Friday 31 August 2012

Why I like a anti-capitalist companies - Amazon

Amazon is a company that drives a very mixed reaction from me. on the one hand arriving home to see Mrs CU's pile of brown boxes and the impact that has on my bank balance makes me hate them. On the other hand, the ease of access and ability to shop for most things at competitive prices from your own home is great.

Bill Quango wrote about the ongoing decline of some retail brands yesterday and I fully expect this to continue not just as consolidation in an over-extended sector, but also because online will kill shops that are excessively reliant on the highstreet.

Amazon though wins me back over for 2 reasons. The first, which is related to the second, is that they never make any money. In fact Amazon has lost money continuously since its launch. Now the bulls for the stock say yes, but it has all the customers, once it figures it out then profits will be legion. Over a decade and counting on this.

What I see is a new Tiscali, I had once this ultra cheap TV/Broadband/Phone service, it was one third the price of Sky and half of Virgin with a better product. I could sense there was no way this could be profitable. Indeed it wasn't, the firm eventually going in a fire sale to SKY, an unfortunate loss for its, umm, rather shady Sicilian owners.

As a customer though I like to know I am getting a good deal, if a company is selling me things below cost that is great. Amazon is in this bracket because its margins are non-existent, yet the interface and customer experience is very good. What's not to like.

Even better, one day the soaraway stock price is going to come back to earth and boy does it have a long way to fall. I have an eye on it and will be shorting all the way once this begins in earnest - timing is everything as despite the desperate business case Amazon shares are 40% up on the year; but what goes up must come down. I'll miss it when its gone though....

Where else should I be looking though to find value in companies that really do put their customers before their profits?

Thursday 30 August 2012

The squeezed middlemarket

JJB Sports has put itself up for sale and warned its shares may be worthless after the struggling retailer failed to secure a fresh funding injection from investors. The shares immediately fell 71 per cent to 0.67p.

JJB has long  been on the C@W no-no, don't touch list. The company has been bailed out, restructured, refinanced, remodeled and rebuilt many times in the last few years. Its had two company voluntary arrangements already.
Nothing has worked. The glory days when an England squad even taking part in the Euro's soccer tournament or Manchester United beating Arsenal were enough to sell a million replica strips are long gone.

Rival sportswear chains JD and Sports Direct are much more successful. Sports Direct is +46% on its share price this year. JJB is -97.95%. JD likes to move in the higher end of the sports brand market, taking a higher margin. Sports Direct like to bottom feed, volume selling cheap goods. And Sports Direct is quite a bit cheaper than JJB. And its been pouring cash and brains into its online offer and is doing very, very well there too. And Sports Direct very recently pinched JJB's contract to supply, design and retail Rangers FC merchandise after the JJB arrangement was cancelled after Rangers went into administration.

US sporting store giant Dick's, an investor at JJB, recently put £20 million in to the company. That wasn't enough to make the turnaround.

JJB is down 3.3% on August like for like figs. This August most larger shops should have seen a boost in sales. Big sports shops particularly. 
A boost from the 2012 Olympics itself and the relaxation of Sunday trading laws. And 2011 August sales were nothing to get excited about, being down -0.5% on 2010. If you can't get ahead during August 2012, then you're not going to make it.

The Capitalists@Work 'Woolworths'  test is now complete. As sales have fallen so have margins. Borrowing has increased. Investment is scarce. Support staff are axed. Training lapses, staff numbers fall, service declines, inventories shrink, refurbishments cease, image decays. Stock suppliers begin to seek alternative retailers. Shoppers scale back and then search for cheaper alternatives. They find others are doing it better.  Investors panic...
If the recession isn't quick the money required to repair all those negatives will never be found.
This recession has been deadly and JJB has never really looked like they were going to make it in their current form.

Kow Tow Time For Merkel

Long-time readers of C@W (Sid & Doris Bankers) will know I reckon that one day someone will simply sell the farm to China in return for a short-term boon.

Don't do it, Frau Merkel.


Wednesday 29 August 2012

Growing calls for a 'Fair' tax on Politicians

Reports are coming into to CU Towers of growing concern across the Country about the contribution of Politicians and regulators to the economy during hard times. Clearly, a near 5 year old recession has taken a big toll on public finances, with Public Debt set to rise by 40% over the course of this Parliament.

And yet, whilst taxes for the population are high, there has to date been a conspicuous absence of taxes directed at those who caused the recession in the first place. We all know the previous Labour Government jacked-up spending beyond what the Country could afford and failed to regulate the banking sector. This current Government has continued with underwhelming efforts to try and create a recovery. Clearly, a debt is owed to the Country ,

So it is understandable that there is a rising clamour in the Country that extra taxes are placed on those who caused many of our problems to pay their 'fair share' for a short-period until we are beyond our current problems. After all, Politicians have levied specific taxes on Banker's bonus', North Sea Oil, Drinkers, Smokers,  Pasty Eaters and many others so it is only fair for there now to be due consideration of Politicians paying their way.

Let's take Nick Clegg as an example earns £134,565 but his wife as a sneior City partner could expect to earn nearly a million. They have a grace and favour home as well as a fine North London residence. Fairness would dictate a small 5% wealth tax per year on their total assets which should raise up to say £250,000 which they can easily afford given the vast income and wealth.

In times of such hardness I am sure Nick Clegg and his fellow-Government members, many of whom are also multi-millionaires, will be glad to contribute in a small way to helping the Country.

Now as readers will know, I am generally very against tax rises, they reduce productivity and force labour elsewhere. In this case though I expect some positive behavioural outcomes. It maybe that Nick Clegg will not be a politician much longer anyway due to his utter incompetence as leader, however encouraging him to leave the Country should be a good thing, as it should for most of the other members of our Golagfrinchan parliament. High taxes also can lead to lower productivity, again in this case, the reduced amount of hot air and ill-thought our policies will both lower green house emissions and contribute to the stability of the Country.

Does this seem a very persuasive case to you?

Tuesday 28 August 2012

Apple love-in a bit tired?

Quite surprised to see the total Apple love-in going on at the moment, driving its shares to new high sand getting it good coverage on all the business pages. Apple is an odd company, which is the secret of its success and its own challenge too.

I like my ipad for example, its a neat bit of kit that is perfect for casual web surfing and games for the kids. it is useless for much else, but so what? As a brilliantly simple machine to work, it is genius. the iphone is the same, revolutionary when it came out, moving phones to a new level and rightly taking huge market share.

But today the competition is closing, just as it always does. Apple's insistence on its own software universe, high prices and aggressive approach to content pricing create room for other vendors. Apple's mac's were always better than PC's but that did not mean Apple won that war in the 1980's and 1990's.

Now today Samsumg, Google and others with developing technology and more open access to software and programming are taking serious market share. Apple's response is to try and sue them for patent abuse. in the UK and Korea this did not work, in hometown California this has worked so far.

The response of sentiment and share prices shows what a great job Apple has done in managing its media profile. Perhaps its new products will take on new areas of the media like TV and make yet another huge step forward for the business. Certainly it has billions of profits to spend on whatever the company needs.

But suing the competition for being there, especially on old patents, is an aggressive strategy and a very defensive one. Perhaps in a few days the media and markets will see what taking a defensive approach like this is signalling.

Anything that makes lawyers happy generally has a bad ending for everyone else...

Monday 27 August 2012

Talking Point: UK House Prices

Here's a sweeping statement which has the ring of spin about it: 
"State-backed housebuilding drive would cause price crash, warns Fathom.  A state-backed housebuilding boom would not deliver the sought-after economic recovery, a leading consultancy has warned, but cause prices to crash and tip Britain's banks back into crisis."
Well.  I like to think I have a fair grasp of the laws of supply and demand; but also a bit of an intuitive reality-checker.  Can we really imagine house-building on a scale compatible with "tip Britain's banks back into crisis" ?

(a) we are already 'back in crisis'
(b) this needn't be a zero-sum game
(c) . . . ?

I am sure there are other arguments to be raised.  Have at it !


Sunday 26 August 2012

EMED Mining Update

It is not often that the stock market offers up a second bite at a nice juicy cherry. However, EMED mining is proving to be just one of those – allied with Management who, it seems, presenting investors with a possible gift this summer.

Back in July I posted a blog (see here - noting that EMED was about to, finally, get the go-ahead for its copper mine in Spain that was acquired from Rio Tinto. Shortly after this, the penultimate piece of the jigsaw was completed with the acquisition of adjacent land parcels that had been used as ransom strips. Then, a couple of weeks later, the final 5% of this key land element was acquired. All of this has come at a cost to the stock price with nearly 25% additional dilution to existing shareholders. Shares were issued to Inland Trading (the owner of the key land parcel) with an ascribed stock value of 10.61p.

Over the balance of the month, the market has slowly marked down EMED shares with the price slipping from 11.25p down to below 9p. Why? Well the landowners extracted a high price so perhaps, along with low summer volumes, this was not seen as a good deal. Also, with final permitting news now due at the end of September, small traders (of which this stock has quite a few smaller shareholders) have decided to look elsewhere in the short-term – volumes have been miserable which would add credence to this theory. Finally, a small placing was done just last week at 8.5p to find the cash needed to progress to permitting when the finance deals kick-in. 18 million shares issued is not much, but still, it has knocked another penny off the share price.

The upshot to all this however is though that EMED is nearly there; just going through the environmental reporting process in Andalucia - the last hurdle. In a region of high unemployment, it must be inconceivable that the mine is not granted permitting at the end of Q3 2012…
As for prospects thereafter, the mine was closed by Rio in 2001 as with a copper price below $1 per pound at that point, it was deemed uneconomic. Today however copper sits at $3.5 per pound even after a heavy retracement in recent months. In addition, as an old mine site, much of the equipment is already in place - only $150 million is needed to start up again – an off-take agreement with a Chinese company who has taken a stake and a loan from Goldman Sachs (no fools whatever anyone says about them) has secured this.

First year gross profits should be $150 million, handy eh? That is a pretty solid ROI. With a billion shares in issue giving a market cap of £90m, and a 5 year DCF value (with a high discount rate used) of around £350m, a share price of about 40p would be a good target – the four analysts who cover the stock range from 32p to 42p.

Closing on Friday at 9p, there is good cause to be bullish here.

This post is sponsored by Spreadbetmagazine.

Saturday 25 August 2012

Greenpeace vs Gazprom: May Not End Well

Now fair play to the Greenpeace lads, they put their bodies on the line. They're at it again, this time in Russian waters, protesting against a Gazprom Arctic drilling operation.

But they may find Gazprom a different proposition to, say, the pussycats at Shell.

The more distant parts of Russia have always been governed by local warlords: but they still run up gas bills.  And in Russia, they've always known how to collect monies owing - they learned it the hard way when they were under the Mongol yoke.  So every year Gazprom despatches armed convoys to collect the kopeks from all the distant meters.

So their willingness to be, errr, decisive is not in doubt.  

As for Greenpeace; as it happens, right now Gazprom is not flavour of the month with the Putin regime (we may return to this another day).  But Western intruders are intruders, and everything hinges on whether Volodya is still in Pussy-Riot mode. He hates foreign NGOs, and he may be willing to see an example made.

You want martyrs ..?  Could get nasty.


Friday 24 August 2012

Julian Assanage watches the news on Ecuador TV

República presente .. CHANNEL 9...Neus

"Bono Estente! Con ith Poutremos Poutra-Poutremos..."

"..con  ith Kolothos Apollonia, ésta 9 Neus...."

 "Sminki pinki! El príncipe emira, tres in lingua los Regio Angletarrio, 'Harry the Ginger one' este flagrante nudio dande un sminki pinki, bikini bonko. Unde yungo ladios flash el goolios aristocrático. Inde embarrasio trio chiquita bunga bunga. Una Reinas Angletarrio, Elisthabeth-Heth heth hethetheth hetheth het heth, mamá-señora, ditos "He's just like his grandad!"....ha ha ha ...Poutremos ?"

"Si..ha ha ha ha remindera meo à sporto foota "Chris Waddle." Apolonia bunzo di marigardia spectate addresiari United Nations Ban Ki-moonos. "Go compare! Go Compare! Atalio Meerkat, Admiral dota com...Kolothos..."

"Gracia Poutremous... Neus financhilos. 
 Unióna Europea stocks este shares capitalistic imperio, collapsi sande pánico. El Europeso nune value. El locale MEP Guillarmo Quangero esta "Greecyio moosta departe El Europeso immediatale likà Asil Nailbar, Poly Pocket  provoko. Fugitive escapare imprisone."

 Neus Politica..El glorioso Presidente imperpertuea, Rafael Correa 
{newsmen stand and salute the Ecuadorian flag}
.. enuncia à la militairia di Ecuador, preparatol aggressor Schwarzenegger, El loco Obama, Presidente à la Unitaris Constar di Amerigo... Presidente Correa instructo Obama di "leave ain't worf it."
Presidente Correa alsa informe el Presidente Davido Cameroon à "but out." or, "Falia helé, Falia hela, Falia helé..imperio Death Star."

Et aujordhuio, à message di Julian Assange, politico asylum-bin, broadcasta locatione Ecuadorian Ambassede, Londres (capital de Angletarrio),. 
Bondidas. Con esta los Broadcasta..

{Assange's message to the world briefly appears at the top left of the news screen before interference causes lines and fuzzing of the image. Then the picture blinks out into a white dot on a black screen.}

"Ahh..terriballe apologios..Problematico technica.. Returnio di el tediouso, mentale, self publicist momentario. Paula Fisch meteorologicas ..Paula?..Este Scorchio ?...Si? "

"Si...Exceptica  Angletarrio qui'esta pissey et windale banquos festivales totalio."

"Ha ha. Pauvrez Angeltario. Una republica di summero totale absorbe acuático hydráulogico . Esta neus finita."

"Boutros Boutros Ghali!"

Thursday 23 August 2012

Showdown: Food vs Fuel

The USA considers itself strategically at risk by virtue of being an oil importer: but it has a food surplus, so (under a very specific Federal mandate) it turns foodstuff wastefully and large-scale into fuel.

Saudi Arabia considers itself at risk from being an importer of food: but it has an energy surplus, so it desalinates seawater using huge amounts of energy and makes the desert fertile, turning it to food.

If only international trade were more dependable ... (eh, Budgie ?)

Anyhow, with widespread drought in the USA, thoughts are turning urgently to halting the gigantic compulsory conversion of corn into ethanol.  This is just one flashpoint among many where the trade-off is food vs fuel: the EU is having second thoughts about bio-fuels in general - and not before time.

Food vs fuel.  People riot when they can't get either.  Wonder which wins...  your views ?


What did George Osborne do to the Telegraph?

Back from hols and reading the newspapers for the first time in a while, I am struck by the Telegraph's constant attack on Government economic policy.

This is after all traditionally a Tory newspaper and a very conservative one too. Yet day after day they are printing strong attacks on the current Government policy. Mr Osborne must have been most rude at some dinner party or other to the Barclay brothers.  Most of the alternatives suggested come under the headings of:

1 - they are already trying this, but should do more
2 - Raise the deficit and hope it all turns out ok
3 - Do something different, something must be done

Kate Barker today is a classic of the weeks articles, QE not quite right, Banking reform not quite right. Nothing about real change.

None have made the blindingly obvious link between the recession, government spending and taxes. Taxes are very high, high enough to hold back demand substantially or for people to go to major lengths to avoid it (I note how very many people have suddenly become self-employed, I have a hunch this is not all down to not being able to get jobs, but partly down to realising you can halve your tax bill this way or do less work for the same money).

Alas with so few cuts to ongoing major expenditures like Welfare and the NHS and other services, but instead to capital spend, the deficit remains a mill around the Country's neck with politicians dreaming up yet more ways to raise taxes to feed the monster.

A quick end to the recession is probably impossible with such a weak global outlook, dreams of an export led boom are fantasy too as a slowing China will dump huge excess capacity on the world shortly.

The original plan was said to be 80% cuts and 20% tax rises - we need a new one, 120% cuts and 20% tax cuts. Sadly, we are not going to get this and so instead watch the debts grow and the economy shrink for a good while yet. Then when Ed Milliband gets in watch the debts grow faster and the economy stagnate.

Wednesday 22 August 2012

If Germany Can Do it ... A Big 'If''

All eyes are on Germany these days as Greece, Spain and Italy await their fiscal fate.  

But it isn't just the great Euro- question for which answers are sought in Germany.  For, in much the same way that La Toynbee harps continually about the Swedish model of social policy, so many a Green offers us the Teutonic approach as the paragon of energy policy.

Decisively scrapping nuclear generation; generously subsidising wind and solar power; dramatically meeting nearly half its electricity needs from solar in May of this year: Utopia-am-Rhein has already been built !  You see, they chorus, and if Germany can do it ...

Not so fast, my little green chums.  Here's your summer reading project on German energy.
Let's leave the final word to Günther Oettinger (German!), the EC's Energie-Kommissar (sic): 
Germany has the second highest electricity prices in Europe - mainly because of high taxes and the renewable energy levy. This can not go on, because we will overwhelm the consumer and harm the economy
Well said, that man. 


Tuesday 21 August 2012

Peter Hain Was Never To Be Trusted

The two-faced orange-faced one is at it again.  This time it's his new project, the putative Severn Barrage:
The prime minister promised to look into it," Hain told the BBC. "Government support is an absolute pre-requisite for getting the whole project underway. Not a penny of taxpayers' money would be needed for this £30bn investment, which would be transformative for Wales ... Several sovereign wealth funds have already expressed interest in financing the £30bn project, as long as government signals its support in principle, provides authorisation in the form of a Hybrid bill, and stabilises the electricity price for 25-30 years through a feed in tariff, 'Contract for Difference', or similar mechanism. It is worth noting that after 25-30 years, when the price support drops away, the barrage will produce electricity virtually for free for at least another 90 years
How public discourse has been debased by the weasel-phrases coined by Huhne (another lying LibDem): not a penny of taxpayers' money ... as long as government 'stabilises' the electricity price.  

By 'stabilises', he means of course 'triples', just like EDF wants for its wretched "no-public-subsidy" nuke (yes, a third LibDem dissembler).  Well, the last time I looked, most UK tax-payers are UK electricity users. Additionally - and who knows how Hain squares this one away to himself - quite a few electricity users are non tax-paying grannies.  

And electricity virtually for free for at least another 90 years !  How's that, Peter - you propose it be given away ?  Your sovereign wealth chums may have a different scheme in mind.

Oh - and an entertaining tussle ahead between the highly-paid orange lobbyist and the wildlife/natural habitats camp, I should imagine. 


Tony Hayward's new start in Kurdistan

Kurdistan Region Licences

Genel has offered to buy into a big chunk of Hertage Oil's assets in Kurdistan today. For long-term readers, you will know that I held Heritage for a long-time before selling out at a decent profit back when the share price was twice what it is now. Heritage is an interesting company, run by the very bright and capable Tony Buckingham - who also happens to be an ex-mercenary.

Meanwhile, Genel is a rather opaque Turkish funded Oil explorer, they tried to merge with Heritage a couple of years ago and it fell through as their directors could not be passed fir by the FSA. Now to remedy this they have Tony Hayward, the ex-BP CEO in charge. Mr Hayward is keen to build another big Oil and Gas company and this is one of quite  afew deals he is doing.

Why is this of any interest to a wider audience? Well, Heritage's Miran assets, the ones sold today, are in Kurdistan. This is where GKP and other companies like Afren have been findning massive oil and gas deposits for the past 4 years. Indeed, it is the best area int he world for new finds of Oil and Gas.

It is also steeped in diffculut political intrigue, with the Kurds of Turkey, Iraq, Syria and Iran all wanting their own state and now owning the means of financing it. So the challenge to oil companies of not just finding but safely extracting and selling their product is pretty high. Shell of course and others have small armies (well a battalion or two) in Nigeria protecting wells, so it is not as if these companies are not used to the realities of the world.

How all this works out will be a key driver in the middle east, with Syrian Kurds now deciding what to do as regards the civil war in their own Country. Turkey too has a tough choice, having fought the PKK for years, it still wants a pipeline from Kurdistan to export all this oil and gain some decent revenue. The Kurds in Iraq are a loggerheads with their own Government about an Oil Law that will agree the distribution of the funds raised from Oil and Gas sales.

Kurdistan is certainly a complex and interesting place to look at, with Hertage selling today and OIl majors like Total moving in, I am even more confident in holding my GKP shares for a while yet. GKP have the biggest reserves of all to date found in Kurdistan.

Monday 20 August 2012

Back to reality?

Can't see that I have missed very much by being away for two weeks on my holidays. Still we seem to be stuck in a mid-summer malaise of nothing much going on bar Sport and the odd Middle Eastern war.

That is though very preferable to last summer where we had a worldwide economic disaster in August, it does make for an interesting September/October.

Spain was interesting though, it does not feel like a Country in economic meltdown in the Tourist parts at any rate. The airports are full, rental car business in full flow, no space on the beaches - 'twas ever thus. This must be a good boon for the economy there. Even the rows of unfinished housing developments seem to have thinned out a bit.

Or perhaps this is what financial crises look like, everything working well as long as money is borrowed/printed and then an almighty collapse at the end?

Sunday 19 August 2012

They think its all over

Its been a while since we had a look at the retail figures. 
They have been so poor that there hasn't really been any point. But now having had a look I can confirm that the figures are not just bad but dire.

When chains collapsed into administration , a good many of them emerged from a pre pack voluntary administration arrangement in essentially the same format. they shed their outstanding tax liabilities, dumped their unprofitable leases and carried on.

It was assumed that without the burden of debts, too high rents, old units and excess stock the chains could rebuild. This does not appear to have happened.

Looking down the administration retail page is like looking at a Verdun war memorial. The casualties go on and on. Those that we rated poorly, Blacks, Woolworths, Zavvi {and Head- who bought Zavvi} have long gone. but firms that would be expected to survive have not.

Here's the casualties since the recession.

Companies failing
Stores Affected
Employees Affected
2012 (6 months to end June)
2011 (12 months)
2010 (12 months)
2009 (12 months)
2008 (12 months)
2007 (12 months)

This is medium to large chains only. The 10 units or less of which there are hundreds and the sole proprietors, of which there have been thousands are excluded. In the chains alone its 150,000 jobs lost.

Lots of other big names on the list of the dead from back along.

Officers club
Faith shoes
Suits You
TJ Hughes
Hawkins Bazaar

The 2012, 6 month, casualties are of Somme proportions already.

Ethel Austin
Julian Graves
Allders of Croydon {tragedy. Lovely, if old fashioned store}
Clinton Cards
Micro Anvika {4 or 5 shops on Tottenham court rd for as long as I can remember}
Ellie Louise {Ladies fashion - 97 stores}
Fenn Wright Manson
Pumpkin Patch
La Senza 
Past Times
Blacks Leisure {taken on by JD stores and now giving that successful group a headache -They bought Blacks for £20 million and it will cost them another £15 million in losses this year}

 JoePound { a local 99p store - they have 12 outlets} says they are down 50% on 2008 figures and looking shaky. That's a 99p store!

Some of these chains have been bought by others. Some are pre pack and coming back. But even that is fraught. 

Madhouse went into and out of pre-pack administration 3 or 4 times in the last 8 years. It was owned by its original owners, investment companies, rival companies and back to original owner.
It had 60 shops many on zero rent deals with a notice to quit. { If the landlord fins a buyer the tenant must vacate within 48 hours.}
Even with low debt, paying next to no rents, selling cheaply priced clothing it couldn't make a profit.
They were up for sale in the mid 90's, valued at £32,000,000.
Today the value is nothing. Its closed and the company gone.

Back in 2007/8 C@W said retail recession was survivable as long as it didn't run on & on. The fear was QE and interest rates of 0.5% would stop the depression but increase the recession length to 2-3 or 4 years. That appears to have been the case. And it looks like lasting until 2015.

The calls for a business stimulus grows ever louder.

Saturday 18 August 2012

Does the FTSE still offfer value at 5800+?

This post is from - visit the site for live and regular updates on all matters stock market related.

In the midst of a so called "summer" (holiday over for me too!), with volumes  very low, it is often the case that the main stock market indices can move around in quite a volatile way. Not this year however with a slow grind higher being experienced week by week in total contrast to last summer where bad news on the Eurozone front created the worst August conditions for many a year. A near 1000 point fall was a hefty kick in the" what-not's" for many investors.
The last 15-20 years have been interesting to say the least. Starting in 1996 with the Dot Com bubble that was borne in 1996 and  which juiced shares to all time highs on the eve of the new millennia - levels which, in the UK, have not been seen again. Indeed, we are still some 20% lower nearly 13 years later...
After the heavy sell-off that took us to the current millennium lows in March 2003, Alan Greenspan rode the rescue and introduced a new era involving massive liquidity and low interest rates. This in turn sowed the seeds of the global property  and leveraged based financial boom. We all know how this ended in 2008. Even today in 2012 we look out at a mess of Quantitative Easing and easy money trying to desperately re-balance a world that is heavy in manufacturing capacity but with little in the way of decent investments to be made. Throw into the mix the phenomenal amount of de-leveraging which is required by Governments, banks and individuals and we have an extremely moribund growth profile ahead

Today the FTSE stands at 5850 and there are many commentators of a bearish viewpoint who suggest that the current low volumes and economic perma-crisis mean that the markets are on the edge still and poised for a third big dip.  The fundamental backdrop is one of high cash balances on corporate balance sheets, an attractive valuation from a dividend yield and PE perspective and no real alternative to equities with Gold yielding nothing and Bonds massively overvalued.
Take a look at the 15 year monthly chart below. Nothing in that chart picture looks to me as if we are going lower - we are just about to probe a near term trend line from 2007 around 5950 - a break through here will be very bullish. The 2 red circles show the 9 & 27 month exponential moving averages - you will see that a cross over of these is very bearish with prices falling precipitously when this has occurred. Contrast that with today where we have the bullish cross over to the upside still intact. With a supportive RSI that is nowhere near overvalued that has created a ripe background historically for falling prices, positive momentum on the MACD and similarly supportive stochastics and I fear the bears will be disappointed in the months and years ahead.
The chart below is definitely worth watching - should the FTSE roll over however down to the 5600 and the 9 & 27 month moving average cross down through each other - watch out as on each occasion before that this has happened, serious doo-doo has hit the market and the world in general.

Friday 17 August 2012

Weekend Pondering: Do Aminals Think?

Yes, a tired old philosophical question but hey, that's my thing and it's sometimes interesting to rehearse it when you see things like this.

That heart-warming article + commentary came up just after I'd been having some dialogue with our old friend Sackers (in comments here) on Nietzsche's view of consciousness - "consciousness is a surface" - which can seem a bit odd without delving into it a bit.

Anyhow, Nietzsche (along with many others, of course) reckons that language sets us apart from animals, and that consciousness is born of the need to communicate.  But unlike, say, Descartes, N sees it as a matter of degree and would, I think, allow animals consciousness in proportion to their ability to communicate.

Which leads us to a further question:  can we understand them ?  Wittgenstein says no.  I disagree, provided that due scholarship is deployed and the easy traps of anthropomorphism are avoided.

Think on! And a good weekend to all.


Thursday 16 August 2012

Beardie Branson: Just a Bad Loser?

Get your hands out of your pockets!
It's hard to tell, isn't it ?  At least, for those of us with no rail industry insight.

On the one hand, while Branson tells a plausible story and is mightily pissed off, he-would-be-wouldn't-he; and how else is the government to decide these things except by going with the most economic bid after investigating with due diligence ?  FirstGroup's winning bid seems to have a number of attractive aspects; and they are not without experience in the sector.  Branson can't expect life-long incumbency as of right.

On the other, as I know in graphic detail from my own area of special interest (alongside well-known abominations such as the last 50 years of defence procurement), the ability of civil servants to screw up procurement-type things up knows few limits.  Picking winners ?  They wouldn't know a winner if it came home by five lengths.

The field is of course replete with vested interests and lobbying: always hard to pick out the salient facts.  So - any views ?  Comments with inside-track knowledge (sorry) particularly welcome.


* per the comments, an MW illustration of the Wild Man of the Caribbean over at his place.  Looks like Robinson Crusoe ... 

Tuesday 14 August 2012

EDF Is Toying With Us

Here’s some more fun and games – expensive, too, and if EDF wins we'll be paying for it. 

The story so far: EDF is dangling in front of HMG the prospect of developing one of the ten new nukes it wants. It used to be 4 that EDF promised, but let that pass because HMG will be grovellingly, pathetically grateful for one. Ah, say EDF, but first you must cross our palms with a very high guaranteed electricity price. 

How high ? Well of course they propose to torture HMG in a smoke-filled room until they yield whatever EDF decides is enough, so we won’t know until they all emerge blinking into the sunshine waving a contract. But people are prone to doing their own maths and, based on EDF’s lamentable recent attempt to build one such new nuke in La France elle-même, (no start-up date in sight, at least 4 years late and massively over budget, EDF at war with nuke contractor Areva), various estimates have been derived, in the range £150-165 / MWh.

Quelle horreur, this is three times the current price (geddit?) of wholesale electricity. Can it really only be four years ago EDF told us it would be £45 ? This weekend, the wily frog has granted an interview to the lovely Emily Gosden, one of a production-line of DTel fruity-girl energy correspondents. In this, Rivaz, for c’est lui, has let slip (well, planted, of course) the notion that he might just squeeze us in at less than recent estimates of the cost of offshore wind (another unaffordable technology), say, £140. 

As I’ve surmised before, we are presumably being softened up for £119.95, indexed-linked of course, to commence production in, oooh, 2020? (no guarantees, of course) which will be proclaimed a miracle. This, ladies and gentlemen, is no bargain. If it’s security of supply we want, it can be had a great deal cheaper – and earlier - than that. 


Monday 13 August 2012

'Give him a painting of a spitfire and let him go.'

Continuing our look at the upcoming, long delayed, and desperately needed cabinet reshuffle.

Jeremy Hunt has been on borrowed time ever since he took a less than biased view about whether Rupert Murdoch should be granted his wish to buy out BSkyB.

Although no smoking gun was found Mr Hunt only hung on to his ministerial car because the PM was in charge of deciding who had acted within the rules.  At best Hunt was unwise. Cable was quite rightly removed from the bid for showing bias against NewsCorp. Hunt showed a lot more bias in favour.
Cameron had just lost Huhne and didn't want another tricky one for you, one for me coalition ministerial job swap to deal with. So Hunt remained.

 Jeremy Hunt was the minister for the Olympics. The Olympics will soon be completely over. 
The UK's bid to host the Euro soccer tournament ended in farce, embarrassment and a failed attempt to bring down the corrupt FIFA heads. We won't be bidding again. 
We won't get the Olympics for another 50 years at least. We can't do winter games. The Ecclestone Grand Prix London, £100 million proposal, is several zeros short of being realistic. 
Tennis, Rugby, golf and the Premier league all take care of themselves. Culture can manage with a deputy, deputy minister and media isn't going to be doing anything at all until everyone has forgotten about phone-gate.

So there really is no reason that Mr Hunt should retain his post. He did manage a good Olympic show so, in the fitting words of Steve 'Alan Partridge' Coogan, 'Give him a painting of a spitfire and let him go.'

I had pegged Anna Soubry, a Cameron favourite and someone who ticks just enough boxes to take the non-post. But rumours are leaking that Cameron is preparing to axe the entire department. He could gently rid himself of 'nothing wrong' Hunt. Remove the poisonous Murdoch media issue from government to quango. Appear as if he's finally getting tough on his promise to reduce the Brown style government overspending. And, with the abolition of CM&S, claim that the money saved by axing an entire department would be used to pay off the over budget cost of the Olympics, gifted to him by Labour.

Its a sound political strategy.
Wonder if he'll actually do it?

Sport For All ? We Don't Know What It Means

And so the post-Olympic cry goes up: sport for all !  And we just know a large part of those joining the chorus are politically motivated - a chance to ambush and embarrass Cameron into committing more public money, just as someone evidently nobbled him in Opposition on the subject of overseas aid.  (Being a nob, he's eminently nobblable.)

Here's a short answer for these clamouring opportunistic statists: show me your personal exercise schedule for the past five years.  What, no thrice-weekly five-mile jogging ?  No membership of a local soccer club ?  No regular lengths of the municipal pool, or sessions at the gym ?

That'd quieten the politico-hubbub, and we'd be left with the vested (sports-vest-ed) interests, which is fair enough, every supplier lobbies for a government bung these days.

Fact is, we don't know the meaning of Sport For All in this country, as it would be understood in, say, Australia where literally everyone with a pulse is into one or more organised sports - which doesn't necessarily mean expensively funded, or indeed subsidised in any way.  It's the twice-a-week touch-rugby team (including mixed touch-rugby, which is curiously popular and motivational ...), or beach soccer, or surfing, or ... whatever.

And before the response of 'they have nicer weather', I should add that in Ireland, where I'm spending a lot of my time just now, it is pretty much the same, constant rain notwithstanding.  The GAA is a really big sporting/social affair; or the rugby, according to taste.  The park I go running in of a Dublin evening - not Phoenix Park, just a suburban patch - rain or (once in a while) shine is always chocka with runners, work-out classes, soccer games 11- and 5-a-side, open-air tai chi, really athletic frisbee contests and yes, mixed touch-rugby ...  The contrast with my own deserted South London suburban park couldn't be greater.

And it only really costs time.  Sport for all ?  Yeah, OK: just get on with it.


Sunday 12 August 2012

Ocado: Funny Business

If there's one thing that we three all agree upon here at Capitalist Towers (and that's moot - Ed), it's that Ocado is a funny old business.  We've each sniped at it over the months, and now it seems an end-game is in prospect.

If anyone needed yet more ammo against the way the City sometimes operates, well, this is rather small-calibre stuff.  But it's not healthy.  Caveat emptor, because some of the vendors are in need of very careful scrutiny.


Saturday 11 August 2012

Where's Boris When We Need Him ?

Up to his old tricks, that's where.  The papers are full of stories of how he is using the Olympics to further his designs on the Conservative leadership, just as the great international banking-regulatory crisis - conspiracy or no - threatens the City he sometimes claims to defend and promote.  All hands should be on deck to repel boarders, else we may find that during our rose-tinted Olympic revels Johnny Foreigner has been purposefully neutering our financial pre-eminence.

We have fingered Osborne as being asleep on watch, a capital offence, and we must diskard him utterly. Boris, a classicist, doubtless sees himself as Julius Caesar in Gaul, with dreams of crossing the Rubicon in due course.  He needs to recall that victories in vital battles are what is needed, not self-indulgent grandstanding.

The track record of our own regulators gives little grounds for optimism they can do what is needful, which is a sight more than a 'Libor overhaul', or token prosecution of a couple of small fry. ("Supervision of Libor could be handled by a 'college of supervisors' from across the world with Britain in the chair, Wheatley said."  Did he, indeed ? And why does he think we'll be given the chair, eh ?)

No, it is the politicians that must act, working night and day to restore the situation, as we've prescribed before. It should be Osborne.  It could in theory be Cable.  Clearly, neither is equal to the task.  Boris, you have no formal powers in this matter but you have the pulpit. If you are genuinely up for the Top Job, here's a battle for you. 


Friday 10 August 2012

We Must All Make Our Way In The World

...  and Gazprom, this includes you.

Our favourite Russian gas monolith tends to think of itself as occupying a charmed and undisputed No.1 position in the global energy market.  Not difficult to be pleased with your lot when you have a near- monopsony / monopoly on the world's largest (conventional) gas reserves; and when deputations of craven western oil companies unceasingly make their way to your offices to kow-tow.  And when you discover to your chagrin that some technical matters are beyond you, it's a simple matter to parlay all this grovelling into technology-transfer and soft financing.

But not everything turns out quite as planned.  Gazprom is of course the epitome of an onshore, pipeline-based gas supplier, and several years ago they realised that deep offshore production and LNG export were going to be very big parts of the future of the industry.  But neither deep offshore nor LNG were in their repertoire.

The strategy for rectifying this was a sensible one, given the commercial dynamics mentioned above: (1) sucker some big western companies in to developing and financing production and LNG liquefaction facilities for exporting gas from Sakhalin 2 in Eastern Siberia, and the vast Shtokman in the Barents sea; and (2) during the inevitably lengthy development periods this would involve, get into pure LNG trading in a big way, to build a market for its future LNG production.

Both phases of this plan started promisingly enough. The Sakhalin 2 gas project was initially granted to a consortium of Shell, Mitsui and Mitsubishi; then Gazprom manoeuvred its way into a controlling share by the usual Russian expedient of declaring the project in breach of environmental regulations.  

In parallel, a demeaning beauty-parade for potential Shtokman 'partners' was organised, and Gazprom took great pleasure in humiliating the US and Japanese entrants, declaring Total and Statoil the 'winners' (God help them.  For once, BP and BG wisely stayed away, despite strong Russian urgings for them to come to the party.  Shell couldn't help themselves and had a crack at it, but didn't make the shortlist.)  Thus, Gazprom has its second "Russian project that uses and benefits from international expertise and investment".

Gazprom commenced LNG trading in 2005, four years before it had any actual Sakhalin LNG production, building up a healthy sales portfolio.  And this is where reality hits home, even for swaggering Russians.

Firstly, Drew's First Law of Projects kicks in: big projects always slip. Gazprom has customers for LNG but not enough supplies: Shtokman is behind schedule and Sakhalin isn't producing enough.  So they are in the market for big quantities: Russian sources suggest they will be buying from Brunei to make up the difference.

Well, hey, that's trade, and nothing wrong with meeting your obligations from whatever source comes to hand: it's what makes the world goes round.  But it's not at all how Gazprom likes to be seen: the fabled 'reliable supplier' likes to pooh-pooh traded markets as being peripheral, unreliable and distinctly inferior to direct supplies.

They also don't much enjoy being forced to compete for sales, either - though since the advent of shale gas it is their fate to be just one supplier among many in an over-supplied market.  The Chinese have told them what they can do with their oil-indexed pipeline gas: and even the Israelis don't scruple to tell the world they can do without Gazprom's LNG.

Don't fret, дру́же, you'll soon learn how market forces work.