Friday 28 February 2020

Mr market has caught the flu

So the FTSE has moved down to near 6500 - a 13% decline in week. Perhaps, as ever things are overdone but the market was last at these levels consistently in 2014 and there was one spike to this level in 2016 - we all know why then.

For myself, well there maybe more posting as there is going to be a lot less business travel in the near future. The content I am seeing from City analysts broadly syas the current phase is likely to last 1 -2 months and to remind everyone that in China, where containment seems to haev worked, the factories and offices are opening again.

A friend of mine in Hong Kong has just gone back to work after five weeks enforced working from home. however, in the West it maybe that we escape or that we don't and have to endure a month or two of China style lock-down. It is hard to tell, hence the market reaction.

Also we should not forget in the wider macro environment China has just printed a couple of hundred billion of new currency, as has Japan. If the West somehow operates on, with higer interest rates we could counter-intuitively see a rush of hot money into Sterling and Sterling assets - again if we start to suffer like Asia, then this money will find a different outlet.

To me too the comparisons to Sars and Bird Flu are worrying - this flue is no more lethal but far more infectious - which seems to be the trend in these cycles. So how much worse could the next one be in 5 to 10 years?

Wednesday 26 February 2020

Corona virus finally breaks through

Market performance chart

So the Corona virus has hit the World stock the markets as the bears have exepcted it too for a while.

I have been travelling a lot of late (hence no posts - thanks Nick Drew!) and my twitter and other feeds have long been full of doom-saying Hedge fund managers who have bet bit against the world markets and gone long gold.

They have been rewarded at last with the spread of Corona Virus. Actually, sad as it is the economic hit is already much worse than people realise. China, a huge chunk of the physical global economy in its hands now and much of this has shut down. Electricty demand in China is down by 2%  - but this is a big chunk of the industrial output. This will affect supply chains aroudn the world and of course the oil price as demand sinks for energy.

We can only hope that the virus is controlled by the heavy handed approach of the Communist party. other Countries seem less concerned, the Iranian health minister was interviewed on live TV yesterday whilst sick with the virus.

Even, with control, it seems the Virus will push the world into the recession that has been in the works for a long time. Perhaps by bringing it on early it will be less steep than expected, perhaps too a recession will concentrate the minds of the EU and UK on reality of the need for a deal on trade rather than the current round of grandstanding.

Monday 24 February 2020

"Zero Carbon" and Finance

Anything as big as the "zero carbon" thing is going to have impacts on all fronts - which is rather the point, of course.  And while some firms and banks are revelling in the Keynsian decarbonisation / adaptation bonanza (as we've discussed here several times) there are plenty of negatives to be considered - and not just for German diesel manufacturers.  If we take the underlying phenomenon at face value, this rather odd article reckons climate change itself will bring about a major recession, or maybe even "the next financial meltdown".  Its reasoning isn't too subtle however ("natural disasters pose a threat to businesses"): and being RT it may well have misunderstood the publication it is summarising.  

I would, however, be interested to hear from the insurance industry - or maybe I've missed it (anyone got a good link?) - about how 2019-2020 weather etc ranks in their scale of problematic pay-outs, and how many more such years they can handle before rates really start to rise.  That could be an effective brake on business development, and once again will cause governments to be leaned upon to socialise the risks, which is becoming a habit - often a lazy habit - across several sectors of late.

My main interest in this area is rather different, however.  When engaging with financiers on big projects, I've always been struck by how much weight they put on the tail-end of a projected cashflow stream.  In my industry, 15-year finance is pretty much the norm for many classes of big asset, with payback targetted anywhere between 5-10 years.  When I first became involved, I was gobsmacked to find the banks demanding projections of project revenues out 40 years!  which only makes sense at all for a few assets - most will be finished at around the 25-year mark.  OK, a very long-lived asset might be seeking the very cheapest finance, and hence the discount rates being used will be very low ... but 40 years?!

And now, most western governments are positively targetting, and usually "legislating" (FWIW) for epic structural transformations a mere 10-15 years into the future, with further disruptions all the way to 2050.  Safe to say, there's virtually no asset, even a nuke or a pipeline with a putative 60 year life, for which serious projections could be made even as far as the magical year 2050.  And we don't even need to opine on whether this makes sense, or will succeeed.  They're doing it: that's all we need to know.

There are only so may ways this can go.

(1) the banks can admit their prior interest in the tail-years' cashflow was primarily academic, or just for icing the cake, either of which they can forgo if push comes to shove.

(2) with bugger-all visibility of business dynamics beyond 2035, a whole heap of potential projects (particularly "conventional energy") will find their cost of capital rising noticeably, all the way up to prohibitive; and a raft of these projects will simply not fly any more (just as many existing assets will become stranded by related phenomena).

(3) everyone will gang up on governments, demanding (yes, you guessed) the problem be socialised, probably with governments standing directly behind the debt servicing (as the nuke boys have been demanding for years).  Everyone will be wanting this privilege for everything that moves, most particularly the ever-widening category of what counts as "green" investment which, as we've pointed out several times in recent months, now encompasses "adaptation" projects (and for leftists, of course, includes projects that are part of the "just transition", = anything they fancy with plenty of unionised jobs involved, see the Labour 2019 manifesto passim).

This whole thing is of course entirely a self-fulfilling problem.  Doesn't make it any the less real.  You can see why the leftists and nationalisers have their tails up, just as do the putative "war profiteers" among the banks and the engineering companies for slightly different reasons.  (And the NGOs, the con artists, the kleptocrats, and doubtless organised criminals too.)  They can't all be right.  Indeed, as we've said before, they will be fighting it out in the trenches for the rightness of their own, very partial vision of this future.  And their hands on the pension funds ...


Saturday 22 February 2020

Weekend: Wolf Hall 3, Hurrah!

At last, Hilary Mantel has published!  (as we were advised 3 weeks ago by dearieme).

This first-chapter extract suggests we will instantly forget she was ever away.  These are among the best political readings you will ever encounter.  Roll on 5 March, and let the Book Prizes begin!  (We know how it all ends, don't we? - on both counts ...)


Monday 17 February 2020

Those Labour Leadership Candidates

And now they are three.  Who's your favourite?

There is a strong element of caricature about Rebecca "Becky" Long-Bailey, leftie geekette par excellence.  What an agonisingly careful path she has to tread: not Continuity Corbyn, oh dear me no - and so confident of victory in December she "didn't have her campaign ready to go until January".  The bollocks she didn't - she had a very serviceable personal logo in place during the GE campaign itself (some say she was the only Parliamentary candidate to have one - can that be right?), and a website up immediately thereafter (albiet a really poor one).  Oh, the ducking and diving over her position on anti-semitism.

Actually there is something very interesting about her, namely that very geekiness she reeks of.  In her Shadow Cabinet roles she was responsible for two very large pieces of policy work, both risible but both the product of long hours, many contributors, and much serious attempt to build on convoluted leftist theory.  She's very proud of the second - Labour's 2019 "Green Industrial Revolution" policy we've looked at here before.  In keeping with all this midnight oil-burning (oh, the CO2 footprint haha!) she's also just published her "worked-out path to power".  It is deadly, deadly dull: you could no more summarise it in a couple of catchy bullets than you could their manifesto.  (It claims to have "four key elements" but in the ten minutes I was willing to spend reading I couldn't find them!)  Hasn't Team Becky learned anything from the 2019 GE?  On the other hand, why would we expect them to have learned ...

Kier Starmer was clearly 110% ready at 22:01 hrs on 12 December - probably several months sooner, in fact - and has charted a clear strategic course.  Entertainingly, he has decided to outflank Long-Bailey on the left! - e.g. being the only one declining to be labelled a Zionist, and many other carefully-chosen statements besides [see UPDATE below].  He's clearly giving her campaign all manner of headaches.  Temperamentally, Lefties would very much prefer to hate him roundly, but they find it very difficult to do so based on his carefully-crafted leadership campaign pronouncements to date: the half-attempts to rubbish him are mostly (a) Brexit and (b) "he surely doesn't believe a word of what he's saying".  There are also some subtle attempts to dig out stuff about his time at the CPS, but he's framed his past quite cleverly right from the off.

You could feel quite sorry for Lisa Nandy, who is self-evidently the most genuine person out there, albeit quite muddle-headed on all sorts of issues.  Apparently her style is quite winning at the hustings, so perhaps she can look after herself, even if she isn't fronting for a really determined and well-organised power-grab like her two rivals.

This weekend has seen a truly entertaining - and, in its own way, important - new front opening up: are you for bonkers-trans-policy, or against?  This one doesn't, I think, fall easily into a left/right divide: by no means all hard-leftists are fervent identitarians, and some proper marxists are strongly anti.  (In this way it's a bit like Brexit/Lexit.)  Notwithstanding the opportunistic efforts of the bonkers-trans movement to cement a no-compromise, expel-them-all line within Labour (comparable to anti-antisemitism), there can surely be no real prospect of success: but there could be a lot of (red) blood spilled in the process.  Since we need the issue properly sorting in the public sphere (while we have Tory idiots like Penny Mordaunt out there), having the arguments thrashed out publicly in the Labour Party (and concommitantly in the Grauniad, where there are voices on both sides, albeit there's much pussyfooting on the sane side) is no bad thing.

*   *   *   *   *
What's an outsider to think?  I can't imagine Tories are flocking to join Labour in order to vote for RL-B, as many claim to have done for Corbyn in 2015.  All in all, I'm guessing Nandy just doesn't have the requisite voting-bloc and that it's down to Starmer in a desperate race to corner enough leftist votes to short-circuit RL-B's apparent heir-to-Corbyn advantage.  In his favour: the decisive strategy; evident ruthlessness (which is both functionally useful, and attractive to people looking for a winner); and the fact that he's apparently considered papabile.  (Plus, perhaps everyone knows he doesn't mean a word of it!)   Against?  Well, he's not a woman, which is clearly being played for all it's worth.

For my money, there's the possibility of a neat outcome here.  Starmer is making sufficiently good ground that many lefties are having to confront the distinct possibility he can do it.  Their fallback position must surely be to capitalise on his leftward thrust by hedging him in with so many "binding" "socialist" commitments, he'll be a properly trussed chicken by the time it's all over.  That could unravel in a quite amusing way over the coming years.

Only, errrr, seven weeks to wait!


UPDATE:  Starmer is attempting to codify his left-flanking manoeuvre with "10 Pledges".  He can't fool Owen Jones

Thursday 13 February 2020

China: an Update

So, continuing our watching brief through the lens of the virus, and with the same caveats as before, how are things panning out?

Badly for China, I'd say.  Early gushing approbation from the WHO worthies has subsided just a bit, notwithstanding the Chinese Ambassador to the Court of St James feeling able to harangue us for our insolent ingratitude (you can easily imagine the tone they hope to be able to employ a few years down the road whenever the fancy takes them ... or perhaps that's hoped).  And they've definitely achieved promulgation of a meme that says any aspersions are racist - a meme that finds receptive carriers on the left, of course.

On the other hand.

The Chinese people are evidently getting restless, as well they might.  It didn't take Peter Mandelson to advise Xi to keep his head down (though he probably did, with invoice in the post), but Xi will struggle to avoid opprobrium.  Notable is this fine, brave essay which will probably cost the author dearly.  Less eloquent people in their millions will probably be thinking parallel thoughts; and "when fury overcomes fear..." well, who knows?  There have been rumblings about other disasters in the past, but perhaps this is the Big One.  It will be if it triggers a serious economic downturn coupled with a drying-up of trade - the very thing the CP fears most.  (What price a favourable trade deal soon, eh?)

There's another strand to this: the reaction in Hong Kong.  When I was last there, a couple of years ago, I was a bit surprised to hear strident admonitions over the tannoy in various public places: "Use your handkerchief when you spit!", and "Do not urinate in the street!".   I was told these are occasioned by the reprehensible habits of "foreigners", by which is meant mainland Chinese.  Increased tension - from an already heightened level - is only to be expected.

So we watch and wait and hope for various developments that might, in the long run, be for the greater good.  It has to be said, though, any week now we may get the answers to the dread questions being whispered nervouslywhy no news of the virus from the sub-continent?  And why none from Africa?  But we all think we know, really.  And that may truly take the heat off Xi altogether.


Monday 10 February 2020

Centrica: Tough Times, Hanging In

Centrica is a company we perennially find interesting, for a couple of reasons.  They've successfully remained UK-owned, which many of their energy-sector peers haven't;  their strategies have generally been noteworthy, indeed often quite smart - which kinda relates to the first point;  and it's rarely been plain sailing for them - which comes with the territory.

They're yet again at an awkward juncture,  needing a new CEO and some substantial asset sales, both to manage their debt and, frankly, to exit from a couple of increasingly difficult sectors - upstream oil & gas production and nuclear power, neither of which are flavour of the month for investors.

Nuclear?  Yes, it's easy to forget they took a 20% stake in the old British Energy nuke fleet from EDF back in 2009, which didn't look so clever a short while later - so much so, they've never been able to shift it.  Why did they do it?  A couple of ostensible reasons: it was a package deal in which they offloaded some unwanted Belgian assets; and they thought of the nuclear electricity as both green(ish) and "a hedge against the vagaries of global commodity prices".  There was another (unstated) reason, too: in the 2000's they had very fairly made a bit of a name for opportunistically picking up big assets at distressed prices - several gas-fired power plants, a big gas storage facility and a huge tranche of electricity from BE - judging the bottom of the market very adroitly.  By 2009 they were just too pleased with themselves, and thought they could do no wrong.

Seems a long time ago now.  But they've stuck to their core strategy - excelling (well, doing OK) at retail energy as that sector gets more and more difficult, on a last-man-standing thesis.  Seeing weak hands all around them amongst both the Big 6 and the plethora of failing minnows we've talked about recently, they probably still reckon they made the correct bet there.  Even the burgeoning Ovos and Octopuses of this world aren't finding everything quite as straightforward as they hoped.  With the threat of asset-seizure under a Labour Government gone, and nobody likely to object about an energy retailer doing a steady job (Big-6 or not), Centrica will probably stick with this.

They still need those asset sales, though.  Nuclear is a mug's game - particularly being strapped to EDF, whom we'll look at in another post.


Friday 7 February 2020

Down with the BBC

There is a huge wave of media comment at the moment, mostly led by BBC journalists and workers (not that they admit this on Twitter etc), trying to defend the BBC license fee.

The new Government is they fear looking at the viability of the BBC and correcting the wrong of making it a jailing offence to not pay the annual licence fee.

As Capitalists, I have long detested the monopoly of the BBC. The government has in effect subsidies tv and radio in this country by force. A by-product has been historically a higher quality output than most countries, but at a price of forcing hundreds of people to go to jail every year.

In 2020 this can no longer be even slightly justified. Hollywood is being outcompetes by the likes of Netflix and Amazon. Quality TV is available in the market to buy at a reasonable price. The BBC gave up on live sports so we are all used to paying for that or choosing not to now.

There is no moral stance in forcing people to pay for the BBC. However once the government reduces the jail threat, there will be hundreds of thousands more non-payers and the model will collapse.

Hence the campaign now. Sadly for the BBC too the only public service elements like News have also been compromised in our new partisan era. If the Government does want to subsidise news for the general good it could auction this off to the already numerous providers in the market.

My hope though is that the end is nigh for this regressive and unnecessary tax.

Tuesday 4 February 2020

Boris the Dealmaker

Can I strongly recommend watching Boris' Greenwich speech?  For a politician, it's truly excellent: he really does have the makings of a statesman  That's the way to give clarity of purpose to your negotiators: it immeasurably strengthens their hand.  Many have bemoaned the UK team's lame performances under Cameron (his pre-referendum "Deal") and then May, in the face of perfectly ordinary Euro-wallah opponents - who were competent, but no more.  Shamefully, that has been quite enough to wipe the floor with our side.

It would be a singularly inept negotiator who couldn't make serious headway under the Colours that Johnson has issued to the troops.  He's won half the battle for them already.  How?  He's trumped the Euros at their own game, by equiping our side with a knock-down "Logic".  Because "Logic" wins negotiations.  As an old negotiator, let me explain.

An army acquaintance of mine was about to leave the service after 25 years: he'd never known anything else.  He had an attractive skill-set, and found no difficulty in getting interviews for jobs he knew he could do.  But he was finding a problem: as a chap in middle life with loads of experience, he wasn't being considered for bog-standard entry-level jobs with a defined pay band: he was being asked to name what salary he wanted.  Formal negotiating wasn't something he knew anything about, so how the hell did he proceed, on this simplest of early challenges?

I told him to make a cost-list of everything he could think of that a respectable family man could reasonably expect to spend over a year maintaining a decent lifestyle - housing, transport, food, holidays, education, entertainment, insurance, etc etc.  Comprehensive: everything he could put a name to and stand by it without embarrassment if questioned in detail.  Add it all up, then add 10% plus rounding.  Then, when questioned, say calmly & firmly: I've totted it all up and I need £x.  Then stay silent, calmly awaiting a repsonse.

It worked for him.  It generally does.  Why?  Because it comes across as a "Logic":  (a) because it is indeed fairly based on a genuine logic, albeit one capable of being wrangled with by a particularly quarrelsome antagonist; and (b) because it's presented calmly and with finality - as if the presenter truly believes in its logic, and won't be shaken on it.  Any type of vagueness or flimsiness or randomness invites strong push-back.  But anything that seems to be believed ("seems" is all you need, though it really must seem!) as a matter of fact or logic, invites being accepted.  Even if the other side is inclined to say: well that's not right  -  they find it hard to press on that with ultimate conviction if, at the same time, they have to admit:  well, but he believes it, he's clearly not going to budge, whatever we think ...

It's only one of a hundred negotiating tactics; but the Euro-wallahs played this with great success on Mrs May.  This is sequence the negotiations must take, because of X and Y.  This is the bill the UK must pay, because of A and B.  This is why the Irish issue must be addressed first, because of the Good Friday Agreement.  Barnier played this card all day long, for months at a time.  And May was taken in by it, every time.

They were limbering up to play it all over again.  These are the rules you (obviously!) must accept, because you want access to our markets.  They've even got a standard embellishment, which they used last time and Barnier explicitly said they were going to use again: it's up to you (oh, it sounds so reasonable!  It's "Logic", after all ...)  - you decide what you want from us, and we'll tell you the price-tag: the more items you want, the longer you're going to have to be in talks, and the more of our rules you're (obviously) going to have to accept.

Boris has thwarted the whole trick with two simple observations:  our standards [environmental, workplace benefits etc etc - listen to the speech] are higher than yours (we set them higher because of our own superior policies); and we could demand you level up to us - but we're not going to; we'll just have mutual free trade, thank you.  It's simple: it's robust: the point has now been made publicly: everyone on our side can easily rehearse it all day long (and would have a helluva problem going home to explain any backsliding on such a straightforward point).

It can't be screwed up  -  can it?

Anyhow: Field Marshal Boris has magnificently played his part, conveying his battle orders with clarity and impeccable knock-down Logic.  Let battle commence.


Monday 3 February 2020

More terror inspired attempted murder on the streets of London

There is not much to add to the sum of insight on yet another horribel attack over the weekend. The police clearly knew this guy was a big risk and it looks indeed llike they were actually trying to stop him before he started his attack. Sadly, not quite soon enough but at least they sent on with best wishes to his next life.

One recent peice of information I have had though is in discussions with many people living or working in Saudi. There King Salman is starting a difficult process of change, loosening up the laws where possible to allow music to be played and women to drive; putting in place plans for mass toursim and even looking to legalise alcohol sales in the coutnry.

Clearly, none of this is very popular with the religous police and Wahhabist clerics. Yet being an authoritarian police state is quite handy in these circumstances as the most 'devout' of these have been sent to live abroad now so as not to interfere witth the reforms at home.

However, their favoured destinations are apparetnly London and Birmingham. So a repeat of the 'Londonistan' issues of the 1990's abounds. Lots of religous crazies living here in freedom having been expelled from countries where seen as to extreme.

I note of late we have more islamic inspired knife killings in London and ridiculous protests about sex education outside schools in Birmingham. I suspect a link here and I reall hope the Home Secretarty will leanr their lessons and stop granting visas and asylum to these rabble rousers.

Sunday 2 February 2020

Book review: This Is NOT Propaganda / Peter Pomerantsev

This odd book addresses one of the key sources of political angst today: fake news / post-truth / soft facts, “the war against reality” etc etc, by someone who’s apparently an expert, Peter Pomerantsev. He’s required reading in the Foreign Office, I’m told.

I say he addresses the issue, but that’s not quite right: he tees it up. He gives detailed accounts of troll factories in Russia (where, we’re told, it all started), and chilling examples of professional and often deeply malicious fake-news merchants at work across the globe; in the Philippines, Bahrain, Turkey, Venezuela, Serbia, Mexico, Estonia, Ukraine (a particularly long section of the book - “The Most Amazing Information Warfare Blitzkrieg In History”), ISIS recruiting, Aleppo and the “White Helmets” … oh, and of course Cambridge Analytica and another rollcall of countries where they’ve been active. (Just a leetle bit on the USA and UK, and likewise a very small amount on China – which seems like a bit of a cop-out. Still, we ain’t seen nothing like the Philippines or Ukraine, that’s for sure.)

This, he says, is the future: and “the future arrived first in Russia”, for reasons he expounds. His parents, incidentally, were Russian dissidents who suffered for their devotion to the truth (the absolute truth?) before being deported / allowed to leave. (See, we never quite know what’s what, do we … and then his father started working for the BBC World Service, during the Cold War era …)  But basically, he’s trying to warn, to horrify, to shock-and-awe us:  "part memoir, part investigation, part cry for help", says the Grauniad.  He’s apparently much in demand all over the world for his talks on these topics.

It’s all very odd because some of the practitioners of these dark arts, he seems to approve of! – or at least, the causes they are promoting. Fighting fire with fire?  Does he have any remedies? There’s a chapter near the end called “Conclusions and Recommendations” but that turns out to be fake, too – he doesn’t have any. Which is pretty unusual for a published book: publishers tend to insist on more than just a litany of woes.

This, then, is a book for anyone who doesn’t feel sufficiently perturbed by what’s going on. Personally I feel it’s a huge worry, not least for people like myself who have a high, conservative regard for absolute, objective truth (“Realism” in philosophical parlance), whilst recognizing the importance of differing perspectives.  I take that to be, broadly, a Right-leaning position. Funnily enough, though, my reading of the many angst-ridden post-election leftist tracts around at the moment suggests many on the Left feel the horror even more acutely - which, up to a point, does them credit.  Maybe they’d be less concerned if they’d won the election?  Perhaps fake news is a convenient excuse for any political failure these days. And perhaps the Left is even more prone to fret because of their self-defined “rationality” (vs conservative / nationalist emotionalism) and their confidence that, logic being on their side, it can only be disinformation etc that deprives them of electoral success.   Plus the usual leftist willingness to believe any evil of their opponents.

Or maybe it’s all just fine provided that our fake-news peddlers prevail against theirs.  As indicated above, there is a hint that Pomerantsev sometimes feels that way.

Three more disparate thoughts:

1. It’s a shockingly badly written book – a real pain to read, but the content was sufficiently riveting to drag me through. Nothing, incidentally, to do with English not being his native language, because it is. It’s stylistic. Aren’t there editors? 

2. While 21st century methods (particularly the near-universal social meejah) are revolutionary, the underlying truth-dodging, fact-swerving techniques are not. Proselytistng religions deploy them all the time, and always have - as Pomerantsev's chapter on ISIS and counter-ISIS makes clear.  Nietzsche tells us that, although the Will to Truth may be strong (as scientists would profess), the Will to Power is stronger. 

3. If you want something beautifully written that explores the same subject matter, Hilary Mantel is your woman. Although we’ve only had parts 1 and 2 of Wolf Hall, one of the key themes (as I read it) is how facts and events become distorted in the public register, often as soon as they have happened: some kind of spin – purposeful or otherwise – takes hold straight away. (There’s a lovely example, insignificant in terms of the formal plot and therefore significant for its being in the story, of something Cromwell does on his travels. By the time he returns home, just a day or so later, he finds a distorted version of what transpired is already current within his household.) 

When is Mantel going to give us Volume 3?  She’s been hatching it for an unconscionable amount of time!  Quite soon, apparently: and then we can get back to considering these troubling issues in a calm and literate fashion.  Unless we're lefties, of course, or living in Ukraine.


UPDATE:  further to the blame-it-on-fake-news theme, there's this out today:
Almost a quarter of Labour members – 23% – appear to hold what they see as an inherently biased media (both print and broadcast) most responsible for the party’s defeat – or as one put it: “Tory funded MSM lies and misleading articles and campaigns along with daily lies and propaganda on Tory owned main TV channels starting with the BBC!”.