FTSE 100
Dow Jones

Sunday, 27 November 2011

Timeo Danaos et dona ferentes

The head of Elstat, Greece’s new independent statistics agency, faces an official criminal investigation.  According to reports, he is alleged to have overstated the extent of the country’s fiscal crisis and acting against the Greek national interest.  All of which is likely a question of opinion.

Andreas Georgiou had worked at the International Monetary Fund for 20 years, and he must have thought he was onto a cushy number back at home when he was appointed in 2010 by agreement with the fund and the European Commission to clean up Greek statistics after years of official fudging by the finance ministry.

If he is convicted for telling the true but bad news Mr Georgiou could face life imprisonment.  If that sounds bad, remember that Jeff Skilling got 24 years, Ken Lay died before sentencing and Andrew Fastow went down for 6 years. In fact in sentencing terms this is way beyond Millken and Boesky territory, past Bernie Ebbers and Dennis Kozlowski, and right up there with Bernie Madoff.

All for "true and fair" accounting.  But what do you expect from an unelected government?

See how the BBC reports good news

"UK economic growth confirmed at 0.5% by official data
UK economic growth between July and September was left unchanged in the latest figures from the Office for National Statistics. Growth in gross domestic product was confirmed at 0.5%, compared with a 0.1% expansion in the second quarter."

It obviously hurts to much to say that GDP growth rose by 0.4% between the second and third quarters.

Saturday, 26 November 2011

If you are not exporting, you are part of the problem

I went to a lecture yesterday evening at St John's College, Cambridge given by Professor Sir Mervyn King.  You may have heard of him.  He is the Governor of the Bank of England.  One of the conditions of entry was that it was a private meeting, whose contents were not to be divulged, so for your benefit dear reader let me draw your attention to a speech Professor King made in Liverpool, with the BoE have posted on their website here and you will find here.

The essence of the speech in Liverpool is quite simple.  Ever since the fall of the Berlin Wall, Asian economies have realised that the route to prosperity has lain with developing export driven economies, selling mostly to the more prosperous developed nations.  The developed nations have run consistently large trade deficits funded mostly the same Asian countries that have a strong saving ethic (or ridiculously large cash flow in the case of oil states).

Central bankers have met every year at G20 meetings and in Basle/Basel/Bâle and talked about the unsustainability of trade deficits, but nothing was ever done.  Now, the politics hae been overtaken by the arithmetic.
"Let me sum up. From the very beginning of the global crisis there has been a reluctance by governments to face up to the underlying solvency problems generated by apparently unending trade deficits with no mechanism, whether flexible exchange rates or some other means, for correcting these disequilibria. Those solvency problems have shown up on country and bank balance sheets. The initial reaction has always been to provide liquidity: through central banks or an extension of official lending by governments. Providing liquidity to buy time to devise and put in place a coherent response to the underlying problem can be not only valuable but necessary. But liquidity can never be the answer in itself. And if the time bought is not used then the size of the debt problem becomes larger and its cost is gradually transferred from private sector creditors to taxpayers."
The solution is long and hard.  It requires a transformation of the economy and will take years to correct.  From now on, if you ain't exporting, then you ain't worth a fig. If you are a diversity co-ordinator, NHS manager or even domestic house builder, expect to get paid your true worth, which is going to be a lot less until the west can get its act together.

Thursday, 24 November 2011

Compare and contrast

Toyota says it will create 1,500 new jobs at its plant in Derbyshire over the next two years. The new positions are needed as the company plans to increase production and build its new generation family-sized hatchback at the UK factory. Toyota said it would be investing more than £100m at the Burnaston plant as a result of the production decision, taking its total investment in the UK to more than £2.1bn since 1989.

In other news, the Government says the public sector pensions strike next week could cost the economy half a billion pounds and lead to job losses. The planned walkout on November 30 by over two million workers will lower output in the public and private sectors, said the Treasury. Ministers said the biggest impact will be caused by thousands of school closures, forcing parents to work from home, make childcare arrangements, or take their children to the office.

Monday, 21 November 2011

Champagnes League (aka the PremierCruShip)

Dubois Caron Champagne Brut style=
Charles de Ravon Brut Champagne style=
Champagne Brut style=
Leo Deviroy Champagne style=
De Vallois Champagne style=
André Carpentier Champagne style=
Nicolas Feuillatte Brut Champagne style=
Tesco Finest Premier Cru Champagne Brut style=
Pol Aime Champagne style=
Heidsieck & Co. Monopole Blue Top Champagne Brut style=
Champagne Henry Dumanois Brut style=
Champagne Madame de Maintenon style=
Jacquart Tradition Champagne Brut NV style=
Heidsieck Red Top Champagne Brut NV style=
Louis Chaurey Champagne style=
Piper Heidsieck Champagne Brut style=
Heidsieck Blue Top Champagne Brut NV style=
Pierre Darcys Champagne Brut Rosé style=
Waitrose Brut NV Champagne style=
Nicolas Feuillatte Brut Champagne style=
Canard-Duchêne Brut NV Champagne style=
Francois Dubois Brut  style=
Jean-Noël Haton Brut Classic Blanc de Noirs NV style=

Socialist Champagnism

In these hard times, we are all looking for a bargain for the festive season, and as ever I am on the look out for the lowest priced champagne that cuts the mustard. Prompted by an email from Tesco offering Lanson Black Label Champagne at £91.14 a case (for the benefit of innumerate inebriates that's £15.19 a bottle) I thought I would shop around to see if I could shave a few pence off that.

The best I have come up with so far is Champagne Madame de Maintenon from the Co-op.  Overlooking the fact that the wine is named after the mistress and second wife of Louis XIV, the wine maintains its left of centre credentials by being made by N.V. Coopérative Régionale des Vins de Champagne.

Although not yet at the price levels of last year's £12 bottle from the same shop (that made such an impression that I have forgotten its name) Champagne Madame de Maintenon currently leads by a short head at £14.99 a bottle.

I will post more on this as Christmas approaches.

This is going to hurt

Over the weekend we got the usual guff from the left about NHS nursing jobs being under threat.  The following from the Morning Star is typical:

NHS nurses today blew the lid off a looming crisis in the service because of Tory budget cuts that have seen 56,000 posts axed or threatened. A Royal College of Nursing investigation revealed that 56,058 NHS jobs have now been lost or at risk - double last year's figure. Data from NHS trusts showed that that figure has shot up from 27,000 a year ago and 40,000 this April. Roles affected included thousands of nursing and doctor positions as well as support staff. Among potential job losses include those at Birmingham Own Health, a service designed to help people with long-term conditions, and others in mental health services in Camden and Hampshire. RCN general secretary Dr Peter Carter said the figures showed a "deeply worrying acceleration" in job cuts that would threaten patient care.

Now for the truth.  The number of nursing jobs in the NHS is only 1% lower than in 2007 when Labour was throwing money at the service.  Once they are through training nurses pay is not at all bad (although they have to reach Band 7 to have a lifestyle equivalent to 80,000 of the unemployed).

But many nurses, particularly in inner cities, earn far more than this by working through agencies.  The logic of using agency nursing is to give flexibility when demand changes.

Two years ago I wrote a very innovative report for a part of the NHS, NHS Professionals, to teach them about option pricing, or effectively, what premium should be paid to meet variable demand for nurses.  From this, and using data on the number of shifts worked through out the year it was possible to work out which trusts had too many fixed positions and thus excess capacity, but worse than this, which trusts had more agency nurses than were warranted by the relatively small variability in demand.

Needless to say, the results were quite astounding.  In many inner London trusts the nursing staff were predominantly employed through agencies even though the average tenure of positions was many years.  In effect, agency nurses were not there to fill swings in demand, but were permanent.  In some nursing specialties, on qualification nurses would quit there NHS jobs and join the agency closed shop, returning to the same hospital on higher pay.

Effectively, you dear tax payer are paying way over the odds for these services, and the proposed savings are simply clawing back some of those costs.

It's déjà vu all over again

So the government has decided that the best way to get the economy moving is to build some affordable housing and to get the tax payer to underwrite the risk of the mortgages.

Two points:

  1. Nobody got rich building unaffordable housing, but equally nobody got rich by building property, selling it to people who can't really afford it and guaranteeing the banks that the buyer could make the payments.  The same goes for all sorts of other assets such as planes and ships.  If you build it, sell it and guarantee the sellers obligations to the banks you still effectively own the asset.
  2. Haven't we been here before, like in 2007?  The cause of the failure of the mortgage backed securities market and the rest was the fact that in order to give a veneer of rising prosperity, mortgages were given out willy nilly, packaged up with  fancy ribbon and flogged off.  The truth was that once you stripped away the icing of credit enhancement and cash collateralisation that gave them their desired credit rating, underneath they were mostly a heap of doggy doo.
But what the heck, it's only tax payers money. We wouldn't want to waste it. Oh it looks that was what we were doing in 2009.

Sunday, 20 November 2011

And now for the good news

40,000 Eurocrats are threatening to strike over plans to increase their working week from 37.5 hours to 40 hours (just like the private sector), raise their retirement age from 58 (!! 65 would be generous, 67 realistic), and award a pay rise of 1.8% (at the same time that the EU is telling governments across the eurozone to adopt harsh austerity measures and public sector pay freezes). The unions are demanding more than twice as much as they have been offered,.

Go on, give us all somthing to laugh about. Walk out and watch as nothing happens.

Men in beards

A message to the out-of-touch leaders of the Church of England who think that capping welfare benefits to the after tax income equivalent of £35,000 a year.  Their complaint is that doing so will plunge thousands of children into poverty.

Poverty is a relative measure, but as India and China drive down the salaries in the private sector, both in nominal and real terms, the national median salary also declines, plunging thousands of children out of poverty. Time for the unemployed to take some of the pain.  And don't tell me that is hurting the most vulnerable members of society.  The families are picking up 150% of the national average household income, and have 40 hours of free time when the rest of us are working.  How poor is that?

I have just checked the website of Jobs Direct to see how many jobs there are listed.  Turns out there are 250, so no trouble getting a job round here.  4 of them are paying £35,000 or more.  So that settles it then .  If you can get a salary equal to the top 1.5% of  jobs being advertised, without leaving home or lifting a finger, why would you take a job?

The truth will out

One of the more interesting asects of the upcoming trial of Saif-al Islam Gaddhaffi will be if we find out whether in 2006 former Prime Minister Blair became an adviser to the Libyan Investment Authority, a £40 billion fund established by the Gaddafis.

Saturday, 19 November 2011

Get your eyes out for the lads

I have no qualms about religion, being a fully paid up member of one of the world's foremost Abrahamic schools of thought, but I sometimes despair of the institutions that have been built up over the centuries.

Women with attractive eyes in Saudi Arabia may be forced to cover them up, according to the spokesperson of the Committee for the Promotion of Virtue and the Prevention of Vice (CPVPV) in the conservative Gulf kingdom.

Spokesman of the Ha’eal district, Sheikh Motlab al-Nabet said the committee has the right to stop a women whose eyes seem “tempting” and order her to cover them immediately.

Saudi women are already forced to wear a loose black dress and to cover their hair and in some areas, their face, while in public or face fines or sometimes worse, including public lashings.

The announcement came days after the Saudi newspaper al-Watan reported that a Saudi man was admitted to a hospital after a fight with a member of the committee when he ordered his wife to cover her eyes. The husband was then stabbed twice in the hand.

The CPVPV is Saudi’s Sharia, Islamic law, executive arm and was founded in 1940 to ensure Islamic laws are not broken in public, yet over the years, the committee has been largely criticized over its human rights violations.

In 2002, the committee refused to let female students out of their burning schools in Mecca for “not wearing the proper head cover,” which contributed to a large number of dead. 15 young girls died in the fire and dozens more were injured. The CPVPV men banned the firemen and policemen from accessing the girls as “it is not okay for girls to be seen without their full Islamic dress in front of strangers.”

Better off dead then.

Friday, 18 November 2011

My next car will be battery powered

... or maybe the next one or the one after that. Its going to happen eventually.  With Li-ion battery capacity likely to multiply by a factor of 10 in the next 5 years that means a Tesla Roadster with the current size of batteries would have a capacity of 2,450 miles.  OK I'll take a smaller range in return for less weight.  After all the more energy is stored the longer it takes to charge, but there is good news on that front too.

Northwestern University and Argonne National Laboratory this week published advances on research that takes on lithium ion batteries' weak spot: the electrodes that hold electric charge. Both efforts reflect the quest among researchers to improve batteries by improving the anode and cathode material used in today's lithium ion batteries.

With a better anode, the battery could be charged faster and have 10 times the energy storage capacity of current lithium ion batteries, according to Northwestern University researchers, who predict the technology could be available in three to five years.

Argonne's battery researchers, meanwhile, say that replacing the traditional graphite anode with titanium oxide could lead to batteries that can get half their full charge in less than 30 seconds. Perhaps not practical for cars but figure how that could help your phone.

Lithium ions in batteries move between the anode and cathode end of a battery, drawn by electrical charge. During discharge, the ions move in one direction and then the other during charging, traveling through a gel-like electrolyte. Northwestern University tried to address the speed with which those ions can move by creating a new anode material. Instead of using very thin sheets of carbon graphite, they put clusters of silicon between the sheets. This approach allows more lithium atoms to attach to the sheets since silicon can hold more lithium ions than carbon. By sandwiching the silicon between the carbon sheets and creating tiny holes on the sheets for the ions to move through, the silicon can maintain its integrity.

Researchers at Argonne National Laboratory are also working to replace graphite as the anode material but instead are using titanium oxide. The material was considered a poor candidate for anode materials since it its not a crystalline structure with well-understood electrical properties. But in the course of charging and discharging the battery, researchers said that the titanium oxide molecules began to line up in a way that could lead to much better performing batteries.

OK, I'll believe it when I see it, but if I see it, I'll buy it.

I mentioned it once, but I think I got away with it

Let's get a few things straight.  Britain tried the EMU but didn't join the euro because the economic cycles in Germany and the UK are different.  That means that problems in the euro are not really are problem.  We may be in a minority in the EU, but strictly speaking they are problem of the eurozone and the European Central Bank, not the UK.  So when German Finance or Foreign ministers think they can tell the UK that they are not contributing enough to the bailout, they should be looking at their own contribution first.

Having said that the prime minister (I forget his name, bit of a nebbish with a shiny face), hasn't really done much in his discussions with the Bundeskanzlerin.
  1. No big bailout from the Bundesbank or the ECB even though both are flush with spondoolies.
  2. No progress on the Tobin tax.  Britain wants it, Germany rejects it but it looks increasingly like a negotiating gambit to shoehorn the Brits into a place where they don't want to be.
  3. And then there is the issue of an ever tighter European treaty.  Cameron (see I knew I would remember it), knows that he won't get away with a revised treaty without a referendum.  The price this time will likely be his head.  The Germans OTOH are pushing for a big treaty without any right of veto to hold their flaming currency together.
This will run and run.

Red Nose Day

Today is the day when the British population allows itself to be harangued by televisual "personalities" into handing money over to "good causes", although the exact nature of all the causes being supported is not shown (unlike every charitable fund-raising I have been involved with).  There is nothing wrong with "good causes", but it is the bleating by the overly-paid to bully the less well off that really grates.  Only a few weeks after we learn that just one of the pundits on Match of the Day is paid £40,000 a week to say "The Bolton back four were all over the place for that goal, Gary" - £1.6 million a year,  a reasonable Premiership footballers salary, without the running about or risk of injury, perhaps the BBC should be looking at docking some of their wages instead of blagging money from the rest of the population.

But in case I am thought of as being mean minded, here is a way that the BBC can donate several million without losing a single penny to which it is entitled.  As you are aware dear reader, the Government in its generosity with your money decided many years ago that it would pay for a TV licence for every household containing a pensioner aged 75 or over.  As far as I am aware the licence is not compulsory and the households have to apply for the licence but the take up is quite significant and results in income to the BBC of £550 million a year paid for out of your taxes.

I have no problem with that, mostly because the free TV license was given to cover up a lousy pension increase many years ago. Besides it gives 74 year olds something to look forward to, but it does lead to an unjust enrichment of the BBC.

How is that?  Well the simple fact is that if you die midway through the period of your TV license, your executor can write to TV licensing for a refund. Refunds are available for complete unused quarters that remain on a TV Licence at the point it was no longer needed. Only the executor of the deceased licence holder's estate can apply for a refund in these circumstances.

Now the elderly can be differentiated from the rest of the population in many respects, but chiefly in that they have a much shorter life expectancy.  A 75 year old typically has a life expectancy of around 10 more years while a 90 year old has a life expectancy of 3 years.  Put another way,in very round numbers,  a 75 year old has something of the order of a 10% probability of dying in the next year while a 90 year old has a 25% probability.

Using a back of the envelope calculation, it would appear that something around 8% of the £550 million represents the cost to the government of broadcasting to the dead, and that money is trapped at the BBC.  The government (not the deceased) paid the money, so the executor can't reclaim it for the estate, and the government can't reclaim the money because it is not the executor of the estate of the deceased. The net result is that the BBC and its overpaid onscreen personalities are overpaid to the tune of nearly £50 million.

Hand that over to charity Pudsey and I might pay attention to your unedifying appeal.

Sunday, 13 November 2011

Socialist sell out - nothing to see here

Tony Blair has joined the select group of retired politicians from liberal democracies who make big bucks from authoritarian regimes. He recently signed a contract to advise President Nazarbayev of Kazakhstan, and has opened an office in the capital, Astana, although the nature of the advice is confidential. It seems that the advice is not on electoral matters because Mr Blair's client managed to secure the vote of over 95% of Kazakhs and his party holds all of the seats in the Kazakh parliament.

According to some reports, Blair is advising the president on a bid for next year's Nobel Peace Prize. I wasn't aware that this was a beauty contest,.but that may be my naivety. Tony WMD Blair is a curious source of advice on such matters, although we should not forget the contribution made to world peace by a Nobel Prize winning US Secretary of State by his use of carpet bombing in IndoChina.

If he was a US citizen Blair would be held to account for such actions under The Foreign Agents Registration Act (FARA), enacted in 1938. FARA is a disclosure statute that requires persons acting as agents of foreign principals in a political or quasi-political capacity to make periodic public disclosure of their relationship with the foreign principal, as well as activities, receipts and disbursements in support of those activities.

But in the not-at-all-corrupt UK, Blair's remunerated business interests are not open to public scrutiny. They are not mentioned on the website of the Advisory Committee on Business Appointments (Acoba), the watchdog that oversees the wheeling and dealing of ministers after they have been kicked out by the voters.. Blair is not a peer of the realm, so avoids listing his business interests in the House of Lords register of Members interests and he did not have to notify the Foreign Office of his appointment.

All of this leads towards the question of why we pay this former prime minister a pension immediately after leaving office? The idea was that prime ministers, who would probably be quite elderly would retire to the country with a comfortable allowance with the understanding that participation in any form of politics or world affairs would be likely to either undermine the present incumbent or compromise the dignity of their office.

From discussions last weekend with a cabinet minister I understand that this might change for the present and future prime ministers, but it doesn't stop Blair from having his cake and our cake, and wanting to eat them both. But there may be limits. If any advice is given in relation to this country, Blair will likely be in breach of his Privy Council oath, an oath of loyalty to the Queen and her successors and against the opposing interests of all other foreign leaders.

"You do swear by Almighty God to be a true and faithful Servant unto the Queen's Majesty, as one of Her Majesty's Privy Council. You will not know or understand of any manner of thing to be attempted, done, or spoken against Her Majesty's Person, Honour, Crown, or Dignity Royal, but you will lett and withstand the same to the uttermost of your Power, and either cause it to be revealed to Her Majesty Herself, or to such of Her Privy Council as shall advertise Her Majesty of the same. You will, in all things to be moved, treated, and debated in Council, faithfully and truly declare your Mind and Opinion, according to your Heart and Conscience; and will keep secret all Matters committed and revealed unto you, or that shall be treated of secretly in Council. And if any of the said Treaties or Counsels shall touch any of the Counsellors, you will not reveal it unto him, but will keep the same until such time as, by the Consent of Her Majesty, or of the Council, Publication shall be made thereof. You will to your uttermost bear Faith and Allegiance unto the Queen's Majesty; and will assist and defend all Jurisdictions, Pre-eminences, and Authorities, granted to Her Majesty, and annexed to the Crown by Acts of Parliament, or otherwise, against all Foreign Princes, Persons, Prelates, States, or Potentates. And generally in all things you will do as a faithful and true Servant ought to do to Her Majesty. So help you God."

As Borat would say "Yak-she-maj to that"

Saturday, 12 November 2011


I always figured Dominique Strauss-Kahn was a wrong'un, but like the O.J.Simpson trial, it was apparent from the start that the US judicial system is susceptible to money and media influence.  In the DS-K case, that involved a lot of French media pressure to the effect that their boy did no wrong. DSK’s legal strategy, which did dispute the events other than the housekeeper’s willingness to participate, meant that the case rested largely on his credibility, and that of his accuser. The case began to fall apart after prosecutors cast serious doubt on Diallo, her story, and her truthfulness. Neither of the legal teams concentrated on the DSK's behaviour.

But now it turns out that the boot is on the other foot (I have substituted a condom-related aphorism there, but good taste dictates otherwise.  As luck would have it the French police were investigating a pimping racket based on the Hotel Carlton in Lille, implicating a senior police officer, barrister and local businessman when whose name should pop up but that of the former grand fromage at the IMF.

How was this redoubtable public servant implicated?  Just the small matter of having women brought to him not only in Paris but also in Washington.  One of the young ladies involved, a Belgian in her 30s, known as Jade, told the French newspaper, Nord Eclair, she was taken to Washington for an encounter with Strauss-Kahn in a hotel in January 2010. She was paid by businessmen on her return to France. She said Strauss-Kahn showed her around the IMF building the next day and posed for a photograph with her in his office. It seems that somewhere there must be some incriminating evidence if the NY Attorney General wants to reconsider the previous case.

The businessman in the case said he paid for flights and costs. He is believed to have spent thousands of euros of company money on organising soirées for Strauss-Kahn, putting receipts marked with the initials DSK through his expense accounts, but Strauss-Kahn had not paid for anything. Investigators might like to check that out, and the folks back at the IMF might like to check whether Mr Strauss-Kahn registered such lavish hospitality.

Most intriguingly, one of these encounters took place in New York the night before the perv tried to hump the cleanup maid. The one point in DS-K's NY case that might now work in his favour is that he can now claim that it was an honest mistake, and he thought the bill had been settled by someone else.

Le Figaro: Why the economic crisis should kill Keynesian conventional thinking

Another post that is a shameless reposting of something that appeared elsewhere.  This first appeared in French, in Figaro, behind their paywall, but for some inexplicable reason, the English translation appeared on this side of the paywall.  Maybe they want the word spread to the non-French speaking world, which I am happy to do. 

The article is a criticism of Keynesian thinking. On the one hand this might be dismissed as a bit of rhetoric against an Anglo-Saxon economic philiosophy that has some traction in many parts of the world, but I think it hits the nail on the head.

What is missing is a further explanation of the nature of the crisis and more realistic outcomes.  If I had to sum it up, it would be the erosion of the West's competitive economic advantage and the consequent drop in living standards.  This is essentially no different from and old and tired business whose margins have been eroded.  The solution for the business is not to spend more and fund that spending by borrowing, but to cut its costs and if necessary to cut pay and bonuses and change the terms on which it deals with its suppliers.  Borrowing and spending leads to bankruptcy.  Ask any Greek or Italian.

A pre-eminent conservative French economist blames the West’s imploding economy on long-accepted Keynesian policies of boosting consumption via public spending.

PARIS – It would have been only logical that the recent financial crisis and its current consequences radically challenge the prevailing ideas on economics. But it is fascinating to see to what extent people can stick to erroneous beliefs. The strange and enduring success of anti-capitalist ideas after the spectacular collapse of communist and socialist societies illustrates this tendency all too well!

The ideas inspired by Keynesian theories are dangerously dominant. Despite the fact that they give no coherent explanation for the appearance of crises, everybody defined their “policies to end the crisis” according to Keynes’ ideas. The main point is simple: if there is an economic crisis, if economic growth is weak and the unemployment rate high, the right thing to do is to increase the global demand, which implies in particular to increase public spending. Every government favors this method, since it enables them to justify any demagogic spending, any waste of money.

Nevertheless, in all areas of human activity, wisdom means understanding the causes of a phenomenon before implementing measures to solve it. In our case, the economic and financial crisis was absolutely not the consequence of a lack of demand, but, on the contrary, of an excess of monetary credit and an excess of spending (for example, on real estate.)

A strange incoherence

Moreover, the very idea of increasing ex nihilo the global demand is an absurd idea: if a government spends more, it must find a way to finance it. Public spending always corresponds to a transfer of demand (at the expense of the taxpayers if it is financed by taxes, at the expense of the economy if it is financed by loans) and never to a net growth of demand. We should not be surprised if such a policy doesn’t bear fruits, as the American example shows: the public deficit of more than 13 percent of GDP did not prevent low economic growth and a high unemployment rate, while seriously disturbing the financial markets.

Keynesian thinking habits lead to a strange incoherence. Indeed, on the one hand, we recommend re-boosting consumption – which implies reducing savings – and on the other hand, we pretend to stimulate the economic activity and the investment by policies of monetary growth and low interest rates. But it is that kind of policy that caused the financial crisis in the first place, creating the illusion of important financing means thanks to purely artificial monetary credit, as we strive to reduce savings.

We should do exactly the opposite: cut out all obstacles – especially fiscal, which eliminate the incentive to save – and prevent any monetary growth which can only provide illusions and instability. That’s why it is dangerous to ask the European Central Bank to not only reduce inflation but also encourage growth. Like any central bank, it is quite unable to do so with success. The best thing to ask for would be to stop any monetary creation.

It is high time that we completely change the configuration of economic policy. It has consisted until now in creating massive public deficits and strong monetary growth. We should, on the contrary, drastically reduce public spending and tax burdens in order to encourage mass production, prevent any increase in money supply and incite people to save money within the framework of a major tax reform. The revolution we need now is first and foremost an intellectual one.

Friday, 11 November 2011

The Italian Job

I am reposting a comment from the pages of the Guardian about the Euro crisis.  What ever the political shenanigans that are going on, this goes some way to explain why Italy was in such a mess for a few days when in fact its borrowings as a percentage of GDP were lower than historical averages.  In addition, it is worth remembering that Italy has a substantial unofficial (euphemism for "black") economy which distorts that ratio, and the Italian public are not highly geared and are in fact substantial savers.
Six weeks ago the UK government took the unprecedented step of launching a legal challenge against an ECB move to make all clearing operations in euro-denominated instruments above a certain volume take place in the Eurozone under central bank supervision.

Most such operations currently take place in London, and on Thursday morning, the main London clearing-house LCH suddenly doubled the margin or collateral requirements on trade in 7-10 year Italian bonds, carefully timing the move to drive 10-year yields above the key 7% level, triggering a derivative avalanche that quickly took yields to unsustainable levels, while City economists appeared all over British TV announcing the end of the Euro.

This followed up the previous week's attack which had opened a breach or beach-head in the Eurozone at its weakest point, in Greece.

The main weapon in the ongoing 2-year war between the US-UK financial 'Allies' and the key Eurozone axis of Germany-Italy is the credit insurance or CDS which is taken as the market pricing of risk attaching to debt. London clears most Eurozone CDS, and when LCH (jointly owned by City traders) opened the attack on Italy, speculators holding no Italian bonds started buying insurance policies on Italian debt they didn't own but hoped to destroy ('naked CDS'), driving up the market measure of default risk on Italian bonds, and thereby further driving down the prices of the now supposedly 'riskier' bonds (which prices automatically factor in the market pricing of risk), and driving up the yield, which in turn, once above the 7% level, further drove up the price of Italian soveriegn CDS in a sort of virtuous speculative circle.

A coordinated derivatives attack, by the very people who will lose out if they don't destroy the Euro and ECB first, can move the prices and yields of the bonds the derivatives are nominally hedging much more than direct shorting of the bonds themselves (especially in the case of Italian debt where there's a huge market and great liquidity).

Eurozone leaders, led by Germany, have tried to ban such 'naked CDS', starting with a joint proposal from Merkel and Sarkozy to the European Commission in March 2010. But London has consistently resisted such regulation, repreatedly deferring even discussion, first delayed to July 2010, and since repeatedly delayed until at least July 2012 - by which time some people in the City think the battle will be over anyway.

Of course, the people who pay for this vicious cycle of unregulated (and untaxed - another battle) speculative asset-stripping, as the London-NY bearpack attacks the threatening Euro and Eurozone regulation, are the ordinary people of the Eurozone and of Europe more generally.

One can only hope that the experienced Italian trader Draghi at some carefully-timed point in the near future turns the tables on the feral speculators of the City and Wall St by suddenly announcing that the ECB will underwrite Eurozone sovereign debt.

It would be interesting to see if the UK government, on behalf of the City, then tried to contest the move as contravening the Lisbon Treaty they so despise.

Perhaps not, because a successful speculative attack on the Club Med would probably bring down a few of the UK banks that haven't fully insured their collective Club Med exposure of about ₤350bn.

Wednesday, 9 November 2011

Shrug of the shoulders

Much wailing and gnashing of teeth in the media as the Italian government bond yield hits 7%.  This say the armchair experts with the mikes in their hands is the end of the world as the Italians know it.

All cock of course. This is the yield on bonds already issued that has increased from 6.667% to 7%.  Not great, but in practical terms the higher yields will only hit the Italian government as their borrowings are refinanced, albeit that quite a lot has to be refinanced in the next year.

The bigger problem is that if you have a debt equal to 120% of GDP you have a problem with refinancing that debt.  The fact that you may have to pay an extra 0.36% of GDP per annum in interest in about 10 years when the entire portfolio has been refinanced is neither here nor there.

And for the benefit of those hacks who might think that markets don't buy government obligations at yields above 7%, here is a partial list of recent (last 30 years) UK government issues.  The coupon is given and the gilts were issued close to par so the implied yield was above 7%.

10% Conversion Stock 1996, 13¼% Treasury Loan 1997 , 10½% Exchequer Stock 1997 , 7% Treasury Convertible Stock 1997 , 8¾% Treasury Loan 1997 , 15% Exchequer Stock 1997 , 9¾% Exchequer Stock 1998 , 7¼% Treasury Stock 1998 , 14% Treasury Stock 1998-2001, 15½% Treasury Loan 1998, 12% Exchequer Stock 1998 , 9½% Treasury Loan 1999, 12% Exchequer Stock 1999-2002 , 12¼% Exchequer Stock 1999, 10½% Treasury Stock 1999 , 10¼% Conversion Stock 1999, 8½% Treasury Loan 2000, 9% Conversion Stock 2000 , 13% Treasury Stock 2000, 13¾% Treasury Stock 2000-2003 , 8% Treasury Principal Strip 07Dec2000, 8% Treasury Stock 2000 , 10% Treasury Stock 2001 , 11½% Treasury Stock 2001-2004 , 9½% Conversion Loan 2001, 9¾% Conversion Stock 2001 , 7% Treasury Stock 2001, 10% Conversion Stock 2002, 7% Treasury Principal Strip 07Jun2002, 7% Treasury Stock 2002 , 9½% Conversion Stock 2002 , 9¾% Treasury Stock 2002 , Treasury Coupon Strip 07Sep2002 , 8% Treasury Loan 2002-2006 , 9% Exchequer Stock 2002 , 11¾% Treasury Stock 2003-2007, Treasury Coupon Strip 07Mar2003 , 9¾% Conversion Loan 2003 , 2½% Index-linked Treasury Stock 2003 , 3½% Funding Stock 1999-2004 , 9% Treasury Stock 2003, 10% Treasury Stock 2003, 12½% Treasury Stock 2003-2005 , 13½% Treasury Stock 2004-2008, 10% Treasury Stock 2004 , 9½% Conversion Stock 2004, 9½% Conversion Stock 2005, 10½% Exchequer Stock 2005, 8½% Treasury Principal Strip 07Dec2005 , 8½% Treasury Stock 2005, 7¾% Treasury Stock 2006, 9¾% Conversion Stock 2006 , 7½% Treasury Stock 2006, 7½% Treasury Principal Strip 07Dec2006 , 8½% Treasury Loan 2007, 7¼% Treasury Principal Strip 07Dec2007, 7¼% Treasury Stock 2007 , 7¼% Treasury Stock 2007 WI , 9% Treasury Loan 2008, 8% Treasury Stock 2009, 9% Conversion Loan 2011, 7¾% Treasury Loan 2012-2015, 9% Treasury Stock 2012, 8% Treasury Stock 2013, 12% Exchequer Stock 2013-2017, 8% Treasury Stock 2015, 8% Treasury Principal Strip 07Dec2015 , 8¾% Treasury Stock 2017, 8% Treasury Principal Strip 07Jun2021, 8% Treasury Stock 2021

Monday, 7 November 2011

Sorry, what was the question

The BBC has published a list of the signs of dementia, to be used to shop elderly relatives to the NHS over Christmas. Not wishing to reflect on the possibilities for inter-family strife that could flow from a simple game of Snap, the following symptoms seemed remarkably familar.
  • Struggling to remember recent events 
  • Problems following conversations 
  • Forgetting the names of friends or objects 
  • Repeating yourself 
  • Problems with thinking or reasoning
  • Struggling to remember recent events 
  • Repeating yourself 
  • Confusion in familiar places 
Oh, and the BBC had an interesting piece on old people over Christmas... sorry, where was I?

Sunday, 6 November 2011

The power of the establishment

Last night, our village, like many others, held a bonfire. One of the largest landowners in the village, a Catholic, and his tenant farmer, also a Catholic, negotiated with three members of our Parish Council, respectively a Catholic, a druid and an atheist over the siting of the bonfire where we would burn the effigy of the Papist conspirator. Hundreds of people traipsed through the garden of the third Catholic, paying their admission and buying hot dogs, mulled wine and soft drinks. The proceeds were counted by another Catholic and a Methodist and the profits were donated to ..... the local Church of England church.

That, dear reader, is the power of the Establishment.

Something must be done!

So Mr Edward Miliband, the leader of one of the UK's foremost political parties has decided that there are issues raised by the protestors outside one of our largest cathedrals that have been ignored and need to be addressed.

His perception doesn't go so far as to enumerate the issues but according to him there is "a crisis of concern for millions of people about the biggest issue of our time: the gap between their values and the way our country is run".

Well, gosh, with insights like that he should make it into the Cabinet. No, hang on, until last year he was in the Cabinet as a member of the government of the last 13 years that was booted out.

If anybody is to blame for much of the way the country is run, he can't be far from the top of the list.

Friday, 4 November 2011

Do the Germans have a word for "bunker"?

“Nobody should believe that another half century of peace in Europe is a given — it’s not. So I say again: if the euro collapses, Europe collapses. That can’t happen.”

I apologise that I missed the latest gem from the Bundeskanzlerin, who is fast becoming my pre-eminent supplier of fatuous quotes.  This shoddy piece of emotional blackmail slipped out last week while I was looking the other way.

I don't know which side she figures her boys are going to line up with or who the enemy might be, but in view of the preparedness and recent experience of German forces, I wouldn't fancy her team's chances in a Euro bust up. If she is thinking of playing for the other side from the UK, then I just fancy our chances both at home and away, and I guess that this time as three time winners we would get to keep the trophy.

Do you remember the good old days

.. when deaths on the rail network could be attributed to the privatisation of Railtrack, the ruthless pursuit of profit etc, although the performance didn't seem to be any worse than that of British Rail at the time of the Clapham Junction crash, the Lewisham rail crash or the performance of London Underground at the time of Kings Cross.

But now it seems the BBC is reluctant to finger the state owned but not for profit company who simply neglected to inspect the track at Grayrigg, os opposed to Railtrack who caused caused accidents through faulty designs as at Paddington and Potters Bar.

Royal Basketcase of Scotland

Much fanfare from the hacks as RBS reports a Q3 profit of £2 billion compared with a £1.3 billion loss same time last year, but a quick perusal of the numbers shows that all is not as rosy as they make out.

The top line shows £6.3 billion of revenues followed by £3.5 billion of operating costs, which sounds respectable until you realise that banks have a whole lot of impairment items that I would have called part of the operating costs of banking, but I am not an accountant.

First up is £700 million of net insurance claims - i.e. a loss making insurance business.  Now I don't know much about accounting for insurance companies, but I would have thought that paying out on isurance claims was really a sort of operating cost for insurance companies - the flip side of receiving all that premium revenue, which I assume shows up in the £6.3 billion of revenues, but maybe not.  Anyway, this gives RBS an operating profit of around £2 billion.

But hang on they then add in £900 million of impairment losses which brings their "core" Operating Profit (with a capital O and a capital P) down to £1.2 billion, and then they add in another £1 billion of "non-core" operating losses which brings their Group Operating Profit to a measly £200 million or so. A billion is still quite a big number, and to have a billion of losses seems pretty core to me when that amounts to 16% of your top line revenue.

But it gets worse than that.  For some reason that is not entirely clear, the directors of RBS have decided that impairments on sovereign assets are not the same as impairments on ordinary paper, so there is another £140 million of losses that aren't included in the Group Operating Profit, and then there is a payment of £60 million to the government for the Asset Protection Scheme.  That sounds rather like an insurance premium to me, so I fail to see why that isn't included as a normal operating expense.

Oh and then we have another £418 million of "Other Item" losses.  Have you ever noticed how the losses are always extraneous to the business, but the revenues are where the directors are focussing their attention?  Perhaps if they paid more attention, the shareholders (tax payers) wouldn't have to pay for the £2.5 billion of non-core losses that popped up in the three months - about £42 million for each working day.

So at this point RBS is in a £350 million hole, so where does the magnificent £2.004 billion pre tax profit come from?

From our old friend "Fair value of own debt".  In other words the credit standing of RBS relative to the rest of the market fell by so much in the quarter that the mark to market value in the hhands of the debtholders of the securities that the bank had already issued fell by £2.3 billion.  By one of the most ungodly accounting wheezes know to man, RBS get to book that bit of bad fortune as profit.  If that sounds like good news, then remember that the discount/gain will simply be reflected in future higher interest costs as the borrowings are repaid upto maturity than would have been incurred if the paper had not been marked to market. So understand this, nothing happened and nothing will change in the future with this debt, but because of changes in market rates, and without doing anything themselves, RBS get to show a £2.36 billion profit now and will record £2.36 billion more interest costs in later years.

That's right: 115% of RBS' Q3 profits have actually been made by bringing forward income from future periods and increasing future costs by the same amount.

Details here:

Thursday, 3 November 2011

Euroballs #94

Around midday today some Euro-lackey in Brussels came up with the ridiculous notion that if Greece decided to leave the euro, it would also have to quit the European Union, according to the terms of the EU's treaties.

The lame-brained thinking of European Commission spokeswoman Karolina Kottova ran as follows "The treaties indeed confirm what we have been saying here: the treaty doesn't foresee an exit from the euro zone without exiting the EU". The comment was in response to a question about the provisions the EU treaties make for a country to leave the euro.

"We see Greece within the euro and the necessary instruments are in place and an agreement has been reached," Kottova told the Commission's daily news briefing. "So, as far as we are concerned, this is the only option that is on the table." The EU treaty does not specifically foresee the possibility of a country leaving the single currency area, which now comprises 17 countries, although it does provide for the possibility of a country leaving the 27-nation European Union. In article 50, the treaty says: "Any member state may decide to withdraw from the union in accordance with its own constitutional requirements."

Which is just a load of balls.  The EU treaty doesn't foresee a lot of things, but it doesn't stop any country doing anything not foreseen by the treaty.  I may cut the lawn this weekend, or then again I may not.  It isn't covered by any EU treaty, but that oversight doesn't stop me from doing so, or not as I decide.

A paper floating round Brussels a few years ago cam to the view that if a country left the EU, it would have to leave the eurozone, which overlooks the fact that the Vatican City, San Marino and Monaco all use the euro as their currency despite not being members of the EU.

But that isn't really the issue.  Bulgaria, the Czech Republic, Denmark, Hungary, Latvia, Lithuania, Poland, Romania, Sweden, and the United Kingdom are all members of the EU and the last time I looked, none of them use the euro as their national currency - I could be wrong, but I can't be bothered to check just to refute the absurd proposition of some overpaid Euro-nebbish.  There is nothing stopping Greece reverting to their own currency and remaining in the EU.  Sure enough there are some issues, such as getting their capital contribution back from the ECB, but there is nothing under EU rules that would require them to leave the EU ... but don't expect anything other than self-centred power grabs from the unaccountable denizens of the Berlaymont.

Wednesday, 2 November 2011

Another one-way bet, this time against your gullibity

At the weekend the papers, well, actually the Observer, was full of talk about recessions, falls in GDP or perhaps the rate of growth of the GDP, the economy grinding to a halt (although they were actually referring to the rate of growth grinding to a halt), but most of all to a letter in the Observer from "100 leading economists" that the government was pursuing the wrong economic policies.

As it turned out, most of the authors weren't economists at all, but sociology lecturers and Labour party hacks, unseated MP's and other malcontents. Their prescription:
  1. Don't sack any public sector workers
  2. Spend more on welfare.
  3. Borrow like there is no tomorrow.
  4. Spend it all on projects we don't need and can't afford.
Does that remind you of any party's economic policy over the last 5 years?

So the press was well and truly primed for the announcement of GDP figures, when blow me, instead of showing a 0.1% increase, up popped a figure of 0.5%, confounding the "experts", and leading one to wonder from where they had pulled their 0.1% prediction, which they so confidently claimed was the cause of the malaise in the economy.

The truth is that this was just another bunch of left-wing chancers who had no more idea about the state of the economy than they knew about the weather on venus, but feeding a line at the weekend offered them a one-way bet. If the figures went down they would have made a successful pop at the government, while if the figures went up it would all have been forgotten by next weekend, and since none of them were "leading economists", no reputations would have been lost.

Back to the figures, as soon as they were released, the BBC ran a whole series of excuses, essentially that the Q3 figures looked good because of the royal wedding in Q2 (conveniently forgetting the national riots in Q3). But even that doesn't ring true. Given that the 50% of the economy that feeds directly of the government's teat (welfare recipients, public sector workers, pensioners) would have felt absolutely no difference because of the extra public holiday, that most self employed workers and manufacturing firms decided to decline the royal family's offer of a public holiday (the self employed pay for their own days off and manufacturing firms have to keep up production), the only firms who saw a reduction in output were salaried service workers (accountants and office cleaners).

But there is still one unanswered question:  How did "100 leading economists" fail to spot the Royal Wedding?

Giant vampire paella

MF Global, run by ex-Goldman senior partner Jon Corzine filed for bankruptcy last week. Corzine led MF Global into large positions on European sovereign debt. As plays on margin/yields, these only worked because of the large amount of leverage that he used. At the end of June, MF Global had borrowed $44.4 billion on $1.4 billion of equity.

The essence of the strategy was that there were severe discounts on some European government paper, and that by leveraging up with debt the firm could make a profit. Many of the Italian and Spanish bonds held by MF Global will mature in the next 2 years and are trading at less than 2% below par, but the firms built its position on the back of short-term funding and when that dried up (at least at a rate that made the trades profitable) the game was up. But whichever way you look at it, the deals never made sense. If the firm held mostly European government paper why should its funders charge any less than the yield on that paper? Given the other costs and potential for screw ups, they should be charging more. Which was why the firm couldn't find funding and went bust.

Corzine was at Goldman Sachs for nearly 25 years, rising to senior partner before being thrown outin a boardroom coup in 1999. He was a star trader who made winning bets, but somehow he seems to have made an elementary mistake. How did a former Goldman star makes such an elementary mistake? The answer is probably that it was never the star traders at Goldman who made the money but the risk management. After all, for most of its history the firm ran as a partnership, and while there may have many on the trading floor who put themselves forward as masters of the universe, it was the partners who were putting their own capital at risk. Not making a lot of profit is no fun, but it beats losing your shirt.

The proof of the calibre of Goldman trading stars versus the Goldman risk managers shows up when we look at other ex-Goldmen. John Thain, former Goldman CFO was fired by Merrill Lynch after they disclosed substantial losses. Thain had gone through the ML books in detail and them signed off, buut less than 12 months later, Merrill was in peril, sold to BofA and Thain was shown the door.

Robert Rubin, another star trader, went from being co-chairman of Goldman to Treasury Secretary and then went back to Wall Street to sit on the board of Citigroup as a senior adviser in the late 90s. Rubin best demonstrated the value of advice from traders. His advice: "Take more risk". Citibank, let us not forget, was renowned for its training programme, for its foreign exchange trading and its pre-eminence in loan syndication. The other side of Citigroup, the ex-Salomon, Smith, Barney, Travellers etc, probably needed no encouragement to take more risk, but needed to be kept under control. While Rubin was at Citi, its share price fell by 70%.

Another famous ex-Goldman star was J C Flowers, who left Goldman Sachs to set up his own fund to invest in financial institutions. At first he did well, making more than $1 billion on LTCB (now Shinsei Bank), but his latest fund has lost $4 billion of investors money, including quite a bit on MF Global.

But hey, in most of these cases, it was all OPM, and a one-way bet that didn't pay off. At least for the equity investors like Flowers whose money is now toast, or rather lunch for the bankers whose loans will now be extended and paid out by the underlying bonds.