With the Eurozone rocking in a storm of its own making I was struck by the very dominant lady (her name escaped me on the teleprint) from Ofgem this morning who proudly and firmly discussed the (pointless) fine of £2m that Ofgem made against NPower who are better known for sponsoring Test Matches (anyone for cricket?) in UK than much else. Apparently NPower had garnished this fine because NPower had failed to take customers complaints seriously and in fact NPower had also failed to handle them properly. What a heinous crime! The irony of a company such as NPower who sponsor Test Matches being penalised for failing to keep to the Rules of the Game were lost somewhat on the various TV channels who interviewed her I suspect. Mind you having googled them quickly I see that NPower also sponsor Soccer so I'm not surprised that any irony was mislaid.
Anyway what appears to be really lost here is any journalistic balance or insightfulness of what is happening in UK with all this regulation whether it is Ofgem, Oftel, FSA, ets etc is that the political elite seem to have concluded that the population (that's me and you) need to be protected at all. Many of our previous generations fought 2 world wars but today we seem to have Ofgem and such like fighting our battles. Do they really protect us? I don't think so. You see I don't need a government agency to protect my rights, fine the naughty culprit, take a nice little earn out at my expense and then.....to see the perpetrator of this heinous crime pass on the proceeds of Ofgem's fine to the very consumer (or/& shareholder) that it's designed to protect in the first place.
This road can only lead to one thing.....that is bankruptcy and an ever increasing Orwellian universe.
No thanks! I'd prefer to educate the customers, the clients, the shareholders to take their business elsewhere. That is called 'freedom', 'freedom of choice' and 'common sense'. By all means name and shame these goliaths but the fine is pointless because I (we?) pay for it and the administrators of these quangoes or whatever they're called get overpaid for ZERO PRODUCTIVITY Mrs Thatcher!
Monday 31 October 2011
I'm all right Jack!
An organisation known as "IDS" (Income Data Services) part of Reuters-Thomson has signalled a rather worrying affront on shareholders and customers across FTSE100 constituents. Admittedly many FTSE100 companies are international goliaths but the recent statistics surrounding Directors pay at these constituents is rather alarming.
According to "IDS" Directors pay (that is defined as a combination of salary, benefits and bonuses) averages out at £2.7 million per Director of every FTSE100 company. Crikey! But what is more alarming is that this ever-increasing trend has risen an astonishing +49% in the last year with CEO's at +43%; note FTSE was +3% to end-March 2011. This suggests that the roles of Non-Executive Directors and Remuneration Committees are being amply rewarded for monitoring CEO's and are now playing catch up or possibly to act as 'defenders of the faith', a kind of buffer zone between management and shareholders. It has long been suggested that Directors pay has been out of control but today things seem to be totally skewed. The argument used to be that the CEO of GlaxoSmithKline for example needed to be rewarded for the substantial profits that GSK made globally and indeed for many years this argument held but let's face it many companies today like GSK have gone (almost) ex-growth. The reward/remuneration game is totally out of synchronisation with the rewards that shareholders obtain although this is being shielded by the fact that equity yields exceed bond yields by a record basis points gap. It's time for UK institutions to put a stop to this absurd reward culture but I suspect that there's only a fat chance of this happening for the ever fattening cats at the top. The roof may well get slippery hereon though!
According to "IDS" Directors pay (that is defined as a combination of salary, benefits and bonuses) averages out at £2.7 million per Director of every FTSE100 company. Crikey! But what is more alarming is that this ever-increasing trend has risen an astonishing +49% in the last year with CEO's at +43%; note FTSE was +3% to end-March 2011. This suggests that the roles of Non-Executive Directors and Remuneration Committees are being amply rewarded for monitoring CEO's and are now playing catch up or possibly to act as 'defenders of the faith', a kind of buffer zone between management and shareholders. It has long been suggested that Directors pay has been out of control but today things seem to be totally skewed. The argument used to be that the CEO of GlaxoSmithKline for example needed to be rewarded for the substantial profits that GSK made globally and indeed for many years this argument held but let's face it many companies today like GSK have gone (almost) ex-growth. The reward/remuneration game is totally out of synchronisation with the rewards that shareholders obtain although this is being shielded by the fact that equity yields exceed bond yields by a record basis points gap. It's time for UK institutions to put a stop to this absurd reward culture but I suspect that there's only a fat chance of this happening for the ever fattening cats at the top. The roof may well get slippery hereon though!
Friday 28 October 2011
Tommy Flowers
Today is the 13th anniversary of the death of Tommy Flowers MBE.
Until I watched a documentary on Bletchley Park the other night I had never heard of him nor his colleague Bill Tutte (a mathematical genius by all accounts) who helped to decrypt the Nazis secret communication (rather like a Telex) device known as 'Tunny' (Lorenz on-line teleprinter cipher) which was more important to the senior ranks of the Nazi regime than the notorious Enigma machine which everyone including Hollywood seems to know about. The Officials Secrets Act had hidden the genius of these two men for over half a century.
With the recent death of Steve Jobs and the Apple Mac and Apple being heavily discussed by the world media I think it's important to record that it would now appear that the son of a bricklayer born in Poplar, who became a mechanical engineer at Royal Arsenal, Woolwich then moving to the Post Office should be accredited as the INVENTOR of the first real computer during the Second World War.
The Collossus as it was named evolved from the success of decoding the Enigma machine. In February 1943 Tommy Flowers proposed an electronic decoding system, a complex machine using over 1,800 valves (vacuum tubes) -note previously the biggest decoder had only used 150 valves- funded just like Jobs from his own resources, this Collossus was the most powerful electronic device of its day and later versions were used by British Intelligence during the Cold War right up until 1960.
How neither Tutte nor Flowers received any substantive acknowledgement from the British government during their lifetimes for their achievements is quite incomprehensible. A study by British Intelliegence at Bletchley had calculated that Collossus's ability to decrypt German communications could well have taken 2 years off the war and saved at least 10 million lives possibly much more.
Makes one think that a few Nobel Peace Prizes could well have gone to different recipients but for the Official Secrets Act.
Until I watched a documentary on Bletchley Park the other night I had never heard of him nor his colleague Bill Tutte (a mathematical genius by all accounts) who helped to decrypt the Nazis secret communication (rather like a Telex) device known as 'Tunny' (Lorenz on-line teleprinter cipher) which was more important to the senior ranks of the Nazi regime than the notorious Enigma machine which everyone including Hollywood seems to know about. The Officials Secrets Act had hidden the genius of these two men for over half a century.
With the recent death of Steve Jobs and the Apple Mac and Apple being heavily discussed by the world media I think it's important to record that it would now appear that the son of a bricklayer born in Poplar, who became a mechanical engineer at Royal Arsenal, Woolwich then moving to the Post Office should be accredited as the INVENTOR of the first real computer during the Second World War.
The Collossus as it was named evolved from the success of decoding the Enigma machine. In February 1943 Tommy Flowers proposed an electronic decoding system, a complex machine using over 1,800 valves (vacuum tubes) -note previously the biggest decoder had only used 150 valves- funded just like Jobs from his own resources, this Collossus was the most powerful electronic device of its day and later versions were used by British Intelligence during the Cold War right up until 1960.
How neither Tutte nor Flowers received any substantive acknowledgement from the British government during their lifetimes for their achievements is quite incomprehensible. A study by British Intelliegence at Bletchley had calculated that Collossus's ability to decrypt German communications could well have taken 2 years off the war and saved at least 10 million lives possibly much more.
Makes one think that a few Nobel Peace Prizes could well have gone to different recipients but for the Official Secrets Act.
Thursday 27 October 2011
Melt UP alert - the reality of the great Eurozone rescue package
I heard a new market term on CNBC this morning. My view is that the new "Melt UP" call may go down as a great damp market squib in very short time. Undoubtedly the institutions maintain significant cash positions whilst traders are having detrimental impacts on market moves these days but the euphoric rises that we're seeing in global equity markets appear to be ignoring reality. I heard another market commentator say that Equity Yields are the new Bond Yields; after all it's commendable but equity yields do average significant (repetition!) basis points improvements over anywhere in global fixed interest. In fact recent historic dividend growth has been commendable (repetition!) and investors are still clamouring for payouts BUT.......the threat of profits warnings and cuts hereon could be alarming AS.....western developed economies head towards (possible) negative growth territory. Contraction could indeed be the order of the day.
I've listened patiently to commentators on Bloomberg, CNBC, SkyNews & BBC this morning and NOT one single person has mentioned jobs. Only once have I heard any discussion regarding the big ? over GROWTH.
So let's quickly examine what Sarko, Merkel and the Barroso gang have come up with shall we? So the bailout fund, the EFSF, will be increased from Euros400bn to Euros1trillion. Well that's easy! The printing presses are being oiled again as I write then. Secondly, greek bond holders are being asked to take a voluntary 50% haircut (write off to bald people). Well that appears to be a good idea although most market observers were expecting 60-70% voluntary hair cut all round which at least would have kept the barbers shop busy but I suspect that the markets have yet to take on board fully the impact of this for french and german banks. Further knee-jerk shocks are anticipated hereon. Finally the Eurozone banks are being asked to raise their Tier 1 Capital Ratios to 9% (from 6%) which implies that they will have to raise around Euros106billion (presumably from the markets). In increasing order 13 German banks will need Euros5.2bn; 4 France banks will need Euros8.8bn (although this may increase significantly if there are greek and other euro write offs); 5 Italy banks will need Euros14.7bn; 5 Spain banks will need Euros26bn & this is the best part, 6 Greek banks need Euros30bn. This totals Euros84.7bn and there's no mention of Portugal, Eire and the fringe EU members who will require a great deal more than the balance of Euros21.3bn I think. There is no mention of the effects of zero to negative growth nor how to prevent contagion which is surely to happen.
In short last night's feast was a Mad Hatters Tea Party with Barroso and Von Rompuy duelling for the position of the wizard.
Melt UP???? I think I'd rather BELT UP for the rocky ride to come.
I've listened patiently to commentators on Bloomberg, CNBC, SkyNews & BBC this morning and NOT one single person has mentioned jobs. Only once have I heard any discussion regarding the big ? over GROWTH.
So let's quickly examine what Sarko, Merkel and the Barroso gang have come up with shall we? So the bailout fund, the EFSF, will be increased from Euros400bn to Euros1trillion. Well that's easy! The printing presses are being oiled again as I write then. Secondly, greek bond holders are being asked to take a voluntary 50% haircut (write off to bald people). Well that appears to be a good idea although most market observers were expecting 60-70% voluntary hair cut all round which at least would have kept the barbers shop busy but I suspect that the markets have yet to take on board fully the impact of this for french and german banks. Further knee-jerk shocks are anticipated hereon. Finally the Eurozone banks are being asked to raise their Tier 1 Capital Ratios to 9% (from 6%) which implies that they will have to raise around Euros106billion (presumably from the markets). In increasing order 13 German banks will need Euros5.2bn; 4 France banks will need Euros8.8bn (although this may increase significantly if there are greek and other euro write offs); 5 Italy banks will need Euros14.7bn; 5 Spain banks will need Euros26bn & this is the best part, 6 Greek banks need Euros30bn. This totals Euros84.7bn and there's no mention of Portugal, Eire and the fringe EU members who will require a great deal more than the balance of Euros21.3bn I think. There is no mention of the effects of zero to negative growth nor how to prevent contagion which is surely to happen.
In short last night's feast was a Mad Hatters Tea Party with Barroso and Von Rompuy duelling for the position of the wizard.
Melt UP???? I think I'd rather BELT UP for the rocky ride to come.
Thursday 6 October 2011
Jobbing backwards
There's a phrase in broking that sums up most of our daily experiences in Capital Markets. It's "one should never JOB backwards".....it refers to the old days of Jobbers and Brokers on the Stock Exchange, London (as it used to be called) and suggests that no jobber should ever think about the lost opportunity; he should never ever JOB backwards.
So I should apologise to the late Steve Jobs's family for the pun but just once I'm going to JOB backwards and take a look at my father's dealing book of 1980 when Apple Inc floated at US$22 per share.
I was a young trainee broker back then. The green dealing book has just been pulled off the shelf and I'm dusting it off now. I recollect that this was the twilight period of technology investing and to my knowledge none of the UK institutions were really looking at what was to become Silicon Valley back then. Amongst private brokers in London there were perhaps a half a dozen individuals investing in this area at the time and generally speaking many financiers simply scorned the new computer age up to 30th December 1980 as it didn't register on their radar.
In the 2 weeks leading up to the Apple flotation my father's int'l dealing book reads;-
+400 Westinghouse
-600 Culbro
-1,400 Echlin
+1,400 Great Basin Petroleum
-600 Callon Petroleum
+1,000 Digicon
+16,000 Hitachi
-2,000 Petroleum Helicopters
+2,000 TIE Communications
+2,000 Statex Petroleum
+2,500 Sci-Tex
-2,500 Sci-Tex
(a few names are still around)
& then
+1,000 Apple Computers @ $36 on 30th December 1980
(issued at $22 I understand although the Red Herring IPO document is long perished)
I remember at the time thinking that the Apple float was a momentous moment for business. The Acorn, Sinclair and Amstrad pc's were to follow.
& then further entries can be found throughout 1981
+1,000 Apple Computers @ $33 1/4 6th January 1981
+200 Apple Computers @ $31 1/8 15th January 1981
+200 Apple Computers @ $29 1/8 6th February 1981
+500 Apple Computers @ $25 3/4 27th March 1981
+500 Apple Computers @ $31 1/4 27th May 1981
I'm not going to look any further but by my reckoning clients bought up to this point 3,400 AAPL shares costing $109,800 ignoring expenses which if held today would be worth in the region of $10 million although most of this gain would have been arrived at since 1997. As you can see from the prices paid it was touch and go for investors and insiders to see some daylight from the $22 issue price by March 1981. Apple continued to have a bumpy ride until Jobs return to the company in the late '90s.
(note to the government & FSA- I suspect that the clients who bought into the Apple opportunity at the time would have been a bit bemused about the current FSA suitability rules and may even have been scared off by the compliance experience)
I recollect that I traded Apple stock myself for clients in 1980's but not very successfully. The recent spectacular rises took years of innovation and insight and Jobs will be remembered for changing the face of our lives. From the personal computer to iTunes, to the iPad and to the iPhone4 GS.
RIP Steve.
ps I must ask my father if he met Jobs at the IPO launch.
So I should apologise to the late Steve Jobs's family for the pun but just once I'm going to JOB backwards and take a look at my father's dealing book of 1980 when Apple Inc floated at US$22 per share.
I was a young trainee broker back then. The green dealing book has just been pulled off the shelf and I'm dusting it off now. I recollect that this was the twilight period of technology investing and to my knowledge none of the UK institutions were really looking at what was to become Silicon Valley back then. Amongst private brokers in London there were perhaps a half a dozen individuals investing in this area at the time and generally speaking many financiers simply scorned the new computer age up to 30th December 1980 as it didn't register on their radar.
In the 2 weeks leading up to the Apple flotation my father's int'l dealing book reads;-
+400 Westinghouse
-600 Culbro
-1,400 Echlin
+1,400 Great Basin Petroleum
-600 Callon Petroleum
+1,000 Digicon
+16,000 Hitachi
-2,000 Petroleum Helicopters
+2,000 TIE Communications
+2,000 Statex Petroleum
+2,500 Sci-Tex
-2,500 Sci-Tex
(a few names are still around)
& then
+1,000 Apple Computers @ $36 on 30th December 1980
(issued at $22 I understand although the Red Herring IPO document is long perished)
I remember at the time thinking that the Apple float was a momentous moment for business. The Acorn, Sinclair and Amstrad pc's were to follow.
& then further entries can be found throughout 1981
+1,000 Apple Computers @ $33 1/4 6th January 1981
+200 Apple Computers @ $31 1/8 15th January 1981
+200 Apple Computers @ $29 1/8 6th February 1981
+500 Apple Computers @ $25 3/4 27th March 1981
+500 Apple Computers @ $31 1/4 27th May 1981
I'm not going to look any further but by my reckoning clients bought up to this point 3,400 AAPL shares costing $109,800 ignoring expenses which if held today would be worth in the region of $10 million although most of this gain would have been arrived at since 1997. As you can see from the prices paid it was touch and go for investors and insiders to see some daylight from the $22 issue price by March 1981. Apple continued to have a bumpy ride until Jobs return to the company in the late '90s.
(note to the government & FSA- I suspect that the clients who bought into the Apple opportunity at the time would have been a bit bemused about the current FSA suitability rules and may even have been scared off by the compliance experience)
I recollect that I traded Apple stock myself for clients in 1980's but not very successfully. The recent spectacular rises took years of innovation and insight and Jobs will be remembered for changing the face of our lives. From the personal computer to iTunes, to the iPad and to the iPhone4 GS.
RIP Steve.
ps I must ask my father if he met Jobs at the IPO launch.
As news filters through of the death of Steve Jobs aged 56 there will be millions of people unaware that it was the scientific and artistic vision of one man that has got tens (maybe 100's) of millions to the point where we're at today. Yesterday's launch of the new iPhone4 was quite timely. One word can describe Steve Jobs.......that is "GENIUS".
The Apple website says it all...I recommend everyone to click on http://www.apple.com/ to see how one man can take down an entire corporate website in defiance of corporate regulations et al. SEE RIGHT....it's the perfect tribute for a man who often wore no shoes and thought he wasn't cut out for management.
Steve Jobs died during a period when millions of people are beginning to question government, big business, regulation in a new movement that embraces CAPITALOCRACY........read on and consider this.
Would Steve Jobs be able to have achieved what he has done if he had started Apple Inc in 2011?
(a definition of Capitalocracy) note this can apply to the UK too or anywhere for that matter
What Is Capitalocracy
Capitalocracy is a term which hopefully will catch on, which accurately describes what our supposedly democratic republic has become.
The corporation functions in a similar manner to a democracy. Decisions are made and representatives are named by vote. The difference is that instead of each member of the organization receiving a single vote, each share in the corporation represents a vote.
This is fine in business. It makes perfect sense. A person owning 2% of a business has 2% of the decision-making power. The problem is that as a system of government, this would be a perversion of democracy.
Corporations, whose decisions are made in a democracy of capital, in which votes are bought and sold, are an important source of funding for our election system. Donations for the two major parties come largely from corporations and the wealthy, who are also the owners of communication media and control the think tanks and political action committees which lobby, advertise, theorize, and attempt, rather successfully, to frame and shape the public dialogue.
And while, in the end, the voters do make the final decision, assuming that our election system is trustworthy, no mainstream candidate is presented to them without first and foremost winning the support or at least approval of enough monetary power, mainly derived from the major holders of capital. And the decisions of who receives corporate donations and what issues and political organizations receive corporate funding for their promotion are made by representatives chosen in this system of corporate democracy, where votes are bought and sold. It’s kind of like a run-off election, but instead of voting once among a full list of candidates in the first round, and then voting for the top two candidates in the second round, the first round is decided for us by the holders of capital. As shareholders and, thus, partial decision-makers for corporations, the people choosing our candidates don’t even have to be U.S. citizens.
The decisions made in government are made taking two things in mind, the voters and the capital which funds campaigns and shapes the public dialogue. The part the voter plays in the process is shrinking, as many people are giving in, without even knowing it, to the ideas the money power is working hard to distribute. It’s a problem which will get worse and worse as the generations pass, as people will take the talking points written by a corporate-funded PAC to justify the rich getting richer as the wisdom of their fathers passed down to them.
Every citizen has a right to submit legislation to Congress for consideration, except the president. Why is it, then, that so many of our laws today are written by lobbyists and corporations? At best, the legislators are not doing their jobs. We have industries writing their own regulations, then complaining that they are regulated too much, and that they can regulate themselves without legislation.
Democracy is government of the people, by the people, and for the people, with each person having equal representation, one man, one vote. This is clearly not how things work in the U.S. The money power gets first pick of the candidates in every election, and presents their top choices to the people. Their voice is the loudest in the public dialogue. And they write many of the laws we live under.
This is a government of capital, by capital, and for capital. This is a capitalocracy.
We’re looking for creative ways to take the power back.
The Apple website says it all...I recommend everyone to click on http://www.apple.com/ to see how one man can take down an entire corporate website in defiance of corporate regulations et al. SEE RIGHT....it's the perfect tribute for a man who often wore no shoes and thought he wasn't cut out for management.
Steve Jobs died during a period when millions of people are beginning to question government, big business, regulation in a new movement that embraces CAPITALOCRACY........read on and consider this.
Would Steve Jobs be able to have achieved what he has done if he had started Apple Inc in 2011?
(a definition of Capitalocracy) note this can apply to the UK too or anywhere for that matter
What Is Capitalocracy
Capitalocracy is a term which hopefully will catch on, which accurately describes what our supposedly democratic republic has become.
The corporation functions in a similar manner to a democracy. Decisions are made and representatives are named by vote. The difference is that instead of each member of the organization receiving a single vote, each share in the corporation represents a vote.
This is fine in business. It makes perfect sense. A person owning 2% of a business has 2% of the decision-making power. The problem is that as a system of government, this would be a perversion of democracy.
Corporations, whose decisions are made in a democracy of capital, in which votes are bought and sold, are an important source of funding for our election system. Donations for the two major parties come largely from corporations and the wealthy, who are also the owners of communication media and control the think tanks and political action committees which lobby, advertise, theorize, and attempt, rather successfully, to frame and shape the public dialogue.
And while, in the end, the voters do make the final decision, assuming that our election system is trustworthy, no mainstream candidate is presented to them without first and foremost winning the support or at least approval of enough monetary power, mainly derived from the major holders of capital. And the decisions of who receives corporate donations and what issues and political organizations receive corporate funding for their promotion are made by representatives chosen in this system of corporate democracy, where votes are bought and sold. It’s kind of like a run-off election, but instead of voting once among a full list of candidates in the first round, and then voting for the top two candidates in the second round, the first round is decided for us by the holders of capital. As shareholders and, thus, partial decision-makers for corporations, the people choosing our candidates don’t even have to be U.S. citizens.
The decisions made in government are made taking two things in mind, the voters and the capital which funds campaigns and shapes the public dialogue. The part the voter plays in the process is shrinking, as many people are giving in, without even knowing it, to the ideas the money power is working hard to distribute. It’s a problem which will get worse and worse as the generations pass, as people will take the talking points written by a corporate-funded PAC to justify the rich getting richer as the wisdom of their fathers passed down to them.
Every citizen has a right to submit legislation to Congress for consideration, except the president. Why is it, then, that so many of our laws today are written by lobbyists and corporations? At best, the legislators are not doing their jobs. We have industries writing their own regulations, then complaining that they are regulated too much, and that they can regulate themselves without legislation.
Democracy is government of the people, by the people, and for the people, with each person having equal representation, one man, one vote. This is clearly not how things work in the U.S. The money power gets first pick of the candidates in every election, and presents their top choices to the people. Their voice is the loudest in the public dialogue. And they write many of the laws we live under.
This is a government of capital, by capital, and for capital. This is a capitalocracy.
We’re looking for creative ways to take the power back.
Wednesday 5 October 2011
Review 3Q 2011 3rd October 2011
“Successful investing is anticipating the anticipations of others.”------------------John Maynard Keynes
I’ve been looking for a positive quote that I can apply to the current Q review, something that might liven up the proceedings and may actually amuse or provide some good news. Alas I haven’t found one suitable for the current malaise that we find ourselves in. On several occasions recently I’ve been asked for some good news. On one level alone there does appear to be some value in equities with S&P trading on 10.2 x earnings versus an historic average of 13.7 x during the previous nine recessions going back to 1957 but the current backdrop perhaps should be compared to the ‘30s. But then again this market scenario is something that we have never seen before. In the aforementioned previous recessions corporate profits declined on average 12% but there’s every chance that the current recession or depression may take a different degree of attack that may alarm everyone. The western banking crisis may be taking a different twist as I write. Alarm bells are ringing in Europe with Dexia and Commerzbank joining the ranks of the walking wounded such as Credit Agricole, BNP Paribas, Societe Generale, the greek banks, the portuguese banks, Bank of Ireland and a host of others. In UK both RBS and Lloyds continue to meander below the bailout breakeven thresholds and there’s little chance of tax payers recouping their investment unless the magical rabbit miraculously appears. Last week Santander UK issued a severe profits warning and with the backdrop of a failing retail market (other than Central London) prospects look extremely uncertain for owner occupiers. In US even MorganStanley are embroiled in the cleansing process; their CDS (credit default swaps) insurance premium is now higher than Italy which implies there are hidden problems there too. Of course, no-one knows if a Lehman mark II is imminent but my feeling is that the derivatives timebomb is ticking louder. How much is the global exposure in derivatives? Well it’s estimated at $500-600 trillion via the clearing process but so much is synthetic (socially and financially useless in my opinion) and it doesn’t help that the Bank for Int’l Settlements based in Basle is not exactly transparent with the state of global derivatives against a backdrop of friction amongst the global clearers which is coming to a head according to the FT. So it would appear that the problems now surfacing in the global clearance of derivatives is not that different to the frictions appearing in the EU doctrine as millions are being asked to pay for bailouts. The transaction tax (“tobin”) imposed by the Eurozone can only damage markets and investors hopes in the medium to long term. What perhaps is more alarming is that there are clear divisions between politicians, regulators, central bankers and economists who all appear to be acting in a cartel against the wisdom of markets. This does not bode well. Last week’s Euro450 billion (capped) support for the EU banks from Germany pales into significance against the call from IMF for at least Euros2 trillion of (QE) support. It remains to be seen too whether the EFSF (European Financial Stability Fund) can gain enough momentum to raise enough Euros to bail the debtors out. There are even those calling for a Euro 3 trillion bailout. Where and when will this all end?
It’s clear at least that these market conditions do not favour investors. Traders meanwhile face extraordinary volatility as the newsflow is mesmorising; the casino mentality that has been so heaviliy criticised is still with us. Arguably it’s too late to sell anything and too early to invest but there have been indicators that private investors and institutions are putting their toes into the ‘hot’ water on occasions. There is some value appearing especially in emerging and frontiers markets and some outstanding value amongst precious metals stocks even despite the recent gold correction from c.$1,900pto to low $1,600’s. Incidentally this 15% correction was made more severe by increased margin calls on gold traders at CME in the midst of the initial sell off. The trend for Gold has NOT been broken here and it’s still feasible that $2,000-2,500 could be reached if more QE is triggered in the final Q. Meanwhile generally speaking the consensus view about oil is that higher prices will be seen hereon.
With regard to stock selection amongst the majors I still continue to look to buy Royal Dutch Shell (yield 5.5%) in £20 down to £16 range and quite like BP at around £4 as there is talk of more asset sales (JPMorgan 575p & Merrill’s BUY 580p) as well as recurring stories of RDS looking at them. I don’t think that Tullow 1298p are that compelling at the moment despite the positive Ghana news; I’m still wary of the Uganda investment. Vallares are suspended currently pending a reverse takeover by Genel of Turkey/Iraq and an entry into FTS100/250 is anticipated. The mid-range oils have yet to close the n.a.v gaps and still offer some good upside hereon. Cairn, Soco, Hardy O&G (484p n.a.v. also Arden target), Premier Oil (Deutsche BUY 605p target & UniCredit BUY 615p) and Heritage have traded sideways in the last Q. Elsewhere In FTSE I am extremely cautious although some previous targets to buy at have been reached. Arguably there is some value here in BAE Systems now 260p yield 6.7% p/e 9 (going lower perhaps after recent redundancies), GlaxoSmithKline firm at 1315p yield 4.9%, Sainsbury now 275p yield 5.4% p/e 8 (Seymour Pierce have HOLD 270p target), HSBC now 485p yield 4.7% and Standard Chartered now 1222p yield 3.6% as well as a few others but I am still hesitant to go aggressive here just yet so the selective investment trust approach seems more prudent. Investments in JPMorgan Claverhouse (4.7%), Henderson Far East (5.2%), Schroder Oriental (4.0%), Scottish American (4.4%), Securities Trust of Scotland (4.4%) and Merchants Trust (6.3%) are still compelling for income investors whereas emerging markets trusts such as Templeton Emerging now 505p, JPMorgan India now 354p, JPMorgan Brazil 81p (just a hunch but this is tempting against a n.a.v of 84p), JPMorgan Russia now 425p and BlackRock Latin America now 505p yield 3.0% could also be considered. There isn’t a suitable trust for the Final Frontier, Africa so a selected basket of equities is preferred here. In particular I still like Randgold now 6455p (the Ivory Coast problem is now behind them), African Barrick now 513p and Shanta 22 1/2p (Fairfax increased its BUY target to 74p last week) are attractive african exploration plays whereas elsewhere globally I am still persevering with Patagonia Gold 52 1/2p, Norseman 15p, Orosur 53p, Peninsular 31p and Nyota 7 3/4p. Anglo Pacific at 249p yield 3.6% is a classic royalty play that provides some variety.
These are extremely difficult and dangerous market conditions as the capitulation moment dubbed as the SPUTNIK MOMENT by PIMCO is possibly nearly upon us. A disconnect amongst metals is quite likely with base metals and precious metals divurging. The recent flight to US Treasuries and the US $dollar has surprised quite a few as the liquidity argument increases. Eventually though the rationale should point to a big bull move in Gold and other precious metals.
With all this bearishness I continue to favour portfolio weightings such as 0% Fixed Interest (a bond implosion is forecast), 20-35% cash, maximum 80% equities (overseas earners mainly incl. 25%-40% in precious metals stocks, a spread of investment trusts). It’s important to stress that investors are entering a new era where stagnant growth (or even negative growth) in the west could be offset by continued growth in emerging and frontiers markets. Even though China’s growth of 7-10% is forecast to slow to 5% its long-term effect on the rest of the world will imply high growth rates elsewhere. Africa a.k.a the Final Frontier presents amazing opportunities today with a 7% GDP growth rate whilst I still feel that India, Brazil & Russia present excellent value whilst the western developed markets undergo a restructuring process. One interesting angle right now is the North American market as somewhere to invest and I am keeping an eye on US Smaller Companies Funds and the Canadian resources market. As Louise Cooper of BGC Partners suggested on Bloomberg this week equities are “cheap as chips” as gilt yields are below 3% versus the average FTSE yield approaching 4%. My own view is that average equities yields could well reach 5-6% in UK ; some investment trusts are already approaching 5%. The correlation between deflation and inflation needs to be watched closely which is why there’s a growing case for increasing equity exposure especially on any decline across markets. The level of the coming decline is the key and I still feel that 10-30% is possible which implies 4,400 down to 3,500 on FTSE100. I think we are about to witness the SPUTNIK MOMENT as has already been discussed.
As Hoblyn & King’s former client JM Keynes reportedly suggested before WW2, the skill and art of “successful investing is anticipating the anticipations of others” even though we don’t necessarily agree today with the way that markets are being led. Easier said than done.
I’ve been looking for a positive quote that I can apply to the current Q review, something that might liven up the proceedings and may actually amuse or provide some good news. Alas I haven’t found one suitable for the current malaise that we find ourselves in. On several occasions recently I’ve been asked for some good news. On one level alone there does appear to be some value in equities with S&P trading on 10.2 x earnings versus an historic average of 13.7 x during the previous nine recessions going back to 1957 but the current backdrop perhaps should be compared to the ‘30s. But then again this market scenario is something that we have never seen before. In the aforementioned previous recessions corporate profits declined on average 12% but there’s every chance that the current recession or depression may take a different degree of attack that may alarm everyone. The western banking crisis may be taking a different twist as I write. Alarm bells are ringing in Europe with Dexia and Commerzbank joining the ranks of the walking wounded such as Credit Agricole, BNP Paribas, Societe Generale, the greek banks, the portuguese banks, Bank of Ireland and a host of others. In UK both RBS and Lloyds continue to meander below the bailout breakeven thresholds and there’s little chance of tax payers recouping their investment unless the magical rabbit miraculously appears. Last week Santander UK issued a severe profits warning and with the backdrop of a failing retail market (other than Central London) prospects look extremely uncertain for owner occupiers. In US even MorganStanley are embroiled in the cleansing process; their CDS (credit default swaps) insurance premium is now higher than Italy which implies there are hidden problems there too. Of course, no-one knows if a Lehman mark II is imminent but my feeling is that the derivatives timebomb is ticking louder. How much is the global exposure in derivatives? Well it’s estimated at $500-600 trillion via the clearing process but so much is synthetic (socially and financially useless in my opinion) and it doesn’t help that the Bank for Int’l Settlements based in Basle is not exactly transparent with the state of global derivatives against a backdrop of friction amongst the global clearers which is coming to a head according to the FT. So it would appear that the problems now surfacing in the global clearance of derivatives is not that different to the frictions appearing in the EU doctrine as millions are being asked to pay for bailouts. The transaction tax (“tobin”) imposed by the Eurozone can only damage markets and investors hopes in the medium to long term. What perhaps is more alarming is that there are clear divisions between politicians, regulators, central bankers and economists who all appear to be acting in a cartel against the wisdom of markets. This does not bode well. Last week’s Euro450 billion (capped) support for the EU banks from Germany pales into significance against the call from IMF for at least Euros2 trillion of (QE) support. It remains to be seen too whether the EFSF (European Financial Stability Fund) can gain enough momentum to raise enough Euros to bail the debtors out. There are even those calling for a Euro 3 trillion bailout. Where and when will this all end?
It’s clear at least that these market conditions do not favour investors. Traders meanwhile face extraordinary volatility as the newsflow is mesmorising; the casino mentality that has been so heaviliy criticised is still with us. Arguably it’s too late to sell anything and too early to invest but there have been indicators that private investors and institutions are putting their toes into the ‘hot’ water on occasions. There is some value appearing especially in emerging and frontiers markets and some outstanding value amongst precious metals stocks even despite the recent gold correction from c.$1,900pto to low $1,600’s. Incidentally this 15% correction was made more severe by increased margin calls on gold traders at CME in the midst of the initial sell off. The trend for Gold has NOT been broken here and it’s still feasible that $2,000-2,500 could be reached if more QE is triggered in the final Q. Meanwhile generally speaking the consensus view about oil is that higher prices will be seen hereon.
With regard to stock selection amongst the majors I still continue to look to buy Royal Dutch Shell (yield 5.5%) in £20 down to £16 range and quite like BP at around £4 as there is talk of more asset sales (JPMorgan 575p & Merrill’s BUY 580p) as well as recurring stories of RDS looking at them. I don’t think that Tullow 1298p are that compelling at the moment despite the positive Ghana news; I’m still wary of the Uganda investment. Vallares are suspended currently pending a reverse takeover by Genel of Turkey/Iraq and an entry into FTS100/250 is anticipated. The mid-range oils have yet to close the n.a.v gaps and still offer some good upside hereon. Cairn, Soco, Hardy O&G (484p n.a.v. also Arden target), Premier Oil (Deutsche BUY 605p target & UniCredit BUY 615p) and Heritage have traded sideways in the last Q. Elsewhere In FTSE I am extremely cautious although some previous targets to buy at have been reached. Arguably there is some value here in BAE Systems now 260p yield 6.7% p/e 9 (going lower perhaps after recent redundancies), GlaxoSmithKline firm at 1315p yield 4.9%, Sainsbury now 275p yield 5.4% p/e 8 (Seymour Pierce have HOLD 270p target), HSBC now 485p yield 4.7% and Standard Chartered now 1222p yield 3.6% as well as a few others but I am still hesitant to go aggressive here just yet so the selective investment trust approach seems more prudent. Investments in JPMorgan Claverhouse (4.7%), Henderson Far East (5.2%), Schroder Oriental (4.0%), Scottish American (4.4%), Securities Trust of Scotland (4.4%) and Merchants Trust (6.3%) are still compelling for income investors whereas emerging markets trusts such as Templeton Emerging now 505p, JPMorgan India now 354p, JPMorgan Brazil 81p (just a hunch but this is tempting against a n.a.v of 84p), JPMorgan Russia now 425p and BlackRock Latin America now 505p yield 3.0% could also be considered. There isn’t a suitable trust for the Final Frontier, Africa so a selected basket of equities is preferred here. In particular I still like Randgold now 6455p (the Ivory Coast problem is now behind them), African Barrick now 513p and Shanta 22 1/2p (Fairfax increased its BUY target to 74p last week) are attractive african exploration plays whereas elsewhere globally I am still persevering with Patagonia Gold 52 1/2p, Norseman 15p, Orosur 53p, Peninsular 31p and Nyota 7 3/4p. Anglo Pacific at 249p yield 3.6% is a classic royalty play that provides some variety.
These are extremely difficult and dangerous market conditions as the capitulation moment dubbed as the SPUTNIK MOMENT by PIMCO is possibly nearly upon us. A disconnect amongst metals is quite likely with base metals and precious metals divurging. The recent flight to US Treasuries and the US $dollar has surprised quite a few as the liquidity argument increases. Eventually though the rationale should point to a big bull move in Gold and other precious metals.
With all this bearishness I continue to favour portfolio weightings such as 0% Fixed Interest (a bond implosion is forecast), 20-35% cash, maximum 80% equities (overseas earners mainly incl. 25%-40% in precious metals stocks, a spread of investment trusts). It’s important to stress that investors are entering a new era where stagnant growth (or even negative growth) in the west could be offset by continued growth in emerging and frontiers markets. Even though China’s growth of 7-10% is forecast to slow to 5% its long-term effect on the rest of the world will imply high growth rates elsewhere. Africa a.k.a the Final Frontier presents amazing opportunities today with a 7% GDP growth rate whilst I still feel that India, Brazil & Russia present excellent value whilst the western developed markets undergo a restructuring process. One interesting angle right now is the North American market as somewhere to invest and I am keeping an eye on US Smaller Companies Funds and the Canadian resources market. As Louise Cooper of BGC Partners suggested on Bloomberg this week equities are “cheap as chips” as gilt yields are below 3% versus the average FTSE yield approaching 4%. My own view is that average equities yields could well reach 5-6% in UK ; some investment trusts are already approaching 5%. The correlation between deflation and inflation needs to be watched closely which is why there’s a growing case for increasing equity exposure especially on any decline across markets. The level of the coming decline is the key and I still feel that 10-30% is possible which implies 4,400 down to 3,500 on FTSE100. I think we are about to witness the SPUTNIK MOMENT as has already been discussed.
As Hoblyn & King’s former client JM Keynes reportedly suggested before WW2, the skill and art of “successful investing is anticipating the anticipations of others” even though we don’t necessarily agree today with the way that markets are being led. Easier said than done.
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