Friday 30 November 2012

Busy on a Friday

Thursday 29 November 2012

Question Time State Control vs Slebby victory special

If you can't guess question one tonight, you haven't been paying attention for 3 years. Which you probably haven't as its a real bubble story. 

David Dimbleby presents Question Time from Swansea on the day Lord Justice Leveson's report on press standards is published.[Even Dimby is giving us hints tonight] On the panel are singer and phone hacking campaigner Charlotte ' my friends would never sell a story about me' Church, former News of the World executive editor Neil ' few rotten apples''Wallis, columnist Simon, I'm so like Jon Snow it hurts' Jenkins, transport secretary Patrick ' no one else would come on'McLoughlin MP and shadow immigration minister Chris 'pantomime' Bryant MP.

 Enter your guess for what you believe the regional audience will ask of the panel. Maximum of 5 guesses allowed. Various special rules apply that are hidden even more cunningly than on the whereabouts of an alternative pay meter in a car park..

BQ says 
1. Brian's big day out
2. Part time jobs and falling hours
3. Booze price
4.Cyrill Smith

Doubt we'll have more than 4. Maybe not even that many.  

Can Invensys revive AIM?

Invensys PLC (ISYS.L)The Execs at Invensys deserve their champagne today after the deal announced to sell their Rail Unit to Siemens for a price not unadjacent to the share price for the whole business. Now analysts are speculating that there may even be a counter-bid.

For years the management have said the company is under-priced, but the Markets of late have been uninterested in long-term value stories. They saw a pension deficit and a boring company. Plus the markets have been moved by macro events for some years now. What a company was actually doing, or whether it was any good in its markets, has been of little interest. Value Investing had gone the way of the Dodo and those who practised it had gone to the wall unless they had very deep pockets.

For the smaller AIM market, this has proved a toxic mix. Poorer retail investors have pulled money out, day traders and high frequency trading rule supreme and the net effect has been a huge drop in volumes and a massive spread of P/E ratios. Companies that were highly valued on speculation then drop - even as they deliver on their business plans. Crazy city lore such as buy the rumour sell the news seems to have been applied without thought (this is the role of algorithms after all).

But one day, the tide will turn. Pure momentum trading has been suffering from the law of diminishing returns and then there are companies like Invensys that can suddenly show a huge return for the patient investor.

A move away from macro risk-on/risk-off would be a welcome boost to the markets and indeed will help companies to complete placings and raise finance again to get the markets moving again which in turn will feed through to the real economy fairly quickly.

Wednesday 28 November 2012

Chukka gets the Big Crunch?

Now some more frequent readers will be slightly aware of high level of disregard I hold for the labour Business shadow, Chuka Umunna. From is pathetic interviews, populist idiocies and frankly hide-behind-the-sofa dreadfulness whenever he appears on the Gogglebox he comes high up the list of "first against the wall when the revolution comes" ( I loved this phrase, how come lefties gave it up?).

However today in the Telegraph he has said something, unbelievably, that makes sense. That the leverage ratios that are potentially used in an acquisition of a company should trigger further investigation by regulators.

Where have I heard this before - oh yes, here, in one of my very first posts in 2006. Private Equity was in a real blitz then offering 10x leverage plus to acquire businesses. Even at the time this was blindingly obvious as a bad thing per say. Chukka is concerned about protecting his tax base to pay the for public sector worker and a benefits claimants - I am more worried about the destruction of viable companies and with it jobs and pension schemes.

It is still the law that you cannot buy a company with its own assets (i.e the seller can't help the buyer), but with leverage finance, in effect you can. Look at Man Utd and the Glazers takeover, filling the company with debt. Now you can argue that Man Utd has suffered little for this, the business is still growing and thriving. However, the Glazers simply took a huge bit of profit out right at the start and since then have denuded the club of investment - it has become a zombie.

The same is true across the economy, the leverage finance boom left many companies in PE hands, all with huge debts. In fact this has been a key factor in forcing low interest rates despite inflation by the Bank of England, in order to ensure the Zombie companies don't go under.

This has then also led to the Swaps mis-selling scandal, as companies that sought protection against high interest rates as their business model were so financially strained. Instead interests rates collapsed and now the same companies owe millions to the Banks who sold them the swaps. 

It is all messy and an important thing in life is to learn from mistakes. Somehow excessive leverage deals have to be prevented - at the moment with lack of credit, its not an issue, but the boom times will be back one day....

Tuesday 27 November 2012

The Mighty, Fallen: Tales of Two Leaky Banks

1.  Leaking Information

So then, Robert Peston.  Live by the leak, die by the leak, eh ?  His epic fail on calling the new Bank Governor is surely the final nail in the coffin of his reputation.  All those reporting scoops in the heady days of '07/08 - but not proper scoops, just his being used as a privileged conduit by a couple of highly-placed leakers.  Except now, he gets fed garbage.

Everybody has his number.  Here's how C@W can scientifically assess his decline: back in 2008, if we got a link on his BBC blog, we'd get thousands of hits.  Two years later and this had dwindled to hundreds or less.  Nowadays we don't even notice.

"As it happens, I did not think Mr Carney was in the frame because a well-placed Treasury source told me - in terms - that the unknown fifth person on the short list 'was very unlikely to get the job'". Pathetic. And wasn't he subdued yesterday, interviewing Boy Osborne?  Hope his fat Beeb package is success-based.

2.  Leaking Money

UBS - what a shower. When Kweku Adoboli was being sent down, the news channels played extracts from tapes of calls between UBS Compliance and the talented trader, with such gems as:  

Financial Controller: "So you're going to confirm exactly which counterparties are involved, and the quantum of the exposure".  

Adoboli:  "OK, will do". 

WTF ?  I fell off my chair.  There shouldn't be a trading floor on the planet that doesn't have deal-capture systems, confirmation processes and risk metrics which make these issues 100% transparent and subject to checks by staff who are independent of the traders, by the end of each trading day at very least, but near-real-time is the standard.  It should be like trying to do a transaction on the web: a required field pops up, and if the entry doesn't compute perfectly, instantly, you can't progress to the next stage at all.  (Given that Adoboli was in a 'Delta One' outfit - deals with the simplest risk profile - there aren't even any complex sums to do.)  

Phantom counterparties ?  Trade books he 'set up himself' ?  And all this 3 years after the banking crisis.  So UBS indeed deserves to get it in the neck.

Gaol.  Only language they understand - and corporate fines be damned.

OK, not you Pesto - ignominy will suffice.


Monday 26 November 2012

25% VAT?

OK, Daily Mail scare story is certainly is - however this is also the considered response from the Institute of Fiscal Studies as to what to do about the growing hole in the UK's already holed budget.

Rather worryingly they seem to think tax rises are the answer. Already the UK has some of the highest personal taxes in the whole OECD and now, with a nasty budget deficit, the idea is to raise more in taxes.

The far and away more obvious thing to do is to cut spending. Little progress has really been made in cutting spending and those with their hands out are adept at showing the difficult cuts that are made to say disabled services. Less point is made about say, closing libraries in the age of the Internet.

The real truth is that the Government is still far too big and is spending more money than it has by a colossal amount. The crisis of 2007/8 will forever be a denouement moment for the ear of socialist spending for it came as the endgame for social welfarism was beginning due to the ageing of Western societies.

The better news, not that any political party is currently thinking it, is that all is not lost. There are plenty of ways to save money, cutting aid budgets, reducing welfare spend on the middle classes and others (e.g. the butty tax credits), reducing money spent on the NHS by regionalisation and privatisation, encouraging Scotland to go its own way and taking its welfare insanity with it. Not to forget pushing a planning-led boom, building new airports and railways together with exploiting cheap energy sources like shale gas - all of which will help renew our manufacturing capacity over time.

So there is plenty of hope, lots that can be done. Rather worryingly, none of the politicians we have are ready for this. All are in thrall to the often state-sponsored special interest groups and also, dare I say it, the Group-think position of economists who see Keynesian demand problems everywhere and think the UK is like Greece (these being the same economists who did not see the Credit crisis coming).

of all the UK parties only the Tories and UKIP even come close to trying a few of these ideas out and they get roundly criticised for it. MY my question is what will be the trigger for sanity - do we only get sanity with another crisis?

Saturday 24 November 2012

North sea oily Bridge Energy recent new issue - worth a look now its 30% cheaper?

One golden rule on AIM, in fact the markets in general in my opinion, certainly coming hard on the heels of the Facebook, Zygna, Groupon et al debacles, is never to buy a new issue. As this has become a rule of thumb for many, traders and investors have stopped looking at new issues altogether. This leads to a self-reinforcing downward spiral in which there is a dearth of new issues. Those few issues that do get away result in small trading volumes in the after market and it is only after the inevitable fall in the share price that interest is rekindled. It happens nearly every time.

There is a time and a place for a debate about whether brokers and banks are doing a sensible job placing shares at the right price (they are not - again greed and vested interest are the culprits behind this broken sector of the public markets), but that is for another day…. One very rare example of appropriate pricing in a new issue is that of Direct Line recently - sadly this stands in isolation.

And so to AIM newbie Bridge Energy. I am a fan of North Sea Oil explorers, there have been some nice M&A takeouts of the minnows in recent years and great success stories like Dana Petroleum. Bridge operates in a safe exploration environment that is politically favourable and with good infrastructure in place. A new find and it is around 18 months only before production could begin - contrast this with the huge hurdles in places like Kurdistan and the Falklands. This means a good drill and a company is made, if it can overcome the inevitable tricky financing hurdle that is be-devilling a lot of AIM oilies at the moment.

Bridge Energy acreage is very spread out and it has a mix of currently operated areas and stakes in others. With a big spread and plenty of licence blocks to look over it is in a good place in my opinion. Throw in experienced ex BP management and also plenty of financial expertise on the board then with a fair wind it should be a good bet.

Mid Norway Bridge Energy currently has 1 licence in this area which is non-operated.
Norwegian North Sea Bridge Energy currently has 15 licences in this area, one of which is operated.
UK - Northern North Sea Bridge Energy currently has 3 Licences in this area. All are Traditional Licences and non-operated.
UK - Central North Sea Bridge Energy currently has 3 Licences in this area, all of which are traditional and two of which are operated. This area includes the producing Duart oil field.
UK - Southern North Sea Bridge Energy currently has 6 Licences in this area. Of these, 5 are operated, 5 are traditional and one is promote. This area includes the producing Victoria gas field and future developments in Vulcan East, Vulcan NW and Victoria Phase 2.

As the chart below shows, Bridge has not had a good debut over the last 2 months .  A dry well and a recent announcement of a less than thrilling current drill have dampened the already very weak fervour that there was in September. The price has declined 33% to factor this in. The last RNS sums it up:

Chief executive Tom Reynolds, said: “The Bridge 2012 exploration programme has delivered discoveries for us at Garantiana in Norway and Contender in the UK and whilst the interim results from the Noor horizon at the PL457 well were not as expected, initial results from the Asha horizon indicate the presence of hydrocarbons and we will make a further announcement following completion of drilling operations.”

Nobody said they would hit the black stuff every time. But, with two successes and two probable failures they have had a good year in E&P terms. Also the Duart operating platform is out for a year and this will bolster revenues by around £8m - a decent amount for a company valued at £60 million. A contrarian indicator too is that the big drop in recent weeks has been on poor volume  - as a new issue, the stock is tightly held so low volumes can see swift drops. However the RSI shows the stock is oversold and today’s turnaround could well be the bottom.

On the downside, a bad report from Noor may result in further weakness in the short-term, but the drilling programme for 2013 is strong and an upside surprise from Noor could see a sharp turnaround in the recent price performance. One day too, the PI investors who follow Xcite, Antrium and others will notice this new entrant to their market and the increase in attention will help volumes and the share price measurably we believe.


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Friday 23 November 2012

What a crock

A tax rise on ceramic goods will add 17.5% -58% to the dockside import costs of goods from China.
The move that has been widely condemned as anti free trade by EU member states but the tax has ALREADY come into pace, and it did so at 24 hours notice.
As some one who imports, sells and distributes Chinese ceramic and cookware goods I can only remark *****!! I mean, what the ****!

These new duties will feed through to higher prices in stores. And, because China mainly supplies the value end of the market, they will deny less well-off customers access to affordable crockery.

Exactly. just why the EU has decided to force up the price of cookware, plates, mugs, gifts, moneyboxes, teabag holder, fridge magnets and  coasters is a mystery. they fear that China is 'dumping' goods on the EU at low or nil profits. Why the Chinese would bother isn't explained. to kill off all the ceramic firms in Europe, perhaps?

 The EU market for ceramic tableware and kitchenware is worth €1.5bn. Half of that (€730m) comes from China, said the commission. In volume terms, 80% of all the EU's imports of ceramic tableware come from China.

So, from January, once existing stocks are exhausted expect a very large price rise. 

This will happen. In 2008 the EU added 50% to the import price of candles. The BRC ran an almost identical article to their current one. And they were right. The price of candles rose to a point where they aren't worth stocking. 

In 2007 BQ industries used to carry 20+ varieties of Christmas candles at £2 - £5 a go.
This year, just 1. And that is priced a bit too high for comfort at £5.95 for a small candle. So we have a tiny, tiny holding.

 We don't buy dearer French or Belgium candles instead of Chinese ones. We just don't buy candles full stop. We won't buy high priced mug and coaster gift sets either. People won't buy them.
We'll stock something else.

The surprise is that the EU has the right to increase taxes, for up to 5 years, by any amount it likes, without majority member consent. While you're over there Dave, maybe look into this unnecessary inflation adding rise in homewares?

Thursday 22 November 2012

Question Time to 'chav or chav not' edition

David Dimbleby presents Question Time from Westminster Hall in the Houses of Parliament. On the panel: Work and Pensions Secretary Iain Duncan 'Shhhh! Quiet'' Smith MP, Shadow Home Secretary Yvette 'shouty shouty' Cooper MP, former leader of the Liberal Democrats Charles 'glug glug' Kennedy MP, businesswoman and star of Dragons' Den Deborah 'I'm out' Meaden and the Independent columnist Owen ' shriek, squeak' Jones.
Enter your guess for what you believe the regional audience will ask of the panel. Maximum of 5 guesses allowed. Various special rules apply that are hidden even more cunningly than on a apple iphone update.

Nick Drew guessing from Singapore has

1. Gaza ceasefire. Tony Blair fixed it?
2. Women Bishops. Church to discuss for 2000 years more.
3. Life sentences for crims. Yuman roits iinnit?
4. Leveson says + new BBC DG
5. Student march - Owen tells us its the end of hope.


Banking reform in deep crisis

It is not being seen like this, but I do think there is a big crisis in Banking reform in the UK in particular, as well as EU and the World more generally.

Clearly there was a need after the disastrous credit build up of 2001-2008 to make some big changes to Central Bank policy making, Government Policy making and private bank regulations. All of which when you think about it was going to be messy as so much needed to be done so quickly.

As ever, the US come up with the simplest ideas - in this case the Volcker rule - to try and fix things quickly. And of course the UK, beladen with all-knowing bureaucrats, goes for the complex route.

So we ended up with the unhelpful Vickers report which did somethings but did not split the Investment and Retail banks up which would have made everything alot simpler.

Worse is Basel III and the meddling FSA. The latter is not helped by the Governments refusal to put the detailed meat on the Vickers bones - so they are left not sure what guidance to issue. Basel III meanwhile stipulate capital increases fro banks to allocate against products.

You may or may not have noticed that this has ended Investment banking as was. There are many markets that simply are not economic anymore - the amounts of capital allocated is too great to mean returns. As such only advisory businesses work and fixed income and equities, as well as come trading has simply been stopped. Hence the tens of thousands of redundancies in the City - RBS, UBS, Credit Suisse, Citi are all making five figure redundancies at the moment. Yet to come, but baked in now, will be the loss of support jobs in Legal and Accounting firms.

Bank don't know what products are going to work in such an environment of regulatory flux, as their staff are expensive they are sacking them. In a year or two perhaps they will figure out what to do and hire some back. Those who are left are on salary packages often a quarter of what they once were.

This is going to have a big impact on the UK economy - so big that it will delay any meaningful growth until after 2015. And it didn't need to happen - its the impact of bureaucratic imposition on the regulatory reform process.

Of course, no one will care and I expect many comments saying hooray or so what, because Bankers are not popular. They are very popular in the Treasury though - watch those corporate tax receipts fall and a big drop income taxes as bonus's go.

Wednesday 21 November 2012

Energy Policy, Asian Style

My contacts here in Singapore are abuzz with the news from Indonesia, another nation whose energy policy is up the creek. 

They do need an energy policy because they are a major producer of oil and gas - indeed, a member of OPEC until 2009.  The structure of their oil and gas industry is centred around a system of 'production sharing' agreements (quite common in the developing world) whereby exploration and production companies - substantially foreign concerns, 303 firms in total - are investing billions of dollars in drilling etc, in return for being allowed to receive revenues from part of the production: the rest goes to the state.  This is mediated by a state-owned entity called BPMigas, which is the counterparty to all these deals.

Or rather, was: because last week the Indonesian Constitutional Court put an end to the arrangement, having been petitioned by parties including Muhammadiyah (an Islamic organisation), and the 'scholar and cleric' Hasyim Muzadi, who argued that it was unconstitutional.  The Court agreed, and summarily dissolved BPMigas.  There's nothing like a good bit of constitutional propriety, eh ? 

I had lunch with a couple of BPMigas guys today, who at least have return tickets, but are wondering what awaits them when they fly back to Jakarta. They are not the only ones wondering what happens next: companies right across Asia buy their gas and oil from this crew.  To whom will they make their payments next month? they wonder with a smile, since their contracts are with an entity that no longer exists.  Then again, will next months' cargo arrive at all?

The energy minister, one Mr Wacik, would like it understood that everyone should carry on as if nothing had happened; that a new "task force" called SKSPMigas (see what he did there?  almost sounds the same) will pick up the pieces; and it's all a big mistake.  He's got that right. 

Over at Muhammadiyah, flushed with success, their chairman Mr Din Syamsuddin is planning to have the Coal and Mineral Resources Law overturned next.  Yes, Indonesia is a very big exporter of coal, too.

In due course I am guessing that our new friend and big-time coal importer, Chinese energy supremo Vice President Zhang Dejiang will be having a word in these jokers' ears.  Meantime, energy lawyers across Asia are going to have a splendid Christmas.  Or whatever festival Muhammadiyah celebrates at this time.


Tuesday 20 November 2012

A long time ago ...

The past seems to be getting further away.
  • If Tony Blair was still PM he'd have been in power for 15 years.
  • From the 65,000,000 military personnel of the 1914-1918 war there are 0 combat veterans still alive.
  • Any surviving pilots from the battle of Britain will be a minimum of 90 years old.
  • Margaret Thatcher has been out of office for double the 11 years that she held the office.
  • The mobile phone company Vodafone is 27 years old.
  • The BlackBerry smartphone is 9 years old.
  • The widespread use of DVDs began 17 years ago
  • Pulp Fiction, the classic modern movie, is 18 years old.
  • Eric Morecombe has been dead over ¼ of a century.
  • My first car, a Lancia, hasn't even been made for 28 years.
  • Britain has been a member of the EEC for 39 years.
  • The revolutionary wide bodied 747 jumbo jet is now a 42 year old design
  • The church of England should note that the sexual discrimination act is 37 years old.
  • Star Wars was released 35 years ago.

On an unrelated note, I've just noticed I need reading glasses.

That New Chinese Politburo

Pic: Wiki
So here I am back in Singapore with a chance to brush up my knowledge of the East.  The papers here follow Chinese affairs closely of course, and I've been reading up on the new Politburo.

Now the Communist Party of China works in mysterious ways, but it has come up with corker: the new Vice President in charge of Energy is this chap, Zhang Dejiang.

And - wait for it - he studied economics at the Kim Il Sung University in North Korea.

And we think we've got it bad on energy policy ? Actually, I always wondered about Chris Huhne ...  Good luck to the Chinese.


Monday 19 November 2012

Desertec's trouble highlights Solar energy failings

Now some stores you just can't believe and others you can write the script too far in advance. The Desertec story definitely fits into the latter category.

Desertec was a German Green-Party led idea for building 125 gigawatts of solar power plant across the Desert of North Africa for export to Europe. At the cost of a mere 400 billion euros this was supposed to save us from dominance by Gazprom and others.

Green energy, helping poor countries, getting away from nasty Russians and their gas. What a great PR opportunity.

The reality has proved, somewhat more complicated. After all, there are still foreign countries involved, ones that are becoming more unstable like Morocco. So the dependence is not cured. Then there is the fantasy technology that somehow the power can be transported across continents without catastrophic loss along the way. Oh and that all the private companies are now rapidly pulling out after doing some lengthy due diligence and would only return if Government put up the vast share of the investment.

All of this could easily have been predicted a few years ago, but wild dreams and promises (this reminds me a little of asteroid mining initiatives in the US) make for great media content, as do big ideas that solve huge problems with simplicity - its just that they rarely work.

In fact, Solar energy is an industry in huge crisis, over-supply from China of cheap, inefficient panels has pushed prices down to below cost and ruined many companies business models. Then the various Governments in Europe, including our own, have started to cut subsidies for a technology that does not really deliver any meaningful return on investment.

Politicians love to make grand statements about the future being 'Green'  - reality is showing this is far from the truth.

Sunday 18 November 2012

Next to go?

Generally electrical retailers and clothes retailing are very separate and dsitinct businesses. Comet has gone under this week and today is a sad day when it is expected that many of the shops will be closed and the staff made redundant - hardly an enjoyable Xmas looming for many of these… It has been a particularly tough time for electrical retailers of late. People increasingly shop for these products online and are less likely to feel the need to see the goods in store- hence internet based shops are doing much better and with their lower cost bases and consequently have taken huge bites out of the high street industry.

The leader in the on-line clothing sphere is ASOS (standing for “As seen on line”) and whose technology leading website and approach to sales has been impacting the market for clothes for some time. ASOS is a fantastic business and has been on my conviction buy list ever since I saw first-hand how terrified Debenhams management were of it when doing a strategy review for them in 2008.

Next though is the most successful clothing retailer in the country and one of the best, if not the best, performing stock on in the FTSE100 over 20 years. In CEO Simon Wolfson, they have a super and experienced Chief Executive. They are most certainly not going to go the way of Comet and have invested in a good online offering as well as their store catalogue - both actually act in complement to each other.

Just recently they announced their intents to carry a share buy-back when their share price is at an all time high - always an ominous sign for business that “suffer” a surfeit of cash as Apple pays testimony to in recent weeks! Last quarter’s results were not the best however with a warning of a tough time ahead and of course we have seen this week that headline Retail Sales in the UK fell sharply in October. It is not likely to be a good Christmas for retailers - again.

A look at the chart below looks to be setting up the feared double-top. Many people have been trying to pick the top in Next for some years and each and everyone has been steam rollered. Perhaps this time it’s safe to throw out a short? The downside could be as much as 300 points. There looks to be an alignment of both technical bearish analysis and a macro bearish situation in the near term adding weight to this argument.


Friday 16 November 2012

... and a Virtuous Energy Piece in the Guardian!

When I scanned the Grauniad sub-editor's effort at the top of this article by one Pierre Noël, I scarcely bothered to read any further:
Decarbonisation of electricity must be delivered at any cost ...
it read.  Well of course there are those who believe exactly that, but we may diskard them uterly.  We may diskard the sub-editor, too: read this extract from the article proper. 
The government's energy market reform ... commits the country to decarbonising electricity generation to a very ambitious level and using a limited and predefined portfolio of technologies. Those conditions mean decarbonisation of electricity must be delivered at any cost, irrespective of what other countries do, and via central planning rather than decentralised choices led by competition in a market ... 

the real costs are ahead of us and will indeed be large. The government implicitly asks the public to trust that the international climate change negotiations will indeed deliver a meaningful agreement; that the cost of low-carbon technologies will fall significantly; and that fossil fuels, especially natural gas, will be expensive for decades to come. Under these conditions the cost of the policy strategy looks manageable. However the 2009 Copenhagen climate summit and its aftermath revealed that delivering an international climate agreement is an uphill battle and the unconventional hydrocarbon revolution – especially shale gas and liquids – dramatically changed the prospects for fossil fuels...

A politically sustainable approach has to acknowledge what we don't know and cannot know: will there be a meaningful climate treaty and what the cost of clean energy from each technology will be? Several implications follow from this. The eventual level of national emissions reduction should not be legislated; costs have to be revealed and not assumed
Thoughtful stuff - I look forward to reading more from the good Pierre.  Can't see the Guardian hosting much more of it, somehow.


Thursday 15 November 2012

Question Time Cor Blimey special

David Dimbleby presents Question Time from Corby as the polls close in the by-election. On the panel are justice secretary Chris Grayling MP, Labour's deputy leader and shadow culture secretary Harriet Harman, UKIP Leader Nigel Farage, Liberal Democrat Tessa Munt and Moray MacLennan, chief executive of the advertising agency M&C Saatchi.

Semi heavy panel and another outing for UKIP. Unusual for the BBC. Maybe they are preparing for the Libs to be the 4th party after 2015?

It'll be all about the Corby by election. for those who haven't paid any attention to it, which is all of us who don't live there, you can back labour to win but only at 1:100. So whatever the spin its a certainty and always has been. it was amazing Mensch ever won it..

Enter your guess for what you believe the regional audience will ask of the panel. Maximum of 5 guesses allowed. Various special rules apply that are hidden even more cunningly than on your utility companies website.

BQ predicts.

1. Corby, is the end of the libcon alliance, the end of conservatives, the rise of the Mliband Tendency, UKIPs finest hour etc etc. {its none of these things}

2. Israel begins peace talks with an attack.  Not very peaceable. Possible invasion. That hasn't gone well in the recent past. Is there anything we can do? Should do? Or do we have enough to worry about doing nothing about Iran and Syria?

3. The EU general strike. Its almost unreported, yet there were huge numbers on the streets in Spain. Less in Italy and Greece. How long can this euro crash go on?

4. The BBC DG resigns on double pay? The rewards for failure have never been higher.

5. Tax tax tax. Stabucks/Google/Amazon/Ikea have killed off UK companies and aren't even paying any tax! {except all that vat and employer NI and business rates - } Even I, low taxation supporter, believe HMRC's light touch is softer than a roll of Baby Bum Cuddly Andrex Softy Soft.{tm}
 The unlevel playing field .

Coffee still too expensive?

This is not going to be a rant about Starbucks legitmately using the UK tax system to keep its corporate tax bills as low as possible.

 (Ok, it will be a little bit now, but this is just to say the MP's in Parliament so keen on grandstanding should be asking the Chancellor and HMRC how it is possible for companies to legally do this? Why is out corporate tax code so Byzantine in nature?)

No, what really strikes me is the lack of coffee price effects on the price of coffee in the high street. This year the wholesale price of coffee has droped by up to 40%. Next year there is predicted to be a global coffee glut for the first time in over 5 years.

Yet prices on the UK high street continue to be  as high as ever, in fact they have been increasing this year. As usual, UK property rents are the key driver and staff costs. Only 3% of the price of a coffee is the actual coffee - 3%! I found that quite surprising, Labour, VAT and Rents are each over 25% each of the costs - even the packaging costs more than the coffee.

With that in mind, perhaps it is not surprising that Starbucks struggles in the UK, after all upwards only rent reviews, increassing minimum wages and increases VAT have been a big part of the last 5 years in the UK.

Maybe they really cant't make any money after all then...

Wednesday 14 November 2012

UK unemployment, down again

...and all due to reducing youth unemployment. Really pleasing to see this as it also means that quality jobs or not, cuts in the public sector are just about being absorbed by the private sector - so that is less taxpayer funded jobs and more taxpaying jobs instead.

The numbers are not great and the current trend shows that this rise in employment may not last into the winter and spring - still good news for now.

Especially against such a terrible background of the unending euro-crises and the US fiscal cliff...

Tuesday 13 November 2012

Yes: A Virtuous Energy Subsidy!

Can this be ?  Has Drew come up with a moonbeams-from-cucumbers machine, and is looking for a sub from DECC ?  Or has he just invested in a windfarm ?

No, friends, I remain implacably hostile to these and a hundred other nasty little government schemes to undermine the workings of the market*.

But there is one energy sector where subsidy, or at least government-directed finance, is indeed merited.  Energy efficiency - like efficiency as a whole - is generally a Very Good Thing.

Not least, of course, because it ought to pay for itself - or rather, the efficiencies we want are the ones that do pay for themselves.  Furthermore, the higher the level of energy prices, the more likely is an energy efficiency scheme to pay its own way. 

Unfortunately, a very significant number of economically sound energy efficiency measures remain undeveloped.  One should be highly suspicious when the cry of 'market failure' goes up - Vince Cable, you know who you are - but in this instance it is often the appropriate analysis.  There are several reasons; the best-known being that the capital-poor, be they individuals such as social tenants, or cash-strapped corporations - just can't put up the readies for the necessary investments.  Or, to put things another way, they have too high an implicit investment hurdle-rate.

So with much crossing of fingers (and not wishing to be associated in any way with Greg 'anaerobic digestion' Barker) I am strongly inclined to support this ... this ... new DECC initiative.

There.  Said it.  


*Footnote: undermining energy markets, of course, is not the sole prerogative of the government : gas-market price-fixing is fairly effective as well ... to be continued

Monday 12 November 2012

Privatise the BBC improve journalistic standards

I nearly put a question mark on the title but realised that would only make it a rhetorical question. The BBC has been brought low by two appalling decisions recently. One not to explore its own history with Jimmy Savile and the second to join in a Labour-inspired (yes, that is you do the inspiring Tom Watson) piece of crazed journalism implicating a Tory in a paedophile ring.

This really stinks of the worst days of Damian Mcbride and shows how many on the left-wing in this country will believe anything they are told about Tories, I guess this is why the moniker 'baby-eaters' has stuck.

However the BBC is meant to be a non-political organisation, indeed its TV news broadcasts are forced by law to walk the middle line. Now we all know that Channel 4 News has this mandate yet manages to bend most stories round to a very left-wing approach. Yet in the Country as a whole, right-wing media outsell left-wing media. But somehow the BBC manages to host a huge amount of left-wing bias and to my knowledge no right-wing broadcasters or journalists at all. It news reporters focus on cuts and austerity and as a huge state backed institution it instinctively backs all moves to bigger Government and the status quo which sees us all pay for its existence under threat of fines and imprisonment.

If people in this country were top be freed from having to the pay the TV licence then this would change overnight - it would have to for the realities of a commercial existence would mean the BBC was unable to ignore such large parts of its potential audience or else it would have to shrink quite rapidly. I would imagine in reality the latter would happen and the BBC would retreat to its left-wing core and let other organisations step into the breach.

For the Country as a whole, the subsidising of our TV, Radio and Internet services is simply not needed. We don't need every recipe in history stored for free on a BBC website. There is plenty of scope to reduce the influence of the BBC. Commercially, the organisation would thrive given its brand and quality of production and understanding of its audience. Yes it would be smaller, but more attuned with the needs of its audience and host country. The opportunity for international expansion would open up too.

Finally of course, everyone in the Country would get a £130 tax cut which would be nice and stimulative to the economy. So when can we see this Bill in Parliament?

Sunday 11 November 2012

Rise of the Machines


One of the more interesting stories I came across this week was on Bloomberg relaying news that at least one, if not more, of the recently sacked UBS traders in the City have been replaced by Algorithms.

It must be pretty hard being replaced by a computer, however, computerisation for productivity improvements is hardly a new trend, although replacing highly paid workers is increasingly worrying for many of us.

As a sign of the market environment to come, it is instructional though. Already in the US over 60% of NYSE trades are computer driven and in the UK over 40% of FTSE trades are initiated by computers. These numbers are increasing all the time. Now other types of derivatives and non-equity markets are being accessed by computer algorithms with massive allocation of funds to their programmes.

This throws up a few dilemma’s beyond the usual what-the-hell-are-we-all-going-to-do-for-a- living? Firstly, the flash crash in the USA showed that in a panic, the mass of computing power creates an even worse herd-like instinct than humans do, and which is quite a feat! In normal markets algo’s outperform humans as they don’t make emotional and irrational investments and have specific limited risk profiles. You just can’t get a computer Kweku Adeboli, unless through some really bad programming!

On the other side, computers models are all built around statistics and technical analysis. They do not look at analysts’ reports or speak to management. They react to the market moves of the day. So in effect, they are perfect momentum traders, better than you or I every time. But they are rubbish long-term investors by design. They can’t see an AIM stock going up 1000% in a year because they don’t know about the drill/patent/buy-out, unless it is quickly programmed into the code – which is nigh on impossible.

All this should mean in the near future that day-trading becomes a really hard game to win on a TA basis; conversely more fundamental strategies around buy and hold or even shorting over decent time periods, will become more efficient once more. Ignoring short-term volatility, better opportunities will arise and in a more liquid market provided by Algo’s there will be more entry points and exit points for positions – particularly so for smaller retail players than for larger companies who need to take bigger positions.

Equity trading has seen large falls in volume of late with the likes of BGC reporting 20% collapses in volumes. Whilst the algo’s have put off many traders for now who are tired of seeing their trades front-run at lightspeed, this situation may eventually turn around as the benefits of a long-term strategy are seen again. The world of trading and investing is certainly moving fast in 2012.

This post is sponsored by

Thursday 8 November 2012

BBC Question Time Competition

David Dimbleby presents Question Time from Bexhill. The panel includes police minister Damian Green, shadow business secretary Chuka Umunna, Liberal Democrat peer Shirley Williams, novelist and Sun columnist Jane Moore and Professor David Blanchflower, economics editor of the New Statesman and former member of the Bank of England's Monetary Policy Committee.

Working late at the office. Might make it back in time. Panel looks alright too.

BQ throws his dart into the news board and predicts..

1. Paedo MPs and internet trial pressure. {Have seen comments on newspaper blogs along the lines of 
- "filth,scum, name and shame them if they are guilty string em up. They deserve to be exposed! Publish their names and let the world decide their guilt- Barry, Doncaster."
 I confess I did add "Barry from Doncaster is a well know sex offender. He needs his name to be in the public domain. Posting his last name and address later.."} Schofield was being an arse. What possessed the lightweight sofa cushion to make such a blunder?

2. Barry Obama and how the evil of religious extemism has been purged from America's soul ..

3. Cuts to the army. is it right to have a reserve army, not a frontline one? And how will employers react?

4. New Archbishop. Does the Archbishop have any sway with anyone anymore?

5. I'm an MP get me out of here. Mad Nads is in tro8ble with the boss. Is she right to be shamelessly  self promoting instead of working?

Wednesday 7 November 2012

What a way to run an opposition.

Obama was successful. Congratulations to CU who told us all before the day that the race wasn't even close at all and no matter what the media were saying. Obama was a certainty to be President. Cityunslicker was right and Obama is.

The Americans have a mad system of government. The President is supreme in his power yet he may not control the senate or the House and so may never pass any new statutes or amendments at all.
Each state has a block of votes to allocate solely to one candidate, and count their votes by many different methods and operate all manner of different systems. America is nothing like the UK, even though we often think it is. Its much more like Europe. A great diverse collection of states with their own priorities and religions and ethnic mixes.

But one thing the USA could learn from the UK is how to do not being in government. consider the crazy idea the US has of holding primaries. What a dumb idea this is. Only 8-9 months before the election did the Republicans consider choosing a leader. How much time does that give the choice to make an impact? Virtually none. What brief do they have? What knowledge of what's been going on? What recognition do they have by the voting public? 
The new challenger to the President has to start from near zero and come up with a whole raft of credible, measured, tested proposals in a matter of weeks. its near impossible.

Not only that but in order to become the hopeful to be president, they have to fight all the other hopefuls along the way. They have to publicly rip the guts out of each other candidate. they have to discredit them utterly. Destroy them completely in the eyes of the voters. They must use every political trick in the book. As Mr Burns' political adviser said 

"this is your your muck-raker, your character assassin, your mud slinger and your garbologist."

Every indiscretion from the silliest unpaid parking fine to multiple affairs is revealed. Health records are examined for weakness. Family members are checked for loonies and crooks. All the candidates do this to each other. And with their own cash too! And this goes on for months and months in each state. From January to June all ready for the big election in November.

At the end the Darwinian process has weeded out the weak and left only the strong. But of course it has made them terribly weak. Every possible bad thing about them is now known to the voters of the USA. Every attack they made to rid themselves of a rival is also known. open politics in its rawest form.

And this is the short version. There are actually primaries and caucuses and binding and non-binding and open and closed and conventions and rallies and the state is electing delegates not potential presidents. 

At the end of it all the nominee is a battered and bruised husk that has already campaigned hard for 6 months and is exhausted and exposed. They have made every crazy promise under the sun to every special interest group in every state. They are left facing in more directions, and making more impossible pledges than a Liberal Democrat. Their party is angered over not getting a centrist or a Tea Partyer. Not getting the right ethnically mixed or right religion, or right gender challenger.

All the while the incumbent President has been elected unopposed to stand again, with the full backing of a united party. They can sit in the White House spending money or pledging to spend money on special interests, minority programs and the key marginal states.

Imagine if Ed Miliband had had to fight for his nomination in every county in the UK. If he had to campaign for 6 months on the issues that effected his party. He would have had to have come out strongly for the unions. Strongly for the muslim vote. Strongly in favour of immigration and Europe and green issues and women's rights and public servants getting more pay and ending Trident and opening up coal mines and never once mentioning a cut to a penny of spending.  
The non Labour party voters would think him a communist. Or a crank. Or out of touch. 
All the while he was being attacked by his other rivals for power. The right wing newspapers kicking at him as well as the left wing ones being fed endless stories to discredit him and promote some other in his place.
He emerges as leader with just 5 months to form a credible front bench, manifesto and election strategy. All the public knows of him is he used to be in Gordon Brown's cabinet, stabbed his brother in the back,, had his appendix out privately, drives a non electric car and always looks a bit like he's about to say "Wensleydale!"

After 1 year in opposition Ed Miliband was in danger of being slung out he was so ineffective. It took him another year to find his feet and even get into the game.

And the US elections are personal elections. The voters are picking a person they rate as much as a party. How that person looks and sounds and how much charisma trust and charm they have is very important. To leave the choice of candidate to weeks before the election is utter, utter madness.

No wonder they have that law that the president can only stand for two terms. 
Otherwise they'd never leave.

On The Subject Of Elections ...

A little while ago I sought expert input on the UK boundary-changes debacle, discovering that the Conservatives have screwed up the only political issue that mattered in their coalition dealings.

And so it comes to pass, according to Brogan in the DTel.  He reckons the LibDem manoeuvering  might bring down the coalition, which I suppose could have its advantages.

But I wonder.  Cameron is one of those types whose sense of honour includes putting friendship above most other considerations.  It's this, of course, that will be end of his credibility when the ludicrous Brooks thing plays out.  In the meantime, his little friend Clegg will probably get a measure of top-cover for his plotting, where he ought already to have been taken to one side and had his fortune read for him

That's the trouble with Etonians: when you've got it all, at the end of the day, you don't have enough at stake.

What a shambles.


Monday 5 November 2012

Obama nailed on


Now, let's not be neutral here. I once lived in the US for a few years and if I did again now (and could vote!) I'd be voting Romney every time. (However, given that I lived in solid Democratic state California fat lot of good it would have done).

Having said that, it is interesting to watch the media at the moment. Desperate for ratings and attention, they collective zeal is to build up the race as much as they can. A close race is more exciting (or a landslide) and generates more interest.
Of course, in America, with the paid advertising portraying the other guy as the devil incarnate who will eat your babies, people have a tendency to get more strident than they do in the UK - where we tend to despite all politicians more equally. Especially of late where we can so easily tell that none of them are up to the job.

But in the US, the race is not that close. Romney certainly made up some ground in the campaign, but he started from a long-way back. There are some key trends in the US which affect the UK too, notably postal voting means a decent chunk of people vote before the end of the campaign. These votes have been going to Obama.

Another important similarity is that the US presidential election is a first past the post one, as is the UK. This means that vote share is less important than 'seat count' (in the US, electoral college votes). Here Obama is home and hosed. There are 5 really bit states in the US that count, NY, Cali, Texas, Florida and Ohio. of these NY and Cali are democrat and only Texas is Republican. This means any republican challenger has to get Florida and Ohio. Romney may edge Florida, but certainly not Ohio. Plus the Republicans have to make sure of all other non-coastal states and this is getting harder in Nevada and New Mexico as immigration rapidly mixes up the states voting mix.

All this means that Obama gets in by reckoning with over 300 Electoral College votes. The close race meme currently being pushed is a great one for media interest, but in reality Obama leads in all the swing states.

It is really hard to unseat and incumbent in the US Presidential Election, it happens very rarely and won't be happening tomorrow.

Sunday 4 November 2012

November Risk On?

So we made it through September and October without a crash. This is great news for punters (if not the spreadbet firms!) as statistically, these are the top two months of the year for the markets in terms of crashes across the globe.
With so much macro-economic dislocation; the Eurozone crisis, the American fiscal cliff risk, the slowdown in China, the Japan/China face-off…the list is enormous and that’s without even mentioning the Middle East yet!
Yet, despite of all of the above, somehow the markets have managed to put in a pretty decent return for the year so far - certainly in the US and, to a lesser degree here in the UK. The disasters have been selected Southern Europe, Japan and China - areas that this magazine are tipping to be outperformers next year - such is the way of market dislocations - what are major underperformers one year and certainly when 2 or 3 years in succession, generally outperform the subsequent year.

The unprecedented monetary stimulus and negative real interest rates in the UK & US are the primary reasons for the buoyancy in markets and also the lack of any real volatility this year as the VIX pays testimony to. This combination seems to have done the trick so far.

Now, in November we have 2 major events which will set the global macro-scene for some years to come. Both are political, the once in a decade change in China and the American election. Now Obama is a strong favourite to win in the US and an incumbent win is traditionally good for the markets as it signals stability - the markets hate instability. Both 1998 and 2004 were years ending on a high in the US after an incumbent win (Clinton & Bush).
In China, the news is bound to be more opaque, but by the 15th of November we will know which of the political clans have taken over. Already, with the downfall of the Bo’s who were leaders of an old communist, left wing element, the signs are that the new leaders will be strong and relatively reformist. Again this should be good news, firstly that there is a stable handover and secondly that economic reform and growth will continue.
A third event of less global impact will be the Eurozone approving a further Greek bailout on 12th November; recent statements by French and German ministers suggest this will happen. So another piece of can kicking to delay the euro-crisis coming to a head looks to be in order.
The year-end nearly always sees a Santa rally in December, but perhaps this year the political events will create an earlier momentum, leading to possible big index gains at points in November before the Santa rally - in contrast to the historical record as detailed in this blog -
Mind those shorts and watch those risk-on assets for big price movements when the opportunity to bank profits are presented.

This post is bought to you by site sponsor, Spreadbet Magazine.

Friday 2 November 2012

Comet's poor choices.

I thought they had made it. Two bailouts on from the big tip over they looked to have enough cash. But, the usual problem of a recession. Too many competitors and two few customers. And the all new online shop killer. 

I think they made their biggest mistake back in 2003/4. I was mildly involved with Powerhouse in the early millennium. Remember them? no? Never mind. At a strategy meeting they were analysing their strengths, which were few, and their weaknesses, which were many. Same as above plus, in the days when white goods retailers were heavily into PC and printer sales, they had a poor PC brand. Time Computing. And they lost that later too.

At the meeting the consultants pushed for reducing product lines, focusing on plugging the big gaps in their line up. They had no playstations or consoles. Or video games. I don't even think they had mobiles. One perceptive consultant even suggested they stock the ipod which was then just taking off.
Instead the directors decided on doing what directors always decide is the answer because all the focus groups say it is.

"More customer service."

Directors love this because they imagine some PowerPoint, some awaydays and some one on one role play and sales will rise 10%. Its cheap and simple. And of course, its nonsense. Customers always put good service in the top 3. But it isn't, its top 5 at best. Price will trump all but the worst service. Quality and convenience will trump poor service. Only outright rudeness and incompetence will turn people from the door.

Everyone does customer service. No firm actively sends its customers away or tries to annoy them on purpose. Some treat their visitors better than others. John Lewis is exceptional. Primark is certainly not.
But the exceptional John Lewis service will not make the Primark punters shop there. They are in Primark for price and choice and convenience. And that's it. 

I remember the press release from the first restructuring at Comet. They decided to do customer service as an answer to the internet. The reasoning was that people will look on line, but can't work out how a TV functions or how a video camera handles or feels from pictures. So they will come in and the staff's product knowledge will be so superior people will buy the goods there and then.
It seemed very optimistic even back then, before the internet shopper revolution had even really got started. 

What actually happened was their rivals, Curry/Dixon PC World spent their money on an easy to use, easy navigate updating realtime website. Currys, despite some very close calls, just made it through and now their website , which I personally only rate only as OK, is a go to destination. 
Comet wasted time on expensive over staffing and lengthy training and neglected what it should have been doing. Making its stores a front for its own e-commece operations. Its local units its local delivery from and pick up at stops.

And the advent of Apple intuitive design led manufacturers to make easy to use, plug and play, simple to operate products. It was no longer necessary to call an engineer to fix up a video. A DVD player is just a plug, lead and scart. Tvs set themselves up with autotune. And even items like 3D TV that rely on visuals in the store don't necessarily translate into sales. Look in store and then buy elsewhere.


All the 'good morning madam. Are you having a superior shopping experience today?' won't alter that.

Thursday 1 November 2012

Question Time: Sandy special

From London. With David Miliband,{The nearly man of politics. Quite likeable really.} Jerry Springer,{Talk show host, opera show, Democrat and hooker connoisseur,}    Kwasi Kwarteng,{Safe seat Tory. Parachuted in as part of operation huggies. By all accounts does a decent job} Colleen Graffy {former deputy assistant secretary of nothing to nobody. Republican.} and Shami Chakrabarti.{Human rights queen making her first outing of the still 3 or 4 more to go.}

BBC determined to do a US edition for QT so this is going to be difficult and probably tedious too.
To try and give you the political background to the panel imagine the first question is 'would you kiss Obama?'

Dave - Yes, but mainly from behind and rear.
Jez - Defo- he's a man God
Kwasi- Yes, but no tongues
Colly - not if he was the last male alive and I had 1 day to live.
Shami- Its a nightly fantasy
DickieD - well..there's a first time for everything..

Enter your guess for what you believe the regional audience will ask of the panel. Maximum of 5 guesses allowed. Various special rules apply that are hidden even more cunningly than on your utility companies website.

BQ thinks.
1. Did Sandy show Obama to be THE President?
2. Global warming flooded America. Are you Yanks sorry about all your pollution?
{Is actually a question about no more windmills in UK}
3. Something about extradition and Gary the UFO. Explains why it wasn't in last weeks show.
4. EU veto. Will Dave dare throw our herbal tea in the Channel and declare a tax rebellion {no}
5. Disney/Starwars. Are Republicans all on the dark side?