News of the World to close

Wow. What a move by the Murdoch Empire, putting a bullet into one of their main UK title's - a 168 year old paper nonethless.

However, this is a great example of not wasting a good crisis. Given the understandable outrage generated by the paper its brand was very damaged. No doubt News Corp recalled the Sun boycott in Liverpool after Hillsborough.

So that meant drastic action was needed. However, newspapers are highly unionised entities and not easy to change or close down - given their staff prediliction and ability to complain in public. News of the World was loss-making and many people can see the newspaper business model is under severe challenge from the internet. So this is a great opportunity to do the right thing and also manage to exit a business which was struggling in any event - and how can the Unions complain?

Clever move and personally I shan't miss the News of the Screws in any event.

Question Time Early doors

Final game of the season.

Measured, who hasn't put a foot wrong, still comfortably leads the table. And with some rather large news stories in the papers, unlikely to trip up now. However, its a funny old game, and Mark Wadsworth & Botogol can still cause an upset.
Everyone else... Play for pride. Remember the top 6 play in the European Question Time league.

David Dimbleby is joined in Basingstoke by Hugh Grant, Chris Grayling, Baroness Williams, Douglas Alexander and Jon Gaunt

Current Leaderboard

Measured - 22.5

Mark Wadsworth -19.5

Botogol -19.5

Dick the Prick -16.5

Appointmetotheboard - 16

Nick Drew -15.5

GSD - 15

Bill Quango MP -15

Miss S-J - 15

Malcolm Tucker -14.5
Hatfield Girl -13.5
Miss CD -12

Timbo614 - 12

City Unslicker -10.5

Philipa -9

Budgie -8

Andrew - 6.5

Hopper -2.5

Amy -2.5
Blue Eyes -2.5

Lilith - 2.5

Hovis -2

Watching The Lights Go Out part 94, cont

Some people feel their energy suppliers are ripping them off. Some resent the fact they are mostly owned by foreign companies. The government wants them to invest over £200 bn to order – but is happy to hunt with the hounds. Fair game ? They are big boys, for sure.

But there is a real problem, for the government and for all of us, with the long-running sport of treating the gas & electricity companies as punchbags. And for conducting public debate at such a depressingly low level. From the Telegraph, with a little fisking:

"The companies have paid more for their gas and electricity than spot prices because they buy on long-term contracts to 'smooth' volatility in a process known as hedging."

Yes yes yes, of course they do: they are in a margin business, and they can't switch us off on a cold day when prices are spiking, or pass through the cost of the spikes to us. It’s not unusual for there to be a hedging premium for natural shorts, when spot prices are volatile. Not everyone can afford to be at the mercy of spikes in order to be able to benefit from the average: “the market can stay irrational longer than you can stay solvent”, in the words of the prophet.

"Tim Yeo, chairman of the energy select committee, said he intends to question companies about their varying wholesale prices when they next appear before MPs."

Me, I’d be raising questions if they had all paid the same wholesale price !

" 'It reveals very different input prices and that some are much smarter at buying energy than others. … It also exposes the extent to which perhaps companies are exploiting their better position rather than reflecting their own costs in lower prices.' "

Mr Yeo, suppose you were selling your house (MPs are said to be well-practised in this). You go to estate agents for estimates. Do they ask you what you paid for it ? Do they enquire as to the price of bricks, joists and tiles ? No they do not: they consider the market, and give you an estimate accordingly. Your cost-base will determine whether you make a profit or loss, but it has no bearing on the value of your house whatsoever.

The net result of this infantile public discourse is that RWE are said to be throwing in the towel (who can blame ‘em?): and the government had better not be holding its breath for the fabled new nukes to hove into view. For the thousandth time, can we please be shot of Huhne and get an honest realist into the job ?

ND

UK Elderly care provision

This new report on the financing of care is not very capitalist in its approach. Admittedly, care home provision is a definite public good and so even a red in tooth capitalist such as myself is not inclined to look for a pure market solution.

However, middle class subsidy and a tax rise can't be the best answer either; in fact, it is positively distressing to me that the 'new' Government is coming up with the same sort of middling left of centre ideas as the last one.

Core to this is the British people's obsession with housing. the new policy has a cap of £35,000 that someone can contribute to their care costs - this of course is on top of their free NHS healthcare. The idea that paying more than this is too burdensome for most. This is a ridiculous assumption, made real only because otherwise 'people would have to sell their houses.

Imagine if instead the concept was 'people would have to cash in their lifesavings.' What is wrong with this? Surely if you have access to funds you should pay for your own care. If your children are worried about their inheritance then perhaps they should do something about it themselves rather than waiting around for their parents to die?

However, obsession with house prices and indeed using houses as our primary savings vehicle has completely skewed the political view here to one where no one must mutter about selling ones' house. No doubt Leftwingers are going to call selling ones house to pay for their own care 'foreced homelessness or ' dispossession.'

Anyway, so far, so ideologically unsound. Next up is a tax on pensioners to pay for care provision. This is even worse, pensioners of the future are going to have a bleak time. At best they are going to be on an average income below minimum wage - and this is already taxed. So increasing taxes here is disproportionate. After all, many people will end up in care, so even with this daft idea of a tax, it should fall on everyone. What next a cancer tax? A blindness tax only for the blind? (OK, OK, I appreciate we have tobacco taxes already....).

The sums at stake are not big for the Government - but the principles are. People should prepare for their own needs where possible and to create a new system of entitlement also sets a bad precedent in that the incentive to save is removed.

Charities who support this also have come out with some daft ideas like reducing pension tax relief to pay for this or increasing VAT by 0.5%.

It's a real horlix- but to the rescue could come the insurance in providing a personal way out of this mess if they can come up with some useful products for people to buy. Given the shoddy treatment meated out by insurers to pensioners, this is a statement of hope rather than expectation....

AIM Bounce - Buy Confirmed

After a dire 6 months, the terrible Greek fudge (its very dry and has little sugar) seems to have done the trick re the AIM market. many resources stocks have been 40% or more and since last week have gone into full recovery mode. Normally, I like to see a good few days in the blue to confirm and recovery and we are looking to achieve that today.

Even better, some of the most oversold stocks like Xcite energy are bouncing back (from a very low base); another good sign in that it shows a rising tide rather than being selective.

Long may it continue as the March to June sell off was horrific on no news and the approach to risky AIM shares was amazing, clearly many hedge funds and funds dumped most of their holdings.

Also very encouraging is that there is no big sell-off with the end of QE in America; this was a distinct possibility and it may still happen- but lots of bullish notes out today suggest those in the markets are discounting it.

I Gotta Dash - & Huhne's Gotta Go

Not much heard from me of late, I'm commuting to Germany once more - on the red-eye again come Monday. Pleased to see from last week's blogo-roundup that the skids are under Huhne:

- intellectually: see this superb demolition by Tim W;

- practically: industry has had enough;

- all this and the rozzers too, if Guido is to be believed.

Actually I am amazed Huhne has hung on as long as this, but hopefully not much longer. In a just world, his complete suborning by the nuclear industry would be the final straw but he seems to be able to brazen things out, so maybe it's all wishful thinking.

OK, back to work now. But a man can dream ...

ND

A way out of the UK commercial property banking mess?

At last a deal has been struck in the long running saga of RBS's Commercial Real Estate portfolio. The bank has created a debt fund of £1.6 billion in loans and sold a stake in this to Blackstone. This deal has been a long time in fruition and all over the papers for nearly a year.

Why all the fuss? Well the vehicle created allows RBS to make a manageable write-down on loans that are at 90% loan to value or more. These have been unsalebale in the market to date, leaving RBS and Lloyds with big headaches as they have truly huge commercial property portfolio's and little way to move them on and free up their balance sheets. Lloyds has recently done a deal with Grainger which is a different model, but crucially the property remains the banks.

Here there is a model for a new type of distribution, there are risk to Blackstone in taking these loans on but they can see the upside too and are getting a good price; this deal should work.

As such, it provides a new route to market which will free up the Real Estate market and allow a work-out of this challenging banking issue.

Question Time - Strikes special edition.

David Dimbleby is joined in Birmingham by Philip Hammond MP, John Denham MP, Christine Blower, Sir Richard Lambert and Polly Toynbee.

Miss CD says -
1. Teacher's pensions
2. Public sector strikes, and Ed Miliband's refusal to join in.
3. Greek bailout and riots
4. Gaddafi and war crimes trial
Only four today. Will be very long winded on strikes/pensions.

Leaderboard Update

Measured - 22.5

Mark Wadsworth -19.5

Botogol -19.5
Dick the Prick -16.5

Appointmetotheboard - 16

Nick Drew -15.5

GSD - 15

Bill Quango MP -15

Miss S-J - 15

Malcolm Tucker -14.5
Hatfield Girl -13.5
Miss CD -12

Timbo614 - 12

City Unslicker -10.5

Philipa -9

Budgie -8

Andrew - 6.5

Hopper -2.5

Amy -2.5
Blue Eyes -2.5

Lilith - 2.5

Hovis -2

Busy at Work

No time to blog today, hard at it, the firm needs to get lots done and we are only at the end of the first quarter of our new financial year. The trains were busy and I didn't get a seat and could not get a taxi earlier either. Glad London is this busy when you see the likes of Greece and the endless strikes and trouble that lead to nowhere....

Greece vote yes to can kicking!

On the one hand, that is great for the markets, which have been through a very rough patch and needed something to cling to. On the other hand Greece won't be able to make the tax rises and privatisations stick so is still going to end up in big trouble.

I bet they are drinking Champagne at the ECB tonight; they could easily end up insolvent as a result of this debacle.

So now we can start the guessing game all over again...when is Greece going to default...not 2011..2012 or 2013? In the long-term the short-term relief of getting past this issue may actually prolong the European debt crisis.

If Merkel and Sarkozy can force their banks to re-capitalise then it will be time well spent; if not.....

Germany 10 UK 1

Much was made of the David Cameron's signing of $1.6 billion worth of contracts with China during President Jiabao's visit this week. Only I wonder how many headlines will be written about his subsequent visit to Germany.

In Germany he has signed $15 billion worth of deals. Germany is of course China's largest partner - Germany supplies car and manufacturing components for which there is great demand.

The parallel is not lost though in terms of seeing why Germany is growing at 3% and the UK at 0% currently; the UK desperately needs to adapt its economy to serve the world markets. Our financial and professional expertise is not enough and with bust banks the growth in this area will be sluggish for years to come.

This does not mean we only need to improve manufacturing, but it may help. Yesterday's blog discussion was on the demise of our poorer retail performers and in some ways this could be a good catalyst. If we can move resources from selling poor goods to creating new goods and services the country will be improved - less consumption and greater export.

The lesson for today though is to see how far we are behind our main rivals and this is a gap that needs closing fast; a hard challenge as it has cultural, economic and political dimensions and no magic bullets to answer any of the challenges - but it does remind me of the ever hopeful Leonard Bernstein quote:

'To achieve great things, two things are needed, a plan and not quite enough time.'

Retail updates

Lots of retailers in the news. None with good news.
The recent scale of administrations is similar to the worst levels of the 2008 recession.

Habitat, Focus DIY, Moben/Dolphin, Jane Norman, have all recently folded up. Comet's owners are rumoured to be looking for a buyer.Clinton card's are trying to delist to avoid the media glare as it tries to find a solution to its problems. Mothercare/Game/HMV are downsizing, or moving out of town. Waterstone's saved only by a generous oligarch...

This is the reality behind all 2009/10's hot air about a double-dip. A double-dip is only a measurement. The reality is many chains got through the recession but took a battering and growth has been poor. Those who just survived can only hang on with lower profits, smaller margins for so long. Rates and wages have increased since the recession and cost prices have risen dramatically. Vat pushed up prices, took another slice and further damages profits.

There are many, many more companies, teetering that need a result, and soon, or they will just eventually be unable to continue. Its not just loans that are due. Its the annual maintenance bill, vehicle replacement, packaging replacement costs and a hundred other things. If profits are razor thin, then no reserve can be built up. Eventually, the money just runs out.
The next round of minimum wage increases will push another few over. And minimum wage increases, though a pain, aren't normally too onerous on companies as the increases are inflation-ish amounts.

The climate is actually incredibly benign for a recession, which helps. Rents are falling. Interest rates are minimal. And these recent collapses have probably ensured that they will stay low, whatever inflation does.

What is worse: Greek Default or EU management?

The markets are very jittery this week already. Notwithstanding China's support yesterday for the eurozone, all eyes are still on Greece.

The choice facing the Greeks is a default on its debts or the bitter medicine of accepting a European Bailout of e100 billion, with some horribly stringent requirements.

However, as bad as these are (massive sell off of virtually all state owned assets, tax rises and social benefits reduced), we should consider the default scenario.

Argentina is the best comparator, as it came of its dollar peg - but even Argentina did not have to print an emergency currency overnight as Greece would have to do. Nor did it in the end default on a large amount of its debt. Yet over the next 3 years the Argentinian peso lost 80% of its real value. That is quite a haircut - Greece, if falling our of the euro altogether, could do worse.

As bas the the Eu bailout is, those on the streets of Athens saying 'let's default' have perhaps not thought through its costs. Imagine the price of a computer going from £400 to £1600 in a short period - too much for many businesses to cope with.

Argentina had at least a decent export market of grains and soft commodities to help bring in foreign cash - Greece has some but nothing like so much.

Instead, my vision of a bankrupt Greece is that state assets get sold anyway, only now the wealthy shipping owners, money safely in dollars in London banks, come back to their home country as 'saviours'; picking it up for a few drachma along the way.

Enter The Dragon: The Chinese Right On Cue

"There will come a moment - who knows when, but China plays a long game - when some ghastly, Europe-threatening crisis arises (Iran? Turkey? or another financial meltdown?) and Europe is confronted squarely with its own flabby uselessness. Couldn't face down Libya unaided: & certainly can't face this putative future challenge, without contemplating some seriously bloody bayonet-work (and/or precipitous standard-of-living reduction). No stomach for that - and the US has decided it's had enough.

And then ... and then China or India has a quiet word in Brussels. Leave it to us, they say: and all we want in return is ..."

C@W, 12 June 2011

"The Chinese premier, Wen Jiabao, has thrown the eurozone a vital lifeline and pledged to buy billions of euros of European debt to keep the single currency project alive. The move, which will be a relief to struggling eurozone countries, was announced as Mr Wen continues his four-day trip to Europe ... He added: 'China is ready to work with Europe to share opportunities, cope with challenges and achieve common development and to make unremitting efforts for stable development of the world economy and an in-depth development of China-Europe ties.' "

Telegraph, 26 June 2011


ND

Energy Update: Pulling The Oily Levers

There is a lot happening in energy just now, not least in the UK where Ofgem is vainly lashing out in all directions: but the policy contradictions are beginning to become so evident that something will have to give.

And the sooner the better: the 'Big 6' suppliers who make such convenient punchbags for politicians are being squeezed from all directions and their patience is thinning by the month. There is no way they can be leaned on for £200 billion of capex for 'decarbonisation', and yet be beaten up on every occasion. As we've said many times before, the official way of squaring this circle - increase electricity prices so much that everyone can be bought off with subsidies - falls at the twin hurdles of (a) industrial companies packing up and emigrating, and (b) the general inflationary impact.

But today we must focus on the great opening of the oil floodgates announced by the IEA. What do we make of this ?

Well firstly, note that Brent is still in 3 figures: and if that's how OPEC likes it, believe me OPEC can keep it there. The Saudis may have been increasing production a little of late, but here we have a nation that is investing in solar and nuclear as fast as anyone will sell them the kit, which kinda tells us something ...

Secondly, it is not hard to detect the increasingly confident, if not competent Hand of Obama in this. Perhaps, as some have suggested, this is the opening salvo of QE3-in-disguise. Personally, I think the oil measure alone would not have the longer-term effect he's hoping for, but we shall see because it does at least remind us that the Big Boys have several Big Levers they can pull.

And pull them they will, because things are looking truly awful at the moment, are they not ?

Which brings me to an uncomfortable conclusion. Back here in Blighty, I look at Cameron and Osborne and I don't see men who know how to pull the levers. They don't seem to have the creativity for it, or the vision. I'm not even sure they know where the levers are. Mandelson, and even Balls - they know how these things are done. Cameron just stands blinking at the cameras, saying that the nice Mrs Merkel has promised him no-one will be asking us for any Greek bail-out money. (Does he have a piece of paper from her, I wonder ...) Pathetic.

When the incoming Conservative government took Sterling off the gold standard in 1931, a former Labour cabinet minister (history is divided as to which one) said: they never told us we could do that !

The hour needs to call forth the man. He seems to be hiding his light under a bushel just now.

ND

Question Time

David Dimbleby is joined in Huddersfield by Norman Baker,{odd ball {even by Lib Dem standards} MP. FOI excessive. Writer of the book on Dr Kelly's suicide/murder, and , perhaps more relevant tonight, Minister for transport.} Rachel Reeves,QT don't put MP anymore do they?{ Labour business shadow. The new face of the newer face of old, new labour. Quite convincing and informed.}
John Redwood,{still called 'Spock'. Anti-EU old school Tory, with a very readable blog.}
Fern Britton {soufflé broadcaster and interviewer. A nation's favourite for reasons that I've never been able to fathom.} and
David Mitchell {comedian /actor. Despite his recent over exposure he is very funny. Peep Show, on about its 10th series now, is still good value.}

BQ thinks:
1. Troop withdrawls, Iraq, and the Libyan mission extension.
2. High speed rail link. What's the cost again? £32 billion.{couldn't we just give 1 million commuters commuters a car each?}
3. Greece and the Euro bailout part2 {of a five part series}
4. Bank shares for all.
5.Should be N. Ireland but QT are always very fussy about that. So will go with Pensions and summer of discontent.

But hang on...they need something for Fern to do.. Glastonbury mud and top tips for fashion wellies? Or smoking ban in all cars..? How many cats is too many?

Leaderboard Update

Measured - 20

Mark Wadsworth -15.5

Botogol -14.5
GSD - 14.5

Appointmetotheboard - 14.5

Dick the Prick -14.5

Bill Quango MP -13.5

Nick Drew -12.5

Miss S-J - 12.5
Malcolm Tucker -12.5
Hatfield Girl -12
Miss CD -9.5
Philipa -9

Timbo614 - 10.5

City Unslicker -8.5

Budgie -8

Andrew - 4

Amy -2.5
Blue Eyes -2.5

Lilith - 2.5

Hovis -2

RBS/Lloyds privatisation

Interesting for Nick Clegg to raise this idea again. Firstly, we have discussed before here, when this idea was first floated by Policy Exchange and the Limp Dims.

In need of an electoral boost they are no doubt pushing this. Interestingly George Osborne floated this idea a long time ago when in opposition too - so with the top three in the Government in favour this is likely now to get a good hearing.

However, having thought about this more since I last posted here are the pitfalls:

1. Who Qualifies - how about those who don;t pay any income tax, is this fair ( I guess they pay VAT etc?)
2. How to administer - 40 odd million people to be contacted, the 2011 UK census cost £500 million so that is a comparator to the kind of costs of contacting everyone and sending them something.
3. The Government needs to be paid off first,so only profits go to the proles - is this likely? This in itself adds another level of complexity
4. ISA really need to be set up for this to make it fair and kick start saving in the UK - but that will be too much to do at the same time no doubt?
5. The deficit is big enough and needs to come down, this is a tax cut...would it not be simpler to sell the banks to Sovereign Wealth funds, pocket the money and reduce taxes by the difference  - this would achieve much the same thing and be alot cheaper.

On the plus side, encouraging share ownership and an interest in companies I am all in favour of as a Capitalist - but the cost of doing this probably outweighs the benefits in this case.

History Corner: Forced Political Union

At the start of the 18th Century, the Scots were in trouble. A run of bad harvests was bad enough, but it was perhaps the ill- fated Darien scheme that really brought Scotland face to face with its inability to hack it on the world stage. They'd tried to play with the big boys; convinced them- selves they were worthy of a place in the sun ... but it wasn't ever really on. The country was up a gumtree and, individually, the cream of Scottish society had lost huge amounts in the Darien venture.

The stage was set for a bail-out by England, which came at a price, of course. Large sums of cash were forthcoming from south of the border (some of which went straight into the pockets of Scottish negotiators), facilitating the Act of Union and, incidentally, binding Scotland into underwriting a chunk of England's national debt. The Scottish Pound was fixed in relation to the English currency (at the demeaning rate of 1:20). A single monarchy capped the deal. Political and financial union was thereby completed in return for a short-term infusion of urgently needed £££. The Edinburgh mob rioted, but to no avail: and as Robbie Burns was later to bewail of his countrymen -

"we're bought and sold for English Gold - such a parcel of rogues in a Nation!"

Yes folks, this is how independence is bought and sold. Coming to a Mediterranean nation near you soon; and perhaps to all of us, if we don't tread carefully.

Still, some say the Act of Union was the making of Scotland ... eh, Alex ?

ND

Contrarian Trading Signal

This article in the Financial Times really got me thinking today; markets wise I have been most depressed of late, my portfolio doing worse than 2008 and no light at the end of the tunnel.

Clearly, many people think the same. All the hedge fund managers in the article are blowing it too, some quite spectacularly. No one can see any good news, all the macro news looking forward is bad with poor US growth and Euro crisis (delayed a week by the positive Greek vote last night, hooray).

In fact, they say they are moving into cash, so much are the markets now linked by the algorithmic trading that everything is correlated and there is nowhere to go ( I wonder why they are not taking big short positions though?)

Often, though not always, articles like these can be a bottom of the market bear signal. Everyone thinks the future is doomed, there is no upside. Therefore any good news is not priced in - allowing markets to improve?

The very mention in the article of summer 2008 has a big flashing red signal to my mind - are we really due another financial storm already just 3 years later? It may of course turn out that way.

A Greek Tradegy?

Tic....tock
Tic....tock

So the world awaits the decision of the Greek parliament today. I have no insight as to which way it is going to go as either way the Greeks are screwed so it must be pretty hard to make such a decision (a real do I lose a leg or an arm movement?)

Global markets are very nervous - But what is puzzling me is the attachment of so much to Greece. One remembers the battle of Thermopylae and its significance to the Persian Wars - but today really is not like that is it? yet today does feel like the day when the US Congress was discussing the TARP during in 2008. That in itself if bizarre, a wealthy private investor could probably bail Greece out on their own, it is simply not the scale of the US; which just goes to demonstrate how much markets are driven by psychology and not rationality