Unintended Consequences

When Prime Minister Brown allowed Lloyds TSB and HBOS to merge, he merrily waved UK competition law off in order to secure his 'great deal' (ask Lloyds Shareholders what they think of this deal!).

Now though the EU competition commission is taking a good look at the banks and there is little doubt that many of the HBOS assets will have to be sold off. So in the end it may have just generated investment banking and legal fees for third parties.

But there has been a market impact for other industries. Just today there is news that Orange and T-Mobile are likely to try and merge their UK operations. This will mean we go from 4 big mobile telephony providers in the UK down to 3 (not including 3, if you see what I mean).

This would not have been contemplated even a year ago as the competition commission would have ruled it out altogether; now with the recession and the Lloyds precedent, it may well be waved through in some form.

This will no doubt be bad for UK consumers, as less competition means less offers in the market and . Surely if 3 or Virgin Mobile were the buyers then this would be ok, but not to reduce competition by so much.

As far as the Labour Government are concerned though: you reap what you sow.

Why G20 banking regs won't work

the papers that i have read today and this blog piece by Robert Peston all agree that the G20 has been something of a triumph for global co-ordination. Yes, the bankers bonus' make the line in the news, but commentators seem happy with the new proposed rule on capital regulation.

This is the idea that banks have to hold more capital to cover potential risk losses and that they must have lower leverage as a result. This should make banking boring.

The downside to this analysis is what I would expect from Financial analysts; in that they miss the politics. Why will France and Germany ruin their banks and ecnomies now when they see the problem as Anglo-Saxon capitalism. France and Germany already have higher public debt ratios than the UK and US.

There is not a chance this will be agreed to in its current form, whatever proclamations are made by G20 finance ministers. Global regulation will have to wait and in the meantime national governments are going to make up their own rules on banking.

Banker's pay distraction at the G20

Really, what a total diversion this G20 communique on bankers pay really is. Not only has no agreement been reached, but what has been suggested is already being implemented by the banks in any case.

Take RBS, there staff are having bonus' paid over up to 3 years, mainly in shares and with up to 75% clawback.

All this fuss is to cover up some much less happy international co-operation. Basel II is dead and we are moving back to a world where banks will be able to hold as much capital as their national regulator says they have to. In a globalised world this is a dangerous move, which could see big banks move to countries where they are required to hold less capital. A situation not unlike that which we have with tax havens.

But why all the focus on bankers pay anyway? Like Hedge funds, this is a distraction from the true causes of the credit crisis. These were lax monetary policy and in the UK the situation was made worse by the terrible fiscal policy of the Labour Government.

Not much mention or agreement on this at the G20, quelle surprise!

'China Syndrome' Derivatives Meltdown ? Ominous

Not a happy weekend topic, but another cycle of misery appears to be upon us: state-mandated default for reasons of convenience.

The Chinese are reportedly of a mind unilaterally to allow state-owned entities to default on OTC commodities derivatives (presumably out-of-the- money forwards or swaps entered into when prices were high last year).

There is some history here: way back in 1994 a Chinese firm called Minmetals defaulted on derivatives contracts and Lehmans, its US counterparty, tried but failed to get them enforced in the courts (finally only settling out-of-court in 2002).

Since then, China has preferred to be seen playing by Big Boy's Rules and, when in the last few years Chinese companies have made stonking derivatives losses, they have swallowed them. It would be a serious turn of events if they are now to be selective as to which contracts they honour - with geopolitical overtones potentially making the enforecability issues raised by famous cases like Orange County, Gibson's Greetings and Hammersmith & Fulham, appear rather provincial. A China-Syndrome meltdown in derivatives is the last thing the system needs right now.

This one's got our full attention. Next week we'll also take a look at Euro-interference with banks redeeming and paying coupon on their bonds ... or not ...

ND

What does Gold at $1000 say?

Gold has had a very interesting week. It has mooched around $950 for the past 6 months, missing the commodity rally, but then not being hurt by the equity rally either.

Then suddenly this week it has gone on a tear and is now approaching the psychologically important $1000 an ounce mark.

Gold normally trades in a relationship with the US dollar; strong dollar weak gold and vice versa. This relationship seems to have broken down this week. Why?

There are many theories about paper gold, china and central bank buying. Almost none of them assume a greater demand for gold in the market for practical use.

Are hedge funds and such like preparing of a market adjustment? If so Gold and cash would be the sensible places to put money whilst shorting the equity markets.

Alternatively, Gold is being set-up for a fall and is itself about to be corrected. With the world coming out of recession, this safe haven should be less attractive.

It is hard to know, but an interesting development. What are your hunches?

On the Usefulness and Abuses of Bankers

Adair Turner has stimulated a debate on the social usefulness of banks and bankers. This is necessary, timely, and indeed urgent.

The robber-bankers have caused as-yet unmeasured damage to Western society and beyond, and have called in aid the world’s treasure to rescue them from themselves. Now, a mere three months into a period of mild optimism (which is no more than to say the stricken patient has enjoyed a quiet night) and facing modest regulatory changes, they would have us accept that it’s to be business as usual from now on. Not good enough.

Around these parts we do not hesitate to enter the substantial positives in the ledger. Banks and other financial institutions provide many services that are unequivocal social Goods: basic banking services and deposit-taking; liquidity, pricing and market-making for the trade of assets; instruments and markets for insuring and hedging unwanted exposures; and of course credit and clearing. Although rarely remarked upon, the social benefit of the extraordinary global credit-card system (for example) is of great significance for retailers and personal freedoms alike.

Delivering these valuable services effectively and (fairly) efficiently en masse has necessarily entailed the development of an ultra-powerful financial infrastructure. Though we do not follow the excellent Alice of Bubble in her rather flippant damning of the whole edifice of derivatives, it is clear that the abuse of this mighty system for personal gain has been ridiculously easy, prevalent, and largely unpunished.

By abuse we do not mean speculation, which plays a vital role in human affairs, not least in its stimulation of liquidity, innovation and the Darwinian process in business.

Rather, we mean the activities of the one-way bet merchants – the knowledgeable and well-placed players who take risks without paying the appropriate dues for the use of the risk-capital that underpins their gambling, but who stand to profit hugely. Almost all the sub-prime scams, ponzi schemes and derivative pyramids can ultimately be expressed in these terms. This is effectively theft at the expense of ordinary punters, shareholders, pensioners, ultimately whole bodies of tax-payers who are drafted to bail out the failures

All this strongly resembles the behaviour of the 18th century European merchant-expansionists who advanced their ultra-aggressive businesses and private armies across the globe, pocketing the profits when the going was good, but calling on the mother-country for ships, troops and treasure when they became over-extended. A great deal for them, but an expensive proposition for their countrymen.

In Dark Continent, his fine survey of Europe in the 20th century, historian Mark Mazower wrote:

“The real victor in 1989 was not democracy but capitalism, and Europe as a whole now faces the task of establishing a workable relationship between the two.”

No small challenge, and the status quo is unsatisfactory. 2009 is the right time to attack this task with renewed purpose, starting with democracy demanding that – as with any properly-managed capital adequacy scheme - the banks pay for as much of society’s fall-back capital that they tacitly rely upon to underpin their risk-taking. Here at C@W, we continually oppose subsidies and free rides for windfarms and nuclear power plants and the like: the same principles apply to banks and their schemes.

And where they are risking their own and their shareholders’ capital, let their speculating be acknowledged explicitly, and sealed off hermetically, from their non-speculative businesses and the common weal alike. As bankers are useful and/or self-sufficient, we should encourage them; and as they abuse society's capital, we should cut them off at the knees.

ND

Arsene Wenger points out death-by-taxes

With all the furore around bankers' pay; people have ignored footballers wages. Did you even know that footballers wages when printed in the press are always quoted post-tax? Yes that £150,000 a week John Terry earns is in fact nearly 40% in real money. (2 years ago Labour whined about this, they seem strangely reticent today?)




To the point though, the Premier Leagues had its deadline day fro transfers yesterday and very quiet it was too. Only Manchester City, backed by Oil billions, have spent this summer. Without them, the spending would be nearly 50% down on last year. All the top players are leaving Man Utd and Liverpool and heading for Spain.


Why Spain? Well it often takes an outsider to show a country's folly. Arsene Wenger in this case, an economic graduate, says that in Spain a footballer can pay tax at 25% for 5 years. That is longer than the average contract. They are paid in Euro's too which has been appreciating against the Pound for nearly 2 years now.

The combination of a sickly Pound and impending 50% tax on the rich means that in real money terms, Spanish clubs can pay 70% less to give players the same wages.


Premier League football will be unable to remain the dominant force in Europe when placed at such a disadvantage. German clubs are competing now too. And whilst you may not care much about that, there is a read across to all of our other industries where people are mobile too. In the City it is Hedge Funds, but you can also add IT Contractors and even perhaps Lorry drivers and a myriad of other professions into the mix. High taxes and a weak currency are going to ruin our economy and sadly that is the path the Government is taking us on.

End of the silly season; enter the Scary season

Today marks the end of the silly season. The managerial class are ending their holidays and heading back to London for some work. After a nice break and a summer with no major catastrophes in it, they may even be refreshed.

The newspapers can pack away their silly season reporters and stories and file those for release next year. Instead their own real political and business reporters are back and up for some work.

But back to what? The markets have been on a great run and it remains to be seen whether this is a bull run or a bear market rally. Many in the City seem to think it is the latter and are preparing their hard hats for a storm in September and October. On balance, I think they are right.

None of the economic news has been good, especially for the UK, all summer. All it has been is not utterly desultory and this is not the same as good.

So here we are, starting the Scary season of September and October (this occurs every year because many bonds and long-dated securities are reviewed at this time, a big move in or out, or to cash, can cause crashes in the stock market).

Despite all that, this time last year the world went into meltdown and events aside, this is unlikely to happen again as the situation has been stabilised. The FTSE won't fall back down to 3500, but it may well touch 4000 from its current level of nearly 5000. overall, i still expect the year to be broadly flat with the FTSE ending at 4400 odd.

It is going to be a very interesting few weeks.

Brownadder the second {rate}. {Part IV}

Lord Brownadder has arrived at the Queen's court with a cunning plan to restore the nations bankrupt finances and revive his own flagging popularity and influence.

Lord Mandelchett was seated at a desk, altering the Evensong Standard pamphlet with his quill. He would have to have a word with Boris the fool, the Lord Mayor of London. If Lord Mandelchett told the people that the streets were paved with gold then who was Boris to deny it.

"Romeo, Romeo,where for art thou Romeo?" asked the Queen.

"Pardon Majesty?"

"I was just wondering where your Tupi Indies servant boy from the New World Romeo is today."

"Erm..Servant boy..yeeeess. Ahem. Well he is at prayer ma'am."

Just then Lord Brownadder entered with a flourish of his ill fitting cloak.

"Majesty. Lord Mandy. I have bad news,"

"Another By-Election defeat Brownadder?" queried Lord Mandelchett
"Not another fall in literacy levels for school leavers?" asked the Queen
"Another increase in Arquebusier and sword crime, perhaps? Rise in unemployment for labourers. Might I venture a fall in the number of Watchmen in the capital?"

"The number of constables has risen for the fifth year running as you well know Mandelchett. There are now seven constables for the city. No Majesty, a great horror is upon us."

"Oh no!" croaked the Queen "I had heard rumours of another outbreak of the Black Plague in the North."

"No Ma'am. That was traced to one of John Prescott's Codpieces. What has actually happened is religious terror."

"The Moors?" asked Lord Mandelchett.

"No. why does everyone automatically say that? No it is the Catholics. A plot is upon us to destroy the independence of Parliament. Well, probably more than I have done already. But don't fear Ma'am I have a scheme to protect you."

"Tell me Lord Brownadder," commanded the Queen, as she settled onto her throne.

Brownadder unwrapped his sample I.D Parchment which Lord Mandelchett took and studied.
"Well I will arrange for this parchment, containing details of every Goodman, Gentleman, Noble, Crone or Wench to be carried about their person at all times. It will enable the guard to verify the authenticity of that person, securing your safety."

"Do you mean if Master Cooper was questioned on the way to market he could use this to persuade the Sergeant of his character?"

"Exactly"

"And he would have no need to point to the massive collection of barrels and casks upon his cart?"

"Erm ...well"

"And Master Miller, If called by the Captain of the guard to provide proof of his domicile could produce this I.D or maybe he could point to the turning blades attached to the front of his residence? Mistress Potter may show her clay caked hands and Witchfinder Templeton need only point to his sulphur-match? And won't it all be very expensive to administer?" asked Lord Mandelchett.

"Its all arranged Your Highness. A special craft of printers and tax collectors..Just a Royal command to make this legal. I beseech you.. "

But Lord Mandelchett had already whispered into the Queens ear.
"No, I don't think this will do Lord Brownadder. Lord Mandelchett has a better plan. Tell him Mandy."

" Majesty, if you grant me the title of Attorney General I will round up all the likely Catholic plotters and hold them for ..oh about 42 days... a bit of water boarding and hooding and then ..burn them.. I'll get the Daily Occurrence to print up a "Religious Intolerance causes house prices to fall" story to bring the people onside."

"Excellent Lord Mandlechett, you are so clever and wise. The ablest of all my advisers. Now Brownadder have you sorted out that problem with the Exchequer yet? I am impatient for good news."

Well don't hold your breath. I've been waiting for some good news for 18 months thought Brownadder.
"Not quite Ma'am. I thought I had it but it seems to have gone all Kinnock on me."

And he left the room sadly.

_ _ _ _ _ _ _

"It was about as successful as one of my relaunches. I think the phrase rhymes with James Purnell." Brownadder told his two cronies.
"We have purchased one hundred Lambstrad printing presses, dyes and thousands of small squares of parchment and we have nothing to print on them. As big a waste of time and money as that giant white marquee, containing a few acrobats that Mandelchett had built in Greenwich."

"Well Gordmund, this very day, I have been trying to discover the secret of alchemy. To win back your fortunes.."

"Be quiet Woodward. That's as likely as Damien McBride giving a morality sermon. We can't make coinage out of thin air... .. or... hang on..wait a minute. What if we were to print up promissory notes on these presses. Something with words like "I promise to pay the bearer the sum of five schillings."
We could print hundreds.. no, thousands of them. Hundreds of thousands even."

"But who will use them?" asked Lord Shauny.

"Everyone will. If I can just persuade the queen to agree to them being legal tender, even though they are backed by nothing but empty words."

"Well you know how the Queen is getting on a bit in years," interjected Ballsdrick. "Beginning to look as saggy as a Jacqui Smith belly. Well she might like to be immortalised. Captured by a great Holbein in all her beauty. If you arranged to have the Queen's youthful image engraved upon every note, she might consent to the plan, my Lord."

"Ballsdrick you're right. She might just agree. And if we can keep the printing presses running day and night we need not worry about curtailing spending or ending wars for years. The Queen can have her fine things from the Barbary coast and I can bribe, erm, I mean educate the population with my good works, and cream an enormous slice off for myself. Your Endogenous Growth Theory bollocks has finally paid off Ballsdrick.
Right, while I see the Queen, you Shauny, send a messenger to inform Lord Mandelchett that he is being Quantitatively Eased out of the picture."

"The Brownadder is back! "

Brownadder the Second {rate} Part 1

Brownadder the Second rate. {Part II}

Brownadder the second rate { part III}

The End.

Brownadder the Second rate {part III}

Sir Alistair The Spin Physician had arrived, with his assistant Sir'Alan Sugarcane and was setting up charcoal sketches of his cunning plan on an easel. A canvas shroud covered a large object beside it. Blackadder and Lord Shauny sat in chairs and listened to the presentation. Ballsdrick squatted on the floorboards.

"As I understand it, your stock has sunk as low and as quickly as Kenny MacAskill . You need to revive it and make a silver mine load of cash into the bargain. Well I have just the thing" said Sir Alistair, " Behold, your saviour" added Sir'Alan and he whipped off the shroud to reveal a printing press.

"The idea is to have everyone in the realm carrying a parchment containing details of their identity. You have sole rights over the printing of these "Identity Parchments"
said the spin apothecary, making air quotes with his fingers, "And you can set the price of each one to whatever you wish. If every citizen carries one, that will be some two million sales."

"But why would anyone want to carry one? What purpose do they serve?" asked Brownadder.

"Well, the information contains a persons name occupation, place of residence, height, weight,religion, number of facial warts.."

"I already know my name sir," said Ballsdrick. "Its Ballsdrick. Occupation, education secretary and servant to my master. I live at the behest of Lord Brownadder in the attic of number ten. I'm 5ft zero and weigh heavily on the nations thoughts. Facial and other warts, nine.."

"Ahh, but if someone didn't know you,and wanted to question you, then if you produced the parchment, they could tell it actually was you."

"Who would ask anything of a pointless, insignificant haystack like him." asked Brownadder. "It would be like asking the opinion of Bob Ainsworth."

"But here is the cunning part confided Sir Alistair craftily. "You create a climate of fear so that every Goodman and Goodwyfe is placed under suspicion. We tell the Queen of a plot to overthrow the monarchy. Uncompromising religious fundamentalists are poised to blow up Parliament and bring in their own perverted view of religion and their own sinister laws.."

"You mean the Moors?"

"No, Catholics. A Catholic plot. A royal decree is passed declaring that every man, women and child must register at their local parish and pay to receive one of these special warrants to help combat the terror. I have devised a suitable ruse. We just need someone stupid enough to take these barrels of gunpowder down to the cellars at Parliament."

"Lord Shauny, Ballsdrick. Job for you...
I like it. Its as outrageous and untrue as a Lib Dem campaign leaflet. And Tony and Mrs Blair are Catholics too aren't they. Brilliant. Or are they casholics? Is that the same thing? Never mind, they will go onto the traitors list. So how much will this operation cost?"

"My company, Lambstrad, makes these little printing beauties," said Sir Sugarcane. " None of your German Gutenberg rubbish here. Solid Anglo Saxon craftsmanship. And it only weighs three times as much and runs half as fast, yet costs twice as much." he boasted.
"They can knock out as many as six I.D cards a day. I can let you have a hundred presses for 500 florins and being made a Lord of some mundane enterprise scheme.

"It's a Deal. Shauny, dip into your wife's fortune again and pay the
Levite. I'm off to see Her Majesty and Cardinal Sin himself, Lord Mandelchett. If anyone wants me I'll be with the two Queens."

and Brownadder left for the Richmond.

to be continued

Brownadder the Second {rate} Part 1

Brownadder the Second rate. {Part II}

Brownadder the Second rate. {Part II}

Lord Brownadder is at home with upper class twit Lord Shauny Woodward, heir to the Duchy of Sainsbury, and his servant Ballsdrick. He needs to conceive a plan to restore the nations, and his own fortunes.

"Tomorrow and Tomorrow and Tomorrow.....
That's how long I'll be in power if we don't come up with something quick. The Queen wants to put my head on her FaceBlock page and my glass eye for a marble."

"Some beans and some beans is four beans my Lord" said Ballsdrick.

"Shut up Ballsdrick. You had your chance to be Lord Chancellor at the reshuffle and you muffed it. We need a cunning plan. So cunning it could come back after resigning twice, having insulted the leader and divided the party and walk off with the top job. That kind of cunning."

"Well Gordmund, why not just use some of the thousands of pounds that you have raised in taxes over the last twelve years. Or the money from the monastery re-nationalisation scheme," asked Lord Shauny, trying to be helpful.

"There is no money dimwit. I've spent every last penny."

"But Gordmund, you're always saying how clever you are. How you have discovered a third way. How you have created wealth to last until judgement day."

"And Judgement day has come. There is no third way. Just a cunning web of half truths, rounded up statistics and double counting. "

"You mean that you have been fibbing," asked Sir Shauny in a shocked voice.

"Of course. Oh look. Shauny. We are leading the Tories by Ten points in the latest YouGov opinion poll. And my personal approval rating is higher than Joanna Lumley's!"

"Really!" exclaimed Sir Shauny.

"No you idiot. Come the election we are going to sink faster than the Mary Rose.
Remember when it rained last month and you said I should fix the roof, and I said bugger that, its only Ballsdrick's bedroom. Well, I should have fixed the roof. The storm is upon us."

"But how could you have spent such a princely sum? It was a papal amount"

"Well lets see. The academies for children, the poor law costs, free milk for snipes .. not means tested either. How was I to know everyone has seven or more children? The Infirmaries and alchemists and barbers shops free at the point of use. Who'd have thought a plague would come?
Free Barge travel for the over 40's OAP's.
Begging bowls for the poor. The never ending wars with Ireland and Spain. Regional palaces. The Great Universities. Awards of high offices to cronies. The building of a navy, Light entertainment from The Bard's Boards Company. Funding for all that Renaissance art.
Then all those parliamentary bills. They all cost gold. Gold that I decided to sell off at the bottom of the market. I thought those galleons would just keep on coming like the applause for Sarah at a party conference. Hunting with Falcons bill, the lilly, root and arsenic additives bill, All those feasts for the churches.. .it was all so popular.
The Queen loved it and so loved me. We must find some more money."

"My Lord, I have an idea" said Ballsdrick.

"Well I hope its better than the one you had about me signing the Lisbon Treaty in a room on my own. I looked a right pratt."

"Yes sir. We enrol the help of the greatest spin physician in England. Sir Alistair Cowbell. And the greatest merchant, Sir Alan Sugarcane"

"Desperate times call for desperate measures and I haven't looked this desperate since I did that youTube video. Fetch them at once Ballsdrick."

To be continued ...

Brownadder the Second rate. Pt 1..

Brownadder the Second {rate} Part 1

Bank holiday fun

It is the year 1588. Lord Brownadder has been summoned to court to see Her Royal Majesty, Queen Elizabeth, to explain the country's current dire situation. The Queen is seated upon her throne, talking sternly to Lord Brownadder.

"Lord Brownadder, when I was advised to appoint you as Lord Treasurer, advised by you Lord Brownadder, you promised me riches beyond the dreams of Croesus. Yet the current Lord Treasurer instructs me I have to cut back on my spending as gold has become as rare as a helicopter in Afghanistan."

"Ma'am, I sent our best Privateers, Sir Goodwin, Sir Blank, Sir Applegarth to sail the financial seas,plunder galleons and bloat our economy with silver.."

"And? Where are my pearls Lord Brownadder? Where are my jewels?.. where are the things that can only get better?" asked the Queen.

"Your majesty, it was all going so well. I raised huge sums of money from levies on the markets; Wyehill, Spitafields, Bartholomew fair .. I raised a wind tax on the millers - A windfall tax if you like -I charged a customs duty of 400% on those new tobacco and potato products, and an outrageous ale and sweet wines duty of 600%, a window tax, a second barn levy ..A merchants levy of 17.5% ..The stealth taxes,"

"Stealth taxes Lord Brownadder?" enquired the queen.

"Yes Ma'am. I had Ed Ballsdrick stealthily creep into peoples homes and rob them."

"But where are these sums now Lord Brownadder?" asked Elizabeth. " Your treasurer, Lord Darling, decided to bow to pressure from the mighty courts of Spain and France and impose a pipe smoking ban that has driven away the peasants and forced the ale houses to close. He has declared the sale of fried potato snacks to be unhealthy and therefore outlawed them, insisting on five turnips a day instead. The duty has dried up. Now when my dressmaker demands a farthing what am I to say has happened to the great wealth that you said you had created. Didn't you promise me an end to boom and bust? "

"Majesty.. If you please, I actually said an end to the Tory loom that bust, referring to those new Flemish looms we purchased under PFI { Pretend to Fund It} being so much hardier than the old Tory ones..
But what happened was a commerce hurricane. Large firms like Medici Lynch and the Hospitaller Sienna Banking and Church, or HSBC, ran into monetry trouble investing in the sub-primitive markets in the Indies.
This Financial Tempest, which started in the New World, crossed the great sea and lashed our shores. It was divined by God and so it wisna t'ae do wi me. " explained Brownadder.

"A tale about as believable as a Home office crime statistic Ma'am," came a voice from behind Brownadder. He turned to see the suave, ermine and silk clad figure of Lord Mandlechett enter the chamber. Brownadder groaned inwardly. This he didn't need.

"Lord Brownadder set up a commission to monitor the Independent London Royal Exchange in '87. The FSA was granted charter to observe just such things as fluctuations in the corn prices, the movement of Florins across the sea. The bill of exchange rates of the Genoese and the proportion of credit that the average white cart man was taking from the lombards to purchase the latest high definition portrait.
Observe it did, act it did not. About as independent as a Daily Mirror press release. The sweet FSA is how it is known by the merchants in the city."

"Mandelchett! What are you doing here?"

"I came to see the queen about these awful expense claims for moat cleaning. They are truly terrible your Highness. I'm afraid the drawbridges and portcullises will need doing as well."

"Very well," said the queen, signing the bottom of the very thickly wound expenses scroll being proffered. "Oh Cardinal Mandelchett, how sweet to see you again," glowed the queen.

"Cardinal!" exclaimed Brownadder incredulously,"When, in the name of Jesu did you become a Cardinal?"

"Hmmm you really have been away from court for a long time Brownadder. Why we never saw or even heard from you during the entire harvest recess this year."

"I was appearing on Big Brother"

"Ahh, the mystification is ended. If you had been here serving the Queen, as I have, then you would have known that Her Royal Majesty has seen fit to reward me with a few merited titles."

"That's right," proclaimed the queen."Lord Mandelchett has been entertaining me with his stories of his stay at the French court. We spent some time on a beautiful barge of a friend of his, Duke Deripaska. Lord Mandelchett advised me that it was in the interests of our nation, and my own interests as Head of State and the sexiest Queen in Europe to add a few extra offices to his influence. . In gratitude I rewarded him with "First Cardinal, Secretary of State for guilds and farms.."

"What the .."

".. Lord Chamberlain, Lord President of the Privy Council, Commander of the Cinque ports..Lord High Constable.."

"But surely.." tried Brownadder.

".. Warden of the Essex Marshes,Lord High Steward, Drinker of Burgandy, Eater of Gloucester - Baron Mandelchett of Herefordshire and Hartlepool, The Kingmaker.."

"Well I don't believe it.."

" And of Foy, your majesty," added Nursey Harman, who had been knitting quietly by the Queen's side.

"Of Foy, of course, Lady Harriet. You know my Lady-in-Waiting don't you Lord Brownadder?"

"Yes. Lady-in-Waiting for my job" muttered Lord Brownadder darkly.

"And I am thinking of giving him a grace and favour residence. Perhaps Hampton Court?"

"Too kind, majesty" said lord Mandelchet bowing low.

"But Ma'am that is my official residence,"exclaimed Brownadder in alarm.

"No, Lord Brownadder. As I do not think you will be Lord Privy Seal much longer unless you can fill the royal coffers, bring an end to the famine, help the starving and unemployed of the kingdom and GET ME SOME PRESENTS!" bellowed the Queen.

"But Ma'am, I have a plan already. A cunningly crafted plan that will restore all our fortunes like an ill judged comment from Dan Hannan."

"Well you'd better. Or heads will roll faster than people resigning in one of your cabinet reshuffles.."

And with that the queen swept angrily from the chamber, followed by a smug and satisfied Lord Mandelchett.

To be continued...

The Brownadder tries for a Fourth term
Part 2
Part 3
Brownadder's Bunker

Trading Interview with Guido Fawkes

Today is the first in a series of interviews with a variety of people who are interested in trading. First up is the UK's number one blogger, Guido Fawkes. Guido often comments on trading and always has a place for it on his blog; he is right far more often than not and himself has a background of working in Finance.

Cityunslicker(CU): What are the markets that interest you?

GF(Guido Fawkes):

Generally I try to trade in generic markets and indices. For example futures on commodities and derivatives. I look at whole sectors and not specific stocks.

CU: Why not stocks?

GF: I am put off by other people knowing better than me and some limited and bitter experience. Trading in 1997 to 2001 was great in dotcom stocks....I even managed to keep half my next wealth between 2000-2001. Lesson learned.

CU: Where are you placing your bets for the rest of 2009?

GF: Gilt markets on the short side is my bet, but this is hindered by greatly quantitative easing messing with the market dynamics; but I don't want to be out of the market when it does collapse.I am prepared to take some heat on it waiting for the inevitable. I know I should be getting long stocks but I am averse to it at the moment.

Also I have some Private Equity investments that are taking up a lot of time. I don't review hundreds of pitches, but meet people directly so as to keep these quite focused to a few select opportunities.

Long-term I would be betting on India, which I see as better than China due to the legal system and English language advantage. But the Bombay stock exchange very volatile, so I would look to funds like the Merrill Lynch one.

CU: One of my current picks is Unitech Corporate Parks, an AIM share that owns a number of business parks across India, as usual, one for the brave. How addicted to trading are you?

GF:

I really like doing it, I should do 3 or 4 trades a year rather than 40 as I'd be more successful then. I knew that the weekend when Darling said the UK was screwed that I should have put more in to shorting the Pound. I did well but it was such an easy trade.

My wife is always saying I should to go back to financial markets, but for me playing in the markets is risk capital for - even losing it all would not ruin my life.

CU: What are your best and worst ever impulse trades?

GF: The best one was in a German biotech firm that returned 300% on day one, thanks to me meeting a broker at the right time. I made a lot of money out of the globe .com too - I knew it was crap, but could see it would fly for a short while in that market environment and got out way ahead. It tanked in the end, but noy for me,

My worst decision was to turn down 500k worth of stock in the Google IPO - turned down 20% profit on day one. I felt so burnt by tech stocks from the dotcom mess that I could not accept the recommendation.

CU: Thanks Guido, good luck with your trading picks.

I think Guido is pretty on the money with his calls, QE is going to mess with the Gilt market though and may well string out the inevitable. Also the Government may choose a sharp devaluation over interest rate rises, so a hedge on the pound collapsing would make the position safer.

This Way for the Gas !

Having posted a cheeky item on Gazprom two weeks ago, it was off to Russsia for the Drews, including a visit to a little place near St Petersburg where the new Nordstream pipeline will enter the Baltic on its westward mission to feed Europe's gas habit.


Couldn't find it at first, but then I spotted the signpost.

Gives you a reassuring feeling, doesn't it ?


Unhappily I was just a little too early to join in the 75th birthday celebrations for Rem Vyakhirev, the cheery old apparatchik who was running Gazprom when I was in Moscow in the '90s. For most Russians the big celebration is at 60, before the booze catches up with them. I have shared a few *ahem* toasts with Rem Ivanovich and the lads in my time and congratulations are in order on his reaching this landmark !

ND

New High Speed train plan inadequacies

Network Rail, the massive spender of taxpayers subsidies has come out with a new plan today to warm the cockles of David Cameron. A rail fantasy with deep Freudian overtones; Big trains that go really fast etc.

Yes, the Tories have said they want less airports and more trains. And is if by Magic, a shiny new plan is presented. Ah, travelling from Glasgow to London in 2 hours 15 mins (do you think many people will be buying return tickets though?).

However, this huge project will cost billions. Transport is one area where Government has to invest as the private market does not really work due to the 'tyranny of the majority' (everyone wants it but no one wants to pay).

But what we really need to help everyone in the country are new and better roads. 80% of journeys are by road. Far more people use cars than trains. As much as we need to improve the rail infrastructure, we need to upgrade the roads too.

Even global warming obsessives can see cars are here to stay. They may be electric or work on biofuel, but cars are not an invention that will be uninvented.

Only 10% of road taxes (£45 billion) are spent on roads. Neither Labour nor Tory are car friendly; as such neither can claim to be populist as this would require being cognisant that the majority of voters are road users and would like better infrastructure.

GKP strikes it rich

What a story, here is a tiddly oil company that has struck oil in Kurdistan. It had been widely tipped, but not as much as FTSE100 Heritage Oil. The shares were as low as 10p a few months ago. I bought some as a punt at 21p (two weeks ago), thinking I had probably missed the best rises for the year, but maybe with another oil find and confirmation of production, it could hit maybe 30-40p.

Well, they hit more oil today and currently the shareprice is nearing £1. Blimey, what a lucky strike!

Building Society sector: Fail

A good recent report from KPMG, highlighted in the Financial Times, shows the continuing desperation of the sector. Just last week Chelsea Building society announced a huge fraud had cost it millions of pounds.

The nature of this fraud is itself quite suspect. Chelsea lent millions on buy-to-let mortgages to people who 'self-certified.' Now they call this fraud and the management leave, but one has to think that this was really an epic fail of risk management on behalf of what was supposed to be a prudential institution.

Other players in the sector have simply loaned out far too much money in mortgages and now with no access to the wholesale markets are effectively in stasis as businesses. With low interest rates making savers hard to come by and hard to profit from, these institutions seemingly have nowhere to go.

Now an M&A advisory business is going to suggest they all merge to make one bigger business which might have more room for manoeuvre.

However, the canniest thing to do for the CEO's is to wait it out. Interest rates will not be low forever and rising house prices in the medium term will fix the poor quality aspects of their books. Now is a crazy time to panic, unless like Chelsea or Dunfermline you have been run by avaricious fools in the recent past who have destroyed the business.

Victor Blank scores a Blank

This Robert Peston interview with Sir Victor Blank, the recently deprated LLoyds Banking Group ex-Chairman, is amazing. Not for the fireworks or stunning Peston interview technique.

But for Blank's show of ignorance. Here is a 'City Grandee' dispalying all the worst characteristics that we have come to expect.

Sir Victor says they had no idea about the problems in HBOS; perhaps they could have done some due diligence to see what they were buying? No, not when Mr. Brown the Prime Minister had asked so politely.

In recent weeks I have had some conversations which suggest LLoyd's was uniquely poorly placed ot buy HBOS. Lloyds had never had a huge corporate bank and had not been on the other side of the mad deals HBOS had been winning. Barclays, RBS and HSBC would have known of the craziness of the business model promoted by Peter Cumming at HBOS.

Lloyds were ignorant and it has sure cost their shareholders.

Sir Victor also offers no mea culpa, instead there are weasel words about a need for change and someone having to take a fall. Let's face it he should have been sacked for incompetence and landing the Bank with such a bad deal.

Goodbye thelondonpaper

Hot on the heels of Mr Murdoch announcing that he is moving to paying for online content, he is closing thelondonpaper, a freebie evening newsheet.

Hooray! I hate this stupid thing, it gets shoved in your face anytime you walk anywhere in rush hour; there are a million copies on the train making a mess everywhere; the content is beyond trash with daily pictures of Kate Moss et al going to parties; on the odd page that is not that are gay dating tales and other politically correct bilge.

I can't believe any of the 'journalists' on the paper are over the age of 25. So in the end I hope this is a victory in the battle of rational sense. This is a terrible paper, London Lite, its competitor is equally as bad and I understand is in equally as much trouble not making any money.

Free sheets can be history and London will be better for it. I'll let the Metro off in the morning as being slightly better in that it contains some news between ads.

The Global QE mess

China's Shanghai exchange, a weird place open only to domestic money, had gone up 89% this year, only to fall by 20% in recent days. A real rollercoaster, the UK is more sedate but still the market has gone u p over 33% in recent months. I am glad I had a lot of long positions.

I still do and if you want to know why, the answer is Quantitative Easing and the global mess of bail outs. Money has been pushed into the system by many countries around the world through a variety of means. This money has had not practical use in producing goods and services due to low demand.

Instead it has pushed up asset prices, virtually all of them. Everything is up, Gold should be down as the threat of collapse recedes and demand for gold collapses, but it is not. Oil is up again to what only very recently was considered a very high price indeed. Shares across the world market have made spectacular gains.

This is where all the new debt has gone, so if you were not invested you have missed it. All this has contributed to a better zeitgeist in August than many would have thought back in March.

However the real economy of the world is still in recession, albeit not the depressionary conditions of a few months ago. There is huge potential for a price unwind across all asset classes. The only thing to be in at that time are US Dollars as it will fly as a safe haven asset along with Yen.

Even if the unwind turns out to be mild, the effect of Government curbing their lending and re-selling their QE books to the market will depress growth for sometime. The UK is particularly badly placed here. it is going to be a boring and hard-working decade to 2020.

House prices uncertainty

The Telegraph had a story about homeowners dropping their prices. A figure of £5,000 off the average asking price was used.

Asking prices were dropped by an average of 2.2 per cent from July to August to £222,762 – the biggest slump this year – as sellers were forced to cut their prices amid the housing slump.
The monthly Rightmove house price report blamed lenders for boosting their profits by raising their mortgage rates but said the figures also showed the housing market was experiencing its traditional summer lull.

Another estate agent representative on the radio made the ever valid point that house prices are less effected by supply as by the availability of credit.
At the moment home sales are falling to people who have sold their own home themselves, those able to borrow from relatives and those with a £20,000- £50,000 deposit in the bank. These are finite buyers. UK savers do not have those kinds of reserves.

HIPS are contributing to the problem by taking the water testers out of the market. At £500 for a basic cost to see if your house isn't worth what you thought it wasn't, only the committed to sell will market their properties.

But there continues to be a shortage of properties for sale, with 82,700 homes put on the market during the month, 23 per cent fewer than in August last year when there was already a supply shortage.
It should be noted that the forecast is for 100,000 new build homes only for the whole year.

Just a few weeks ago there was talk of rises in 2009

Homes 'may rise in value in 2009'

The Telegraph at the time were much less trusting of the stats that led some people to predict house price rises by the end of this year.

UK house prices: has the great recovery started?

It does look like the further 10% fall this year and another 10% next year may be the correct forecast after all.

Bugger!

Wreckage

Apologies to those of you bored with this story about Northern Rock, but it is a fascination of mine and also a great microcosm for the credit crisis created by the Government, bank of England and the Market.

The Government's control of Northern Rock has taken another couple of bad hits today. Firstly, as it runs out of money very quickly and its loan impairments increase, it has been forced to stop paying bondholders, where it can. In a private company, this would be the end more or less, of course, the Rock is well past this stage. It does not help to set the business up for the quick sale that the Government want before the election.

Then the remaining Mutual businesses in the Country have lodged a submission with the EU, saying that the Government's current plan for the Northern Rock business going forward (a good bank/bad bank model - with the bad being taxpayer owned) is anti-competitive. They insist the Rock should have more lending restrictions to prevent market domination.

Oh dear, what a mess. This whole fiasco is going to cost the taxpayer billions of pounds and if the EU reject the Government plan then it will be back to square one. If only there was a solution someone could think of?

Nigeria: Banking system better than UK?

Or so it would seem from this report, for in Nigeria a mere $1.3 billion in loans has been required to save 5 banks. Our 5 banks that needed saving, RBS, Lloyds, Bradford and Bingley, Northern Wreck and Dunfermline cost only $150 million dollars odd. There share prices have been suspended rather than allow a false market to develop, as we did here in the UK.

In addition, the Government has sacked the management in return for the money and insisted on a fresh start. Last time I checked Lloyds was still being run by Eric Daniels and RBS let off Sir Fred with a nice pensions.

Amazing, who would have thought a year or two ago that a country like Nigeria could show the UK how to do things properly when it comes to bank regulation!

Light blogging over

Cityunslicker was back at work for the first time today post-Paternity leave. Not a fun experience as the work has piled up as fast as my tiredness from lack of sleeping. However, yesterday I lost my dog for most of the day and spent the whole time walking in the park trying to find her. Luckily I found her at 11pm, her having gone missing at 12pm. Glad to have her back.

Labour's pledge cards.

A debate over at Letters from a Tory has begun to spiral into a Cameron should promise more row. Issues such as a full NHS debate, War debate etc. Some see that is the way to power.

Labour was very big on pledges when it was preparing to fight the election in 1996.
Despite the myth that Tony Blair never said anything of substance before the election, Labour made some very specific, very measurable promises and committed them to pledge cards. This was seen as quite an astute move. Committing the party to areas that people wanted to see action on. It was actually much later, when they couldn't deliver, that they changed to Mission Statement style pledges.

1997

1. We will cut class sizes to 30 or under for 5, 6 and 7 year olds by using money saved from the assisted places scheme.
2. We will introduce a fast track punishment scheme for persistent young offenders by halving the time from arrest to sentencing
3. We will cut NHS waiting lists by treating an extra 100,000 patients as a first step by releasing £100m saved from NHS red tape
4. We will get 250,000 under-25 years-olds off benefit and into work by using money from a windfall levy on the privatised utilities
5. We will set tough rules for government spending and borrowing and ensure low inflation and strengthen the economy so that interest rates are as low as possible to make all families better off

The problem for Labour was these were not just easily broken manifesto promises, but pledge cards that were issued to people, in order to deliberately hold the government to account after its first term. The pledge cards HAD to be met, or made to appear the pledges had been met. So the pledge cards, really intended to be 'trust us' cards - another arrow in the attack on the dishonest Tory liars -had a large policy influence, despite changing circumstances or priorities. By 2001 Tony Blair decided to ditch old Labour style commitments for a more New Labour sounding aspiration, with broader,easier targets. Also a rolling of 2 policies into one statement, to make a claim of success easier {though conversely, harder too}

2001

1. Mortgages as low as possible, low inflation and sound public finances
2. 10,000 extra teachers and higher standards in secondary schools
3. 20,000 extra nurses and 10,000 extra doctors in a reformed NHS
4. 6,000 extra recruits to raise police numbers to their highest ever level
5. Pensioners' winter fuel payment retained, minimum wage rising to £4.20

Just love number one there. How would mortgages be kept low with an independent Bank of England? Well Gordon found a way. Oh yes. and the golden rules were his own rules. Enron accounting can meet any commitment, in the short term.

By 2005, with lots of failures on display in Health care, Policing, Teaching, Public spending and taxation, the most bland, innocuous, unquantifiable pledges, released only because they had been done before and to escape the charge of abandonment appeared without fanfare.

1. Your family better off
2. Your family treated better and faster
3. Your child achieving more
4. Your country's borders protected
5. Your community safer
6. Your children with the best start

Just awful! And they added an extra sixth, even more pointless pledge too! And number one looks unlikely to be met by 2010. Or even 2020. But with no timescale watch GB spin it away as a success if he's ever asked.

But what five pledges should Cameron make?
Even more ephemeral ones than Blair's 2005 ? Or more substantial ones like the executive's 1997?

Winner gets to write Brown's five new pledges for 2010.

Scary Gazprom - "With All The Trimmings"

From time to time we like to have a little peek inside the scary world of Gazprom, the company that is going to hold Europe to ransom unless we build ruinous windfarms and nuclear power stations. What a painful dilemma for us all, eh ?

The thing is, scary Gazprom badly needs the money (just like we need the gas, which is why there’s an intelligent deal to be done ...) But Big G also likes to announce impressive projects, all over the world, which is how it imagines big companies behave (it secretly models itself on Shell). If you believed all their press releases, you’d imagine they were a Real Global Player. How gratifying.

But in the end, as we’ve noted before, Gazprom never spends any cash of its own.

Here’s a gem. In order to be seen as a big European downstream player in its own right, complete with fanciful market-share targets, Gazprom announced several big gas storage projects across Europe, which don’t come cheap. Would they put up, or would they …?

Well, it turns out that there are safety issues preventing them from going ahead with their flagship German project, and as their man says, Sicherheit geht vor. Yes indeed: safety first.

Which is a real shame for the good burghers of Wittstock – no Nimbys they – who were hoping for “... Ein Erdgasspeicheraufschluss mit allem Drum und Dran” – with all the trimmings !

Sorry chaps: as we said to the Nigerians …

ND

FSA and the Bonus Culture: the Boy Done Good ?

The FSA’s new regime for City bonus schemes is being reported widely as a partial climb-down. But that’s unfair, and it’s not the point: there’s enough meat left for them to chew on long and hard – if they’ve the will. And that’s the key.

The FSA doc starts with a pithy summary of all that’s wrong – so the correct issue is squarely on the table. The substance of their response is sound: a ‘general rule’ linking remuneration with risk management, plus some principles and guidance. As we’ve long advocated, the sanction is via linkage to capital adequacy requirements. Interestingly, the FSA is planning to go further (and faster) than the altogether less clever EC proposals, although both regimes are headed in broadly the same direction.

The trouble, as ever, lies in the degree of regulatory ambition. Despite protestations of determination, there is leisurely implementation timetable (why not demand compliance right now ? – nothing you are proposing goes beyond commonsense, or beyond what enlightened shareholders should already be demanding), and an early admission of weakness:

“Our Remuneration Code is not going to change the ‘bonus culture’ overnight”

Why not ? You have the principles, the power, and broad public support.

Well, we know the answer. Because you also have a craven government at your back, when what you need is resolute top-cover for some determined action.

ND

UK Unemployment increases

What is wrong with this graph the BBC have sough to include on their website re UK unemployment. I wonder for a start why it goes back to 1971, the statistics go back a lot further than that. Perhaps 1 million unemployed was a nice round number. I also note that it is not compared against UK population growth. Which is strange for the BBC, as I would imagine the last few years would see an even better performance as the population grew whilst unemployment fell.

However, the is miss is that the ONS data does not account for all the messing about with claimant statistics, for example moving people to disability benefits rather than pure unemployment, plus the current vocational/volunteer schemes which skew the numbers.

Without this, I can't even believe this as a rough guide, as since the 1980 recession governments' have had too much of a vested interest in fiddling these numbers.

Has the FTSE topped at 4713?

Some of the technicals like the MACD would say so, but I am not so sure. One thing is unlikely, that the FTSE can go much above this level in this year. My prediction was the FTSE to be flat year on year at about 4400, I still think that will be the case, although it will be more rollercoaster ride up until Xmas.

Don't vote for Vince

The Times has an interesting poll out, vote for who would be the best Chancellor. It is nto goign very well for poor Darling, who with such a bad hand to play with has done as one would expect.

He should have folded a long time ago.

Anyway, Vince Cable is in the lead. Vince Cable.

Now, I have met Vince only very briefly and seen him a bit on the telly, as it happens I have read qutie a lot of his stuff in the papers. You know what, he is nearly always wrong. he has a ncie voice though and sounds quite reassuring, he maintains this in person too. As such he is a good communicator and politician.

But as an economist he is just wrong, as most of them are. Economists never get elected to CEO or board level in companies and there is a reason for this. Ivory Tower posturing is not what gets the job done in the end.

Let's take one example, Northern Wreck. Vince is lauded because he said nationalise it straight away. Woohoo, the Government did that later so he has the power of prescience. But Northern Wreck has cost taxpayers millions and left us with an broken loss machine on the state books. Closing it asap was the right answer, all the other banks are not like Northern Wreck, Northern Wreck were truly 'special.' So on this Vince is well wrong, as he is on most taxes.

The one piece of credibility he has is that he admits that serious decisions on pensions, defence and uni funding are going to have to get taken. Which is nice, but as he is not the man who is going to have to take them, it may as well be me saying it.

Sorry Vince, your not the answer, so I won't vote for you and neither should anyone else.

Charging for Readership?

This is Murdoch's latest wheeze. Like many such attempts before, it is not going to get very far. People can simply read what they want to elsewhere. The advertising model is set in.

Murdoch is perhaps looking at the success of SKY compared to ITV, where the pay broadcaster is strong and successful and the free to air company struggling. There maybe some validity to this, but the content is still king; for Sky it is the football and movies.

In the world of the written word there is much less discrimination in terms of content. After all most, journalists seem to be sons and daughters of previous ones, it is not as if they got their jobs on merit.

Perhaps key information, such as the Financial Times, which helps people to make money, can charge, but most newspapers cannot as their AP newswire stories with a bit of comment on top is just too easy to copy.

So in all, Murdoch will fail. However, in the spirit of capitalism - how much would YOU pay to read this blog if the adverts were removed?

Baltic Dry Index falls

I know, how unexciting does this sound, but this is the global cost of shipping and accurately reflects trade activity.

When it falls, it means that global trade is slowing and commodity prices will start to fall.

Looks like the September/October 09 crunch just got more likely...

Undervalued houses in the UK?

One of Mervyn King's best phrases was:

"House prices are a matter of opinion,; debt is real."

Today is not April Fool's but this story sure is. Apparently poor estate agents are complaining that valuers are being mean and undervaluing houses; and this is dampening the market.

You would have thought that, just perhaps, having a realistic valuation would give a buyer and a bank confidence. Nor should it wreck the market, but encourage sensible buying and selling.

Perhaps commission hungry estate agents would want prices to be higher? This just shows their business illiteracy. More sales as cheaper prices would make them more than fewer sales at bigger prices.

Ho Hum. UK house prices have another 20% to fall at least, subject to the potential sudden effects of Quantitative Easing. I think we will be back heading downwards long before the election.