits, billions more on pensions and also the NHS. In effect the Governemnt has become a huge mechansim for redistributing wealth, not a mechansim for delivering a dynamic economy that grows and offers opportunities to all. Education, Infrastructure and Law and Order are the key components of a growth focused economy, but they are not the focus of Government spending.

Until this is remedied Britain is going to remain stuck as a low growth country; enduring a steady decline in living standards and economic prospects.

Tuesday 17 July 2012

Scottish Corproate Financial Blackmail, again

In 2008 we had the sad sight of a Scottish UK Prime Minister firstly bailing out the bust Bank Royal Bank of Scotland and then, allegedly, pushing the other bust Scottish Bank, HBOS into a disastrous merger with a healty Lloyds Bank.

As said at then and since, these banks were 'too big too fail.' The cost of closing them and the losses which would be incurred were deemed to great to bear, so instead £160,000,000,000 was handed to them in the way of guarantees. Half of this has now been paid back or withdrawn. The Government has also put in place legisaltion to ring-fence banks so that hopefully we do not get into the situation again of having Banks that are too big to fail.

By comparison, yesterday's vote by the Scottish Premier League is in financial terms a pittance in comparison. What is interesting though is the language used to defend the actions of Rangers Football club. The 'Newco' (Sevco) formed to takeover from Rangers wanted to stay in the Premier League and tried to hold the clubs to financial ransom - or at least make them overly aware of the consequences of not voting them a free entry. The fact that Rangers had over spent and effectively cheated for years using financial doping, the same way that RBS and HBOS has splurged on leverage, was neither here nor there.

In fact the new club, Sevco Scotland, have been at all the votes and trying hard to influence them - despite not being registered and by all rights the share that the SPL have should have been removed on the 4th of July. The clear financial implications have been spelt out, with 90% drop in prize money one of the outcomes. It is to the credit of the other clubs that they ignored this and voted to do the right thing by exiting Sevco and I hope they can deal with the consequences

It does not say much for the organisation of the Scottish game that such shenanigans are allowed, but the prospect of so much lost money tends to overide thoughts of principle - as my colleague Nick Drew often discuss on this blog. Players who have left under TUPE, improperly enacted, are even being threatened with being sued by the Newco (a very tenuous legal effort I was think) for example.

This is a sad episode, not that the story of my own team Leeds is much different south of the border, but it bodes ill for Scotland as a whole that such a sorry mess can engulf one of the Countrys best known institutions.

Finally, what for Scottish Independence? As regulars readers will know I am a big fan of this, living in London and wanting a smaller military role in the World for the the Scots going their own way makes sense, taking their mad socialism with them. But with many of their major private institutions wrecked by former Directors will this have an impact on whether the Scots people trust themselves to govern and regulate effectively under their own steam?

Monday 16 July 2012

Everything's Fixed!

Oh My God! What a Monday. Over the weekend it appears that politicians across the US and UK have realised that,well, market fix prices. Worse and almost unbelievably, people could conspire to try and fix things for their own ends.

This earth-shattering news come at a difficult time. Already Politicians and Regulators have been caught bang to rights in causing the Great Recession we are enduring. Now of course they are seeking to deepen the crisis as much as they can by keeping the euro and refusing all monetary approaches to trying to return the economies of the West to growth.

In the UK, the Leveson enquiry has not been enough to make people forget the stain of the political expenses scandal and the new Libor investigation is trying to see to that.

But now the focus is on expanding this. Many prices in the world economy are set like LIBOR. Nearly all commodities have benchmark pricing, Gold and Silver too (mind you, with allegations of real corruption here this is perhaps one set that could do with an investigation). Indeed, asking market participants for their pricing input is, um, how you would get a price out of a series of private players.

Of course, there are suspicions this is open to abuse, it is why there is much disquiet in the city over the Chinese takeover of the London Metal Exchange. The rise of hedge funds as key players in markets trying to fix things for their own ends is nothing new (see Armajaro Holdings and the Chocolate Finger), It does need to watched and regulated.

Equally though, wantonly saying that most of the Western system for benchmark pricing is corrupt is rather silly thing to do. Just like saying all our banks are bust and crooked. This has not helped the economy recover nor done our reputation any good - in fact things just keep getting worse as the double dip recession proves.

More importantly though, rent-a-gob politicians get to lightly grill some executives from the City in the House of Commons or Congress and get in their class-war inspired jibes about how horrid these people are though. And it distracts from the calamitous decision-making of US and UK regulators and politicians - whose reputation must be upheld above all others of course.

Saturday 14 July 2012

History Corner: End of an Era in British Intelligence

Yesterday marked the passing of an era for a little-commented cog of a very effective British intelligence machine: the disbandment of JARIC, the Joint Air Reconnaissance Intelligence Centre at RAF Brampton near Huntington.
JARIC handled the analysis and interpretation of aerial photography, primarily for military purposes but also for such tasks as trying to identify graves on Saddleworth Moor, tracking the progress of Dutch Elm disease and finding all the bits and pieces at Lockerbie.  With the advent of satellite photography there has been no part of the world that cannot be investigated from above on a clear day; and with infra-red and radar sensors, even cloud cover is no protection.

Large-scale use of aerial photography began in WW1, despite Haig's declaration that "none of you gentlemen is so foolish as to think that aeroplanes will be able to be usefully employed for reconnaissance purposes in war.  There is only one way for a commander to get information by reconnaissance and that is by use of cavalry".  He was very wrong.  However as in so many spheres, the tremendous developments made in WW1 were allowed to lapse in the inter-war years.

JARIC's origins were in a private initiative (of course!) in 1938 by a company called Aerofilms Ltd, which set up the Aeronautical Research and Sales Corporation to conduct clandestine aerial photography over Germany on behalf of the UK and French governments.  The Air Ministry formed a small photographic interpretation branch in the same year, and when war was declared the whole operation moved onto a more formal footing, albeit - as with so much early British effort in WW2 - still on a very modest scale.  

In 1940 Aerofilms was awarded a contract to set up a Photographic Development Unit (Intelligence) at its premises in Wembley, and through various evolutions in 1941 a powerful tri-service Central Interpretation Unit was established at Danesfield, a fine old house near Medmenham on the Thames.  Bletchley Park rightly gets much attention for its code-breaking work, but Danesfield House is far less well remembered, even though its work ranks in the same league, particularly its efforts of 1943-4 when it discovered the V1 and V2 launch sites (Operations Bodyline and Crossbow), and contributed half a million man-hours (and woman-hours) to preparations for Overlord.

In 1947 the CIU became the Joint Air Photographic Intelligence Centre (JAPIC), and JARIC in 1955, moving to Brampton the following year.  Technical requirements for the work by then required specialised buildings, and the fine house at Brampton Park served only as the Officers' Mess.  The 56 years at Brampton saw extraordinary technological advances and massive intelligence efforts in support of the Cold War and several hot wars, frequently in close collaboration with the US.  Many of the stories are yet to be told: suffice to say that Google Earth isn't an entirely original concept.

And the future ?  The functions carried out by JARIC are being transferred to a new unit - and apparently rather fine facilities - just a few miles away at RAF Wyton.  (Google Earth allows us all to conduct a close inspection from above! - what a delightful irony.)  The new unit combines aerial imagery analysis with military surveying, map-making and other related functions, and glories in a truly 21st Century name: the Defence Geospatial Intelligence Fusion Centre.  Good luck to all who sail in her.


Friday 13 July 2012

Missing Bob already...Friday sermon

A priest dies and is waiting in line at the Pearly Gates. Ahead of him is man who is dressed in chino's, a club jacket and a Chelsea scarf.

Saint Peter addresses this gentleman, "Who are you, so that I may know whether or not to admit you to the Kingdom of Heaven?"

The guy replies, "I'm Bob Diamond, famed Banker."

Saint Peter consults his list. He smiles and says to the man, "Take this silken robe and golden staff and enter the Kingdom of Heaven."

The Banker goes into Heaven with his robe and staff, and it's the priest's turn. He stands erect and booms out, "I am Joseph Snow, pastor of Saint Mary's for the last forty-three years."

Saint Peter consults his list. He says to the priest, "Take this cotton robe and wooden staff and enter the Kingdom of Heaven."

"Just a minute," says the priest. "That man was a Banker-- he gets a silken robe and golden staff but I, a minister, only get a cotton robe and wooden staff? How can this be?"

"Up here, we work by results too," says Saint Peter. "While you preached, people slept; his clients, they prayed."

Thursday 12 July 2012

Pick a cad..put your cad back in the pack. Shuffle the pack..

That long awaited reshuffle must surely be due by the end of the summer. Euro cup, Wimbledon, Olympics, reshuffle. That's the sporting calendar.

Constrained by coalition David Cameron decided that it would be easier to leave everyone in place unless they forced themselves out of a job. So his few changes have been by push or fall. David Laws. Liam Fox. Chris Huhne.

With the Tories languishing 7-9% points behind Labour and the Liberals dreaming of only languishing 7-9 points behind UKIP, Its time for change.

Reshuffles are slate wiping exercises.  And since the worst budget in living memory {assuming living memory only extends to the final budget of Gordon '10p' Brown in 2007} the formerly patchy at best coalition slate now needs a total hosing.
The government is in a mess. The cuts aren't cutting. The growth isn't growing. The reforms aren't reforming. Own goals. U-turns. Leaks. Domestic squabbles and rebels, plus unremitting 24/7 negative media coverage, will end the coalition before the pre-nup 2015 agreement. Unless Dave can get a grip. And that means the weak and the ineffective need a Thachterite '81 style pruning.

Not easy in a coalition. Not easy with pretty dismal economic news. Not easy with the planned cuts to department budgets and the real spending halt soon to begin. 
But Mr Cameron, you wanted the job, so .. do it or quit. 

We'll look at the cabinet later on. For now just the big issue.

The biggest problem is the almost insurmountable one. The Chancellor has lost the plot. The man who's job it is to reassure us all has lost the nation's confidence. 
Until the budget of 2012 the Ed Miliband/Ed Balls dream team was rated only slightly above a Greek finance minister for economic competence. But in June  the “most capable chancellor” ratings gave George Osborne 36% and Ed Balls 37%.
The Tories are hoping its just a blip. It might be. Ed Balls is about to suffer on the Libor rate scandal as it gets bigger and more worms are found in the skirting board. The woodwork that was treated with FSA Ronseal. Doesn't exactly do what we said on the spin

Despite Osborne's fumbling to pin the blame on the donkey, Balls will eventually have some questions to answer.  But hurting Balls doesn't necessarily help Osborne.
Some have suggested that Osborne ditch his duel-fool role as Purse Holder and Tory Chairman, and spends less time as a strategist and more as a penny-pincher.  But Osborne excelled at the strategy game before the election. The inheritance tax gamble not only ended Brown's bid for a five year term,  it finished Brown as a man of conviction and directly led to all the relaunches, bumbling, U-turns, dithers and coups that marred the entire premiership. Osborne should be Tory Party Chairman but leave the office of Chancellor.

Not an easy task to swap chancellors. Since 1986 there have only been seven chancellors of the exchequer. Since 1996 there have been more elections, than chancellors. And the coalition has staked its reputation for reelection on being 100% right on the economy.

"Say No! to the spend and spend policies of Balls. Say No! to the unaffordable benefits for everyone of the left."
To axe the chancellor who  embodies those policies would be such an admission of failure it would hand the next election to the reds.


One of those former era chancellors is still around in politics today. And by happy coincidence it was the most successful one. When chancellor Ken Clarke put a new monetary policy into effect and reduced basic rate income tax from 25-23%. The budget deficit fell from £50.8 billion in 1993 to just £15.5 billion in 1997.
The holy trilogy of inflation, unemployment and interest rates all fell. So golden was the legacy handed to Brown/Blair in 1997 that ..  

Clarke's successor, the Labour Chancellor Gordon Brown, continued these policies, which eliminated the deficit in 1998 and allowed Brown to record four years of budget surplus' 1998 - £703 million, 1999 - £12 billion, 2000 - £16.7 billion, 2001 - £8.4 billion. .. Clarke's success was such that Brown felt he had to pledge to keep to Clarke's spending plans in January 1997, ahead of the election. Clarke's spending limits remained in place for the first two years of the Labour government that was elected in 1997.

Recommending a replacement chancellor who has a track record that labour followed not just in word, but in deed. Who has the most experience of anyone in the cabinet. Who has already tackled recessions and cuts and social disorder and Europe, yet managed to make the country stronger despite all those problems shouldn't be too hard to spin.

He may be 75, but he is in cabinet now. 

A euro loving chancellor might be a bit of problem for Mr Cameron and his anti-eu rebels, but would be welcomed in Brussels and Berlin, where UK has few to no friends. 
And Cameron can always flip-flop. A referendum on EU membership is going to crop up as an issue before the election. Labour have it in their dirty tricks box already. Waiting to deploy it to split the Tories from UKIP just months before the next election. As long as Cameron has Clarke reconciled to that referendum promise that is going to have be made politically, however insincerely, they can appear united on all other fronts.

Cameron could slip old Ken into the Treasury and accept the U-turns and 'Plan B' jibes from the Miliband benches but with a  full ammo chest of his own retorts. 

'The incompetent lecturing the competent. The students hectoring the master. The most accomplished chancellor in modern times has nothing to answer from the least accomplished. Mr Miliband..the photocopier of Gordon Brown's failed economic policies.."

"I refer the muttering Hon Member  for Morley and Outwood to the years 1997-2000 when Ken Clarke was still ensuring wise, capable and fruitful policies were enacted by Mr Balls'  former master, even though Ken was no longer the chancellor! "

Well..just a thought.

Rockhopper and the fate of Small Caps

AIM listed Rockhopper has sold 60% of its largest find to Premier Oil, the FTSE 100 giant. The find is in the Falkands and is the cause of much of the current hostility of the Argentinian Government against the UK. 700 million barrels of oil and counting is a lot of resources to have.

Whilst one could have made a lot of money buying Rockhopper from it 2009 low of 14p to its current 270p (over 300 briefly on the news today), you would have to have timed it impeccably and it has, pardon the pun, been a rocky ride.

I doubt investors who buy into these shares really expect many of the companies to do a Tullow Oil or a Cairn Energy and turn into FTSE 100 behemoths from penny shares themselves. But what looks frustrating is that the exceptionally weak small cap equity markets are serving up some great treats for the likes of Premier Oil at the moment.

Depressed prices due to a lack of access to capital for development means the small cap explorers are as hamstrung now as they were in 2008/9. To move projects on it is either eye-watering dilution for current holders (including management), a partial sale of assets at firesale prices or treading water, waiting for markets to revive and hoping current funds can eek out the time. Even int he latter case the funding is often from a death-spiral equity finance arrangement that is again very dilutive with shares offered for cash on poor terms.

Unsurprisingly then the share prices are being hammered and the companies valued at far below par value. This is good for predators though like Premier who have the cash flow to snap up explorers at cheap valuations.

Whether it makes sense to back the AIM explorers now is less clear. If they are not ever going to provide the returns needed, perhaps the better strategy is to buy the likes of Premier Oil currently. Alternatively if the markets do recover, there are going to be some sharp spikes on AIM Oil and Gas companies.

Wednesday 11 July 2012

Gazprom Blinks - Gulps - Swallows

Yes, the long-running Gazprom gas-pricing saga is coming to a sort-of conclusion, for the time being, with a settlement between the Russians and their most important customer E.on-Ruhrgas.

Recall: Gazprom insists on selling gas under long-term contracts with the prices indexed to that of oil.  Since the collapse of European industrial gas demand in late 2008, coupled with shale gas displacing LNG cargoes otherwise bound for America, Europe has been awash with gas - only partly offset by increased Japanese demand post Fukushima.  Hence, spot gas prices have tended to be less - often, very much less - than oil-indexed prices, to the ruination of importers stuck with the latter, who are trying to run energy businesses on a tight margin.  They've all piled into arbitration (and/or litigation) because the said contracts are civil-code type arrangements which allow for judges to re-set prices in extremis.  

And in extremis is where some of these chaps have been (well, almost).  Gazprom has already offered material discounts and various other concessions; and now they've apparently agreed a fairly whopping outright rebate for E.on.  It is clearly in the low billions of Euro's, based on E.on's revised earnings guidance.  Which is nice.

Not as good as re-writing the price formula and deleting the oil element, of course.  But I should imagine everyone in Düsseldorf and Essen is, quietly, rather pleased with the precedent this sets.  Let's see what RWE settle for.  The Chinese have certainly told Gazprom what they can do with their oil indexation.

Of course, with the price of oil having taken a bit of a dive lately, there stands to be a corresponding dip in the oil-indexed price shortly.  But then GlobalRecession2 will trash gas demand once more, and it will be rebate time again in just a couple of years ...  Rather a blunt hedging instrument, but certainly better than nothing.

Meanwhile, back at the Russian spin factory: 

"[Gazprom's] comments along with the recent settlement with E.ON, lead us to believe that the gas pricing debate in Europe is nearing an inflection point with more and more commentators and counterparties accepting the longevity of the oil-price-link over the spot pricing model " (brokerage firm Otkritie Capital).

Yeah, yeah, I'm changing my mind rapidly. What games, what games.


Monday 9 July 2012

Even More Of 'em !

The one one the left is not Michael McIntyre, it's Paul Tucker of the Bank, who seems to be as much a part of the hooh-hah as Bob.  Does this production-line of financial controversialists with puffy boat-races and dodgy barnets ever stop ? 

Do they all share the same bottleSurgeon ? Harry, there may shortly be yet another opening for you.


Vince and Ed both grab the wrong end of the stick

Vince Cable, the anti-business secretary, has once more sounded the canard that the double-dip is the fault of the banks not lending.

No, Mr Cable, this is not true. The reason the banks are not lending is becuase there is very little demand for new money. Big ticket projects are being funded by placings and a very strong bond market - even high yield bonds are still getting away. SME lending is dead becuase small SME's who have a clue are not looking at the economic situation and deciding that now the time is to bet the company on a huge bank loan.

Of course, let's not forget, the Banks have some serious problems that are not helping the recovery at all. Sitting on piles of bad property loans which they can't sell becuase it will bankrupt them is having a bad effect on the many sectors, such as the construction industry. Yields are just being used to pay zombie debt rather than providing capital for new business and opportunities. This is a problem that requires bank recapitalisation, not more lending.

Meanwhile, Ed Milliband is thrashing around trying to say something to keep himself in the papers. The current one is how all the retail banks should be broken up. But this is not the real problem is it? The real problem is the securitisation market and the access that gave banks to wholesale funding. Making banks smaller does not help this. Indeed, the Mutuals proved a complete failure and the sector has shrunk massively.

The real piece of work that was needed was to increase capital requirements for Banks to stop them over-leveraging and to split the Investment Banks away from the retail banks so that they could blow themselves up without resort to the taxpayer. To a large extent this is now being done - not that improvements could not be made. As usual, crazed politicians are just throwing around populist ideas. Milliband is making an arse of himself yet again - which is good going with toxic Ed Balls as his shadow Chancellor I did not think it could get much worse.

Sunday 8 July 2012

Harry Redknapp for Barclays

A modest proposal ...  Harry is at a bit of a loose end, knows how to sort out a floundering team and, best of all, is well up on tax matters. 

Bob's looking for a new challenge, too.

Maybe even a job swap ?  Spurs like to have a high profile character at the top; and a bit of previous in the financial bother department has never been an impediment at White Hart Lane.

The posts are broadly similar: both 
  • have aggressive-looking birds on the company stationery; 
  • require the occupant to go red in the face at a moment's notice;
  • come with handsome pay-outs when it all comes to a messy end, and
  • a lifetime supply of Grecian 2000 in a lustrous shade of 'Kiwi Brown'.
Bish bosh, job's a good 'un.


Friday 6 July 2012

Quantitatively Uneasy

The Bank of England is addicted to Pringles -once you pop you can't stop. As was predicted here way back in 2009, QE is something once started that you find hard to end.

With the economy in reverse gear ever since the Financial Sector blew up, the Bank has just kept printing more money. Now nearly 50% of Gilts are owned by the Bank of England.

How will this ever be unwound. Back in April Andrew Tyrie, so well known after this week, as the BOE what preparations had been made - umm, none, came the message from the Debt Management Office - its too far off to bother.

One option is to hold these gilts to maturity, but this would mean a huge build up in debt as more are issued over time, before these all mature. Another way is to only offer long-term debt and make QE the short -term paper - that way it unwinds quickly, but the longer dated issues sink in value too.

Or you can try and dump it on eh market and see interest rates rocket and inflation fall back rapidly as liquidity is withdrawn. There is no good way to do this, although Japan did well in 2006 when it withdrew all its QE in just a few months, conditions were very benign, nothing compared to the cataclysm we have today.

It is not surprising there is no plan to unwind QE, but with more and more QE being done, it is worrying that yet again we have no plan. As usual in the UK, this will be a problem left to our children to sort out.

The lessons of the Baby Boomers - i.e. a boom for them and a bust for their children, are going to be repeated again.

(The picture is £500 shredded, how many bowls for £375 billion pounds - so only 750 million bowls needed of this then....)

Appointmetotheboard crowned European Champion !

An excellent victory for the champion.
Expect world leaders will be sending you tweets of congratulations throughout the day
And commiserations to Measured who put up a spirited fight.
appointmetotheboard - 14

Measured - 14
 Mark Wadsworth - 13 
 Timbo614 - 12
Bill Quango MP - 11
  Nick Drew - 11
Hopper -9
Budgie -9
Miss S-J - 7 
GSD - 6
Malcolm Tucker - 6
 Dick the Prick - 6
Lilith - 4
 Sebastian Weetabix - 3
Hovis - 3
Philipa - 2
Miss CD - 2
Andrew - 1
Cityunslicker  - 1
James Higham - 0

Thursday 5 July 2012

Question Time 2012 European cup final

  hard to tell from the really poor updated BBC Question Time website,
But this might be the final!
Lets say it is
No draws today. All battles to the death. Penalty shoot out decided on 'most amusing' entries.
 David Dimbleby chairs Question Time from Derby. Panelists include energy and climate change secretary Ed {new Huhne} Davey MP,- I met him the other day - nice bloke. Ed, not Chris.} former home secretary Alan {2+2 is 9} Johnson MP, Conservative MP Louise 'ego' Mensch, Sunday Times and Independent columnist Dominic {my dad wouldn't have taxed pasties} Lawson, and , in what can only be a hacking of the BBC website, John Lydon, former lead singer of the Sex Pistols and founder of the band Public Image Ltd.
appointmetotheboard - 14

Measured - 11
Bill Quango MP - 11
Mark Wadsworth - 10  
Timbo614 - 9
Hopper -9
Nick Drew - 8
Miss S-J - 7 
GSD - 6 
Budgie -6
Malcolm Tucker - 6
 Dick the Prick - 6
Lilith - 4
 Sebastian Weetabix - 3
Hovis - 3
Philipa - 2
Miss CD - 2
Andrew - 1
Cityunslicker  - 1
James Higham - 0
  QT Quiz game is sponsored by FIFA
{only not the one you're thinking of}

Whine On, You Crazy Diamond

Well ... the usual apologies to Waters (& Gilmour).  
It's sacrilege, I know.

Recall when Lehman’s got done ?
The sun shone from your bum
Whine on, you crazy Diamond !
Now there’s a look in your eyes 
Like you’ve seen your last rise 
Whine on, you crazy Diamond ! 

You were caught in the crossfire 
Of Labour and LIBOR 
Blown by the sheer greed 
Come on you target for ministers’ anger 
Come on you scapegoat, you bastard, you bankster, and whine ! 

You reached for the billions too soon 
You tried for the boom 
Whine on, you crazy Diamond ! 
Threatened by your hair going white 
And exposed as a shite 
Whine on, you crazy Diamond ! 

Well you buttered your barnet with Grecian 2000 
Rode on the sheer greed 
Come on you seer of grandiose visions 
Come on you puppet, you pirate, you prisoner, and whine ! 
[Saxophone … fade]


Wednesday 4 July 2012

We Are Teetering On The Very Brink

... and all the Boy Osborne seems able to think of is using the LIBOR outrage to score petty student-politics points against Balls.  Grow up, you infantile git, and look around you at what is about to befall.

We have written here before of the significance of defending the UK's AAA.  Now we see a challenge of even greater magnitude:  powerful forces full of revanchist malevolence see their opportunity to destroy the City utterly and forever.  The French, the Germans, the multifarious ex-communist euro-federasts seated in Brussels, yes and even the Americans with their atavistic anti-colonial instincts, they all want the pre-eminence of London ended for good.  The Chinese will be only too pleased to pick up some of the pieces for themselves.

Addicted to their own centralising bureaucratic ways, none of these envious nations have ever truly succeeded in emulating (or even understanding) the deep OTC markets fostered here. Instead, heavy-handedly they always fall back to corralling commerce into exchange-trading uniformity, thereby crushing the financial creativity and innovation which are the hallmarks of flourishing capitalism, and vehicles of economic advance. By contrast, the City together with our precious common law legal system sustains not just the deepest and most liquid markets in financial and physical traded products, but the vast industry of legal and other professional services that Raedwald discusses here.  And, yes, the envious euro-wallahs would dearly love to overthrow our pre-eminence in commercial law, too, and win the world over to the Code Napoleon.

In the modern age, the imperative of defending these freedoms and ways of doing business should rank alongside the physical defence of the realm.  Do our schoolboy politicians have the faintest idea of what needs to be done ?  The integrity of the City's mysterious processes needs to be as secure as the hallmarks on our silver and gold - always accepted as totally trustworthy the world over, just as French hallmarks are taken with a pinch of salt.

Osborne, lay down your catapult and ink-pellets, and listen to Old Drew.  No hiding behind protracted inquiries, we know what we need to know. Consider yourself responsible for a fabled and most valuable brand that has suffered the most appalling and potentially fatal blow to its reputation, like Mercedes when its A-Class started flipping over at bends in the road, or Perrier when its pure waters became contaminated.  Stop at nothing to restore the actual integrity of the brand, as energetically and transparently as you know how.  Make examples.  Stage public floggings.  Work night and day. Take such measures as will shock, awe and fundamentally impress hardened bankers the world over.

Or else, the City will be left as the nasty, spivvy little offshore tax haven it is portrayed in unfriendly quarters: isolated, friendless, legislated against in foreign capitals, reduced to raising the odd million for bent commodity traders, unsavoury Central Asian biznismen, and Mr Unscrupulopoulos the dodgy shipping magnate.

Get on with it. Right now. You little git.