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Thursday, 30 September 2010

Miliband the elder: why the fuss?

So the Former Foreign Secretary, and a pretty poor one at that, has decided to quit the Labour front bench and the media goes over the top about it.  I say poor. Let us not forget that apart from getting it wrong on torture, this was the Foreign Secretary who decided to travel to New York to pick up a foster child instead of greeting the King of Saudi Arabia on his arrival in the UK.  Funny thing is while one Miliband says he is too busy with his job to register himself as the father of his son, the other says he is too busy building his family to attend to one of the most important functions of his job.

Still, now that he is gone it seems that whoever gave him is place at Oxford on the back of 3 B's and a D has deprived some more deserving candidate. You really have to work hard at it to get less than an A at A Level, to fail to get one A grade in 4 A Levels requires true mediocrity.

Monday, 27 September 2010

Osborne 5 Milipede 0

The IMF has endorsed the government's deficit reduction plans. George Osborne received a large boost to his plans for Britain's economy, with the IMF's health check of Britain's economy resoundingly backing the coalition's aggressive programme of deficit reduction.
The report argued Britain's economy is on the road to recovery, predicting growth of two per cent in 2011, rising to 2.5% in the medium-term, adding that although the regime of spending cuts may slow growth for a time, it is a better long-term strategy for consumer confidence and private sector recovery than any more cautious approach.
The UK economy is on the mend. Economic recovery is underway, unemployment has stabilized, and financial sector health has improved. The government’s strong and credible multi-year fiscal deficit reduction plan is essential to ensure debt sustainability. The plan greatly reduces the risk of a costly loss of confidence in public finances and supports a balanced recovery. Fiscal tightening will dampen short-term growth but not stop it as other sectors of the economy emerge as drivers of recovery, supported by continued monetary stimulus. Upside and downside risks around this central scenario of moderate growth and gradually falling inflation are balanced. Monetary policy will need to be nimble if risks materialize, and fiscal automatic stabilizers should operate freely. Meanwhile, the UK authorities should continue to provide leadership and build support for ambitious global reform of financial regulation. Ensuring a smooth transition to a new supervisory architecture at home will also be important to secure a safer post-crisis environment.
The report concludes: "The government's strong and credible multi-year fiscal deficit reduction plan is essential to ensure debt sustainability. The plan greatly reduces the risk of a costly loss of confidence in public finances and supports a balanced recovery."
All of which knocks on the head all the arguments about "cuts=recession".  The IMF, who are more objective than the average Labour politician can see that the total amount of government spending will increase even if some of that spending falls under different headings.  Consequently there won't be an Irish style recession, and possibly with a leaner and more efficient public sector as a result of the public sector restraint, productivity might actually improve.
Good news for Osborne,m but don't expect to hear much about this on the BBC while the Labour/Miliband PR/Lovfest is in full swing.

Bolshevik Broadcasting Corporation at it again

Taking a small break from the wall to wall coverage of "the Party Conference" (for the benefit of the uninitiated BBC newscasters are apt to refer to the Labour Party as if we lived in a one party state), the BBC website and Panorama have chosen to smear Lord Ashcroft with the following:

Conservative Lord Ashcroft 'avoids' full UK tax bill

Lord Ashcroft has continued to avoid millions of pounds of tax despite promising to become a full UK taxpayer, the BBC has learned.
The Conservative peer transferred ownership of his main UK company, the Impellam Group, to a trust for the benefit of his children, Panorama has found.
Lord Ashcroft, who is set to resign as deputy chairman of the Conservative Party, transferred his £17m stake in Impellam on 5 April.
The next day, on 6 April, a new law forced people sitting in the House of Lords to pay tax on their worldwide income and assets.
Tax lawyer Richard Frimston told Panorama that Lord Ashcroft would have faced a hefty inheritance tax bill under the new legislation if he had made the change one day later.
"If that had been done on the following day, assets worth say £17m going into trust would have been subject to tax at 20%, which would have created an immediate inheritance tax charge of something in the region of £3.4m.
"So that was avoided by doing it on 5 April as opposed to waiting until 6 April."

It goes without saying that Lord Ashcroft has done nothing of the sort.  At the time that he made the transfer he was outside the scope of UK tax just like most of the 6 billion people on the planet, and free to arrange his affairs as he sees fit.  The BBC might just as well accuse all the other non-resident billionaires of avoiding UK tax by not being resident in the UK, or even of avoiding UK inheritance tax by not dying.  Normally the BBC would not dream of investigating or commenting on the tax affairs of an individual, particularly if they were quite in order.  But if it involves a person connected, or in Lord Ashcroft's case, formerly connected, with the Conservative Party, any smear is good. 

Sunday, 26 September 2010

The Ed Miliband Profile in full in 25 words or less

1990 Oxford BA: PPE, 1993 LSE MA: Economics, 1997 SpAd, 2005 MP,  2007 Junior Minister, 2008 Secretary of State,  2010 Labour Party leader

Friday, 24 September 2010

Financial Crime of the Week: Make Bono History

 I have never had much time for the sanctimonious Irish fools who berate us and our governments for not doing enough for the world's poor and then run their businesses from a tax haven.  But recent stories about the surely soon to be canonised Bono take the biscuit. According to the NY Post, who have the organisations tax returns, Bono’s anti-poverty ONE foundation received $14,993,873 in donations from philanthropists in 2008, of which only $184,732 was distributed to three charities. More than $8 million of the rest of the money was spent on executive and employee salaries.

We also hear that Edun, Bono’s fashion label, has moved some of its factories from Africa to China. Edun, Bono tells us, is an “ethical” fashion house set up to alleviate poverty in Africa.

  • He criticizes first world governments for not spending enough taxpayers’ money on aid while avoiding paying tax himself.
  • He criticizes the private sector for not investing in African businesses while moving his own business out of Africa.
  • He persuades others to donate money to his charity for the relief of the poor, then lets the charity pay its employees 43 times as much as it passes on to needy causes.

Time for an urban myth, but nevertheless, an entertaining one:

Bono, was playing a U2 concert in Glasgow, Scotland when he asked the audience for total quiet.Then in the silence, he started to slowly clap his hands ... once every few seconds. Holding the audience in total silence, he says into the microphone,

“Every time I clap my hands, a child in Africa dies.”
A voice with a broad Scottish accent, from near the front of the crowd, replies ...

... ... ... ... ... ... “Well, ... stop clappin’ then!”

Headlines we wish we had read

Just misread a headline in the FT: Electolux appoints first non-Swedish chef.
I always thought they were a bunch of muppets.

Thursday, 23 September 2010

Montana woman fights bear with courgette

A woman from the US state of Montana has fought off a 200lb (91kg) black bear with a courgette from her garden. The bear attacked one of the woman's dogs on the back porch of her home late on Wednesday evening, Missoula County Sheriff's Lt Rich Maricelli said. When the woman tried to stop the attack, the bear bit into her leg.
The woman, whom police have not named, grabbed the closest object - a courgette from her garden - and threw it at the bear, causing it to flee. Mr Maricelli told the Associated Press news agency that the woman, who lives about 15 miles (24km) from the town of Missoula, had not sought medical attention.
Authorities were still attempting to track down the bear on Thursday.

Now what does that remind me of? Ah, yes

Wednesday, 22 September 2010

Six figure salaries and other outliers

Somebody asked me in an earlier comment why I was incensed by the number of people earning over £100,000 in the public sector. Well they are a relatively small number, but they are a number earning salaries out of all proportion to their importance.

Let us assume for a moment (and it is admitedly a poor assumption but it helps us put things in perspective) that the level of pay in the public sector conforms to a normal distribution. Now I will be the first to admit that wouldn't be the case and you could come up with some other statistical distribution, but this works for the purposes of understanding.

Now we know that the public sector wage bill is around £175 billion and there are 6.051 million public sector workers, which means that the average cost of employment is around £29,000. We also know that due to the minimum wage there are no full time equivalent employees earning less than £14,000, so the difference between £29,000 and £14,000 would be about the same as 3 standard deviations, or one standard deviation is about £5,000. Which means that anyone earning more than £100,000 would be about 14 standard deviations higher than the mean, which implies a probability far closer to zero than the observed 38,000 / 6.051m = 0.6%.

Now I am not saying that salaries should be determined by statistical analysis or that they should be consistent with any particular statistical distribution, but it is clear that after the last Labour government there is a considerable amount of kurtosis (fat-tailness) with senior public sector workers choosing to pay themselves on a different scale to the rest of the public sector.

As John Redwood pointed out, in the private sector workers and management generally work to cut costs without whingeing about loss of services to customers if they can't keep their prices up. Would that the same applied in the public sector.

Monday, 20 September 2010

Do you want to go large with that sir?

Normally you would have to open up the case of your PC and muck around with some chip removers and probably some messy work with a heatsink, but now Intel jhave changed all that by trialling a processor that can be upgraded if you cough up extra cash.
The chip is the little known Pentium G6951, currently being offered to a "limited number" system builders in the US, Canada, the Netherlands and Spain on a "pilot" basis.
It works like this: A PC maker sells "upgradeable" PC to a customerr, who can then buy an unlock code, download an app from Intel and enter the code into it to unleash the "processor performance upgrade", which enables HyperThreading on the Core i3-derived dual-core CPU and a larger L3 cache on the processor die, all for an extra $50.
There is nothing new in this. 30 years ago I was a summer student at a Swiss bank. We wanted an upgrade to the Tektronix display screen, but the engineer couldn't make it onsite, so he called in and talked us through the upgrade: "Where is the new board?", we asked. "There is no upgrade board. Open the cabinet. You see that big board with the jumper in the middle? Pull the jumper."
There are 2 problems with this:

  1. The customers will know they have bought the hardware for the more powerful system, so if the manufacturer can afford to sell it for the price of the lower value system, they will resent paying the higher price.
  2. Give it 2 weeks and some 15 year old hacker will be selling upgrade keys and software on eBay.

If we all had the attention span of a gadfly, none of us would notice

Danny Alexander, the Chief Secretary to the Treasury, has launched a "ruthless" campaign against tax dodgers in a new effort to claw back the £7bn being lost through avoidance, evasion and fraud.

Clamping down on tax dodgers, especially high earners, was central to the Liberal Democrats' pitch to voters during the election campaign. At the party's conference yesterday, Mr Alexander said tax evasion and avoidance were "unacceptable in the best of times, but in today's circumstances it is morally indefensible".

"Decisions we make in the Spending Review will ensure the taxman has the resources to be ruthless with those often wealthy people and businesses who think they can treat paying tax as an optional extra."

Mr Alexander was less forthcoming on whethjer he intends to assis the process by amending his 2007 Tax return. In June 2007 Mr Alexander sold a south London property for £300,000. He claimed in his capital gains tax computation for that period that this property had been his primary residence, thereby exempting the gain from tax, whiclst claiming for the purposes of his parliamentary expenses that the property was his secondary residence.

Mr Alexander has yet to tell us whether this form of tax avoidance is morally indefensible, and if so whether he should resign, or has he got his cheque book out already?

Daniels out of the lions' den

Lloyds' have announced that Eric Daniels is going to retire. Apparently its is a "shock", implying that it was his decision, made without consultation. If I had been chief executive of Lloyds and an American like Mr Daniels, I would have told his chairman, shareholders and the British media where to go a long time ago.

Mr Daniels will retire next year according to a statement from the bank, but the media have already started spinning the story. According to the Telegraph, "His tenure at Lloyds has been controversial, particularly his decision to pursue the takeover of rival lender HBOS in the midst of the financial crisis in 2008, which led to the bank requiring a multi-billion pound state-funded bailout."

Now lets get this straight. Lloyds was always a conservative bank, but their chairman, Victor Blank, a Lavour Party contributor, got into a chat with Gordon Brown at a cocktail party and agreed to look at the bank for the good of the country. Nothing like the national good to persuade you to sell your shareholders down the swannee.

Daniels and his team were then given assurances by the FSA that the HBOS loan book was fairly stated (which it wasn't) and the deal went ahead. Daniels later told a parliamentary committee that the bank's board had not had sufficient time to conduct proper due diligence on HBOS's books before it agreed to the merger, but then what is the point of a due diligence exercise if your regulator is telling you the bank is clean and the Prime Minister is pushing your chairman to buy the bank?

I would have turned round and told anyone who was listening, "Your bank, your mess, your country, I'm off home".

Public sector pay laid bare

If you work in the private sector, how much has your pay risen in the last 10 years. The government has already revealed that pay for the top 5% of earners in the public sector has risen by 51% in the past 10 years. Of course that far understates the pay of individuals who will have received promotions in that time.

New research conducted for BBC Panorama has found that there were more than 38,000 public employees earn more than £100,000, more than 9,000 public sector employees are earning a higher wage than the £142,500 paid to the prime minister, and 1,000 people are on more than £200,000.

But the truly staggering figures comes from the number of supposedly impoverished academics who have to scrape by on a six figure salary at these academic institutions:

  • University College London
  • Imperial College
  • University of Oxford
  • Cardiff University
  • Kings College London

Friday, 17 September 2010

Soros buys a "Get out of jail free" card

Last week, George Soros gave $100 million to the group Human Rights Watch.

Yesterday, the European Court of Human Rights announced that it will review George Soros' 2002 conviction for insider trading in the shares of Societe Generale in the 1980's.

Now, call me an old fuddy-duddy, but in my day (not that I have ever been convicted of, or even practised, insider trading), the proper forum for an appeal against a criminal conviction was the relevant court of appeal.

It seems you can still buy a few things for $100 million these days.

Cable snaps

Vince Cable seems to be very happy drawing down a ministerial salary whilst criticising the policies for which he is collectively responsible. This time he is getting peeved about the limits on non-EU migration.

"A lot of damage is being done to British industry,” the business secretary told the Financial Times on Thursday. He said companies were moving jobs overseas in response to punitive caps that left them unable to hire key staff. “I’ve got a file full of examples. This is not just people whingeing,” he said.

The cap on non-EU workers was a manifesto pledge for David Cameron and proved popular with voters: it was reluctantly accepted by Lib Dems in the May coalition negotiations. Mr Cable said he was fully signed up to the coalition’s plan for a permanent immigration cap but wanted to see it applied flexibly.

“I was talking to people in the City and there were two investment banks that recruit hundreds of people from the non-EU area, Indians and Americans. They were allowed only 30-40 [visas]. They have moved some operations to Hong Kong.”

Mr Cable said in one instance a UK company needed 500 specialist engineers but was given a quota of four. He spoke of an entrepreneur who ditched plans to open a factory and create 400 jobs in northern England after failing to secure visas for key staff.

Not quite true, Mr Cable. The people are usually out there but not necessarily at the wage levels some companies would like. Believe me, there are no companies that need 500 "specialist" engineers of a type that are unavailable in the UK. Sure enough there are probably plenty of Indians prepared to work for 80% of the salary that a UK engineer would think necessary to house, feed and cloth a family, but if a company was so desperate to access cheap highlyt skilled labour, perhaps they should have set up in India in the first place. If you want companies to employ UK staff on their own merits, perhaps you should look at ways to reduce the costs of doing business in the UK (rates, NI, realistic capital allowances, simpler tax compliance and less red tape).

As for US bankers, well all that takes is the same sort of system that the US applies for all immigrants working for US firms - the B-1 visa. It worked for me and I have never heard any US firm complain that it was too restrictive.

So, Mr Cable, instead of whining to the newspaper (essentially about yourself), get out and do the ministerial job that you are being paid to do.

Thursday, 16 September 2010

In the long run we're all dead

Relative-value arbitrage is an investment strategy that seeks to take advantage of price differentials between related financial instruments, such as stocks and bonds, by simultaneously buying and selling the different securities, thereby allowing investors to potentially profit from the “relative value” of the two securities on the assumption that the value of the securities will eventually move back into line because the market is efficient.

The trouble is that is like a double or quits strategy at the roulette table. You place a chip on red, and if that fails to win, you follow that with two, four etc. The flaw in the strategy is that you get wiped out a succession of blacks or 0 (or 00) that is n spins long where 2n+1-1 is more moolah than you can lay your hands on. That in a nutshell was what happened to Long term Capital Management. Their bets looked like winners but the timing was wrong.

Now the boot is on the other foot. A paper from the US National Bureau of Economic Research claims to have identified by academic research in fixed income markets the “largest arbitrage ever”, saying that prices for US Treasury inflation-linked securities – government bonds that provide protection against rising prices – and regular Treasury bonds were thrown out of sync by as much as 23 cents on the dollar following the collapse of Lehman Brothers two years ago this week.

“The arbitrages reported are stunning in magnitude,” the researchers said. “What makes these findings even more dramatic is that the Tips (Treasury inflation-protected securities) and Treasury markets are two of the most liquid and largest financial markets in the world ... The sheer magnitude of this mispricing presents a serious challenge to conventional asset pricing theory.”

The NBER said the arbitrage had narrowed during 2009 to more normal levels, but for a small group of traders the widest pricing discrepancies led to one of the most successful hedge fund trades in recent memory.

One of the biggest winners was the smallish $450m Barnegat fund, founded in 1999. Barnegat acquired Tips bonds just after the collapse of Lehman Brothers and then shorted regular Treasury bonds of the same maturity. As the discrepancy narrowed, the fund realised huge gains, returning 132.6% to investors in 2009.

Wednesday, 15 September 2010

Myth of the underpaid public sector worker

Public sector workers are paid more on average than those in the private sector, according to the first comprehensive analysis of the pay divide by the Office for National Statistics, thereby blowing a hole in the TUC's arguments against public sector pay cuts

The ONS found that full-time public sector staff earned an average of £74 a week more than those in the private sector. Once employer pension contributions were included, the gap rose to £136, illustrating the generous pay-and-perks deals enjoyed by local and central government workers.

The TUC warned of a "darker, more brutish" society and labelled the Government the "demolition Coalition". In reality, 25% of the government's wages bill could be cut by bringing public sector pay down to the level of private sector pay, and the deficit would disappear.

In its September Economic and Labour Market Review, published yesterday, the national statistician reported that the average weekly salary for public sector workers in April last year was £539, compared with £465 in the private sector.

The research would have been even more depressing reading for private sector workers when job security is considered. "The likelihood of losing your job in the private sector is much higher," he said. The number of public sector workers swelled under Labour from 5.2 million to more than six million.

Ah, but counter the TUC: "You can't make direct comparisons. The public sector has many more professional and highly skilled workers within it than the private sector. Averages simply do not tell us anything useful."

More phooey. The work of some individuals may be valuable. but on average we expect the average cost of our public servants to be less than the earning power of the people they serve. After all the services they provide have an economic value that is limited by the incomes of the people they serve.

Tuesday, 14 September 2010

One million public sector jobs to go

Radical plans have been announced to lay off huge numbers of state employees, to help revive the country's struggling economy. According to the unions more than a million workers would lose their jobs - half of them by March next year.

Those laid off will be encouraged to become self-employed or join new private enterprises, on which some of the current restrictions will be eased.As many as one-in-five of all workers could lose their jobs.

"Our state cannot and should not continue maintaining companies, productive entities, services and budgeted sectors with bloated payrolls and losses that hurt the economy," said the union leaders. "Job options will be increased and broadened with new forms of non-state employment, among them leasing land, co-operatives, and self-employment, absorbing hundreds of thousands of workers in the coming years".

In Cuba.

Who cares whether crime pays

when you can make more from liquidations. Fees paid to lawyers and accountants for unwinding Lehman Brothers in the US and Europe are likely to be more than $2 billion. The fees charged to Lehman’s US estate stood at $917m in July and should top $1 billion this month. In London, expenses for unwinding the European arm, with legal costs, are estimated at almost $900m.

The US estate is paying more than 1,000 people while in London, PwC, the administrators to Lehman’s main European operations, still has more than 300 of its people on the project. Now that is quite extraordinary when you bear in mind that this company is no longer trading, the book such as it is is supposed to be being wound down, the assets were supposed to be liquid and tradable and yet two years after the Lehman bankruptcy, there are still 1,300 people being charged to the estate at several hundred dollars an hour, enough to run a medium sized trading operation.

"Oh, but.." say "bankruptcy experts" (read other liquidation professionals with a vested interest) "these costs are small relative to the size of its balance sheet compared with Worldcom and Enron".

Phooey, we say. Those were 'real' companies with physical assets (OK, maybe not worth the values ascribed to them in their accounts) and it takes longer to sell those assets. Lehman had nothing more than paper (OK and a few phones and desks). Sorting out the mess and getting it all squared away should have been a relatively simple affair. Perhaps it couldn't all be made to close out and disappear overnight, but 1,300 people coming to work every day for 2 years. Do they all have a role? Gimme a break.

But what ever comes of this, do me a favour, please. Don't think that just because somebody ran a bank in liquidation for a few years, pocketing millions for their firm in the process, that they are somehow able to run a proper banking business. The last time this happened was BCCI which launched the banking career of Sir Fred Goodwin.

Monday, 13 September 2010

Evans the stooge

It would be easy to label Evan Davies as another left wing stooge at the BBC, and he tries to sound as though he understands economics but his current analysis of the deficit leaves us in no doubt where he marks his ballot card.

His main premise is that as a nation becomes richer it chooses to spend an increasing proportion of its income on public services. This seems barely credible. Most people see the state as a provider of basic services such as education, law and order and healthcare. Sure ennough they might think that if their income doubles they can afford to spend more on education and healthcare, but on prisons, regulation and general bureaucracy? Of course not.

On the other hand there are plenty of politicians who are willing to tax an increasingly wealthy state in order to pay the cash back to some of the voters as welfare benefits and claim credit for doing so. Which is why we hear Evans' comment:

"By accident or design, it [UK welfare payments] has grown from 12% of national income in the early 1980s, to 14% when John Major's government left office to almost 16% now. " And that is not including the disguised welfare from negative taxation due to tax credits.

So in Evans' mind the whole reason for the deficit is that as the country prospered we all wanted more public services. Not so, because the simple fact is that the UK private sector really stopped growing around 2003, and much of the false sense of prosperity was created by incessant government expenditure funded by borrowings.

The private sector was wary of ever increasing overheads and stopped investing in the UK many years ago. To compensate, Brown pumped money into the economy with higher public sector salaries and PFI projects. "Oh look", he would exclaim, "GDP is up so we are all better off. I am sure we would therefore all like more public services" and so he would borrow some more to pay for it.

And it continued until the money ran out. Now we have to endure the unions saying the same thing almost as an echo. Cuts will hurt the most vulnerable. You mean those people who are being paid 16% of GDP for free gratis and nada. 16% of a supposedly (but not actually) growing economy. Well in a sense they are vulnerable because they have a lot to lose, but experience from only a few years ago tells us that even 1990 living standards were quite tolerable and that is probably where we will all end up due to the last government.

Monday, 6 September 2010

How common are you?

I took one of those internet tests:
  1. Do your toddlers have pierced ears? No, but my prize bull has a ring through its nose.
  2. Are any of the doors of your car a different colour? Yes, I drive a Maserati Gran Turismo, so the whole car is a bit different.
  3. Have you ever purchased an item using the television? Yes, on my gap year, I bought a horse in the Peruvian Andes in exchange for a Panasonic portable.
  4. Would you know how to cash a giro? Yes, I would give it to my butler.
  5. Do you own a snake or a lizard? Yes, there are adders on my grouse moor and lizards at my villa on the Cap d'Antibes.
  6. Do you have tattoos over more than 25% of your arms? The family swords are stored in the vault of Edinburgh Castle, so strictly speaking that's a yes.
  7. Do you shop at Iceland? Only once, on a business trip to Reykjavik. Bought some whale blubber and a geothermal power station.
  8. When you go out for a family meal does it come in a bucket? Only the champagne.
  9. Do you watch ITV 2? What is ITV 2?
  10. Do most of your relatives live within walking distance? Yes, Great Aunt Maud lives in the west wing, Granny is in the Dower House and some cousins manage a farm on the estate.
  11. Have you ever been involved in a paternity test? Yes, it turns out I am 13th in line to the throne of the Holy Roman Empire.
  12. Do you enjoy dog racing? Yes, but we call it drag hunting.
  13. Do you shop at Sport and Soccer? Went into the Oxford branch once but they don't stock my usual brand of shotgun cartridges.
  14. Do you have an account with Kays? Yes, the only place I would ever buy my curling stones: http://www.kaysofscotland.co.uk/
  15. Have you ever been on holiday to a caravan park? We trekked to Timbuktu last spring and there were lots of caravans parked up in the town, so that sounds like a yes.
  16. Did you name your children after celebrities? Of course, famous relations like to be flattered, and you never know, it might just nudge their arms when they draw up their wills.
  17. Do you take off your top when you go shopping? A gentleman always removes his hat before he enters a building.
  18. Do you own a 50" television? Yes, there's one hooked up to Bloomberg in the reception area outside my office.
  19. Do you have an England flag hanging from a bedroom window ? Only on St George's Day, from a flagpole on the balcony outside my bedroom window
  20. Do you watch Jeremy Kyle? Never heard of the fellow. Is he a member at my club?
I think I scored about 18 out of 20. Can you do better?

Blair wimps out of book signing

Allegedly on the advice of the Met Police after the demonstration over the weekend in Dublin.

So which came first, the chicken or the egg?

Walsh: it gets worse

Iberia was always one of the most incompetently run airlines. Believe me, I have dealt with them at board level, and I would have expected more business "naus" from the owner of a West Midlands chip shop. But it seems their merger with BA is now a merger of equal incompetents.

According to press reports, Willie Walsh, British Airways’s chief executives, and top Iberia executives have drawn up a list of 12 candidates to buy or merge with once their own tie-up is finalised. The 12 targets, pared back from an initial list of 40, includes budget airlines as well as larger full-service carriers in several countries, including fast-growing emerging economies such as Brazil, India and China. Walsh will drive the combined group’s strategic direction, assuming the deal is completed by the end of this year as planned, and has already made clear that the new group would look at further consolidation.

So we have two groups that have gone backwards in the last few years (while the aviation industry as a whole has expanded). The decline of both airlines has been due to a failure to match or respond to low-cost airlines (a classic failure of strategy), forcing the two flag carriers into each others' arms to save costs through rationalisation.

At this stage you would expect them to be on the back foot and acting defensively. But no, Mr Walsh and his amigos have decided that the easiest way to turn their merged businesses back into the black is to take what is left of shareholders' cash and blow it on airlines operating on the other side of the world. Given Mr Walsh's lack of success in motivating his Anglo-Saxon workforce, I dread to think how he will deal with fractious bag handlers in Bangalore or Shanghai.

Saturday, 4 September 2010

Why does this man work for BA?

Walsh hints at Indian investment after BA-Iberia merger

News just in:
A newly merged British Airways and Iberia would be very interested in investing in an Indian airline, BA chief Willie Walsh said on Saturday as he announced a groundbreaking code-share deal with India's Kingfisher Airlines.

Without question this is a market for the future, said Mr Walsh, who is set to head the new International Airlines Group company to be formed under the Iberia merger due to be finalised by the end of this year. The ambition of IAG is to pursue further opportunities for consolidation and I can certainly let you speculate that IAG would be very interested in participating in the Indian market, he told reporters in Mumbai on his second trip to the city in a month.

Now Kingfisher Airlines may be a great business, but it is mostly a domestic Indian airline with a few international routes with all but 5 of its current fleet of 66 aircraft operating on domestic routes in India. It may be a growth area but consider the network that BA operates in the UK, by trying the quiz we posted last year:

1 Name all the cities that BA flies to from
a) Glasgow, Edinburgh, Newcastle, Manchester?
b) Belfast, Bimingham, Southampton, Bristol, Leeds-Bradford?
c) Newquay, Guernsey, Exeter, Isle of Man?

2 How many flights a day does BA operate to Ireland?

3 From how many airports does BA operate to/from in:
a) London?
b) Rest of England?
c) Scotland?
d) Wales?
e) Northern Ireland?

1 a. London, b. Nowhere, c. Nowhere
2 None
3 a. 3, b. 2, c. 3, d. 0, e. 0

So if BA operates such a poor domestic network in the UK (where they have lots of international routes and prime slots), why should they be interested in a foreign domestic network where they have to compete with incumbents?

Or if Walsh thinks the Indian market is such good business, why is he wasting his time at BA?

Clarification: the origin of the universe

The papers are full of stories about Steven Hawking denying that God created the universe, not that even Steven Hawking knows the answer to that. Of course, none of this is new, and the scientific theory behind it dates back to earleier work by Hawking and James Hartle, but there is now a book; hence the fuss.

Going back to the post war years George Gamow first proposed the big bang theory that is now widely accepted, but one of the problems with the theory is that it does not explain what may have occurred before the inflation of the universe. In an attempt to resolve this issue, Hartle and Hawking proposed another theory for the creation of the universe in 1983. The theory was based on the idea that the universe did not have a boundary, just as the earth does not have a boundary. For example, one may travel around the earth and not come to a boundary or fall off. In addition, the theory was based on quantum theory, a superset theory encompassing general relativity and quantum mechanics.

Quantum theory defines a wave function that describes all of the possible states of a quantum particle, such as an electron. The values of the wave function indicate the probabilities of the particle being found in the various states. For example, if the value of the wave function is high for a particular state, then the particle is likely to be found in that state. Conversely, a low wave function value suggests that the particle is less likely found in that state.

Hartle and Hawking's theory treated the universe like a quantum particle. As a result, they created a wave function that describe all possible universes. The wave function is assumed to have a large value for our own universe, and small, non-zero values for an infinite number of other possible, parallel universes. The other universes are expected to have different physical constants from those in our universe and are quite probably devoid of life.

The wave function of the universe in Hartle and Hawking's paper gives a probabilistic and noncausal explanation of why our universe exists. More precisely, it provides an unconditional probability for the existence of a universe of our sort (i.e., an expanding [and later contracting] universe with an early inflationary era and with matter that is evenly distributed on large scales). Given only their functional law of nature, there is a high probability that a universe of this sort begins to exist uncaused.

This can be explained more exactly. In their formalism,y[hij, f] gives the probability amplitude for a certain three-dimensional space S that has the metric hij and matter field f.

A probability amplitude y gives a number that, when squared, is the probability that something exists. This is often put by saying that the square of the modulus of the amplitude gives the probability. The square of the modulus of the amplitude is |y[hij, f]|2

In the case at hand, the probability is for the existence of the three-dimensional spatial slice S (the "three-geometry S" in Hartle and Hawking's parlance), from which the probability of the other states of the universe can be calculated. The three-dimensional space S is the first state of the temporally evolving universe, i.e., the earliest state of the temporal length 10E-43 second (the Planck length). S is the state of the universe that may be called the "big bang"; it precedes the inflationary epoch and gives rise to inflation.

The metric is the degree of curvature of spacetime; the metric hij Hartle and Hawking derive is that of an approximately smooth sphere (like the earth) that is much smaller than the head of a pin.

The matter field f is equivalent to an approximately homogeneous distribution of elementary particles throughout the small sphere S.

Hartle and Hawking derive the probability amplitude by adding up or summing over all the possible metrics and matter fields of all the possible, finite, four-dimensional spacetimes which have a three-dimensional space S with metric hij and matter field f as a boundary. The square of the modulus of the amplitude, |y[hij, f] |2, gives the probability that a universe begins to exist with a three-dimensional space S that possesses this metric and matter field. The probabilities for the history of the rest of the universe can be calculated once we know the metric and matter field of the initial state S.

Since the wave function includes the three-dimensional space S as the boundary of all merely possible four dimensional, finite spacetimes, we can calculate the "unconditional probability'' of the 3-space S, in the sense that we do not need to presuppose some actually existent earlier 3-space S* as the initial condition from which the probability of the final condition S is calculated. The probability of the existence of the 3-space S is not conditional upon the existence of any concrete object (body or mind) or concrete event (state of a body or mind) or even upon the existence of any quantum vacuum, empty space or time; the probability follows only from the mathematical properties of possible universes. The probability of S is conditional only upon certain abstract objects, numbers, operations, functions, matrices, and other mathematical entities, that comprise the wave-function equation. This gives us a probabilistic explanation of the universe's existence that is based solely on laws of nature, specifically the functional law of nature called "the wave function of the universe."

One problem with this theory is that the authors do not say who defined the "wave function of the universe". They do not eliminate the possibility that it might have been God.

I hope that sets things straight.

Thursday, 2 September 2010

A neat sidestep.

A few months ago, we had a Chancellor, called Darling, although his first name escapes me for the moment, Roger, Andrew, Peter, something like that. Anyway, like most of our financial problems over the last few years, he was Scottish (and probably still is) and is largely behind us, but he popped up the other day to tell us that his bankers' bonus super tax was mostly ineffective.

Indeed, a few days ago, one of the Swiss banks in London announced that several hundred "senior" bankers in London were to be paid big retention bonuses to make up for the bonuses they didn't get in 2009. Well, frankly, what did you expect? Of course they were all going to get round the tax with a nod and a wink and a "we'll see you alright".

Hundreds of "senior" bankers in London: what do they mean by senior? Well they really mean anyone who produces serious wodges of profit, which includes every serious trader, some of whom are really quite junior. Seniority doesn't really come into it.

But the really telling part of the statement was the bank saying that they had to pay the bonuses to be competitive. Why? Super taxes apply to every one in London, so competition is only an issue if all or most of the other banks are doing the same. You don't say.

Looks like Mr [insert name here] Darling's super tax was a total fail. There hasn't been a sidestep like it since David Duckham went for the corner and cut inside the defender to score against the Scots in 1969.

White collar crime is alive and well, and that's OK with the SEC

Now I will be the first to admit, as something of an old fogey in the matter of risk and credit analysis, that I have never been a fan of the modern vogue for delegating a lot of risk analysis to the rating agencies, who to use the vernacular expression, "have no skin in the game", but it gets worse when it turns out that these so called experts get things wrong.

But I call it downright fraudulent when the rating agencies knowingly hide their mistakes and thereby mislead the market, which is exactly what Moody's did in 2007.

According to the SEC, a Moody's analyst discovered in early 2007 that a computer coding error had overstated by 1.5 to 3.5 notches the value used to determine Moody's credit ratings for certain constant proportion debt obligation notes. Nevertheless, shortly afterwards in a meeting in Europe, a Moody's rating committee voted against taking responsive rating action, in part because of concerns that doing so would harm Moody's business reputation.

So that's alright, then. The markets can go hang because it might hurt Moody's to tell the truth, while some paper that is worth nothing more htan a AA- has an uncorrected AAA label slapped on it. Meanwhile the SEC who issued this statement, say that they won't prosecute because the fraud took place in Europe - but hang on, Moody's is a US based group, and are you tellling me that Moody's senior management didn't read the minutes of their European rating committee?

Worse still are you telling me that there is no internal audit that might have picked up on the issue?

And do you really think that the investment banks running the particular issues weren't just a little surprised when their paper came back with a rating justifying a yield 50bp finer than they had expected?

When the going gets tough

The women go shopping. They are disappearing from the ranks of US finance workers, despite a decrease in sexual discrimination charges and a rash of new corporate programs to attract and retain them. Meanwhile, the number of men in the business has surged.

In the past 10 years, 141,000 women, 2.6% of female workers in finance, disappeared from the industry, while the ranks of men in the industry grew by 389,000, or 9.6%, according to a review of data provided by the US Federal Bureau of Labor Statistics.

The discrepancy is particularly pronounced at brokerages, investment banks and asset management companies. The shift in gender ratio contradicts changes in the overall workforce. In the wider US labour market, the number of women has grown by 4.1% in the past decade, compared with a 0.5% increase in male workers.

Some graphs here.

Wednesday, 1 September 2010

Blair's justification of the Iraq War

"I don't seek agreement. I seek merely an understanding that the arguments for and against were and remain more balanced than conventional wisdom suggests... When I use the word responsibility, I mean it in a profound way. I say in the book the term responsibility has its future as well as past tense."

Future responsibility, as in being held to account in a court of law? I suspect not.