"Minor Mishaps" - Polly Toynbee Speaks

On cue, Polly Toynbee as predicted: "However unconnected a bank, immigrant security guards, missing discs and a dodgy donor, they are all whirled together by the enemy into a downward spiral. Minor mishaps become syndrome symptoms."

Minor mishaps ? Unconnected ? As CiF commenter Cynosarges puts it:

"A red thread runs through all four incidents … a Labour thread."

ND

Poll Result: New Chancellor?

Rather belatedly due to the stream of events, here is LAST weeks poll result...the question was who would make the best Chancellor of the Exchequer of the UK:

Alistair Darling	3 (15%)
George Osborne	9 (45%)
Vince Cable	1 (5%)
David Campbell Bannerman	7 (35%)

Votes: 20

I am not so surprised to see that George Osborne is ahead of Alistair Darling; I am more surprised to see that David Campbell Bannerman of UKIP is ahead of Vince Cable.

Cable actually has a lot going for him even though he is a Liberal Democrat; he is at least an Orange Booker and on the right of that party. The Only time I have seen Bannerman on telly he was virtually foaming at the mouth, although this may have been a one off. (As a side note here, perhaps he is related to the rather more famous Dr. David Banner, also renowned for his occasional tempers?).

Referring to Mr Drew's Comment of yesterday though, who on earth voted for 'Badger' Darling, what planet have you been on recently. He is by far the Chancellor with the worst record in many years and he has not even had the job 6 months. I don't give much for his chances of having it in 6 months time either.

So Mr Osborne, about whom this blogger has some rather strong reservations, makes it to the top of the list. In some ways this does not inspire me that the economic governance of the country is going to be in safe hands for some time.

Let's just hope Mervyn King gets another 5 year term at the Bank of England...

C@W Exclusive: SPVs Owned By Charitable Trusts !

A rather laughable front-page ‘scoop’ in the Grauniad today: Northern Crock “is facing a Charity Commission investigation after it emerged that the bank exploited the name of a charity for disabled children while creating an elaborate financial arrangement for maximising profits from home loans”. Yep, folks, the Crock’s Jersey-based mortgage securitisation outfit 'Granite' is – gasp - a charitable trust !

Capitalists@Work can reveal: so are almost all other securitisation SPV-owners !

Tip for the Charity Commission: no, this is not fishy (it’s to ensure the resulting finance is truly off-balance sheet, the whole point of the exercise), and if you’d like to find out how it works, it's all set out in the HMRC’s helpful website here. They'll send you a free CD, if you ask . . .

Actually, I sort of imagine the Commissioners know about this already – even if the Editor of the Grauniad and his sandal-wearing readership don’t. And they give these people votes ? as my mother-in-law says. Tomorrow’s letters page should be funny.

ND

HATTERSLEY UPDATE

As predicted yesterday (comments, below), the Tub of Lard has swung into action: his apoplectic partisan sophistry on The Daily Politics was a classic of its kind, a joy to behold. Polly Toynbee next …

Business and Politics

Long ago in the mists of time this blog was started to provide an outlook on both the business world and how it interacted with the political world, with the UK as a general model. Today sees two huge stories that demonstrate how closely linked both are by the filthy lucre.

On the one hand, the desperate Chancellor 'Badger' Darling is in a hole with few ways out. Northern Wreck lies on the state balance sheet accumulating more debt from the Bank of England and is a blight on our financial stability and hole beneath the water of government credibility. Out of the business world rides Richard Branson. A man many dislike but who is a truly successful and canny businessmen. He can see the Government writhe and offers a deal which is unpalatable to shareholders; but which will be forced through by a government desperate for a White Knight.

On the other hand, you have the opposite to Branson, a small time businessman from the North East who knows how Labour works and how dependent it is on even small financial favours. By buying his influence he made himself a nice turn; now this is exposed it has cost the heads of a few party apparatchiks...with maybe more to come?

And yet the second tale which has cost reputations and jobs for Labour is over half a million pounds odd of donations; a small entry in the accounts even for a political party. Wrong yes, but small fry. The former story which has cost no one in Government is a massive hole that will cost a billion or more of taxpayers money.

How strange outcomes can be when you mix business and politics.

The Scorched Earth Strategy of Impossibility Brown

I will do such things — what they are yet I know not, but they shall be the terrors of the earth

Gordon Brown is a fretful, brooding man, and his frustration is unbearable. By choice he would now be plotting the downfall of the Tories on a battleground of his own choosing 18 months hence. In practice (barring mental breakdown in the interim), he knows he will be cornered and humiliated in 2010.

Subliminally if not consciously, his thoughts are turning to a scorched earth strategy. Evidence ? The reckless and utterly infeasible goals he now proposes – an unachievable house-building programme, one million of which to be ‘zero carbon’! but still affordable to the masses; an equally impossible range of energy and emissions targets which are to be ‘legally binding’, whatever that could possibly mean; & raising the school leaving age to 18. “Designed to show he is focused on the long term and will not buckle in the face of negative headlines.”

These are not the programmes of a man who expects to be around to be judged on their success or failure, but rather bear-traps for his enemies, be they Cameron or Miliband or the less corporeal terrors that torment him.

Trotskyites, whose concern is the collapse of bourgeois society, are wont to make ‘impossibilist’ demands. Prime Minster Brown is embarking on destructive, impossibilist programmes: and he wields considerably more power with which to cause damage thereby than any British Trot ever did.

ND

Sunday Business Round Up - 25th November

Another week, another turbulent time in the Markets and for the Government. Instability should be our new watched word as this is how things are going to be for a long while yet.

Here is the usual selection of the ten best MSM stories on business this weekend:

Northern Rock saga - this deserves a couple links on its own, as has been the case for the last few weeks. Firstly, the Guardian suggests two of the bidders are making headway, The Telegraph has Warren Buffett looking to get in on the action. The Treasury must be desperate for a bid to get this lemon off its hands!

Takeover talk - This week is is the remnants of Rank that get the treatment...

Priced to go - The pound is set to fall along with interest rates. Nice when journalists can seemingly pick up on the very basics of economic theory.

Market manipulation - Many papers carry this story, about how Alistair Darling has managed to revive the small company float and M&A sector with his tax changes on capital gains. This will be a nice cover boost for this end of the market into early next year.

Rio Tinto - Still fighting the BHP Billiton takeover.

UK Commercial property sector - Lifeless and sadly always a leading indicator of the business environment to come.

Interview - with CEO of 3 UK, one of the most innovative and yet under performing companies in the UK this decade.

HSBC - Still strategic questions here for the management at Europe's biggest bank

MoD delay - Still no decision on future army equipment; no change here, eh?

Time to call it: house prices in UK to fall

Many esteemed economists, such as the excellent Roger Bootle, have been calling the top of the UK house market for a long time. Long enough that to follow their advice would have left one out of pocket.

But now the signs are all there, the credit crunch, the Northern Rock debacle, the collapse in loans and now HIPS. Even in my road I can see that the two houses on sale have had a couple of price reductions and are still unsold, reduced 20% from their toppy starting marker.

There are a number of factors that will underpin the market to stop a US style rout; in the main this will be the huge pent up demand and lack of supply of anything except flats. In some areas I doubt the prices will dip hardly at all; in others people may well get wiped out with 50% falls and more.

I am glad that personally I have no need to move for a couple of years as this must make moving house at the moment even more excruciatingly painful than normal in the UK.

Footie Meme

The Capitalists are at work, hence the slow posting.

Just time tonight to respond to the meme of Jeremy Jacobs as regards reasons for England's football failure.

Personally, I think the first team is truly world-class, but we do not have the back-up players to fill in as was borne out by the match last night.

There is not much you can do about this and the idea of limiting foreigners is both illegal and silly. What is needed is simply a coach who can get the best out of average players and forge a team.

Step forward Martin O'Neill.

I am not passing this meme on; too short on time!

Who goes first?

What a week...

Monday - Darling announces huge liabilities likely to sit with taxpayers over Northern Rock; none of the bids very serious...
Tuesday - 25 million bank and personal details lost, announced by Alistair Darling
Wednesday - Kids masquerading as England players lose at home to Mighty Croatia and ruin next summer for England Football fans
Thursday - WTF? What can go wrong now??!

Anyway - the who will be the first to lose their job?

Steve or Ali?

Who can save Brown & Darling; Only the English!

Northern Rock shares down another 13% today, the Bank of England is no doubt looking very closely at nationalisation as the only answer to guarantee its money back.

Meanwhile, having lost most of the population's bank details the Government is firefighting over calamity again...

And yesterday it was shown that the Government borrowing is likely to be back to £40 billion by the year end, before any effect of the slow down has even really been felt yet.

So the Scottish couple in at No10 and No11 Downing Street are left looking to a true English hero to take the heat off them...

Northern Rock open thread; Badger Darling's day of destiny?

So where does the game go from here for all parties?

Anyone agree that Darling will be gone in the first Brown re-shuffle early next year?

Update: Wow...boy did badger's day just get worse. This is the worst ever breach of data privacy and it has happened in his department whilst he was busy wasting billions bailing out a failed bank. A sorry story indeed...His credibility is shot through now and I think even the markets will want him to go. the disaster's the government have suffered since October are going to get a scalp and Badger is the one to be culled methinks...

Brown's Pound

This chart shows Sterling against the conventional basket of other currencies (source: Bank of England). Interestingly, it has been riding high on a global basis for a full decade now, which kinda coincides with . . .

Does Sterling still really feel like it should be a strong currency, or does the right-hand end of the graph look more like the edge of a precipice ? The high plateau begins to look increasingly like it should be called the Blair Pound.

And how jolly unfair would that be ?

ND

Sunday Business Round Up - 18 Nov

Welcome to another Sunday round-up. A day of difference in the UK with England nearly Qualified for Euro 2008 despite playing very badly and all the other home nations out, despite stirring efforts from Scotland and Northern Ireland. Life is just a bitch if your a caledonian, eh?

So, business wise, 10 of the most interesting stories today, with a focus on the Northern rock comments, I really like the hand wringing left pieces that show how little many on the left can understand the principles of capitalism:

Northern Rock Shambles - from The Guardian

Is it the Hedge funds fault? - from the telegraph (not really, by the way)

Government to be saved by high bids - from the Independent (let;s see what they say about the Government writing off the debt interest)

Rio Tinto take-away - The group may counter bid for BHP. Lots more mileage in this battle yet.

World Economic Outlook - Not a nice read, but informative nonetheless.

Easy money - $21 million bonus for new Merrill's Chief

Private Equity - New rules on disclosure try to head of regulation.

On the breadline? - ABF to sell bakery's as food inflation ruins the margins of the business.

S&N saga - The Nordic take-over approach is a long winded tale indeed.

Resolution at last - one deal is done, with Pearl beating Standard life to Resolution.

Nothern Rock; The end of the beginning

John Redwood has an excellent post on the current NT situation. Rather than repeat the details I will focus on what I think will happen:

1. The Virgin bid will fail unless the government roll over and write of billions of government money to fund the bid.
2. Assuming there can be no bid for the whole company, Venture capitalists will be asked to buy bits of the mortgaged book one piece at a time. At this time NR will have to have its shares suspended and be to all intents and purposes nationalised.
3. This will then reveal the scale of the sub-prime crisis at the bank; which may or may not be huge.
4. This will string out the process for another few months so that the Government can try and hope everyone forgets what a mess has been made.
5. The Governor of the Bank of England will not get another 5 years and the government will try and spin the blame onto him for the mess.
6. The asset sales will not recover enough money to pay the BoE loans and so there will be some material loss.
7. Many jobs will be lost and the mud will stick, probably causing the Chancellor not to resign but perhaps to be moved on in a re-shuffle in the Spring.

Overall given the above scenario, there is quite a large incentive here to fund the Virgin bid by waiving some of the debt interest payments purely for political purposes. We will know next week which way this is to go...probably too late to short NR shares now anyway!

End of the week post..

In the light of ND's excellent, if rather worrying, expose of British Energy (below) I was reminded of the following sayings:

Due to recent budget cuts and downsizing, the light at the end of the tunnel has been turned off.

Some come to the fountain of knowledge to drink, some prefer to just gargle.

The obscure a bureaucrat may see eventually; the completely apparent takes forever.

British Energy Fallout Zone (2) – Double or Quits

BE’s optimism is unbounded: they report being in talks with 10 suitors for carrying out next-generation nuclear power plant developments. Surprising ? Not really: talk costs nothing, and everyone remembers the bonanza that was the government’s cack-handed ‘rescue’ of BE in 2002-3, when many companies made a lot of money.

In particular, BE was required by the government to sell forward a huge chunk of electricity – at the absolute bottom of the market, the usual Gordon Brown trick. A nice illustration of this is in the graph above from this week’s Report: the appropriately Brown lines show the prices at which BE sold its power, reflecting the low-price forward contracts; the blue is out-turn market prices for 1-year contracts (spot prices were frequently even higher). Canny Centrica was the major beneficiary of this extraordinary windfall.

When these forced sales expired in 2005, BE carried on selling forward. Apart from luckily having called last winter correctly, the results are not impressive, as we can see. Undeterred, they have continued with this strategy: the graph shows what they’ve done for the current year and the report boasts of a large chunk sold for 08/09 variously at £32 (sic) and £42 / MWh, plus some extending out as far as 2013 ‘to protect against lower price scenarios’.

But in BE’s position, is a lower price scenario the real problem ? Recalling yesterday’s post, it is clear that if ‘legacy issues’ persist (or worse), BE may be unable to deliver from their own output. Now UK capacity is tight, and large-scale BE unreliability can move the market, tending to drive spot prices up - making it even more painful to deliver at low forward prices using replacement power purchased at market price. If you have to deliver at 32 ... and you’re short ... and the market goes back up to 60 ... ouch!

BE are playing double-or-quits here. The lights are on, but is anyone at home? Oh, hang on, now the lights are flickering . . .

ND

British Energy Half-Year Report – Fallout Zone (1)

Yesterday, nuclear generator BE posted a profits warning: “It is unfortunate that … ‘legacy’ Boiler Closure Unit issues at Hartlepool and Heysham 1 will have a significant impact on full year output”.

Significant and unfortunate indeed: and getting worse. Last year saw ‘unplanned losses’ of output equal to 23% of the nuclear capacity that should have been available after routine outages. This year we are invited to expect ‘unplanned losses’ somewhere between 26–35%. ‘Legacy issues’ presumably means ‘no-one’s fault’: so that’s alright.

Actually, of course, it's pretty bad, but it illuminates the potential for something still worse. BE’s nuclear fleet is comprised of AGRs (apart from Sizewell B, a PWR), and they have been beset by legacy issues. There is the clear possibility something nasty might crop up that would cause the whole lot to be closed down at once. And we’d be on our own to fix it: unlike the PWR, the AGR is a design unique to Britain.

But CEO Bill Coley is undaunted. “We have found no factors to indicate that we can’t extend the life of these stations” beyond their design-life of 30 years, he said, adding that an extension of between five and ten years was likely.

If running properly, AGRs represent somewhat under 20% of the UK’s generation output; and these heroic assumptions on life-extensions are built into government thinking on our future sources of electricity. Is this wise ? What will happen if we wake up one day to find they must all shut down forthwith ? Don’t ask Gordon ‘Strategic’ Brown: he has no idea.

We shall return to BE later in the week with more gems from their half-year report.

ND

Photo: British Energy Group plc

Calling the top

In 2001 it was the headline grabbing tie up of AOL and Time Warner (later to lead to the biggest corporate loss reported ever, $99 billion!).

So today could it be the Saudi Prince who bought an new A380 as a toy?

Even in the highly competitive world of Billionaire one-upmanship this surely sets a new record. Although someone this month has also paid £83 million for a small flat in Mayfair.

Generally though, when the splurging excess reaches the heights of this, buying an over-expensive jet airliner as a toy, things always point downwards...so could this be the sign?

Or is it in fact the other way round; with Saudi petro-dollars being released back to the global economy at last? Could this be the start of the rebound?

What is your money bet on?

Poll Results: Buy Gold

Last week's poll was a question asking what investment asset class makes the best sense in the current environment? The final numbers are in below:

Gold	7 (38%)
Commodities	3 (16%)
Shares	6 (33%)
Cash	2 (11%)

I was not that surprised to see that Gold took a lead here. It's real price has been soaring in recent days and is over $800 per ounce (As I write today it is nosediving, typical!). It started the year at around $600 so any investment will have reaped strong rewards so far.

Shares/Stocks too in the West have suffered at hit already with the tech bust and the ratings are not so high on them that a huge correction is likely, according to the market bulls at any rate. However, investments in China and South America are going to have to be well timed to escape with the profits. Goldman Sachs I see has already been liquidating assets to book profits in these regions.

Very few people voted for commodities and this did surprise me. There is huge demand in the world and sovereign funds are going to suck up supply. As much as prices are high, so is demand.

Which leaves cash as the orphan. If I had some cash I am sure I would know what to do with it, but I don't. At this very dodgy moment in the economic cycle though it shows what bulls the readership here is.....

PS I voted gold.

Sunday Business Round Up 11 Nov

Mutley asked me to widen the number of sources I use for this round-up banner was the best I could do, a bit of a failure. Click through for the fantasy world that it describes....

Back in the business world, the tremors are still being felt and we can't yet see if there will be another huge earthquake:



Barclays' to bring forward trading statement - Perhaps there is nothing under the bonnet after all?

HSBC to admit worse to come - Allegedly there is more pain to come from HSBC, always the most honest of the British, indeed, global, banks.

Credit crunch good for savers - Not quite the returns people are used to though...?

Are Sunday Paper's doomed? - A good piece of research from the Guardian here.

China buys into Rio Story - Not Rio Ferdinand, but more sovereign fund investment in resources companies.

New bidder for the Rock - maybe, but no one is saying what to do about the hole in the books..

Branson on CGT - The man who walked with brown produces a knife for him after all.

EU to neuter Ofcom -More powers to Brussels away from our domestic regulator.

Irwin Stelzer - I nearly always disagree with Irwin, but good to see a counter-factual comment in The Times.

BA nears Iberia deal - This is one private equity deal that may still get done.