Cameron announces same policy as before

Yesterday the little political news that there was focused on David Cameron saying there wouldbe no swingeing cuts in public services in the first year of a Tory Government. It is hard to know what is meant by swingeing, let's say 10% - so in deficit terms that is about £18 billion of spending.

However in terms of what the Government actually spends that is about 3% of spending. I don't regard cutting expenditure by 3% as swingeing; The only person I know in reality who thinks like this is Mrs. CU.

Instead we have Labour and the Lib Dems getting hot under the collar about this pin-head dancing.

The reality is going to hit the country hard (in terms of the market reaction) that 10% or more will be needed to just stave off disaster. How some politicians like Peter Mandelson think that the UK is OK and not near default is beyond me; A simple analysis says that if you are forced to print £200 billion then there must be some rather large holes in the income statement.

It still feels to me like the Politicians of all 3 main parties are leading us don a very dangerous path, much like the 1970's. We have tried this attempting to spur growth through deficit spending before, both Labour an Tory; it led to the IMF crisis of that time. Due to electioneering UK voters want are not being told the truth, so instead it will be a bigger shock when reality hits.

The way to play it for oneself is to short gilts in the run up to the budget and for the rest of the year after that. worst case that will be a 10-20% play; if there is a debt crisis then the return may make up for some fo the currency value loss we will all suffer.

Theatre Review: ENRON

Enron, now in the West End having sold out at its two earlier venues, is without doubt top-notch, cracking theatre, as extolled by all reviewers. The audience is duly riveted and the interval discussions are animated. At one point the production was marketed as Enron – the Musical, and the show certainly deploys lights, music & action to great effect. It could be recommended for this alone.

But while succeeding brilliantly in creating a spectacle, the playwright Lucy Prebble has clearly aimed higher still, and it bears a bit of analysis.

The subject-matter is juicy. Over little more than a decade, a dozy gas pipeline company revolutionised first the energy markets in the USA, then commodity markets worldwide, propelled by one of the greatest business visionaries and implementers the world has ever seen (Jeff Skilling - now in gaol, unlike hoards of far more deserving bankers - is comfortably the equal of a Gates, and vastly superior to a Welch), aided and abetted by some of the strongest personalities ever to don a business suit or push-up bra. They were strongly opposed by the vested interests and old energy monopolies every step of the way, but they prevailed. They were doing amazing, explosive things in an explosive way. And in 2001 they imploded – corporately, personally, the whole shebang. Shakespearean, or what ?

Long-suffering readers of C@W will know that I approach the Enron thing with *ahem* close interest, and a clear memory. There is no point in splitting hairs over precise chronologies or characterisations – we can be generous with artistic licence, particularly if Prebble’s aim is to educate the audience on the business dynamics of what happened. And, since we are given potted explanations of mark-to-market accounting (yes!) and the ‘Raptor’ off-balance-sheet financing vehicles, it is hard to deny the didactic aspect of the play (though reading the Fleet Street reviews, some people come away thinking they understand stuff that in truth they do not).

But this isn't Finance 1.01, or even 9.06: there’s an attempt to explore deeper issues. Imagine a number of speeches in the same line as Michael Douglas’ famous “greed is good” in Wall Street, but more subtle and compelling – Skilling gives a defence of arbitrage, e.g. - and you are fast moving away from anything that could be viewed as simplistic, lefty anti-capitalism (ironic, since Sam West, truly excellent as Skilling, has a Trotskyite past). The concluding sermon suggests that human endeavour, and indeed civilisation itself, progresses via mighty booms and busts.

I suspect that different viewers will come away with very, very different readings. Some will see conventional personal tragedy. Some will see a morality tale. Some, yes, may feel they hear support for an anti-capitalist thesis; but others a hymn to bold capitalist risk-taking.

Personally, I’d like to see Prebble given a vehicle to explore the subtleties and big themes even further. She’s done so well in what can be achieved in two hours or so, she deserves a 1,000 page novel - or a four-part operatic cycle. The subject-matter is rich enough to sustain it.

And then she would indeed need to get the characterisations and the chronology correct.

ND

Pass the Pigs

Super new boardgames
Now in stock

Deluedo - Someone has murdered 150,000 Iraqis. Was it Miss John Scarlett, the Spy? Professor Plum, the schools secretary? Maybe it was Colonel Goldsmith, threatened in the library with a lead pipe? Or Reverend Blair, on the comfy sofa. With the cabinet?

Battleshits. - Classic game of sinking your opponents manufacturing economy.

Made in China.

"G-20."
" You sunk my balance-sheet!"

Pass the Pigs. - The hilarious game of MPs expenses. Claim as much from the trough before the public gets wise. Deluxe version features pewter hand painted character pigs. -David Chaytor,-Geoff Hoon--Jacqui Smith--Elliott Morley--Alistair Darling and the lovable Douglas Hogg

Snakes and Leaders - Climb the political ladder, but beware of snakes bringing you down. Don't hit the long McBride one that sends you right to the bottom.

Crappy Families - Install your relatives into the most imaginative positions possible. Special Advisor, Accountant, Secretary, Web Designer, Press Officer, Twitterer, Party Blogger or Personal Assistant. And all at the tax-payers expense. Fun and employment for the whole family.

Top Chumps - Peter Mandelson's Top Chumps A mixed pack of politicians, union leaders, journalists,commentators and broadcasters. Features characters from the hit Kids TV show "The daily politics.."

Pick from six categories.
Charm, Attractiveness, Competence, Honesty, Ability, Insanity.

More write ups needed in the comments for these and Scrabble - Twenty Questions - Jenga - Downfall - Go for Broke - Monopoly - Risk or any others.

A Night at the German Opera

We're going to the opera again at the weekend - German, this time ...
= = = = = =

Toni and Cheri, our two indefatigable seekers after wealth, have come to Germany in search of the fabled Golden Sinecure (Das Rheingold). They approach a fat German banker and Toni introduces himself. But the banker is not impressed – didn’t Toni lose office more than two years ago ? Ruefully, Toni admits this is true, and sings the lament Zwei Jahre sind dahin, Dulde, schweige, mein Herz! (two years, dude, and it still hurts!). He suggests that, for a modest consideration, he could make an after-dinner speech.

The banker is strangely moved, and offers a fee of $5,000. But Cheri, disgusted with this miserable sum, pushes Toni aside and gives the shrill soprano aria: Fünftausend Taler!... Träum oder wach' ich? (five thousand bucks ! – am I dreaming, or what ?).

Not for the first time, Toni is forced to apologise for his wife, and explain that she is just a humble Scouse lass on the make - Lass Er doch hören (she’s a bit of a whore). He stresses that other banks value his services greatly, singing Wie freundlich strahlt die holde Morgensonne (how generous are the shareholders of Morgan Stanley). He wheedles and pleads - even Cheri is shocked by his conduct, and in an aside sings: Gott, der du schauest! (God, you’re a shyster !)

Eventually the banker can stand no more, saying he must leave to confer with colleagues before he can make a better offer. Toni responds to the mention of more money with Wie schön ist doch die Musik (how beautiful – that’s music to my ears).

As they sit alone in the banker’s gloomy anteroom, a mysterious figure enters, and Toni regales the stranger with his woes: Ich suche vergebens nach Ruhe (I’ve been sucking-up in vain, all over the Ruhr).

Then he recognizes the figure: it is the ghost of David Kelly ! The phantom intones, in basso profundo: Bei diesem schlimmen Fall (by these slippery dealings, you will fall). Toni rounds on the apparition defiantly: he was right to attack Iraq because, well, because he wanted to, singing Ich war, wenn ich erwache (I’ll go to war whenever I please). But the shade is unmoved, and parts with a silent reproach. The curtain falls on Toni singing mournfully So bin ich verraten (so, that’s me f****d).

ND

Question Time questions

BBC's Question Time foxed us a bit last week. 2 out of 6 for BQ. Only 0.1% growth could be more disappointing.

This week, try and guess three of the four, first to be asked questions.

My secretary Miss CD, last weeks winner of our Fantasy Question Time, will again be picking the top 4 questions for tonight's QT.

David Dimbleby will be joined in Basildon by Ben Bradshaw, Lord Lawson, Baroness Tonge, Jane Moore and Douglas Murray

1. Ireland - Peace process 2. Afghanistan, buying off the Taliban 3. Miliband and the faith school 4. More tolerant Britain. Homosexual acceptance.

Would the panel wear pyjamas to Tesco

And BQ
1. Iraq / Chilcot - Goldsmith testimony means arrest Blair
2. 0.1% signals the recession ends
3. Equality report. Harman and poverty = Tories
4. State of the Union address/Obama's bank proposals vs Brown's Tobin tax

Final question - Something about i-pad

Your guesses in the comments. Entries close at 10.30pm

Trading positions update

Since last year when you could throw a dart and make a profit in trading shares, I have reduced a little my number of positions. Plus I have a little more cash on the sidelines now, over 10%, to be able to exploit any sudden market fall (which will happen by mid-year, but it is too events driven to predict). However, we are not going in 2010 to have a big crisis like 2008 - so I would be amazed at a correction that takes the FTSE much towars 4500.

Anyway, in order of investment size here are my picks:

Name                                          Last price  Short/Medium/Long Hold   Price Target   Sell Event
Gulf Keystone Petroleum Limited     91.75                 Long                           250            Sale of Company
Minerva plc                                  71.25                 Short                           90              Letting of City office
EMED Mining Public Limited        12.5                   Long                           50              Start up of Mine
Ithaca Energy Inc.                         78.58                 Long                            120             price target
Heritage Oil Limited                     503                    Medium                       600             price target
Ascent Resources Plc                    5.88                   Medium                       10               Completion of Drills
FORTE ENERGY NPV                11                     Short                            20              JV with Aveva
Chariot Oil & Gas Limited            37.5                   Long                           100             Sale of Company
Xtract Energy Plc                         2.68                   Long                           4.5              Completion of Drills
Invista European REIT                26.25                 Medium                         45               price target
Kopane Diamonds                       12.39                 Long                             35               price target
Innovation Group PLC                13.5                   Short                            16                price target
Petra Diamonds Limited               53                    Medium                         80               price target

Some Perspective on 'Breach of International Law'

As a rule I make a point of disagreeing with Dave Aaronovitch (dates back to when I knew him) but I’ll make an exception for his contribution on Newsnight yesterday - commences around 32:30 in. No-one raises the issue of whether Blair's actions in Kosovo were legal, do they ? he asked.

And of course they don't. All the hair-splitting about the precise ‘international legality’ or otherwise of the Iraq war is not really the point. It’s that on Iraq, Blair's judgment was faulty.

I’ve little time for ‘international law’. The strong ignore it freely along the traditional lines: “Treason doth never prosper” etc etc. Then they use it to prosecute the weak.

So what about international trade, of which I’m a big fan ? Easy. Bilateral agreements are struck, based either on trust where there’s a workable tradition to call in aid, or with the parties agreeing which legal system and commercial jurisdiction the contract will be subject too.

In the energy industry, in my experience this means: England; the legendary Harris County, Texas; New York; Australia; maybe Netherlands if you’ve a strange objection to common law (though why any businessman would, I can’t quite fathom); with Stockholm bringing up the rear for parties (= Russians) whose pride doesn’t let them near the wicked Anglo-Saxon courts. Wouldn’t touch German courts with a Rheinland bargepole - or French.

How's it done in your industry ? Anyone got any other favourite venues for a bit of commercial-legal argy-bargy ?

ND

Friday Update: Aaronovitch is on the Daily Politics spouting his usual nonsense so I can go back to diskarding him uterly.

What Chilcot Tells Us About the Banking Crisis

Ringing bell-like through yesterday's evidence to Chilcot were the distinct echoes of what was happening in every bank's risk committee throughout the years of demented risk-taking excess.

"I am not used to receiving dogmatic legal advice" - Straw's rebuke to Sir Michael Wood is the authentic voice of Fred Goodwin and every other board- room bully, when faced with inconvenient advice from lawyers, accountants, tax advisers or risk-managers. "Why has this been put in writing ?" "Don't advise them that the legal issues are finely balanced" - the injunctions of executives prior to the non-execs being briefed.

And in banking there are rarely issues of war and peace, life and death at stake. How much more readily, then, will the professional advisers back down, slink away, and redraft their advice to be more helpful to their masters ?

This is the spirit of the age, of Fred Goodwin and Alastair Campbell, Jack Straw, Tony Blair and Gordon Brown. There's no mystery over how the Goldsmiths of the world come to change their opinions, or how the disasters keep rolling in.

ND

National Equality Nonsense (rant warning)

More harumphing from me today as I listened to the BBC this morning.

"Britain among most unequal societies in the world"
"All the fault of the 1980's"
"terrible discrimination against anyone who vote Labour or may do"

(Ok, the last one maybe made up).

So I thought, let's see the form for this. Firstly it was commisioned by Harriet Harman - who could have written the conclusions without the report. You may as well ask me to write a report on benefits of capitalism.

Then I looked a the cronies she hired, a bunch of the usual academics with expertise in social work etc. So the report t is entirely self-serving, talks their own book and agenda. Why don't we ask bankers why they deserve their bonuss?

Then I looked at the summary. Apparently inequality has risen in the last 10 years? Why could this be, what huge changes have occured in the UK in the last 10 years - oh hang, on what about that record economic immigration and record numbers of asylum seekers accepted. Not mentioned, not even in passing.

No, it is al the fault of "class" and those evil parents who try and educate their children, bring them up properly, live in a nice house, try and get a good job and pass on these values to their kids. By doing this they destroy opportunity for everyone else, how else are the feckless to compete? Strangely the report does not mention the record emmigration of such people that the UK also has been experiencing.

Funnily enough though, off the top of my head I would have thought that is a chunk of the middlyingly wealthy leave and are replaced by very poor immigrants you would expect a rise in inequality for a couple of decades wouldn't you?

Of course the answer is more public spending and more intrusiveness to stop people bringing up their children nicely. No doubt somewhere today the call will go up to ban public schools, becuase of course, they are too good.

It is a total mixed up marxist horlix from start to finish, no wonder the BBC are going to run with it all day.

UK GDP Q4 2009; 0.1%

Wow, that is a poor number. So much for Labour going to call an election on the back of the 'return' to growth.

And crocodile tears for the BBC having prepared for weeks on the Government's behalf a 'we are out of recesion day special.' (Love this headline, UK emerges from recession, repeat the BBC is not biased, the BBC is not biased....)

Worse to is to remember the comparison; with oct to Dec 2008  - the total financial meltdown and crisis. So we have as the UK only achieved a 0.1% better result than that. truly awful.

Even worse the cold spell of january will have knocked productivity so the Q1 growth this year may not be great either (although here the comparison is with a -2.0% result last year, surely we can beat that).

I have long said Quantitative easing will not end at £200 billion and this number confirms this approach. QE will continue until the election in some form, as the Government financing demands it in this time of fantasy budgeting.

By way of example, Government spending is going to fall this year from £670 billion to £650 billion - a sharp cut according to the Government. However, income is likely, at best, to be flat at £450 billion.

Final point, GDP measure includes public sector spending, in fact it is about half of the number in less difficult times. This suggests the private sector in the UK is deeply mired in recession still, with large shrinkage in each successive qaurter.

Brown's Valantines gift to the UK. A February election.

Political Betting have rumours of a February election to be announced tomorrow.
Edward Heath lost his February gamble in 1974. Would Prime Minister Brown, not known for taking big risks, really call an election with so little backing him up?

Well, I would theorise that are some pretty good reasons why he might.
1} Things aren't going to get a lot better, they may get worse. The good Christmas retail figs {6%} masked a pretty dismal December {0.3%} with lousy economic figures for the April quarter, caused by the snow and the fragile recovery faltering. Plus the good, if a little spun, unemployment figures, are unlikely to be repeated with all the seasonal lay offs and some big real job losses already announced {First Quench - Corus - } now about ready to join the lagged statistics. More are on the way. Adams childrenswear failed again today.2,000 jobs at risk. Cadbury?}

2} Gordon can sidestep the leaders debates by going early. There's no time, and it isn't agreed. Even if he has to do some, he can insist on his format of 2/3 Labour audience which producers will have to agree, as will opposition if its just 5 weeks to go.

3} The move will rattle the opposition, especially the Libs and Nats who probably aren't ready. Labour can call on a union loan/gift for a war chest. Would Unite refuse? Who would they rather have in power. Gordon or Dave? Even CWU, who this government has tried to privatise still donate to the Labour party.

4} The Iraq enquiry is making Labour's chances harder. Some bad news on how unprepared the army was by procurement failures today, Goldsmith and the big Blair on Friday. A PR failure for Gordon Brown. But the Prime minister's own 'Cast Iron' guarantee can be neatly avoided. If he is fighting an election he can't be called..As stated in the Chilcot letter.

5} Gordon is televising the 'economic miracle' that sees the UK finally crawl out of recession. It hasn't been televised before. {0.4% is the GDP guess from the experts. If its ,say, 0.6% Gordon and Darling can claim they have steered the country through the economic icebergs and are the most trusted to go full speed to a safe, painless recovery.}
Today's ICM poll is just marginal enough for a hung parliament or feeble Tory win.
T:40% -La: 29% - Li: 21%
It can't get much better for Brown. But it could get a lot worse. Strikes are looming BA , Underground strikes, mail strikes...

This time the good news could launch Gordon to a hung parliament.

There are still plenty of options against. Odds still appear to be 40/1 so the bookies still fancy May/June. Tomorrow could just be yet another damp squib relaunch. We shall see.

To War in a Sieve

They went to war in a Sieve, they did,
In a Sieve they went to war:
In spite of all Hans Blix could say,
At Bush’s command on that fateful day
In a Sieve they went to war!
But when no weapons were found in the place
And every one cried, “You have no case”
Said Blair and Brown “we’re trusting to luck”
We don’t care a button! we don’t give a f***!
In a Sieve we’ll go to war!’

Far and few, far and few,
Are the scruples of Brown and Blair;
Their lies are bold and they’re shameless too,
And they went to war in a Sieve.

They went to war in a Sieve, they did
And totally unprepared
With not enough armour for soldiers to don
With too few choppers – the list it goes on
But Brown, he never cared.
And every one said, who saw them go,
"O won’t they be soon undone, you know!
For the list of shortcomings is terribly long,
And happen what may, it’s extremely wrong
To send our boys unprepared!”

Far and few, far and few, Are the scruples of Brown and Blair…

The casualty figures soon started to rise,
The coffins they soon came in;
So to cover their arses they lied and lied
(No sign of remorse for the many who died)
And they gave the order to spin!
And they hunkered down at Number 10
And they lied and they spun and they lied again
”Though the charges against us be ever so long
Yet we’ll never admit we were rash or wrong.
While we have breath, we spin!”

Far and few, far and few, Are the scruples of Brown and Blair …

(apologies to Lear)

ND

China passes Japan into 2nd place

This will be the talk of the markets in the far East this week. after over a century of being outshone by Japan. China will emerge as the largest economy in the far east. Not only bigger than Japan but every other country too except the United States.

No doubt there will be more lengthy articles this week focusing on the how much this changes the political and economic balance of the world. My question is though, how can China avoid going the way of Japan?

Japan had so much going for it in the post-war world. A commitment to working hard, saving hard and supporting the Government. Ths made Japan rich. Then the lack of a balanced economy, a banking crisis and demographics caught up with it. Now Japan is stagnant and still seeking renewal after 15 years.

China certainly faces a worse problem with demographics, its one child law (a huge boon to the world as a whole let us not forget, reducing the huge over-population problem the world has) meaning it will get grey quickly in about 5 years time and there are far more ment than women. This greying will reduce China's ability to create domestic consumption and will also ensure the savings rate remains high

As mentioned I the FT article, the need to come off a dollar peg will cause a massive boom for China the likes of which normally end in a financial crisis. This may well be a theme of the next few years.

China will undoubtely overtake the US to become the world's largest economy, it has after all 5x the population. Will its people ever match income with Americans though?

Gulp...did Obama do it?

Courtesy of the Big Picture, this perhaps shows the future for the markets. The FTSE 100 has given up all its gains for the year so far. When the FTSE falls in January then it normally sets the trend for the whole year; last year being a notable exception.

Obama and the Banker quick shuffle

Let's start with the basics. Politicians spend other peoples' money freely. When it comes to looking after themselves we have the expenses scandal. Bankers' are equally wreckless with clients money, investing in risky assets and trying to make big profits but not worried about losing too much. However, with their own money, i.e. bonus's recent days have shown that no matter how bad the effect, the money will be paid to the bankers.

Morgan Stanley allocated 62% of its income to staff remuneration this week - the highest ever in the history of investment banking!

So on the surface today's huge announcement by Obama that effectively Glass-Steagall was back and that banks had to be split up to reduce risk seems like a victory for the little guy.

However, Wall Street paid for the Presidency and the senior economic advisers are always ex-bankers.

What I think today's announcement is about is protecting the income of the wealthy. Investment Banks will now get out of the TARP and regulated system, where senior management remuneration is monitored and controlled by the US Government. Instead, the prop desk guys get to go to hedge funds where the remuneration is orgasmic beyond their dreams.

The Investment bankers can become partnerships or private companies and remuneration and bonus payments will disappear from public view. The public is left looking at utility banks where earnings are not so astronomical, although high.

Look at Goldman, I bet it can't wait to not be a bank holding company anymore, it never wanted to be in the first place.

All this US action will affect the UK banks, HSBC and Barclays will have had a blow to their strategies, especially the latter which bought the US Lehman operations.

This is a great cover for bankers keeping their earnings through a populist measure. Wall Street ain't stupid after all....

BBC's Question Time questions

Recently there has been a reminder to the audience that the BBC's Question Time panel does not receive the questions in advance, to various assorted gasps of amazement. How can the panel know the answers? They come with reams of notes. They must be prepared in advance!

Well, of course, it isn't that hard to guess the questions. Look at the news and look at where its being held. But it is difficult to get five out of six, in the right order, plus a fluffy quickie for the last question.

My secretary Miss CD, is a regular winner of our office Fantasy Question Time, so she will be picking the top 6 questions for tonight's QT from Milton Keynes.

1. Haiti - is the UK/USA doing enough
2. Freedom for Munir Hussain and the implications
3. Frances Inglis jailed for murdering brain damaged son - change to the law
4. Tories marriage tax proposals
5. Obesity treatment on the NHS
6. Assisted suicide in Scotland

Final question - Something about Avatar/Bafta

Your guesses in the comments. Entries close at 10.30pm

All The Top Stars On C@W

Long Firm, eh ? (I'm sure Foucault had something to say about the Zeitgeist.)

A face for Radio

Does this mean we can all use the corporate box at 'sportsdirect.com@StJames'Park'

Northern Rock PLC {The Company} the new bank formed following the successful restructure of the Northern Rock business on 1 January 2010, can confirm that it is to become the main sponsor of Newcastle United Football Club says a statement on Northern Rocks website.

The new four-year contract will commence from the start of the 2010/11 football season. The total sponsorship value may vary, from £1.5 million to a maximum potential of £10 million, with payments phased over four years. The maximum potential will only be realised if Newcastle United is playing in the Premier League for the full contract period. The contract is subject to an agreed review point after two years and will expire at the end of the 2013/14 season.

Outrage from the Daily Mail with a nice quote from Taxpayer's Alliance. "Mark Wallace, campaign director of the Taxpayers' Alliance, said: 'I'm a Newcastle fan and even I think it's ridiculous. A bank that needed to be bailed out by taxpayers should be focusing on repaying that money."

Outrage or a sound strategy?

£10 million is the maximum amount that could be paid for the 4 year deal. Newcastle, highly likely to be promoted into the Premiership next season, will receive an awful lot of good press. Mike Ashley will offload the club as soon as he can get a decent valuation, and this should allow some money for investment and players. So £2.5 million, the same as Boylesports pay Sunderland, for the sponsorship with those big local crowd,local market gates is sound marketing. Especially when they paid £5 million a year under the old deal.
Last time Newcastle more than blew that £25 million on Michael Owen at £17 million and £115,000 a week.

If the lessons of the past have been learned on excessive players wages, elderly, injury prone,tempremental players, overgenerous contracts, unrealistic expectations from the fans, and not replacing the manager and full support team every 6 months, Newcastle will comfortably stay up.
And if NR were to put the taxpayer first and repay the £10 million to taxpayers?
Well, with at least £8.9 billion still owing, it would barely register.

E.ON: Slowly Getting Real, Long Way to Go

We said the other day that Gazprom is slowly getting real on the impact of the big gas surplus, and its best mate E.ON (EONGn.DE) - whom we’ve had a dig at recently - may be edging in the right direction too. Yesterday they published this revealing presentation, which contains some gems:

- they are renegotiating 80% of their long-term gas contracts; ‘clear progress is being made based on constructive, long-term relationships’ (what else would they say ?) and they are targeting ‘limited additional flexibility’ in these negotiations.

We’d surmised they’d been hurting and now we know: their European gas business EBIT is 33% down (and that’s just on realised losses – they aren’t likely to reveal MTM numbers). Hence the urge to re-negotiate. The correct ‘targets’, meine Herren, are (a) a lower base price and (b) gas indexation to replace oil indexation – OK ? But you knew that anyway.

- they reckon oil indexation is still justified by reference to competing fuels, and balances risk fairly (so why are you being forced to re-negotiate ?). Further, they reckon the oil-gas link has only temporarily come unstuck, and offer this graph ('TTF' = Dutch spot market):

What’s wrong with that ? Firstly, they make the cardinal mistake of interpreting forward prices as forecasts of future spot prices – which they categorically ain’t (there is evidence to this effect in their slide 30, correctly understood). It's only in steep contango because of the surplus. At most their graph shows a forecast crossing a forward curve at around 2013 – so what ?

More significantly, they assume the gas market will still be the same after a period of sustained oversupply: this is to be doubted. Much more likely, a viable spot market will have become established in Germany - the embryonic one is starting to eat their lunch already, as they admit! - after which no-one will quickly sign up for oil indexation again. As they also acknowledge, ‘gas indexed contracts are increasing’.

- they predict a very optimistic V-shaped recovery to their gas sales which, if it comes to pass, would indeed solve 2009’s take-or-pay problem. But will it ? They are bound to suffer a hit on market share after a couple of years of their competitors buying spot gas at half the oil-indexed price.

Let’s be fair, in several places (sometimes in code) there are signs that realism is dawning – and they’ve naturally to put on a brave face. Bottom line: prospects for that German spot market are looking better all the time. (And E.ON are trading like good'uns - trading EBIT doubled - they get the message all right.) Excellent news for the UK as we become ever more import-dependent.

ND