Friday 27 March 2020

Winners and losers of Covid19 pandemic

Winners so far:

Strong goverments who put it about a bit...

Amazon - having nearly destroyed the retail economies of the West, they have now been handed them on a plate...

Toilet Roll Makers - surely a one off in history?

Medics and carers - becuase they are so key and important at this time

Rishi Sunak - all those female journalists seem to like socialist policies from a good looking guy - who knew?

Super Market Workers - this get the award for the most surprising heroes of the coronavirus war

Loser so far:

Libertarians - sadly total freedom when your whole species is under attack does not cut it as a political strategy.

Airlines and Tourism - This will turn out to be a real long term hit, less travel, just like after 9/11 is baked into the system now. Countries may keep their strict visa systems too.

Government debt - an early and fatal casualty has been any ideas around keeping some sort of track on the Government spending. At least we won't be needing a new runway at Heathrow anymore.

China  - not happy with their Government, not one bit.

Tuesday 24 March 2020

Why Hitchens Is Wrong

This is potentially going to upset some of our most loyal readership, but ... Hitchens is Wrong.

I first met him a long time ago: I was editor of a student newspaper and he came to interview me.  His write-up was flattering, and he didn't choose to report that we carried nudes on page 3.  Student life was more robust in those years: pitched street battles with the NF; open IRA meetings in pubs; it took (if I may say so) balls to be a rightwinger in them days.  Many students are stroppy and angry now, but they are a bunch of wimps.  (If anyone had taken against the statue of Cecil Rhodes back then - and they didn't - it would have been torn down and smashed the same evening.  "Rhodes Must Fall"?  Pah.)   Students I meet nowadays say: it seems to us that you had more fun back then ... and indeed we did.

But I disgress.  Hitchens wrote recently in opposition to a lock-down and associated regulations: 
Is shutting down Britain – with unprecedented curbs on ancient liberties – REALLY the best answer? ... I see very little evidence of a pandemic, and much more of a PanicDemic ... Epidemic disasters have been predicted many times before and have not been anything like as bad as feared ... dissent at this time will bring me abuse and perhaps worse. But I am not saying this for fun, or to be ‘contrarian’ –that stupid word which suggests that you are picking an argument for fun. This is not fun. This is our future, and if I did not lift my voice to speak up for it now, even if I do it quite alone, I should consider that I was not worthy to call myself English or British, or a journalist, and that my parents’ generation had wasted their time saving the freedom and prosperity which they handed on to me after a long and cruel struggle whose privations and griefs we can barely imagine.  
No time to write a lengthy rebuttal, so let's cut to the chase.   We All Know What He Means: and even the Grauniad (this is significant, subject of a later post perhaps) argued strongly for the sunset clause to be set at 6 months, not 48.  True, what's happening now is, in large measure Fear of Fear Itself.  But it's real, for all that, and needs to be addressed as such.  To say that the population - the real 2020 population of individuals who routinely behave as though they expect and deserve to live forever, not the WW2 generation that knew better - could and should take a higher level of "avoidable" early deaths on the chin, is like saying that nobody alive today suffers from "Absolute Poverty" because they all have smart 'phones and housing benefit.  

We all understand that argument, but it's irrelevant.  Oh, and by the way, even the universally Godfearing populations of the 15th, 16th and 17th centuries were not at all sanguine about the Plague.

So keep going with your articulate contrarian stuff, Hitchens - you're allowed to, and it's needed.  (Peregrine Worsthorne had an even better line in columnar contrariness - really ingenous, he was.)   But you've overcooked it this time.

And now I must go and bury a close relative.  They tell us it wasn't the virus; but it was certainly pneumonia, and who knows these days?

Have at it in the comments.  Fearlessly.


Monday 23 March 2020

What purpose does keeping financial markets open serve today?

In normal times, markets are a keep lifeblood of a capitalist economy. They send the singal to participants and the Government about the state of the economy and are a general barometer of health for a market economy.

But in times of crisis they are scary places. The markets are run these days by both human traders and their pet algo's. This means they experience both euphoria in the good times and fear in the bad times. Sometimes the algo's are designed to exploit the fear even further.

At this unprecedented time of crisis, I don't see the point of the markets remaining open for stocks and shares. We know the crisis is only going to get worseover the next few weeks. Then hopefully better. As such the markets are just going to keep dropping on every bit of bad news.

Meanwhile, Government's like the UK have stepped in to effectively nationalise the workforce. A completely unprecedetned move. Plus loans and tax holidays for businesses. These may work or may not work.

So to me the unknowns are so large that the markets will have no real option but to fall much further. This only unbalances the economy further for any recovery - hurting savers and allowing well-heeled Private Equity a chance to buy up lots of companies on the cheap at a future date. The answer surely must be to halt trading for 6 weeks.

Forex can continue for trade as can commodities as these are life essentials for a function global economy. But stock markets are a one way bet and the lack of price information is not going to change how our Governments make decisions in the next few weeks.

I am amazed at the lack of discussion of this in the media - this can only be because the responsible types at the Financial Times worry that this discussion will cause a stampede to cash by retail and other investors and thus another steep fall.

However, we need to be rational, a collapsed market will not be the basis for a quick bounce back and reset in a few months time if we are lucky enough to get to that point.

Debate needed..

Saturday 21 March 2020

Ride a Black Swan

One of the many great things about Enron, long before it went under, was that it brought really strong financial practices into the energy industry and made people take financial risk management (FRM) seriously.  We can talk about the rich, deep ironies another time.  I was never a risk manager myself, but was strictly schooled in its principles, technical and pragmatic, the better to negotiate sound contracts (which is my trade).

One of the interesting aspects of FRM is that no commercial institution, even a bank, is held to providing 99.9% certainty in its hedging etc - not even 99% in fact; because it can't be done using shareholders' equity without crippling economic cost.  Everyone knows that 100% physical safety is impossible - the cost of moving from, e.g. Five Nines to Six Nines is prohibitive - and likewise that extreme financial events happen out in the "fat tails" of the distribution, that can't really be catered for within the economics of an enterprise in the same technically-sound ways that can be implemented out to two standard deviations.  But what if folk are deeply risk averse, as they surely have the right to be?  The textbook solution to this puzzle is that they must take (partial) responsibility for their own FRM, by diversifying their exposures.  Not everything will go pear-shaped simultaneously ...

Except of course when a Black Swan glides onto the waters.  At this point, hitherto non-correlated risks all become correlated, in the shit-direction: so Diversification fails (as well as hedges not performing and insurance not paying out).  And then we are down to the last resorts:  burning through capital reserves (which were anyway set at the 95% risk level, so by definition they don't go far enough), and then ... socialisation.

Now as CU said the other day, 2020 looks like making 2008 seem like a picnic.  (E.g., I had a massive hedge on against 2008, and it paid up.)   This time, it's straight through to socialisation, and pray God that good decisions are made.

A lot of Socialists are drawing understandable (sort-of) but very wrong conclusions.  Wonderful, they say - and let's keep it fully socialised thereafter because Capitalism Doesn't Work.  This is the merest crap.  I won't rehearse what a feeble-minded misunderstanding that represents as regards What Capitalism Is; suffice to say that they were saying the same thing at the outbreak of WW1, and WW2 (and in fact every day of every week).  It was equally ridiculous then as it is now.  We socialise against the Black Swans, the Kaiser, the Nazis, the C-virus.  And in normal times, we optimise our affairs intelligently.  Leftist snipers can f*** off, and do something useful in the community. If they know how.

One more weekend thought for now.  The EU can f*** off, too.  Their threats will have no force whatsoever, when negotiations recommence.  What, they gonna threaten us with a 1% hit on GDP?  Shortages in the supermarkets and bread riots?  By then, we'll have solutions for all that stuff - and quite possibly better ones than theirs.  Small comfort right now, but I'd confidently say we'll get a sensible deal quite easily - with whatever's left by then.

Keep safe, all.


Wednesday 18 March 2020

UBI debate - a good idea or a sily one?

As we know the virus is currently laying waste to the UK economy. The Leisure and Tourism industries combined are over £400 billion of revenues per year according to Government statistics.

The £350 billion that the Government announced in bailout loans yesterday is only going to be a band ai for a few months, unless the virus challenge is overcome, then so too will our modern economy and our Government finances.

What a challenge that will be!

However, we cna hope that the worst of it is over in the next couple of months. Until then the US Government is considering giving everyone $1000 into their accounts to help them with bills and see through these dark times. On paper I like this idea, as it is simple and easy to do (IRS/HMRC have everyone's bank account details already) - it gets the cash where it is needed.

I am less sure about Universal Basic Income as a long term play though - becuase although it should allow for a more felxible and less stressed workforce it is also ruiniously expensive. It ends up being a middle class subsidy for wannabe actors and muscisians or those who endlessly study degrees - or even those who want to apprentice as MP's for a while. Meanwhile the workes pay huge taxes to support this and the truly needy see their benefits cut.

To give an example, the NHS costs around £2200 per person, with UBI we would have to give say £500 a month for it to be realistic - so £6,000 a year. That plus the NHS is £8,2000 per person per annum. At over £750 billion, that is more than the UK Government's entire spending and 250% more than we currently spend on all social benefits and the NHS added together.

Where would the tax come from when so many people could eeek out a meagre living by doing nothing?

So for me the principle of UBI is quite sound, the practical implementation of it makes it financial suicide - what do you think?

Tuesday 17 March 2020

The Virus and the Left

Wow, we have copped Interesting Times, right in the solar plexus.  Given that these days, everyone operates under the slogan never let a good crisis go to waste, there's a lot of manoeuvering in prospect.  And lucky old Alex Salmond, eh?  And lucky old Labour Party (EHRC report).

Now then, the Left: and first to Xi, the ultimate leftie.  He's probably thinking he's ridden this one out, and taken the opportunity to ramp up universal, highly-granular state micro-control into the bargain - so a rather good bargain it may seem, to him.  As we wrote in Feb, mass outbreaks elsewhere may take the heat off him good and proper.  Now all he has to do is promote the "US biological warfare" meme in his spare time.

Now to our own miserable Left.  Obviously they are itching to go Full Hostile against Boris' handling of the thing, and of course they have the luxury of making free, cowardly sniping attacks, thinly disguised as innocent questions etc.  They have form, bigtime.  In WW2 they sniped at the National (coalition) government mercilessly: Churchill survived several ultra-close votes.  At the start of the war, of course, the far left opposed it altogether, on Uncle Joe's orders, as a capitalist war against his ally, that nice Herr Hitler.  And at the height of the Battle of Britain (as Londoners of my father's generation never forgot) the Liverpool dockers were on strike.  Oh, the luxury of opposition.

And then of course there was the relentless work of the Labour Party to advance their strategic cause, triumphing in 1945 while the war on Japan was still being waged.  Don't all the Labour hopefuls dream of playing Attlee to BoJo's Churchill?  (Though they wouldn't want to push the analogy too far.)

Trouble is, notwithstanding the free hits the Left can make with their peashooters, their opponent Boris-Cummings seems to be sticking to the rather compelling advice of his impressive and highly-regarded scientific advisers.  Experts!  So all the predictable Polly Toynbees and the silly Simon Jenkins have to hold back a bit (just a bit), because what do they know?   And because the government's sages advise differently to the foreigners (and who on earth would want Christine Lagarde running their banking?) ... oh, all manner of puzzles for a lefty to grapple with.  (Even Aaron Bastani is a teeny bit inclined to be impressed by the government's actions.  And what are the Euro-maniacs to say?  "Extend the transition period" (© Lisa Nandy 2020) is a pretty feeble battle-cry from a desperate politician.  (Where are Starmer and Wrong-Daily in all this, BTW?)

And: what do I know?   Except that there's an acid test coming soon.  Perhaps the most interesting political development is the would-be Red Guard of Momentum supposedly mobilising its private army of 100,000 to Do Good in their communities.  This tries to tap into the strand of altruism, love and goodwill (sic) that definitely is to be found within the nastier rantings of the youthful 2017-vintage Corbyite left.   (Seriously, it really is in there, in all the bile.)  Now my observation is that, however honourable this sentiment, it doesn't typically stretch to the traditional kinds of Salvation by Good Works like actually rolling up sleeves and becoming a decent, hardworking local councillor.  But who knows?  The Chinese CP gained power by many years of slogging away at local level, solving ordinary people's pressing practical problems.  Oh, and adroit military tactics too.

Interesting Times, eh?  Keep safe, everyone.


UPDATE:  Kier Stamer has duly broken cover with this pious and platitudinous pile PrĂ©cisI want to be Attlee ...

Monday 16 March 2020

2008 is going to feel like a picnic in comparison

The worst economic crisis of my life was the 2008 financial crash. As readers will know, we had long forseen a crunch coming in the credit markets due to lax Government regulations and arrogance of those in power both at the banks and the Governments.

However, 2020 feels like it will be worse. For one, those immidiately affected are the old, the poor (retiaers, coffee shop owners, airline workers etc) and the needy; not wealthy bankers losing their jobs in Canary Wharf at Lehman Brothers as the first stage.

Moreover, because this crisis is so visceral and real, the Fed last night dumping $500 billion into T-Bills and dropping interest rates by 100 basis points has made no difference. Markets are down about 6% at time of writing. Pumping more fiat money only helps the Banks and traders, it will not make people fly again nor can a coffee shop owner survive when the Government has ordered them to close.

The 3 to 4 month hiatus in the economy we are about to experience will be very hard to manage. I can see UK Government debt ballooning by £100 billion for this year and maybe next year too - there is just so much to subsidise and try to keep going. In the round, this in and of itself won't kill the Country financially (unlike Italy) but it does mean higher taxes will be coming in the 2020's to pay for all this - and who is to say this is a one off, quite the opposite, Covid-19 is a successor to H1N1, so is already not a one-time emergency.

We will have to see where things go but airlines and all forms of travels, sports and events and retail food (incidentally all amongst the big winners economically of recent trends) are all going to be smashed to pieces. Whatever world emerges by the mid-summer will look very different to the world as it was on Valentines day in the West.

Thursday 12 March 2020

Sadiq Khan & Postal Votes: Just Fancy That

The mayor said he had received advice from the Chief Medical Officer on whether the local elections in May, including the London mayoral contest, should be delayed due to the pandemic.
“His advice was quite clear.  He said there is no logical reason to postpone or cancel the elections.  If somebody is worried about going to the polling station, it’s really important to make postal votes as easy as possible."

Never let a good crisis go to waste, eh?


Budget reaction - blurgh

What budget?

Market performance chart

Despite getting a good review in the media, Rishi Sunak's first budget has been lost in the global crisis. Was it any good?

Time will tell but my hunch is turning on the spending taps is the right call this year, the Tories have reduced the deficit and Debt/GDP ratio substantially and there is at least some room to have a year or two like this. Not unrealted are that Gilt issues are below 0%. the current cost of extra borrowing is positive - what a bizarre world we live in.

Will it help if the markets dive down into the 4000's and all but gaurantee a deep recession - a little but then the fun will begin as social security spending balloons and we have a mini-2009 deficit situation again.

At least we won't be alone, as this is more or less a global crisis that began in China...

Wednesday 11 March 2020

Emergency measures from Central Banks to support Hedge Funds

Life is strange, here we were thinking 2020 was going to be a good year with Boris on his political honeymoon, then, boom it is all over.

The Bank of England has reduced interest rats by 0.5% to help calm the markets after a start to the week that makes it feel like 2008 again. It is the biggest move by the bank in ten years.

We may wonder, why does moving interest rates down from 0.75% to 0.25% make any real difference to the economy? And we would be right, as this move has next to no impact on the real economy. Unless you happen to be re-mortgaging today (tick for me!) and are able to take advantage of it, it makes no difference. It is not like Amex or Wonga are going to pay any attention  and help their 'customers' and it is not like Banks were paying any interest on deposits anyway - such has been the ruination of our economy since 2008.

So why do it? Well this is all about banks and hedge funds. The hedge funds are borrowing money to play the markets and the ones that are doing well need more cash, the ones that are doing badly are facing huge margin calls. Some of the Asian ones facing margin calls are proving difficult to get hold of I hear.

These huge calls on the banks  to lend or borrow in busy markets mean they themselves can run short of cash very quickly. The key thing for them is to be able to access the central bank Repo markets to get more money very quickly...but this money is not quite free, nearly free, but there is a price. So the banks find the busy markets a very expensive place to be and that can mean they consider limiting the action.

So they could choose to call in the money and not lend, but that runs the risk of further drops in the market, more margin calls and from 2008 we know where that leads. So instead the Central Banks are reducing the rates that they lend money at to keep the markets as liquid as they can and the Banks solvent. Keeping the banks solvent though, now means keeping the Hedgies solvent.

The side effect of all this is that Hedge Fund keep playing and Prime Brokerage banks make some lovely fat margins.

So when you see pictures in the newspapers about the lack of chinese imports or other real world causes like Corona virus, just smile to yourself. This is all about the traders and the trading. As it happens, the US Repo market is 50% busier overnight than it was in September 2008, now partly of course inflation has reduced the value or money and the economy has grown, but it is a sign that things are very awry in the financial markets.

A key week ahead I feel.

Monday 9 March 2020

Recession incoming?

 I Know I am like a broken record now, but this is a very tough morning economically for the the world and for the UK. Don't fancy being the Chancellor trying to draw up a budget.

The Ftse is now down near 6000, having been at nearly 7500 a few short weeks ago. We started the year quite optimistically thinking getting Brexit Done and Trump pump priming the US economy ahead of an election would make for a strong year.

Now we have 3 simultaenous, but related,  crises:

1 - Supply shortages for finished goods and materials as a lag from a 3 month closure of the Chinese indsutrial heartlands.

2 - A new shock to the West as Covid-19 impacts every day life and travel with a potential for a China style shut down for a couple of months. 

3 - Saudi Arabia getting tired of the Russian approach to OPEC and decidig now is the time to start an oil war (Oil price fell 33% in one minute overnight) - just as oil demand is dropping due to lack of travel and shipping. 

Of the three above, only point one is under control with China starting to get back to work last week. The second point is on a knife edge, as the virus gets into Europe at the end of winter - so much will depend on the weather in the coming weeks.

The oil war should be a shot in the arm to the economy at a desperate time, but as we know it is good for some sectors and terrible for others.

UK Gilts are all negative now, the sign of a real crisis if there ever was one.

We still might see this as an over-reaction and there could be a fast recovery if Governments get a grip on the Virus, but there are few signs of that. UK still, after 2 weeks, had planes landing constantly from Milan for example. EU countries with their endless virtue signalling abou tinclusity and openness do seem to struggle with scenario's like this, as does the USA.

Fun week ahead

Saturday 7 March 2020

Weekend Reading: They Want Your Pension

In a couple of posts over the past few months (e.g here, here, and here) I've been banging on about how the Entire [Western] World is now effectively locked into "net zero carbon" policy mode; and how in turn the warring forces of (a) capitalism; (b) the Left; (c) the 'green' (but actually world-governmentist) NGOs; (d) the developing world; (e) chancers and kleptocrats of many shades; (f) organised crime ... all see this as a glorious opportunity to engage with / emerge-from-behind-the-smokescreen-of this prospective bonanza of activity to seize the reins of power - and of course the world's pension funds.

Here's an interesting Left specimen for our edification: see "Repurposing asset management and democratising pensions", for example.

Have a nice weekend!  And frustration to the Welsh ...


UPDATE:  right on cue - Will Hutton, arch NGO-ist, world-governmentist and all-round failure, now wants to jump on the Coronavirus bandwagon for his nasty political ends

Friday 6 March 2020

Friday Fun - Viral Market Turmoil

How low will the markets go?

In what proved to be a dead cat bounce for a couple of days, it seemed that Global markets had rallied off the lows. I spoke to a few city types who assured me the Hedge funds had closed their shorts and gone long.

But then today has proved another tough day with the FTSE down 3.5% to a new low for the year and Global markets all in risk-off mode?

So for the weekend, where are the markets going to go. Oil is down below $50 a barrel and staying there, will this itself cause a bounce as that has a deflationary effect across the whole world? Will that save airlines (I doubt it)? Will the market carry on witht he FTSE headed toward 5000 and the Dow 20,000?

Or is this all overdone and the bounce back be strong next week?

Interesting times ahead.

Thursday 5 March 2020

Flymaybe no more

Well, Coronvirus strikes! It has not killed anyone yet int he Uk but has taken a corporate victim. Flybe was in a poor state anyway, needing tax holidays and more investment to try and keep going but the collapse in bookings has done for it.

I hope that there is a chance of a phoenix rising from the ashes to take over the profitable routes (hmm, are there any I wonder) and slots to try and keep the regional air capacity going. However, with the virus about to hit I think this is unlikely and a decision by a Private Equity house would be needed in the next day or two. So sadly, a wind down and sell-off is most likely.

That means the more likely scenario is a bunch of small start up's trying to cherry pick routes and lease planes for the forseeable in the regions - so in the short terms there will be a big undersupply, especially with the virus putting off new entrants.

This may well impact on ariport viability - perhaps here the Government should step into at least help with the costs of mothballing facilities for a a few months until some more services start running again.

In the medium term, trying to be optimisitc, we might find that Flybe's oligopolistic position was the cause of its donwfall. More nimble and smaller suppliers who do not try to create demand but to service it might mean we end up with leaner routes but better services. I can see it being more pricey as after all Flybe was losing money hand over fist as a company so something was wrong with with the financial model (sometimes of course this is just debt loads after long-term mismanagement).

Plus, having flown Flyeb a few times, the abysmal customer experience surely can't be hard to improve on for any new entrant.

It will be interesting to see the capitalist response to the demise of Flybe.

Tuesday 3 March 2020

Let's hope the budget gets cancelled too

Really worried by the kite flying from the new Chancellor.

The Tories are talking about doubling Enterprise taxes to 20% from 10%  - what on earth difference will this make to the overall tax income but at the expense of putting off new fintech and other start-ups that we need.

In addition, there is talk of huge spending needs and taxes rises to compensate.

We really don't need tax rises in the UK. Thje inexorable rise in taxation needs to be challenged with some creative thinking. Cutting the 50% tax rate to 45% raised revenues for example. This should be carried further one.

Another kite being flown is a re-working of business rates, this is a better idea but not if it results in a move to Land Value taxes that end up costing everyone - relief is needed for thos under pressure not spreadin the burden more widely amongst the population.

Overall this year all the kites being flown are rubbish and designed to raise revenues rather than relieve tax burdens and drive business spirits. Save us from a Budget please Corona virus!