Monday 29 December 2014

Oil Price: Halved. UK Power Cost: Halved

There we go, oil halved in a tad over 6 months, to a 5-year low.  Trouble in Libya?  Pphh!

Tell you something else that has halved:  the supposed value of capacity in the UK electricity market.  Back when the government launched the recent Capacity Market auction for 2018-19 power generation capacity guarantees, they and their expensive advisers 'estimated' that the clearing price would be £39/kW.   Meaning they'd need to offer that amount annually to power plant owners in order to get them to guarantee to be available on demand in that time period, in the desired amount.  Pretty much all the idiot energy market forecasters went along with this - indeed, several 'calculated' it would be even higher.

But the auction, which happened in the week before Xmas, cleared at ... £19.40/kW.  Hah!  There are so many amusing aspects of this, I expect we shall return to it in 2015.

For now, back to the two price-halvings.  Are they related ?  Not by cause-and-effect, that's for sure.  Rather, they are two manifestations of the same phenomenon: economists don't know what the hell they are talking about.   And yet somehow they have salaries and positions of, ahem, power.

To energy consumers everywhere - a Happy New Year !


Saturday 27 December 2014

Obama get it right ?

Obama, may, whether by accident, or design, have done the right thing. In his battle with finding ways to contain Crazy Kim and his dictator state, he has actually followed the best possible course.

Rather than being a series of flip-flops between outright cowardice and big nation bullying with excessive force, as many first thought, the USA has actually done all the right things in the right order.

If we here at C@W put on our digital wigs and adopt armchair lawyer mode for a moment consider this ..

Firstly, it was extremely poorly judged of Sony to allow the making of a film that depicts the assassination of a current world leader. in the first place. It was even more silly to think that there would be no repercussions from lampooning a dangerous megalomaniac , who demands total loyalty under pain of death.

Secondly The Pyongyang Cyber warfare army launches an online attack, revealing some salaries and private emails that upsets celebrities and  causes amusement , and a little bit of worry about security systems, in the west.

At this point, what can POTUS do? The USA hasn't been attacked, as such. This isn't 9/11 with 3,000 dead and billions of dollars of damage done to the economy. This is a bit of a hit to the share price of a foolish company. So Obama says "I am annoyed about this..And will investigate"
The business world is a bit shocked at this lack of response to their plight. But Obama is right. What is going on at this stage, is a possible business to business issue, albeit a probable, though unproved, nation to business attack.

But then Kim Kong, as usual, oversteps himself. A man without restraints cannot be restrained. Except, paradoxically, by assassination, Caligula style.

So the Great Leader says he will bomb any movieplex showing the despicable "The Interview" film.
Sony, fearing no support, and worried about the legal implications in case the supreme loon, or one of his eager to please henchmen did actual detonate explosives in a cinema, pull the movie.
 US cinemas tend to be in shopping centres. The civilian causalities, over the Xmas holiday , could be huge. The legal bills even more huge. And they think that O'Bama is only going to play golf and leave them to fight North Korea on their own.

But now the President and his advisers have an actual threat to deal with. A threat from a known source. Little Kim.

So they treat his tantrum as any tough love parent might, by shutting off his internet. The North Koreans, who have no doubt told tubby that their IT systems are impregnable, have to explain to the God King, why he can't access Top Gear on Iplayer.

The US response was measured,reasonable, and had just enough menace to imply that if the Magnificent Light of the Universe didn't pipe down, he might find his surfing privileges permanently revoked.

Sony Pictures felt reassured enough to give a limited screening to their probably Godawful comedy film. Probably also after a very careful security review of the venues chosen. With Homeland types in the audience just in case. And they had all the publicity they could ever dream of to promote it.

And there the stalemate ends, as is usual with the North Koreans.  Kim has blustered his way through a crisis and at home appears to have caused major upset to the Great Satan. He has not been left without  face.
The US, and China, have reminded the world's greatest man that there are limits to his fantasy. And he better not push too far.

It doesn't mean that he won't try. He can't be controlled except by the Chinese who prefer not to have to deal with the Korean problem just yet.

But, in terms of actions and counter actions, I think the foreign policy flapper that is the Obama Presidency, did good.

Monday 22 December 2014

Ambulance + A&E Crises: A Sorry Tale

The perennial winter 'A&E Crisis' stories are with us again, this time with all-too-plausible rumours of targets and statistics about to be manipulated.  Burnam's response for Labour was very nuanced and oblique, so he's obviously been told by Ed Balls to tread carefully and not make anything that might look like a costly promise to do better if Labour come to power.

One of my nearest and dearest had a 5-week involvement with the NHS a short while ago, including an ambulance service / A&E episode.  I'm only too happy to acknowledge several aspects of the story that reflect well on the services we encountered (because there were some) but, from this very recent first-hand experience, there are some shockingly bad and wasteful practices in the emergency services that need sorting.

At a particular point in the saga a District Nursing team determined that 'immediate' hospitalisation was necessary.  I was actively involved throughout what followed.  The degree of urgency was, it is fair to say, below that of a heart-attack or ongoing stroke, but this was no leisurely admittance.  The 999 call centre said that according to their prioritisation scheme an ambulance would be forthcoming in no more than 80 minutes (stated more than once, in a manner that conveyed a strong whiff of Statutory Target).

After 3 hours, two more 999 calls and no ambulance, a senior District Nurse attended and worked the 'phone to get a bit of priority.  At 4 hours a team of 2 'first responders' showed up.  They made a few simple tests, administered oxygen, and asked a heap of questions.  Shortly thereafter a one-man 'ambulance' turned up - in an estate car jobber that wouldn't ever have been a suitable conveyance.  The new man on the scene brought into the house even more portable equipment and had a load more questions - not directed to the DN or me, but to the first-responders.  Finally, a 'proper' bed-ambulance arrived with two more operatives (and a load more questions, this time posed to the first ambulance man).  More than 3 hours after the 'maximum 80 minutes' we now had 5 NHS staff and 3 emergency vehicles on site, to get one patient into one ambulance . 

I'll maybe recount the A&E saga another time.  For present purposes let it simply be noted that although the (uneventful) 15 minute drive to the hospital allowed the ambulance attendant to complete a raft of paperwork (I was sitting alongside the whole time, answering yet more questions), upon arrival the attendant went to a desk to be interrogated from square one by a reception nurse, going over all the same ground once more (the fourth time).

Let's put to one side the suffering and distress, and address the effectiveness of the operation. 

The first lesson: despatch, deployment and coordination of vehicles, crews and resources wasn't just sub-optimal, it was appalling - how come that after 4 hours we wind up with 3 vehicles plus 'highly-trained' crews, only one of which is actually needed ?  Somewhere in the worlds of, oh I dunno, Air Traffic Control ?  RAF casevac mission control ?  Minicab despatchers?  24-hour emergency plumbing firms?  - there must be people and software that can marshall limited resources a damned sight better than that.  Until the gross inefficiency is sorted, please don't tell us there is a shortage of anything.

Secondly, the transfer of information was worse than primitive, it was utterly ineffectual.  The crazy sequence of chinese whispers conducted right under my nose was an outrage to any system of communication anywhere, any time.  Why, during the first 3 hours, hadn't the District Nursing service equipped the ambulance and A&E services with all the basic info, if only by 'phone?  Why were they asking each other all the same questions in turn? (Well, because they were all there, I guess - and all had log-books to complete in due course!  I'd be interested to compare them all ...)  Why didn't they direct the questions to the horse's mouth?  Why was there such a low level of fidelity in successive verbal transfers?  The number of times I had to correct inaccurate chinese whispers was well beyond a joke, and I shudder  to think what might have happened if I hadn't been standing right there to do just that.  

Finally, why was it all by word of mouth, when at several stages there were really obvious opportunities for bluetooth transfer of digitised info, or at least recourse to everyone using an SMS-based central system?  We all know how quick those systems can be.  The time in the ambulance was essentially wasted, not to mention the consequential waste of time at A&E when both the reception nurse and, perhaps more importantly the ambulance crew, could have moved onto the next job five minutes sooner.   (I might add that within the hospital itself the 21st century has been embraced in this regard: they have got basic single-keystroke and direct-from-sensor info-transfer via hand-held devices down to a fairly fine art - so the understanding and technology do exist in the NHS.)

These basic process-and-systems deficiencies are grotesque, and must in some instances (though not directly so in this case) be life-threatening.  'Soft' issues like suffering and distress are much alleviated by slick, optimised processes.   Costs are cut by eliminating waste - again, via slick, optimised processes.  Everything screams out for this to be brought into line with readily available modern methods.  Shame on the management that soaked up the billions pumped in by Blair and Brown without addressing these basic imperatives.


So no rate rises in 2015 after all then

It is quite a thing the Zombie economy created by the crash of 2008 and the crazed Blair government of the early naughties.

On the one hand we seem to have £100 billion in excessive government spending on welfare and the NHS which seems unbridgeable with much lower growth baked into the economy along with long-terms constraints on pay due to productivity being lower and immigration meaning there is an over-supply of labour.

Then there is the impact on the monetary economy. When the Banks were short of liquidity - and the economy to, the UK splurged £350 billion in quantitative easing and dropped interest rates to 0.5%. This should have driven up inflation, but the sheer destruction of money caused by the losses on financial assets seems to have prevented this.

So, with oil prices and commodity prices falling there is every chance the UK may experience deflation early next year rather than inflation.

Since 2010 analysts have always said the first inflation rises are six months away. Typical analysts really when it comes to forecasting the future, all agreeing about some fuzzy movable point in the future.

At the end of 2014, fully 4 years after rates were to have risen and indeed 'normalised', we are further away than ever from rates going up. In fact, it is hard to make any case at all to raise rates next year - potentially to cool a housing bubble, but that would be a very blunt tool for that job.

It seems there will be no interest rate before or indeed after the election. We will have record low rates for the meantime with all the benefits and problems that it causes. The Zombie economy will continue as the UK follows the 1990's and early 2000's path of Japan to a pancake economy with ever rising public debt.

Saturday 20 December 2014

The Importance of the ECJ Obesity Ruling

Now here's a truly hilarious headline
New ruling on obesity will impact on Scottish business 
Yup, I think we can agree with that one.  But business implications aside, who's this chubby chap in the asylum queue, urgently seeking sanctuary in our enlightened, fat-friendly continent ?  

They say Sony have pulled the fim of what ultimately happens to this fella (whose name, I believe, is Mr Kim Creosote): but we have obtained a preview.

A bit of a warning to us all, and proof - if any were needed - of the sheer humanity of the ECJ.  All power to them.  Sony, please take Mr Obama's advice and reconsider - as a public service.  This film should be widely seen.

Friday 19 December 2014

Is the North Sea really a dead duck?

The papers are full of bandwagoning about the death of the North Sea. Do we think this is true though or just useful copy as the fall in oil price plays out.

Here are some thoughts on it:

1 - The oil price will bounce back, but in reality the days of $200 oil are a chimera. There is lots of shale oil, LNG is replacing oil demand rapidly across the world (rapid in terms of over this decade). Many countries full of oil have restricted access to market - Libya, Iran and Syria for example.

2 - So where will it hit, well the ceiling may well be governed by the Shale Oil sit around $69 in the US currently, maybe a tad more. So long-term this may well be the placeholder for oil to float around - touching a hundred in times of stress maybe, but no further. Certainly going lower at points such as we are now.

3 - Oil demand is rising more slowly than in the past as the world grows more slowly and Renewables and LNG take the strain- another long-term constraint is in play.

So, overall this is very bad news for the North Sea, where extraction costs are $60-70 per barrel - the same as Shale oil. So it won't die but it becomes a very marginal business with small fields at the end of their lives. Plus the increasing regulation around decommissioning is another negative factor.

I can't see a new North Sea rush without huge tax breaks (umm, by which I mean reduction of the huge taxes on production and distribution, not actual subsidies) which maybe what is needed. The greenies in the political parties may well put a stop to this.

Such a shame for the humour of the world that the Scots did not go independent though and then have to face this reality!

Wednesday 17 December 2014

How wrong can you be?

I seem to have lost my touch. 
Anytime there was a story in the media, that I formed an opinion on, I have been wrong.

I expected that a baker who didn't want to bake a cake for a client, for whatever reason, wouldn't have to. I was wrong. 
I thought that Douglas Carswell's principled re-election stance would prevent any followers. Wrong again. 

I supposed that a bisexual husband who handed a brown bag to a taxi driver, who then killed that man's wife, would at least have to face trial to explain why he went on online dating sites the night after her death. Wrong again.

I guessed that a man who fired fatal shots through the en-suite bathroom door would be guilty of manslaughter at the very least. Nah...

I thought that the last thing the government would do to revive the economy would be to give the housing bubble another pump. Another miscalculation.

Ii thought missing flight MH370 would turn up somewhere. It hasn't.

I guessed that the Scottish Referendum result would draw a line under independence for 20 years or so. It didn't.

I thought England's super dismal performance in Brazil would necessitate the usual change of manager. Oddly,  that never happened. And I thought Louis Van Gaal would have made a blistering start at Manchester United. Instead of the mud like slog they have been making of their season.

I assumed that government would not ban smoking in cars with children on the grounds its largely unenforceable. They jumped at the chance to introduce a pointless law.

I thought Putin just wouldn't push it too far and try and annex the Ukraine. He tried.

All in all .. I have been off on almost any decision I have thought about.

A pretty sorry state of affairs.

The only silver lining is I also thought that by now Miliband would be 7% ahead in the polls and looking at a 50 seat majority.

Beware the wounded Bear?

I have little time for the likes of Russia Today that seek to perpetually push a meme about how the West abandoned Russia in the 1990's and then sought in more recent years to re-ignite the Cold War. It is full of bathos about the role of Russia in the world and its assumed status as a global superpower.

in 2014, we can now see the true strength of Russia, high military spending and a resource based economy that was a major player in the world. Rather like Brazil then, with a bit more money spent on the military. However, with the collapse in the oil price driven by the global slowdown and rise of Shale Oil in the US, it is amazing to see that Russia's economy has unravelled as fast as that of known basket cases like Iran and Venezuela.

After all, Russia is full of very clever, bright and tough people - it should be in a better place than it is. Clearly the war in Ukraine has drained resources and the denial of access to Western Banking (so ironic that the bane of the anti-capitalist Left wing in Europe and America now proves to be our most effective means of extended diplomacy) has left Russia very exposed.

Raising interest rates by 7% in a day is not ever going to prove an effective strategy, plus a currency fall of 50% is going to push inflation up hugely on all imported goods, in Russia, this amounts to most products given the dearth of non-oil and non-defence industries.

Putin himself is so entrenched politically that he is unlikely to suffer an adverse consequences such as a coup. Everyone is on board with his project or has already been eliminated. The opposition is very weak and the people, sadly, brainwashed by extreme nationalism and partial media coverage by the likes of Russia Today equivalents.

The thing is, the West maybe feeling clever that it has brought about this denouement (really, its Saudi Arabia to a large extent, they offered a deal to Putin which he turned down). But Russia is not Iran or even Venezuela. The Ukraine apart Russia is not a sponsor of state terror or mass murder. Russia is as concerned about Islamic Extremism as the West is. Russia is at its heart a European country.

Whilst its lack of democracy and history of democracy makes it unlike a Western European state, Russia has no long term interest in facing away from the West. Today, it is likely to re-assess its chances of making its way in the world with the support of perfidious China.

The Politicians in the West would do well to try to accommodate some Russian demands to allow a climb down in the Ukraine and a normalising of relations. A bankrupt Russia, nuclear armed and run by paranoid Oligarchs is not the best outcome for the situation from here.

Tuesday 16 December 2014

Miliband and Immigration

Mili's spin on the immigration debate is instructive: the 'root cause' of unhappiness is that immigrants are being paid so little - nay, being exploited !  The solution, as always, is to invent a new criminal offence: 
“This new criminal offence will provide protection to everyone. It will help ensure that when immigrants work here they do not face exploitation themselves and rogue employers are stopped from undercutting the terms and conditions of everyone else.”
Somhow I doubt this analysis and cure will defuse the 'not very well-drafted immigration / UKIP strategy document' row.  But when the dust is cleared, let me offer some observations on Ed's plan.  As regular readers will know I have good ongoing links into the civic affairs of the borough where once I was a councillor for many years, with plenty of accurate data from the front line.   Said borough is ultra-diverse with no one ethnic group really predominating, but there is one particular area (containing - no coincidence - the block that was razed to the ground during the riots in '11) that is solidly Tamil: quite well-organised and very hard-working.

And Mili will wish to be apprised that the going rate for jobs there is £2.00 per hour: everybody knows the score.   A tad lower than the Minimum Wage, I believe, but there we are.  Muster your raiding party, Ed, and lock 'em all up.

No?  Thought not.


Monday 15 December 2014

Osborne and Oil

Some laud Osborne for being clever, always a dubious epithet in cynical Britain.  I wonder if he's remembered his cunning 2011 wheeze, the 'Fuel Duty Stabilizer', which set Fuel Duty to rise automatically in the event the price of oil fell below $75.

Probably seemed a bit hypothetical back then, with oil at $90 and rising.  So, Genius George, what happens now ? 

More generally: how are you going to parlay this economic windfall into a Conservative victory ?  Better not squandor this one.


Footnote:  the new 17% interest rate in Russia must ring mournful bells for Cameron, who in 1992 was SPADing for Norman Lamont when the latter fatally announced a rate of 15%.

So much for the Santa Rally in 2014

Chart forFTSE 100 (^FTSE) 

So much for the Santa Rally this year. Normally Fund Managers and other asset investors are keen to lock in their gains for the year  to get their all important bonus' paid. This means that quite often the FTSE and other world indexes end the year at their highest point - often only to have a bad month in January when the managers come back to work and take a look at reality. 

This year though the collapse in the oil price, trouble in Ukraine and across Syria and Iraq, together with slowing growth in China and no growth in the Eurozone has well and truly spooked the markets.

Instead of a Santa Rally, we have a Christmas collapse, with little sign of much news getting better as the above intractable situations are no closer to being fixed. Indeed, all may get worse before they get better.

Having said that, Oil prices will feed through to growth in the West as they act as a benign deflator of goods and services - it will take one or two quarters to feed through so we won;t see it until March or so next year, but it should be worth up to 0.5% GDP for an industrialised Western country. 

With the markets more or less closing at the end of this week, there is not much time for a turnaround so it looks like it will be a losing year on the FTSE with UK GDP growth at 3% - a very odd turn out that. 

Friday 12 December 2014

Going Down

'Nuff said.

CIA step in to Question Time row

Nigel Farage seen leaving Canterbury last night
The former Director of the CIA has today stepped into the row over last night's BBC Question Time edition.

Speaking on behalf of frightened of BBC, (£330,000 a-year) Executives, the Director denied that hosting Russell Brand on the show was cruel and unusual punishment.

Brand, a mentally distuberd if brilliant, counter-terrorist, launched into a wave of sexist attacks on a British Minister - "Pay their pensions then, love. Excuse the sexist language, I'm working on it."

In addition he lambasted UKIP leader Nigel Farage. In what was a clear set-up the BBC allowed a left wing heckler to constantly shout 'Racist' at Nigel Farage at regular intervals.

The CIA director insisted that this kind of mental testing was important for the BBC if it was to be able to expose what it really thought about the true inner beliefs of the panellists exposed to this type of interrogation.

Furthermore, the CIA insist that Ed Milliband and David Cameron had both signed up to the agenda. along with the Guardian Media group and that bloke who is a judge and wants to stand for Labour now.

The BBC will not be making any more Question Time series until the New Year, when there are plans afoot to hold the show at GCHQ and aboard HMS Victory

Thursday 11 December 2014

BBC Question Time ; Competition final. - Is it all right to rent a mansion edition?

 Its that horrible horrible time of year at BQ Industries and it isn't going well.
So make me turn this frown of boiling rage into a smile with some wit for tonight's championship of the world Question Time final.

And, at last, a good one. Bert Brand & Ernie Farage  on the panel. And Sexy 'cocky' Penny. And Camila is as sharp as a tack and a fox in the box too....So a treat for us regulars..
Oh, and Mary Creagh is on too. Well you can't have everything.

I guess a red and silver festive Dimbletie.

David Dimbleby presents topical debate from Canterbury in Kent. The panellists are Conservative communities and local government minister Penny Mordaunt MP, Labour's shadow international development secretary Mary Creagh MP, the leader of UKIP Nigel Farage MEP, comedian and campaigner Russell Brand and Times columnist Camilla Cavendish.

World Champion
Winner 2014 

 Nick Drew


Charity Shield Winner
Blue Eyes

Winners List 2014
Nick Drew 3
Timbo614 2

Hopper 1
Malcolm Tucker 1
Measured 1
Dick the prick 1 
Bill Quango MP 1 
Taff  1
Cityunslicker 1

Brent: One Remarkable Graph

The prize for most extreme oil-price movement of the modern age goes to 2008, of course - the winner by virtue of its double reversals in under 12 months.  There have been some crazy uni-directional lurches: the upward step-changes of 1973 (war) and 1979 (war); the blip of 1990 (yours truly was sitting at the desk that sold the single $40 cargo which defined the peak in that year as Saddam invaded Kuwait); and the slump of 1998-9 ($10 as recently as that).

2014 looks set to enter the gallery: pancake-flat plus parabolic plunge.  All those 'range-bound' commentaries we were writing 12 months ago, eh ?

Start thinking about your predictions for 2015: the year-end crystal-ball compo will be upon us soon.


Wednesday 10 December 2014

Putin, Bob Hoskins and a 'New Partner'

Source: Gazprom
The South Stream gas pipeline project had a chequered history.  The southern leg of Russia's classic outflanking manoeuvres to by-pass the Ukraine transit route, it was dogged every step of its way by the EC's preference for an alternative 'Nabucco' scheme, based on supplies from Iraq, Azerbaijan, Turkmenistan et al.  There was never a particular need for both: Nabucco foundered first, and when the EC pulled out the rug from under the Bulgarian section of South Stream as part of the current sanctions, it was only a matter of time before that, too, was scrapped.

So little Volodya has done the inevitable, and South Stream is no more.   But now he has "a new partner", namely Turkey - which is going to get some discounted gas.  Well, it would be a shame to waste all the steel that's already been forged.  Pipeline gas will be a lot safer for Turkey than their previous scheme for satisfying their burgeoning energy needs, viz new nuclear power plants to be built by the Russians in, errrr, an earthquake zone.

Doesn't the new partner thing remind you of Bob Hoskins in The Long Good Friday ?  The aggressive little chap's grandiose plans for redeveloping docklands with an American *consortium* collapse when they lose patience with him for getting into a shooting war he can't control.  But that's OK, he anounces defiantly, because he has a new partner - a German mob.

That's just before his uncomfortable ride in the back of Pierce Brosnan's car ...


Tuesday 9 December 2014

Is nationalising the Railways anti-capitalist?

Bet you did not expect to read that headline on this site!

However, I have been musing on a post on this subject for quite a while after discussing the state of the Railways with various industry leaders over the past few months. All are in broad agreement that the current position is poor, with Network rail unable to do much beyond maintenance and the long-term nature of the operators contracts and frankly bizarre bidding process not adding anything except guess work to the process.

The original 1993 nationalisation can definitely be said to have been botched. Stats about growth on the railways are fine - but with a booming economy and population for most of the last 20 years and next to no investment in road capacity, of course the Railways would benefit. Moreover, state run (in effect) businesses like Transport for London, have not seen a differentially poorer performance. In fact, it has matched or exceeded the Operator performance.

Of course, British Rail was a mess and its technology, whilst good, was never deployed on a scale necessary. The Operators, faced with some market forces, have indeed brought rolling stock up to scratch. But little else.

What is also noticeable, as with the Energy industry, is that the UK smashed its own national champion to pieces. Unlike say Deutsche Ban or SNCF, who thought vastly subsidised, run parts of our railways for us.

This in itself is no bad thing, but we did not smash British Airways into 20 small airlines when it was privatised, not did we break up British Telecom in the same way. Both of these businesses are strong and vibrant today, employing thousands of people and often leading in their markets - inspite of fierce competition.

The railway nationalisation did not achieve this for Britain's railways. The Opertors have not done well, as can be seen by them handing back the keys from time to time. Network rail is on its 3 incarnation and its suppliers like Balfour Beatty are all having a bad time of it financially. Customers still pay very high prices - who is happy? Only the Government who are able to cut subsidies more and more for the Railway industry. The subsidy is now back down to where it was for British Rail in real terms. HS2 will no doubt move this the other way again.

At such a point as we are now, Labour and UKIP are saying it would be better to re-nationalise the railways. I can't quite agree as the cost of doing this would outweigh the benefits. What would be better is to give a few companies some better scale in the sector and more control over the tracks, stations and rolling stock so that they can actually run lines as a full business. That way we might develop back our scale of companies that can compete internationally.

What is clear to me is that the sector today is in a state and the Government wants it all ways at the moment, reducing subsidy, demanding investment and pushing fare rises to consumers. So one way or another there will be change - just like the Energy industry which has a similar set of botched business models to contend with!

Monday 8 December 2014

Gazprom, Spinning

As oil prices tank ($67 today!), heads must be spinning at our old friend Gazprom, where they still insist on indexing their prices to that of oil.  But they still aren't quite there with the spin management yet.  Here's an amusing presentation for energy & geo-politics buffs, entitled Gazprom for European Market: Reliable Supply in a Changing Environment.

Naturally enough in a presentation on Europe the first slide is about new sales of gas to China, with the claim that these 'are not going to compete with LNG import on Chinese market'.  Well of course not.  A major new source of supply isn't going to have any effect on the international wholesale market, and certainly not on prices.  No Sir.

And so it goes on, a Kremlinologist's delight.  'Major suppliers to Europe have similar contracts' (a subtle one, this, attacking the new federast notion that Europe should buy its gas centrally - and they are right, Europe shouldn't).   'The price of Russian gas are fully competitive and are subject renegotiate' (sic) - well yes, but oil indexation + 'subject renegotiate' is a ludicrously inefficient way of doing things.  'European customers are perfectly protected by long-term oil-indexed contracts against any form on monopoly abuse of power' - an attack on the ongoing EC investigation into Gazrom's behaviour, plus a slide making cryptic, tangled (and wrong-headed) critique of pricing via gas indexation.  Tell that to Eastern European buyers.

And the rather sinister 'After midstream business is dead, nobody is taking responsibility for supplies structuring'.  Midstream dead !  This is a bit harsh - whoever do they mean ?  Would that be, errr, Eon and RWE ?


Friday 5 December 2014

China/UK - the importance of jobs and labour supply

"Supply side factors are also important. China's working age population has started to shrink and the number of new labor force joiners is declining. The UNPD forecasts China's working age population to decline by about eight million during the next five years, compared to flat in the past five years. Of course, China's labor supply to the non-farming sector will continue to rise as surplus labor from the agricultural sector continues to be transferred out. However, the decline in working age population does provide more room for such transfers in the next few years even with growth slowing.
Changes in both labor demand and supply mean China faces less employment pressure than a decade or even a few years ago, and needs less growth to maintain labor market stability. Assuming continued modest gains in labor productivity, and taking into account the structural upturn of labor intensive service sector, we estimate that 6-7% growth in non- farming GDP and 6-6.8% growth in overall GDP in 2015-16 would be sufficient to generate more than 11 million new non- farming jobs each year, a level we think is associated with a general stability in the labor market. Over the longer time horizon, and as labor transfer progresses further and if services growth speeds up, sub-6% growth would be sufficient for labor market stability."
I came across the above quote whilst doing some research recently. It is a section for a review of China's economic prospects for next year. This was the positive part where they try to suggest with low growth in labour supply, China will more easily be able to maintain political stability.

It is always entertaining reading an economists view on political impacts, as they can never get it right.

However, more interesting is the reversed nature of the argument deployed as compared to the one we see the Government and  media outlets push in the UK. Here, we are told, immigration is good and adds to the economy and so social stability. This report on China suggests the opposite, a reduction in labour market supply will help wages and promote social stability and even allow China to cope with a lower GDP growth rate than in the past.

Basically a nice example that economists and others can theorise on whatever they like and take differing views accordingly. Somehow I don't think we would ever see this reasoning applied to the UK situation on the BBC though!


Thursday 4 December 2014

BBC Question Time: Housing bubble edition.

David Dimbleby presents topical debate from Doncaster in South Yorkshire. The panel includes Conservative culture secretary Sajid Javid MP, Labour's shadow home secretary Yvette Cooper MP, Liberal Democrat peer Shirley Williams, actor and comedian Omid Djalili and the former director of the Centre for Policy Studies Jill Kirby.
Well at least this week's comedian can be funny. Sometimes. {Not to readers - the comedian is Omid Djalili and not Yvette Cooper. She is only amusing accidentally.}

Dimbletie - Golden Brown
Q1 - House price stamp duty and Mansion taxes. Heard a leftie earlier saying that the stamp duty still benefits so?

Q2. - Road building and Stonehenge and where is the money coming from, eh Great-grandkids?

Q3. Paternity/maternity split. Another great offer we didn't ask for, don't much want, and is a legal bonanza in the making.

Q4. Padeo..haven't had a paedo question for a while. BBC naturally weary of such questions..but its overdue.

Q5. Doncaster and the Ashcroft poll {since discredited} that gives a UKIP/Tory tactical vote the chance to oust Miliband. {they can't. He is, despite all the obvious shortcomings, quite popular in Doncaster.}

Q5. Gordon Brown. Was he the great saviour that some media people have been saying? Will his repoutation become more favourable, John Major like, with time?
The answer, is no.

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Stamp duty tax is back to front

Lots of media coverage today of the Government's rapid change to stamp duty taxes. Overall they are a bit of a giveaway to the vast majority of people, whilst being very heavy on those who have been successful or lucky or both.

The Conservatives implementing Labour Policies really is a sign that my post of Monday demonstrating how little difference there is between the two main parties is a confirmed. There are only slight technical differneces between the parties in reality.

Moreover, the real, fair reform to stamp duty has been missed, as one would expect of the Government.

In the long-term, who makes a profit from houses? It is the people who buy them, because we seem to have endless house price inflation driven by government giveaways like reducing stamp duty taxes when a market bubble is growing.

Also, when you sell your main house, the capital gain is tax free. This means you literally make lots of money in much of the Country. The longer you have owned your house, the better it gets. In the Southeast and London this has frequently meant that due to the tax light nature of house ownership, many people have made more money by buying and living in a house than by working.

So, who struggles? Well it is the young and those trying to get on the ladder. It is very expensive to buy and hard to borrow the large sums needed. A large deposit is needed and plenty of cash for lawyers fees and stamp duty.

Surely then, logic dictates that those who have made the profit and are realising cash should pay the stamp duty tax - this is the seller. They should pay the stamp duty. After all, they have the money and the tax free gain. Sellers' have real equity where most often buyers are actually borrowing money to pay the stamp duty tax.

The fairest meausure to to to mitigate the inter-generational economic warfare that the Government continues to wage (pensions held high by the triple-lock, house prices supported with various measures), is to put the pain of stamp duty onto the sellers and remove it from buyers.

Wednesday 3 December 2014

The Big Day for Construction

It is an interesting phenomena that in the UK construction make-up of the economy is only around 6.5% of GDP.

George Osborne wears a lot of hard hats for that  - yet you never see him volunteering in a call centre or working in an office doing some marketing services work - both of which are services industries which account for around 70% of GDP!

Today the Government has some crazy idea about forcing housebuilders to build; as if developers are not going all out.

Here are some timely anecdotal tips:

Berkeley Homes is run by the most canny real estate investor in the UK - Tony Pidgley. He has long been trying to build as many houses as he can whilst the boom last and running down the land bank of his company whilst prices for land are so high.

Also, a friend of mine in the construction industry has noted that overall capability in the sector is well down on what it was in the 1990's. Major Government schemes slowed and also public sector work had crowded out private sector early in this century - a final hit was with the Financial crash. All the major companies are now smaller and many are in financial trouble. Even big players like Balfour Beatty have had a bad year; their shares are down over 30%. Where these companies like Laing O'Rourke are doing well is in the Middle East, not in Blighty.

Against this backdrop of housebuilders working at capacity and commercial construction struggling with demand overall we have the Government claiming it is going to beat them up - by trying to out compete them.

Where are the businesses going to be to complete these houses then? Where are the contractors? What price are they going to charge the government when their issue is supply chain challenges and escalating costs - not lack of demand?

I fear another Government solution has been found for the wrong problem at exactly the wrong time in the market.

Tuesday 2 December 2014

Autumn Statement; Are the Tories and Labour working together on it?

Watching the media being generated at the moment around the total non-event that is the Autumn statement it is hard not to believe that finally Labour and the Tories have united for a national coalition.

The contents of the Autumn statement are bordering on non-existent. New roads that have already been announced, £2 billion in spare change for the NHS that is only £1.3 billion really. Flood defence spending allocated, but was announced in the Budget. These are not even worthy of a mention in reality but because we need an Autumn statement have been cobbled together as some sort of 'event.'

What is even weirder for those who can still be bothered to pay attention is that Labour and the Tories have exactly the same policies on everything that is important.

Europe, stay in,
Immigration, shrug shoulders,
Taxes, raise a bit via leaving thresholds under inflation
Deficit, ignore
Debt, increase hugely
Health, spend like billio
Welfare, pretend reform but ignore the Pensions issue
Defence, cut spending
Education, stop reforms

They are literally the same. As for the Lib Dems, well who cares anymore, I doubt even they do.

Yet in the media Labour criticise every Tory cut and the Tories lambast Labour for their economic profligacy. In reality, the debt and deficit position of Osborne is identical to that which would have occurred under Alistair Darling. There is not one iota of difference in the real world.

In fact, bar some educational changes, the Tories have achieved nothing at all that Labour would not have done of any major significance.

This is the real cause of the rise of UKIP, SNP and Greens. Sections of the population are slowly realising the Westminster/Civil service consensus is wrong on many of the major issues that face the Country.

Interestingly, the media have yet to cotton on. Swayed by their Westminster lunches and connections they see small divisions where there are none. They allow the manufactured differences to be perpetuated.

It's a sad state of affairs but I doubt the next election will see the real sea change, not enough people will have braved the change away from their tribal loyalties to recognise the problems. Perhaps the one after that when serious events will have concentrated minds somewhat more.

Monday 1 December 2014

Clunking Fist; Won't Be Missed

Three posts in a row but I can't help it.  Farewell then, Gordon Brown.  Don't come back.

Still, he provided a lot of material.  Let me regale you with just one ... apologies to AA Milne, but no-one else.
King Gord was not a good man 
A coward to his bones 
He hurled abuse at all his staff 
And often mobile ‘phones
But every year at Conference 
They’d let him out to speak 
He’d give them tractor stats galore 
He’d be applauded from the floor 
Ovations too (the whips made sure) 
How he loved Conference Week !

King Gord was not a good man 
He lived his life aloof 
He’d thought of stepping ‘neath a bus 
Or jumping from the roof 
A Conference speech he had to make 
But naught to say of note 
He couldn’t get to sleep at night 
Till Sarah, pitying his plight 
“To Santa Claus, you’d better write” 
And this is what he wrote. 

“I want to meet Obama, 
And I want good news 
And victory in Afghanistan 
Would help to cure the blues 
I don’t mind lying 
So it needn’t all be true 
And it SHOULD make me look better 
Than Tony you-know-who 
And, oh! Father Christmas, if you want to help me sleep 
A photo please of Cameron, in congress with a sheep!” 
(There's a lot more where that came from.)


Oil Price: This Is So Big

CU called it: the price of oil continued to fall last week.  Unless we are heavily invested in oil production we are mostly consumers, short oil, and therefore potentially big winners.  The forward end of the curve has fallen significantly too, so this looks to be substantial and enduring.

And big: we may shortly have seen a 50% price reduction in a matter of months.  Gas and coal will follow oil down, if not maybe in quite that degree.  CU listed a few of the losers from all this, but I want to add a couple of riders.
  • ISIS.  Yes, they have a little oil racket going on.  But the whole Arab Spring thing was kicked off by poverty and I'd say they will be quite happy, on balance, to trade oil revenues for increasingly discontented arab populations from Algeria to Iraq. 
  • Shale.  Yup, revenues down for shale producers as well, BUT let no one forget the power of Sunk Costs, one of, if not the the most critical dynamics in capital-intensive industries.  Hey, you've invested the capital, you have debt to service, your marginal costs are (relatively) tiny, and you have to choose: diappointing revenues or no revenues ?  This is not a decision that will trouble the board for very long this Monday morning. 
No relief for Saudi, Russia or Iran in the above.  These are folks with much pain, few scruples and plenty of semtex to hand.  I fully expect some ugly plays on the geo-political stage, and if I were (say) the state of Qatar I'd be very worried indeed.