This is my first post on Kipper Central so I am not going to hold back.
I gave NF my vocal support in around 2005 through personal emails and joined the party the day that David Cameron called a 3-line whip during a debate on EU (2011) where Jacob Rees-Mogg first shone a bright light on the threat to democracy from Europe. Things have played out as many UKIP and Old Tories have predicted. My families (Conservative) political connections go back some 500 years when Hoblyn's occupied The Stannary & latterly Westminster ; a forbear, Robert Hoblyn MP Bristol (Con) was once described as the most insignificant MP in the House by a Liberal for warning about the dangers of scaling back defence. Within a few years he was proved right. One thing I have learned from school (I'm afraid I did no work whatsoever) and working on the Stock Exchange is that history has a habit of repeating itself. During this great debt fuelled bull market where borrowers are lauded at the expense of investors & savers and speculators are applauded and worshipped by the MSM and themselves I am reminded of that old Stock Exchange maxim that has been handed down to me through generations. There is NO SUCH THING AS AN EXPERT. Yet today thinkers and doers are ignored and speculators and celebrities are feted everywhere for doing very little and getting just about everything wrong. Of course in a truly democratic free & fair market everything should balance out equally in the end but the Federal Reserve and the banksters who thrive and suckle from this uncontrolled monetary heaven have created a monster that shortly surely will hit the buffers.
I predicted the 2007-2008 crisis like a few others but the next crisis will dwarf the horrors of Bear Stearns, Lehman Bros and the other forgotten casualties. Going into that last crisis the globe had around $25-30 trillion of debt, today it is around a staggering $60 trillion. The MSM & financial journos shrug this off with growth targets and examples of corporate brilliance. The hunger at board level is perhaps personified by Wells Fargo; it's not the only bank with a robber baron culture sad to say. No, the elephant in the room is my old chestnut. I refer to it often as the 'D' word on Twitter. Usually people respond by thinking I am referring to DEBT but the 'D' I am referring is DERIVATIVES.
For those who followed my previous blog on Blogspot - Hoblyn & King (replicated on the Enterprise Britain blog too) the reader may have read the following in June 2007;-
Trading bullion or cash as I once did or even shares as I do now is real whereas trading a basket of derivatives surrounding aesthetic instruments that don't exist is tantamount to disaster. But then a global $370 trillion exposure in derivatives is proof indeed that I may be out of touch as indeed Warren Buffett might be...
That derivative figure has doubled too to around $700-750 trillion. For those who are unaware of what a derivative is think option, warrant, contango, CDS, CDO.....oh yes Goldman Sachs and JP Morgan have created a whole new language in synthetics that often baffles their own boffins. What chance do regulators or ordinary investors have in a world of derivatives and HFT (High Frequency Trading) where nano-seconds makes all the difference ? On 5th November 2008 I wrote;-
There are many observers who have felt that the billions of $, £’s, Yen & Euros that have been raised would have been better deployed to stimulating core industries/sectors rather than bailing out the very banks who often or not catalysed this crisis of confidence. With balance sheets remaining questionable with off-balance sheet positions (debts?) remaining unquantifiable (the derivatives tail is now estimated at US$500 trillion) some market commentators have suggested that these banks didn’t need saving. Arguably new stock banks should have been created but instead governments have suggested that regulations were weak and have demanded more regulation thus making life more difficult for themselves, the banks and broking houses as well as investors going forward. I would argue that less regulation is needed allowing for new organisations to be formulated by entrepreneurs from any ongoing fallout but I fear that the opposite will happen (Sarkozy has called for more regulation along with other more socialist powermongers).
On 5th October 2011 I wrote;-
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.
So we arrive today as Deutsche Bank's derivatives book is coming under scrutiny. Billions of losses are mounting and the global banking system and the German Government have simply nowhere to go. The ECB is paralysed, as is the IMF, and those at Goldman's & JP Morgan must be wondering how they can alleviate the drill down that will occur. When a derivative goes wrong it has UNLIMITED downside in many instances. Since nobody knows the exact nature of the portfolio risk it's impossible to calculate so I'll leave you with this thought.
Deutsche Bank is at the heart of the German economy. It is the dominant bank within the EU. It has the biggest derivatives position in the world. Around $70 TRILLION at the last count but this figure could already be rising as losses accelerate and morph across global markets. Deutsche Bank is the engine room of the EU project.
I had a colleague in 1987 who wrote options on what was then the LTOM (London Traded Options Market). Entering October he & his clients had a £250,000 commitment or exposure. When the market corrected (around 20%) on 19th Oct the margin calls and losses amounted to £2.5million, roughly 10:1. He and his clients were lucky. Gain and loss ratios in derivatives can sometimes be in multiples of 100.
The City of London is at the epicentre of global derivatives. GMT means that London can trade for Tokyo, Beijing, Hong Kong, Singapore, Dubai, Moscow during the same day as New York. If Deutsche blows the City will take alot of the flak as well as the brokerage as the remaining 90% of global derivatives use London to adjust positions. Some losses will be in TRILLIONS, especially if markets correct around 30-70% as some quiet commentators predict.
We are about to witness the death of the EU. Europe will need resuscitation once more but it will be too late for the failed Central Bank QE experiment that has spiralled under a failed REGULATORY doctrine. Hold on to your hats !
More on REGULATION in later blogs if the internet is still operational.
Wednesday, 28 September 2016
Friday, 23 September 2016
The London Stock Exchange needs a major overhaul, Prime Minister !
Dear Mrs May
The old Stock Exchange Members book of 1973-74 has been taken from the book shelf and I'm just reminding myself of the once great market that my family were part of since 1872. You see it was a free thinking market made up primarily of people who looked after their clients (there were no account numbers or client agreements in those days), understood their roles in the support of UK business, invested freely without hindrance on instant calculating decisions (these were called hunches), gleaned that the clients came first, took for granted that investee companies behaved responsibly at all times (the rogues gallery was much smaller back then I think), calculated that balance sheets and p&l accounts were properly audited, assumed that published reports and accounts were transparent, took full responsibility for their affairs as well as those of their clients, assumed full personal UNLIMITED liability for their affairs as well as their clients and honoured ALL commitments to clients and market counterparties, took pride in the exchange that they were part of and above all enjoyed themselves in a friendly market that had the decency to look after fallen brethren through committed benovolence. DICTUM MEUM PACTUM was practiced rather than taught. Integrity at all times was paramount and could NOT be bought.
Well as you can imagine I'm not exactly ecstatic at the current exchange that your government presides over.
Today bankers, hedgies and most brokers take NO responsibility for their actions (often aided and abetted by compliance personnel whose pockets they often control), never take a financial hit for malpractice or obtuse client losses, treat shareholders with utter contempt and incredibly are still committed to a bonus culture despite the misgivings of those who feel strongly about the unlevel playing field in the workplace.
More important than any of the above though, as well as the current behaviour of the above alongside the FCA and CISI the most extraordinary sideshow has been the utter beligerance of the London Stock Exchange itself. On the face of it as a PLC it has done extraordinary well but sadly as an effective functioning exchange for securities representing UK PLC's, capital raising,etc the exchange is failing daily (just look at brokers volumes). There are two primary causes for this. Firstly the exchange is profiteering at the expense of investors and secondly the regulatory experiment is failing at an alarming rate. What is deeply concerning to me is that virtually no-one can see this. But then again not many politicians, regulators nor indeed practititioners in the dark art and science of capital markets spotted the 2007/2008 banking crisis either. There is a secret ingredient as Chelsea FC has found out by chance over the the last few years. Despite countless highly paid managers their success evolved through something which one cannot find in a cv or through a qualification. No it's NOT hard work but this always helps . No, the secret ingredient is "HEART" Mrs. May.
It is the very heart of the exchange that concerns me. It is not ticking as it should and if there are NOT structural changes made to the exchange soon I fear that the exchange itself may suffer a serious heart attack. One of the unnerving aspects of your government and indeed the opposition (the culprits perhaps although the seeds were sown as far back as the 80's) is that much emphasis is placed on jobs and support given to big business BUT I see little assistance given to sole traders, small micro-partnerships and SME's. Red tape is rife and crucifying entrepreneurship everywhere and the evidence supports my belief that this started inside our very exchange largely thanks to over-regulation (TSA, SFA, FSA and now FCA already known as "fuCA" ) since 1986. One can use the acorns to oak tree analogies till one's blue in the face but acorns everywhere are STILL being crushed by the weight of red tape, regulation, lack of investment and a host of other reasons.
It's interesting to note that in the 1973-1974 members book that there were 100's of broking firms as well as considerable numbers of jobbing firms supported by around 3,000+ members. Most of the firms supported private investors whilst maybe only a dozen or so focused their business models on the corporate market. Since 'Big Bang' the regulators have ostensibly calved up the private end of the market and evolved their very existence on governmental support and cosy relationships with the investment banks. I doubt that banks have ever really had the interest of business at 'heart' as their remits have been profit motives rather than job creativity. Conversely the core parts of the market have been reliant on private enterprise and with it private investment supported by a spiders web force of private brokers maintaining good working relationships with investors. Two things have engineered the destruction of these relationships. The first of course has been the development of the technology supporting business and industry (the internet); we all have to learn to live with the internet. The second has been (over) regulation which has broken the camels back of personal and private investing towards a mangled universe of faceless wealth managers who often than not support funds rather than actual companies. It isn't just coincidence that the AIM and ISDX markets are suffering from low volumes and low interest. Long only institutions and hedge funds have no interest in supporting businesses these days and use the liquidity argument when challenged about this. Liquidity is really just a function of the market constituents and if the exchange and regulator takes away the opportunity then the market cannot support itself. It's my belief that the governement should open a debate, even an enquiry (although I doubt that practitioners such as myself would ever get invited to attend) into this BUT much worse is the FCA doctrine that is called mildly 'The Retail Distribution Review'. Thousands of brokers have been wiped out by this whilst the new age survivors (mainly young inexperienced personnel who have questionable degrees and pointless qualifications directed around regulation) will be drawn towards funds, ETFs etc. Importantly aged investors will find it difficult dealing with these new age brokers. The average age of brokers has dramatically shifted since 1980 when I joined a private firm. Most were aged militarians and I would say the good ones were often 50+. Today I am 59 and considered ancient and out of touch with regulation. This I may be but frankly I care more about client relationships and markets than what regulators think. It's rather like driving a motor vehicle and having the steering wheel taken away these days. Compliance have the wheel and the new SUITABILITY rules and redefining of RISK are so way beyond the mark that there's every chance that more business will be driven away from UK via the internet towards softer compliance regimes.
As you can gather I dislike the regime that is at the heart of the problem. It seems that surgery is required or even a heart replacement.
My solution is simply either to refranchise the LSE (from a PLC) to private members or even better to pass an Act of Parliament allowing for a new Unlimited Liability Exchange to be created and developed by private brokers without the hindrance of external regulation (that is no FCA and no inteference from Europe). Many have suggested something similar in the past. Now is the time for leadership Mrs. May. UK PLC needs new direction and an exchange that supports business and industry. An exchange with "Heart" and common sense will do wonders for future generations as past generations can testify. The current exchange may be sufficient for overseas business but it is not functioning in the interests of British (or Commonwealth) taxpayers or workers.
Yours
Richard Hoblyn
The old Stock Exchange Members book of 1973-74 has been taken from the book shelf and I'm just reminding myself of the once great market that my family were part of since 1872. You see it was a free thinking market made up primarily of people who looked after their clients (there were no account numbers or client agreements in those days), understood their roles in the support of UK business, invested freely without hindrance on instant calculating decisions (these were called hunches), gleaned that the clients came first, took for granted that investee companies behaved responsibly at all times (the rogues gallery was much smaller back then I think), calculated that balance sheets and p&l accounts were properly audited, assumed that published reports and accounts were transparent, took full responsibility for their affairs as well as those of their clients, assumed full personal UNLIMITED liability for their affairs as well as their clients and honoured ALL commitments to clients and market counterparties, took pride in the exchange that they were part of and above all enjoyed themselves in a friendly market that had the decency to look after fallen brethren through committed benovolence. DICTUM MEUM PACTUM was practiced rather than taught. Integrity at all times was paramount and could NOT be bought.
Well as you can imagine I'm not exactly ecstatic at the current exchange that your government presides over.
Today bankers, hedgies and most brokers take NO responsibility for their actions (often aided and abetted by compliance personnel whose pockets they often control), never take a financial hit for malpractice or obtuse client losses, treat shareholders with utter contempt and incredibly are still committed to a bonus culture despite the misgivings of those who feel strongly about the unlevel playing field in the workplace.
More important than any of the above though, as well as the current behaviour of the above alongside the FCA and CISI the most extraordinary sideshow has been the utter beligerance of the London Stock Exchange itself. On the face of it as a PLC it has done extraordinary well but sadly as an effective functioning exchange for securities representing UK PLC's, capital raising,etc the exchange is failing daily (just look at brokers volumes). There are two primary causes for this. Firstly the exchange is profiteering at the expense of investors and secondly the regulatory experiment is failing at an alarming rate. What is deeply concerning to me is that virtually no-one can see this. But then again not many politicians, regulators nor indeed practititioners in the dark art and science of capital markets spotted the 2007/2008 banking crisis either. There is a secret ingredient as Chelsea FC has found out by chance over the the last few years. Despite countless highly paid managers their success evolved through something which one cannot find in a cv or through a qualification. No it's NOT hard work but this always helps . No, the secret ingredient is "HEART" Mrs. May.
It is the very heart of the exchange that concerns me. It is not ticking as it should and if there are NOT structural changes made to the exchange soon I fear that the exchange itself may suffer a serious heart attack. One of the unnerving aspects of your government and indeed the opposition (the culprits perhaps although the seeds were sown as far back as the 80's) is that much emphasis is placed on jobs and support given to big business BUT I see little assistance given to sole traders, small micro-partnerships and SME's. Red tape is rife and crucifying entrepreneurship everywhere and the evidence supports my belief that this started inside our very exchange largely thanks to over-regulation (TSA, SFA, FSA and now FCA already known as "fuCA" ) since 1986. One can use the acorns to oak tree analogies till one's blue in the face but acorns everywhere are STILL being crushed by the weight of red tape, regulation, lack of investment and a host of other reasons.
It's interesting to note that in the 1973-1974 members book that there were 100's of broking firms as well as considerable numbers of jobbing firms supported by around 3,000+ members. Most of the firms supported private investors whilst maybe only a dozen or so focused their business models on the corporate market. Since 'Big Bang' the regulators have ostensibly calved up the private end of the market and evolved their very existence on governmental support and cosy relationships with the investment banks. I doubt that banks have ever really had the interest of business at 'heart' as their remits have been profit motives rather than job creativity. Conversely the core parts of the market have been reliant on private enterprise and with it private investment supported by a spiders web force of private brokers maintaining good working relationships with investors. Two things have engineered the destruction of these relationships. The first of course has been the development of the technology supporting business and industry (the internet); we all have to learn to live with the internet. The second has been (over) regulation which has broken the camels back of personal and private investing towards a mangled universe of faceless wealth managers who often than not support funds rather than actual companies. It isn't just coincidence that the AIM and ISDX markets are suffering from low volumes and low interest. Long only institutions and hedge funds have no interest in supporting businesses these days and use the liquidity argument when challenged about this. Liquidity is really just a function of the market constituents and if the exchange and regulator takes away the opportunity then the market cannot support itself. It's my belief that the governement should open a debate, even an enquiry (although I doubt that practitioners such as myself would ever get invited to attend) into this BUT much worse is the FCA doctrine that is called mildly 'The Retail Distribution Review'. Thousands of brokers have been wiped out by this whilst the new age survivors (mainly young inexperienced personnel who have questionable degrees and pointless qualifications directed around regulation) will be drawn towards funds, ETFs etc. Importantly aged investors will find it difficult dealing with these new age brokers. The average age of brokers has dramatically shifted since 1980 when I joined a private firm. Most were aged militarians and I would say the good ones were often 50+. Today I am 59 and considered ancient and out of touch with regulation. This I may be but frankly I care more about client relationships and markets than what regulators think. It's rather like driving a motor vehicle and having the steering wheel taken away these days. Compliance have the wheel and the new SUITABILITY rules and redefining of RISK are so way beyond the mark that there's every chance that more business will be driven away from UK via the internet towards softer compliance regimes.
As you can gather I dislike the regime that is at the heart of the problem. It seems that surgery is required or even a heart replacement.
My solution is simply either to refranchise the LSE (from a PLC) to private members or even better to pass an Act of Parliament allowing for a new Unlimited Liability Exchange to be created and developed by private brokers without the hindrance of external regulation (that is no FCA and no inteference from Europe). Many have suggested something similar in the past. Now is the time for leadership Mrs. May. UK PLC needs new direction and an exchange that supports business and industry. An exchange with "Heart" and common sense will do wonders for future generations as past generations can testify. The current exchange may be sufficient for overseas business but it is not functioning in the interests of British (or Commonwealth) taxpayers or workers.
Yours
Richard Hoblyn
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