An American President once said, “Oh for a one-armed economist so he cannot say, on the one hand, etc…”
As the new American President joins the other 19 leaders at G20 in London I have been trying to fathom JM Keynes’s jargon and decide if Quantitative Easing is going to succeed and reignite the world economies fuelling the new BULL market or whether this is just a dress rehearsal for the hardships to come. It’s a pretty confusing picture not helped by the media hoping for the odd scrap on Threadneedle Street as well as in the Excel Centre, arrive left “Sarko” with his new maiden “Merkel”. Poor Carla seems to have been rudely sidelined; she’s probably entertaining the wags.
What is clear to me is that the safety nets put in place by Central Banks to kick-start lending and presumably the investment climate isn’t working. The ongoing debate about “mark-to-market” and the calculations concerning “toxic debt” may have come to a head by now if liquidators had been forced to dispose of these failed bank derivative positions but of course the tax-payers have effectively bailed out these banks (pirate vessels). Lehman and Bear Stearns didn’t receive their bonuses so I’m at a loss to understand why politicians, non-executive directors, regulators and all and sundry think it perfectly acceptable to allow for failed businesses to reward those who’ve been at the centre of the toxic mess. Those who work for General Motors, Ford or Chrysler (Chapter XI is inevitable I think for Detroit), CitiGroup, JP Morgan Chase, RBS, Lloyds Banking (notice how it has reverted to it’s pre-TSB HBOS name) and a plethora of other names should not (never?) receive a penny in bonuses until all the tax-payers debt is repaid. Sorry to be brutal and blunt but what we are witnessing is hardly capitalism but more reminiscent of piracy in its heyday. Well done to Obama for his comments on this matter to date. So is QE going to work? Well, I don’t know the answer to that (and no doubt that will still be debated 30 years from now) but I keep reminding myself of my first economics lesson (age 13) and can hear my teacher drumming into me Keynesian doctrine and the definition of inflation as “too much money chasing too few goods”. Looking at Wikipedia and reminding myself of the definitions of Demand-Pull Inflation and Cost-Push Inflation I’m not sure I fully understand the extent of what he said then and I’m even more certain that he wasn’t sure of what he was saying back then either. With the global markets being far more elastic than back in the ‘30’s it seems to me that the current inflationary outlook is a combination of both types as the Monetary Supply accelerates. The Governor, Mervyn King, is clearly aware of the QE implications but as for our SocioCapitalist leaders in Downing Street it seems to me that they’ll do everything in their powers to maintain property prices in UK at the still absurd heights safeguarding their futures long enough till the next General Election. Inflation by then may have started to rise further along with interest rates (they can hardly stay at this level as there’s not much evidence of excessive lending and depositors are getting increasingly impatient) and thus the outlook for ordinary businesses, tax-payers, SME’s is truly depressing. Sorry to use the “D word” but when I see the levels of Public Sector abuse in France my toes curl up at the thought of some hapless Guardian reader responding to a highly paid job for some neo-socialist county council. Have you all noticed how the issue of “productivity” in the private sector has been replaced by job securitisation for the public sector? So where exactly is the productivity in paying someone £40,000 pa to cycle around the neighbourhood checking to see if one’s colleagues yesterday completed their paintwork, testing whether it’s dry and returning to base (a Chesterfield sofa and a glass of Irn-Bru) to instruct a second-paint job the following day? The UK should change it’s name to The Forth Railway Bridge Paintshop because that’s what everyone will be doing if the Public Sector is empowered any further!
The shares strategy for 2009 has worked pretty well so far with one notable exception being Anglo-American which cut its dividend out of the blue; I am holding them for now. The position with other base miners has been confusing too; in particular Rio Tinto has over-run itself at present and I am pleased to have exited it (albeit early) due to its high gearing. Although the volatility has diminished I am still recommending Hochschild (still my favoured pick for 2009 recommended at 138p in January now 243p), Randgold (HOLD- touching £39-40), Royal Dutch & BP (probably the cheapest and safest stocks in the market as oil rises back above $50pbo and perhaps is destined to rise back to $100pbo very soon), Templeton Emerging (risky but this is where the world’s engine is right now) and Yamana Gold (a Canadian precious producer recommended at 525p) at 680p. In the UK domestic market I have been trading Ladbrokes, Tate & Lyle and Marstons recently but one has to have pretty nifty footwork to keep pace with events at the moment. I don’t believe that many UK domestics provide solid and sound Buy and Hold strategies at present and would expect a market sell-off quite soon (sell in May & run like…). What has been surprising throughout the crisis is that very few large capitalization businesses have failed and unlike the aftershock of the ’87 crash none of the Treasury divisions of large caps have announced drastic trading losses as a result of excessive trading in derivatives, f/x, etc. So far there have been a catalogue of trading failures amongst banks and brokers and very few public statements regarding hedge fund losses (although clearly many have closed their doors). In other words there hasn’t been an Enron-esque fatality on main street although it’s predicted that Detroit will fail. The markets seem to be discounting Detroit anyway and a surprise is on the cards in my view. The next leg of the Greater Depression may only just be starting and I believe precious metals and oil stocks may be the only way to safeguard the £ in the pocket. I recollect an ex-colleague broker during ’87 continually remind his clients that equities are the best way to combat inflation so some further analysis (looking for solid earnings lowly geared businesses) is required on my part.
I continue to favour portfolio weightings such as 30% Fixed Interest (incl Index-Linked), 20% cash, 50% equities (overseas earners mainly incl. up to 25% in precious metals) throughout 2009. Keep an eye on gold test levels of $963, $1163, $1332 & $1461; a trading range of $1200-2000 is still predicted for 3rd and 4th Q’s 09.
I wonder what JM Keynes, JK Galbraith and Milton Friedman would have made of it all? Let’s all hope the summer arrives early; that way the paint can dry better.
Thursday, 2 April 2009
Market Abuse or Regulatory & Exchange Failure
LONDON (Dow Jones)--The U.K. Financial Services Authority, or FSA, said Thursday that it has won its market abuse case at the Financial Services and Markets Tribunal against Winterflood and two of its traders, Mr Sotiriou and Mr Robins.
Winterflood is an FSA authorised firm and the largest market maker in AIM securities.
In June 2008, the FSA found that Winterflood and its traders had played a pivotal role in an illegal share ramping scheme relating to Fundamental-E Investments (FEI), an AIM listed company.
In particular, the market maker had misused rollovers and delayed rollovers thereby creating a distortion in the market for FEI shares and misleading the market for about six months in 2004, the FSA said.
The FEI share trades executed by Winterflood had a series of unusual features which should have alerted the market maker to the clear and substantial risks of market manipulation. Rather than taking steps to ensure that the trades were genuine, Winterflood continued the highly profitable trading.
Winterflood made about GBP900,000 from trading in FEI shares, its single most profitable stock at the time.
As a result of their conduct, the FSA decided to impose fines of GBP4 million, GBP200,000 and GBP50,000 on Winterflood, Mr Sotiriou and Mr Robins respectively, the regulator said.
Winterflood did not challenge the findings of the FSA investigation at the Tribunal but referred the matter on a point of legal interpretation.
Winterflood, Sotiriou and Robins are now seeking permission to appeal the decision at the Court of Appeal, the FSA said.
Other parties involved in the scheme have referred their cases to the Tribunal.
Richard Hoblyn comments as follows;- Although it's impossible to deduce exactly the extent of the alleged market abuse as per above I, like many of my colleagues around the market, am dismayed at the sheer size of the penalties given here especially to the 2 individuals concerned. Throughout the period concerned the LSE & FSA conducted inadequate guidance to practitioners regarding the use of "roll-overs". Although personally I've never countenanced the use of roll-overs for any clients many brokers have sought to throughput business with market-makers on this basis. Perhaps if there had been stronger monitoring of roll-overs by LSE & FSA earlier and clearer guidelines set (I recollect seeing confusing and contradictory memorandums at the time) this situation would not have arisen. Furthermore, if as is alleged, there was a false market in the said shares then this is more pertinent to the fact that neither the LSE nor the FSA has sought to address the extraordinary poor liquidity in all AIM stocks. By allowing market-makers to put up firm quotes on the "yellow strip" in sometimes a few hundreds pounds of stock is it surprising then that volatile share price movements occurred whilst market-makers were conducting albeit profitable and at the time perfectly legal roll-over trading. Better leadership at the helm is what is required here and I fear that the current misguidance is here to stay unless brokers and market-makers unite and request a self-administered market place with rule books that are adhered to as per the old LSE dealing guidelines which appear to be generally ignored by the current crop of dealers/traders.
Winterflood is an FSA authorised firm and the largest market maker in AIM securities.
In June 2008, the FSA found that Winterflood and its traders had played a pivotal role in an illegal share ramping scheme relating to Fundamental-E Investments (FEI), an AIM listed company.
In particular, the market maker had misused rollovers and delayed rollovers thereby creating a distortion in the market for FEI shares and misleading the market for about six months in 2004, the FSA said.
The FEI share trades executed by Winterflood had a series of unusual features which should have alerted the market maker to the clear and substantial risks of market manipulation. Rather than taking steps to ensure that the trades were genuine, Winterflood continued the highly profitable trading.
Winterflood made about GBP900,000 from trading in FEI shares, its single most profitable stock at the time.
As a result of their conduct, the FSA decided to impose fines of GBP4 million, GBP200,000 and GBP50,000 on Winterflood, Mr Sotiriou and Mr Robins respectively, the regulator said.
Winterflood did not challenge the findings of the FSA investigation at the Tribunal but referred the matter on a point of legal interpretation.
Winterflood, Sotiriou and Robins are now seeking permission to appeal the decision at the Court of Appeal, the FSA said.
Other parties involved in the scheme have referred their cases to the Tribunal.
Richard Hoblyn comments as follows;- Although it's impossible to deduce exactly the extent of the alleged market abuse as per above I, like many of my colleagues around the market, am dismayed at the sheer size of the penalties given here especially to the 2 individuals concerned. Throughout the period concerned the LSE & FSA conducted inadequate guidance to practitioners regarding the use of "roll-overs". Although personally I've never countenanced the use of roll-overs for any clients many brokers have sought to throughput business with market-makers on this basis. Perhaps if there had been stronger monitoring of roll-overs by LSE & FSA earlier and clearer guidelines set (I recollect seeing confusing and contradictory memorandums at the time) this situation would not have arisen. Furthermore, if as is alleged, there was a false market in the said shares then this is more pertinent to the fact that neither the LSE nor the FSA has sought to address the extraordinary poor liquidity in all AIM stocks. By allowing market-makers to put up firm quotes on the "yellow strip" in sometimes a few hundreds pounds of stock is it surprising then that volatile share price movements occurred whilst market-makers were conducting albeit profitable and at the time perfectly legal roll-over trading. Better leadership at the helm is what is required here and I fear that the current misguidance is here to stay unless brokers and market-makers unite and request a self-administered market place with rule books that are adhered to as per the old LSE dealing guidelines which appear to be generally ignored by the current crop of dealers/traders.
Wednesday, 1 April 2009
Keynes WHY THE GREAT DEPRESSION DID NOT RETURN
Prof. John P. Jones has written
"Keynes's Vision: Why the Great Depression Did Not Return" (Routledge).
(Amazon Hardback £75).
John Maynard Keynes dealt with Hoblyn & King, Members of the London Stock Exchange during his lifetime.
"Keynes's Vision: Why the Great Depression Did Not Return" (Routledge).
(Amazon Hardback £75).
John Maynard Keynes dealt with Hoblyn & King, Members of the London Stock Exchange during his lifetime.
An email sent to my clients on 7th June 2007
Like many stockbrokers I am sitting at my desk and pondering these markets and wondering just what to say to those clients who keep remarking that I sold such and such stock at such and such price and yet it is higher today and everything appears so rosy. There is so much CASH about so the markets must go up mustn't they? When comparing valuations today with such and such stock and such and such market everything looks so cheap according to most market observers. Then there was a technical analyst on Bloomberg only this week explaining to the millions watching that the Put/Call Ratio albeit being the highest ever (well since 1931) is in fact bullish if everyone holds their nerve as the shorts must get closed out.....eventually.....only he would be concerned with higher roll-over positions if that happens.
Picture left. I am no longer looking at Proquote nor at Bloomberg TV nor reading any more tip sheets predicting the next growth stock, sector, market nor being sidetracked by analytical research telling me that for instance, Alliance Boots (ahead of Guy Hands and KKR) looks overbought at £8 and investors should sell down (target 740p Dresdner recommendation 18th Dec), hold (target 670p Panmure Gordon 12th March), sell (Citigroup 29th March)...to my knowledge not a single analyst in the UK retail sector recommended BUY prior to the surge to £11+ and in my opinion this is one of the best sectors covered here in UK with men like Ratner and Bubb on top of things. So when Guy Hands's Terra Firma failed with Alliance Boots he simply traded over to EMI, a company in a totally different industry. It will be interesting to see how EMI pans out as I can't help thinking observers are missing out on the real value of mixing digital distribution with a large breadth of content. The answer to my fears and thoughts is on my wall of course. Read on....
I have the following share certificates framed in no particular order; "The Beaumont (Texas) Petroleum & Liquid Fuel Co Ltd" (cert 1903); "The Ripanji Quicksilver & Silver Mines Co Ltd" (1889); "The Underwriters Trust Ltd" (1898); "The Oil & Asphaltum Co Ltd" (1904); "The Olympic Music Hall Ltd" (1893) and my favourite "The Non-Poisonous 'Strike Anywhere' Match Syndicate Ltd" (1899)-perhaps the world's first eco-friendly stock! All very interesting you might say and highly amusing. Well, it would be but for the name on all 5 certificates, is that of my great great grandfather, CD Hoblyn who founded a stockbroking firm in 1872 (apologies to Messrs R & B who arrived on the scene 3 years later) on the basis that he was a "wealthy chap" from a "wealthy family" and had a friend at the Prudential who by all accounts used him ferociously for his dealing in tandem with a certain Revd.FW Parkes who managed a startling 1046 transactions in the April-September 1896 dealing book plus countless contango transactions. What is the point I am making? Well, many of you have guessed that it is easy for investors to be taken in by tips, bubbles, excessive trading etc but even easier for "market professionals" and that many of the current market topics are simply being repeated after excessive repackaging by our American cousins. As a minor scripopholist I have other framed certificates to match those of CD Hoblyn Esq, Threadneedle Street. Ones that I bought rather than lifted from old safe custody safes incidentally. They are "British Butte Mining", "El Gallao (Bolivia)" and "Russia Tobacco" amongst others still sitting in their files. So you can ascertain (possibly) what I am getting at. Many of the themes prevalent today are on my wall and the hedge fund managers and dealers acting for them are possibly repeating the same mistakes of the many stockbrokers who survived the boom and bust periods prior to WW1 and WW2...and since.
I learned this week of a piece of research penned by Execution Research (who?) entitled "Win Win Win" subtitled "Undervalued in every outcome" with a target price of 835p. The stock in question is Royal Bank of Scotland. RBS has been tabled as a BUY by virtual every broker in the market but I'm NOT going to read it. And the reason why? I keep pinching myself to remind myself of an article I read a few years ago in the "Evening Standard" written by a Professor (whose name escapes me) from London School of Economics I think who highlighted the real reasons why Enron Corporation and others failed in US markets in the latter part of 20th century (LTCM was another casualty but for trading reasons). In essence it was due to "irregular" and "creative" accounting and the Professor called for an harmonisation of International Accounting Rules and Regulations which I would question has happened. The proliferation of leveraged deals (you'd think that Michael Milken formerly at Shearson would have taught investors a few harsh lessons) conjured by US investment banks, unregulated private equity houses and hedge fund operators is more than just alarming. It is no wonder that traditional analysts using methods tried and tested for generations are being sidelined by "nouveau analysis" care of KKR and their followers suitably nurtured by excessive lending by commercial banks,etc.
Why should clients and advisers ......care or give a jot about all this you might ask? Well, it goes back to "Big Bang" and the super-regulatory regime that has evolved since. Today the London Stock Exchange is run and ruled by Foreign Companies with no real intent nor interest in building or rebuilding a nation that empowered and created the phrase "globalisation" long before the term was reincarnated by Merrill Lynch and their US counterparts. No, 9 out of the top 10 securities operations in the London market are American and the 10th is European. Their only interest is to profit and profiteer from British Industry and by rejigging the accounts and bundling and rebundling the debt and playing pass the parcel someone is going to be left holding the proverbial baby and politicians as usual will be throwing out the bath water. So is London really a success as it becomes a trading home for countless overseas stocks? No wonder then that the Trades Unions are shouting "blue murder" at the hedge funds and private equity houses, etc. It's jobs in the UK and for the UK that count and in this sense RBS's assessment on the Barclays bid for ABN-AMRO is spot on. I for one don't subscribe to the "Wimbledon Effect" and would like all tennis to be played on grass as it was invented years ago. In the same fashion I would like more emphasis placed on real cash, proper real investment and precious metals rather than spiralling debt (please don't get me on the subject of property prices either in UK, Spain, Florida, Ohio or even Tin Pan Alley) and derivatives. Even our kids understand the basics of Monopoly so why are these US investment banks being allowed to smokescreen Dickensian and Keynesian (***) principles today?
It won't be long before Boots splits with Unichem and private investors will be asked to stump up premium cash for a stock market return (see Debenhams and its rising debt levels). Who really profited from KKR's takeover? It wasn't UK private nor UK institutional investors. Like Branson demanding an investigation into Sky's monopoly and a break-up of the UK digital TV industry it is about time UK investors tabled the motion that we'd like our market back. The back-slapping in the financial media and within the LSE & FSA must stop but I fear it will take more than just an Enron to make people wake up to what is really happening. By pretending that the City is a separate money centre to the rest of the UK economy must be very disheartening for industrialists and SME's. Life is not all about "Big Business" and the spin coming from within the City in this regard seems to me to conflict with what "Big Bang" was supposed to do to regenerate and catalyse back in the late '80's. UK City firms were supposed to benefit from the influx of foreign competition. I don't think that has happened when one compares the Capitalisation's and Profits of the US versus UK players although the UK lawyers have done very nicely ("Win Win Win").
Hearing that the esteemed UK economist Tim Congdon is predicting 5% inflation within a year or so because the Bank of England has lost control of prices I can't help feel that giving the Old Lady so much power has only allowed our American cousins to spoon feed the old girls with meaningless data and strategy ideas simply designed to feather their own nests.
So back to markets and what one should do when everything goes pear-shaped which ultimately it will. The demise of the US$ is very likely, as is a bubble pricking on a grand-scale in China (the recent 8% correction and tripling of stamp to 0.3% is hardly going to scare any capitalistic communist) but more alarming is what might happen if Putin severs the western influence in Russia and FSU. The recent political and military rumblings over the old cold war misgivings could be the one piece of the jigsaw that no-one has predicted. With a Russian girlfriend (yes, she's got a British passport) I am aware of the extraordinary climate changes in Southern Russia at the moment (25 degrees at night I understand with unprecedented day time temperatures of 35-40 range) which have yet to be highlighted in the media as G8, Diana and the demise of WIndies cricket hits the headlines. A failed harvest in 1978-1979 triggered an invasion of Afghanistan fuelling the surge in gold to US$855 pto (I was a young silver clerk at the time) allowing the Soviets access to western grain. History has a habit of repeating itself although I'm not suggesting that the latest Russian battle tank will be seen in Kabul later this year. Furthermore Russia has a $100 bn+ budget surplus thanks to the oil and commodities boom so it no longer has to plead poverty for grain from US. How the tide has turned? Anyway it would appear that Gold is in the ascendancy again and should be treated as a real currency again.
The real tragedy of Capital Markets is how the spin has moved away from real things towards an almost guaranteed profit-making universe invented and subscribed by the likes of Goldman Sachs, JP Morgan Chase and Merrill's,etc. As a sixth generation broker with a 1* year old son I cannot see him working in one of those Canary Wharf workhouses as I cannot see the attractions other than financial. There is more to life than just $, £ and euros and I'm beginning to understand what Scargill fought for all those years ago. My late mother used to say "think before you leap, it is not always about win, win,win"! 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. With his track record I wouldn't want to bet against him though.
I am recommending Randgold (RRS) and Hochschild (HOC) at present, both well managed London traded established gold shares and generally remains cautious on the outcome for the remainder of 2007.
Picture left. I am no longer looking at Proquote nor at Bloomberg TV nor reading any more tip sheets predicting the next growth stock, sector, market nor being sidetracked by analytical research telling me that for instance, Alliance Boots (ahead of Guy Hands and KKR) looks overbought at £8 and investors should sell down (target 740p Dresdner recommendation 18th Dec), hold (target 670p Panmure Gordon 12th March), sell (Citigroup 29th March)...to my knowledge not a single analyst in the UK retail sector recommended BUY prior to the surge to £11+ and in my opinion this is one of the best sectors covered here in UK with men like Ratner and Bubb on top of things. So when Guy Hands's Terra Firma failed with Alliance Boots he simply traded over to EMI, a company in a totally different industry. It will be interesting to see how EMI pans out as I can't help thinking observers are missing out on the real value of mixing digital distribution with a large breadth of content. The answer to my fears and thoughts is on my wall of course. Read on....
I have the following share certificates framed in no particular order; "The Beaumont (Texas) Petroleum & Liquid Fuel Co Ltd" (cert 1903); "The Ripanji Quicksilver & Silver Mines Co Ltd" (1889); "The Underwriters Trust Ltd" (1898); "The Oil & Asphaltum Co Ltd" (1904); "The Olympic Music Hall Ltd" (1893) and my favourite "The Non-Poisonous 'Strike Anywhere' Match Syndicate Ltd" (1899)-perhaps the world's first eco-friendly stock! All very interesting you might say and highly amusing. Well, it would be but for the name on all 5 certificates, is that of my great great grandfather, CD Hoblyn who founded a stockbroking firm in 1872 (apologies to Messrs R & B who arrived on the scene 3 years later) on the basis that he was a "wealthy chap" from a "wealthy family" and had a friend at the Prudential who by all accounts used him ferociously for his dealing in tandem with a certain Revd.FW Parkes who managed a startling 1046 transactions in the April-September 1896 dealing book plus countless contango transactions. What is the point I am making? Well, many of you have guessed that it is easy for investors to be taken in by tips, bubbles, excessive trading etc but even easier for "market professionals" and that many of the current market topics are simply being repeated after excessive repackaging by our American cousins. As a minor scripopholist I have other framed certificates to match those of CD Hoblyn Esq, Threadneedle Street. Ones that I bought rather than lifted from old safe custody safes incidentally. They are "British Butte Mining", "El Gallao (Bolivia)" and "Russia Tobacco" amongst others still sitting in their files. So you can ascertain (possibly) what I am getting at. Many of the themes prevalent today are on my wall and the hedge fund managers and dealers acting for them are possibly repeating the same mistakes of the many stockbrokers who survived the boom and bust periods prior to WW1 and WW2...and since.
I learned this week of a piece of research penned by Execution Research (who?) entitled "Win Win Win" subtitled "Undervalued in every outcome" with a target price of 835p. The stock in question is Royal Bank of Scotland. RBS has been tabled as a BUY by virtual every broker in the market but I'm NOT going to read it. And the reason why? I keep pinching myself to remind myself of an article I read a few years ago in the "Evening Standard" written by a Professor (whose name escapes me) from London School of Economics I think who highlighted the real reasons why Enron Corporation and others failed in US markets in the latter part of 20th century (LTCM was another casualty but for trading reasons). In essence it was due to "irregular" and "creative" accounting and the Professor called for an harmonisation of International Accounting Rules and Regulations which I would question has happened. The proliferation of leveraged deals (you'd think that Michael Milken formerly at Shearson would have taught investors a few harsh lessons) conjured by US investment banks, unregulated private equity houses and hedge fund operators is more than just alarming. It is no wonder that traditional analysts using methods tried and tested for generations are being sidelined by "nouveau analysis" care of KKR and their followers suitably nurtured by excessive lending by commercial banks,etc.
Why should clients and advisers ......care or give a jot about all this you might ask? Well, it goes back to "Big Bang" and the super-regulatory regime that has evolved since. Today the London Stock Exchange is run and ruled by Foreign Companies with no real intent nor interest in building or rebuilding a nation that empowered and created the phrase "globalisation" long before the term was reincarnated by Merrill Lynch and their US counterparts. No, 9 out of the top 10 securities operations in the London market are American and the 10th is European. Their only interest is to profit and profiteer from British Industry and by rejigging the accounts and bundling and rebundling the debt and playing pass the parcel someone is going to be left holding the proverbial baby and politicians as usual will be throwing out the bath water. So is London really a success as it becomes a trading home for countless overseas stocks? No wonder then that the Trades Unions are shouting "blue murder" at the hedge funds and private equity houses, etc. It's jobs in the UK and for the UK that count and in this sense RBS's assessment on the Barclays bid for ABN-AMRO is spot on. I for one don't subscribe to the "Wimbledon Effect" and would like all tennis to be played on grass as it was invented years ago. In the same fashion I would like more emphasis placed on real cash, proper real investment and precious metals rather than spiralling debt (please don't get me on the subject of property prices either in UK, Spain, Florida, Ohio or even Tin Pan Alley) and derivatives. Even our kids understand the basics of Monopoly so why are these US investment banks being allowed to smokescreen Dickensian and Keynesian (***) principles today?
It won't be long before Boots splits with Unichem and private investors will be asked to stump up premium cash for a stock market return (see Debenhams and its rising debt levels). Who really profited from KKR's takeover? It wasn't UK private nor UK institutional investors. Like Branson demanding an investigation into Sky's monopoly and a break-up of the UK digital TV industry it is about time UK investors tabled the motion that we'd like our market back. The back-slapping in the financial media and within the LSE & FSA must stop but I fear it will take more than just an Enron to make people wake up to what is really happening. By pretending that the City is a separate money centre to the rest of the UK economy must be very disheartening for industrialists and SME's. Life is not all about "Big Business" and the spin coming from within the City in this regard seems to me to conflict with what "Big Bang" was supposed to do to regenerate and catalyse back in the late '80's. UK City firms were supposed to benefit from the influx of foreign competition. I don't think that has happened when one compares the Capitalisation's and Profits of the US versus UK players although the UK lawyers have done very nicely ("Win Win Win").
Hearing that the esteemed UK economist Tim Congdon is predicting 5% inflation within a year or so because the Bank of England has lost control of prices I can't help feel that giving the Old Lady so much power has only allowed our American cousins to spoon feed the old girls with meaningless data and strategy ideas simply designed to feather their own nests.
So back to markets and what one should do when everything goes pear-shaped which ultimately it will. The demise of the US$ is very likely, as is a bubble pricking on a grand-scale in China (the recent 8% correction and tripling of stamp to 0.3% is hardly going to scare any capitalistic communist) but more alarming is what might happen if Putin severs the western influence in Russia and FSU. The recent political and military rumblings over the old cold war misgivings could be the one piece of the jigsaw that no-one has predicted. With a Russian girlfriend (yes, she's got a British passport) I am aware of the extraordinary climate changes in Southern Russia at the moment (25 degrees at night I understand with unprecedented day time temperatures of 35-40 range) which have yet to be highlighted in the media as G8, Diana and the demise of WIndies cricket hits the headlines. A failed harvest in 1978-1979 triggered an invasion of Afghanistan fuelling the surge in gold to US$855 pto (I was a young silver clerk at the time) allowing the Soviets access to western grain. History has a habit of repeating itself although I'm not suggesting that the latest Russian battle tank will be seen in Kabul later this year. Furthermore Russia has a $100 bn+ budget surplus thanks to the oil and commodities boom so it no longer has to plead poverty for grain from US. How the tide has turned? Anyway it would appear that Gold is in the ascendancy again and should be treated as a real currency again.
The real tragedy of Capital Markets is how the spin has moved away from real things towards an almost guaranteed profit-making universe invented and subscribed by the likes of Goldman Sachs, JP Morgan Chase and Merrill's,etc. As a sixth generation broker with a 1* year old son I cannot see him working in one of those Canary Wharf workhouses as I cannot see the attractions other than financial. There is more to life than just $, £ and euros and I'm beginning to understand what Scargill fought for all those years ago. My late mother used to say "think before you leap, it is not always about win, win,win"! 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. With his track record I wouldn't want to bet against him though.
I am recommending Randgold (RRS) and Hochschild (HOC) at present, both well managed London traded established gold shares and generally remains cautious on the outcome for the remainder of 2007.
Tuesday, 31 March 2009
John Maynard Keynes
With the publication of my uncle's book on JM Keynes I thought it opportune to mention that JMK had an interesting pedigree in investing. READ ON;-
You will probably know John Maynard Keynes as one of the great economists. What is often forgotten is that he was also one of the greatest investors of the Great Depression era. Given what markets are now going through, it’s well worth looking at how exactly he achieved that. Keynes managed Cambridge’s King’s College Chest Fund. The Fund averaged 12% per year from 1927–1946. That is a remarkable record given that the period included the Great Depression and World War II. The U.K. stock market fell 15% during this stretch. It’s even more impressive when you consider that the college spent all the income earned in the portfolio. That means the Fund’s returns only included capital gain. Keynes also made a personal fortune as an investor. When he died, he left an estate worth some $30 million in present-day dollars. How he did it is a fascinating story.
From speculator to investor
Keynes began as a run-of-mill speculator and trader, trying to anticipate trends and forecast cycles. Things didn’t go too well. The Great Crash of 1929 wiped out nearly 80% of his personal net worth.
That proved to be his epiphany. The crash turned Keynes from a speculator to a genuine investor. Trading the market demanded “abnormal foresight” to work, he concluded. “I am clear,” he wrote, “that the idea of wholesale shifts [in and out of the market at different stages of the business cycle] is for various reasons impracticable and undesirable.” He now focused more on individual securities and less on trying to forecast the market. He summed up his new philosophy in a note to a colleague: “My purpose is to buy securities where I am satisfied as to assets and ultimate earnings power and where the market price seems cheap in relation to these.”
He also became more patient in his pursuit of returns. Keynes decided it was easier and safer in the long run to buy a 75-cent dollar and wait, rather than to buy a 75-cent dollar and sell it because it became a 50-cent dollar — and hope to buy it back as a 40-cent dollar. When the market fell, Keynes remarked: “I do not draw from this conclusion that a responsible investing body should every week cast panic glances over its list of securities to find one more victim to fling to the bears.” He learned to trust more in his own research and opinions, and not let market prices put him off a good deal. Investing, he said, is “the one sphere of life and activity where victory, security and success is always to the minority, and never to the majority. When you find anyone agreeing with you, change your mind.”
How Keynes cleaned up after markets had tanked
One of his greatest personal coups came in 1933. The Great Depression was on. Markets had tanked. Keynes noticed that American utilities were extremely cheap in “what is for the time being an irrationally unfashionable market.” He bought the depressed stocks. In the next year, his personal net worth would nearly triple. He learned to hold onto his stocks “through thick and thin” to let the magic of compounding boost his investments. “‘Be quiet’ is our best motto,” he wrote. By that he meant you should ignore the short-term noise and let the longer-term forces assert themselves. It also meant limiting his activities to buying only when he found intrinsic values far above stock prices.
Keynes also concluded that it is better to own fewer stocks than spread yourself too thin. You should concentrate only on your very best ideas. This goes against conventional investing wisdom and he was repeatedly criticised for making big bets on a smaller number of companies. In one witty response to his critics, Keynes suggested that he was “...suffering from my chronic delusion that one good share is safer than 10 bad ones.”
He preferred to mix up the risks he took. So while just five names might make up half of his portfolio at a time, they wouldn’t be all gold stocks, for instance.
Keynes’s long-term, contrarian strategy delivered investment returns far superior to those of the broader market. In the 1920s he generally trailed the market. But he was a great performer after the crash. However, his methods did also mean his portfolio was more volatile.
As an investor, you are going to have to get used to higher volatility in your portfolio in the years ahead. But as Keynes’s career shows us, that also opens up the opportunity for much higher returns.
***comment from Fleet Street Daily***
I was very pleased to read the investment tribute to JMK. According to his university his investment papers included papers from the following firms. I believe I may be the only surviving business from the box!
Statements of account and share settlement notes. This file includes documents from the following brokers: W. Harold Brett; Capel, Cure and Terry; B.C. Fry and Co.; Hoblyn and King; Whiteheads and Coles. It also includes receipts for admission fees to the Society of Inner Temple, 1905.
8 items in envelope; paper.....
***they've all disappeared except.....me***
Richard Hoblyn says: of course he needed a good stockbroker or two to assist him....Hoblyn & King and Capel Cure Myers I believe
You will probably know John Maynard Keynes as one of the great economists. What is often forgotten is that he was also one of the greatest investors of the Great Depression era. Given what markets are now going through, it’s well worth looking at how exactly he achieved that. Keynes managed Cambridge’s King’s College Chest Fund. The Fund averaged 12% per year from 1927–1946. That is a remarkable record given that the period included the Great Depression and World War II. The U.K. stock market fell 15% during this stretch. It’s even more impressive when you consider that the college spent all the income earned in the portfolio. That means the Fund’s returns only included capital gain. Keynes also made a personal fortune as an investor. When he died, he left an estate worth some $30 million in present-day dollars. How he did it is a fascinating story.
From speculator to investor
Keynes began as a run-of-mill speculator and trader, trying to anticipate trends and forecast cycles. Things didn’t go too well. The Great Crash of 1929 wiped out nearly 80% of his personal net worth.
That proved to be his epiphany. The crash turned Keynes from a speculator to a genuine investor. Trading the market demanded “abnormal foresight” to work, he concluded. “I am clear,” he wrote, “that the idea of wholesale shifts [in and out of the market at different stages of the business cycle] is for various reasons impracticable and undesirable.” He now focused more on individual securities and less on trying to forecast the market. He summed up his new philosophy in a note to a colleague: “My purpose is to buy securities where I am satisfied as to assets and ultimate earnings power and where the market price seems cheap in relation to these.”
He also became more patient in his pursuit of returns. Keynes decided it was easier and safer in the long run to buy a 75-cent dollar and wait, rather than to buy a 75-cent dollar and sell it because it became a 50-cent dollar — and hope to buy it back as a 40-cent dollar. When the market fell, Keynes remarked: “I do not draw from this conclusion that a responsible investing body should every week cast panic glances over its list of securities to find one more victim to fling to the bears.” He learned to trust more in his own research and opinions, and not let market prices put him off a good deal. Investing, he said, is “the one sphere of life and activity where victory, security and success is always to the minority, and never to the majority. When you find anyone agreeing with you, change your mind.”
How Keynes cleaned up after markets had tanked
One of his greatest personal coups came in 1933. The Great Depression was on. Markets had tanked. Keynes noticed that American utilities were extremely cheap in “what is for the time being an irrationally unfashionable market.” He bought the depressed stocks. In the next year, his personal net worth would nearly triple. He learned to hold onto his stocks “through thick and thin” to let the magic of compounding boost his investments. “‘Be quiet’ is our best motto,” he wrote. By that he meant you should ignore the short-term noise and let the longer-term forces assert themselves. It also meant limiting his activities to buying only when he found intrinsic values far above stock prices.
Keynes also concluded that it is better to own fewer stocks than spread yourself too thin. You should concentrate only on your very best ideas. This goes against conventional investing wisdom and he was repeatedly criticised for making big bets on a smaller number of companies. In one witty response to his critics, Keynes suggested that he was “...suffering from my chronic delusion that one good share is safer than 10 bad ones.”
He preferred to mix up the risks he took. So while just five names might make up half of his portfolio at a time, they wouldn’t be all gold stocks, for instance.
Keynes’s long-term, contrarian strategy delivered investment returns far superior to those of the broader market. In the 1920s he generally trailed the market. But he was a great performer after the crash. However, his methods did also mean his portfolio was more volatile.
As an investor, you are going to have to get used to higher volatility in your portfolio in the years ahead. But as Keynes’s career shows us, that also opens up the opportunity for much higher returns.
***comment from Fleet Street Daily***
I was very pleased to read the investment tribute to JMK. According to his university his investment papers included papers from the following firms. I believe I may be the only surviving business from the box!
Statements of account and share settlement notes. This file includes documents from the following brokers: W. Harold Brett; Capel, Cure and Terry; B.C. Fry and Co.; Hoblyn and King; Whiteheads and Coles. It also includes receipts for admission fees to the Society of Inner Temple, 1905.
8 items in envelope; paper.....
***they've all disappeared except.....me***
Richard Hoblyn says: of course he needed a good stockbroker or two to assist him....Hoblyn & King and Capel Cure Myers I believe
Thursday, 26 February 2009
Who is "Hoblyn"?
That is a difficult question to answer but let me try....
"Hoblyn" or "Hoblyn's" or "The Limping Monarch" is a trading name synonymous with the City of London for 136 years. In 1974 the partnership "Hoblyn & Co" was the largest casualty of the '74 slump being the largest firm on the Stock Exchange in London to cease trading on a voluntary basis. With the Tower Block being completed c.1972 "Hoblyn's" moved into 2 floors paying £170,000 per floor in rent. With income tax bands approaching equivalent 98p in the £1 and a surcharge to boot it became abundantly clear to the partners (of around another 50 firms during that period as well)that the writing on the wall was imminent so the firm ceased in October of '74. But the "Limping Monarch" awakens as the latest global markets crunch unwinds and brings a few gentle reminders to how Capital Markets should operate.
"Hoblyn" or "Hoblyn's" or "The Limping Monarch" is a trading name synonymous with the City of London for 136 years. In 1974 the partnership "Hoblyn & Co" was the largest casualty of the '74 slump being the largest firm on the Stock Exchange in London to cease trading on a voluntary basis. With the Tower Block being completed c.1972 "Hoblyn's" moved into 2 floors paying £170,000 per floor in rent. With income tax bands approaching equivalent 98p in the £1 and a surcharge to boot it became abundantly clear to the partners (of around another 50 firms during that period as well)that the writing on the wall was imminent so the firm ceased in October of '74. But the "Limping Monarch" awakens as the latest global markets crunch unwinds and brings a few gentle reminders to how Capital Markets should operate.
RBS or paraphrasing a famous rock star, the "THE GOVERNMENT INSTITUTION FORMALLY KNOWN AS THE ROYAL BANK OF SCOTLAND"
I have just read this
The market has reacted favourably to the big announcement by Royal Bank of Scotland this morning, with losses not as bad as feared.
Broker Panmure Gordon believes the favourable pricing of the asset protection scheme, along with the £25.5bn capital increase, “will remove the immediate capital concerns about RBS”, and also bodes well for Lloyds Banking Group, although Lloyds has said it may not get the same bail-out terms as RBS.
“While we do have concerns about further losses and capital strains, particularly in the £991bn of derivatives, we expect these concerns will crystallise over the next six months; for now, the markets will probably focus on the favourable terms of this bailout,” suggests Panmure analyst Sandy Chen.
Nevertheless, the broker retains its “sell” recommendation on RBS.
***this is quite incredible; I love the so matter of factness on the numbers and the fact that the derivatives number is just thrown in as an aside***
Richard Hoblyn says; Sandy Chen of Panmure's is probably the most respected banking analyst in London but even his take on the scenario unfolding appears understated. Notwithstanding that he has a reiterated SELL on RBS (personally I think the stock is worthless) it should be noted that today RBS has passed over to the UK government scheme (beautifully described as The Asset Protection Scheme) circa £325bn of toxic assets which only a matter of months ago this bank, like many others, claimed they didn't have. Nothwithstanding the fact that the taxpayer is effectively bailing out these huge bank positions (and it's unclear whether losses have been realised as yet on this transfer) it should be noted that there is no guarantee that these positions, these toxic assets, will protect the government nor indeed the tax-payer. The bravado of this ill-conceived rescue plan dwarfs anything that even Hollywood could dream up. But to really put the icing on the cake, it has been stated, now in BLACK & WHITE, that the derivatives totalling £991bn (where did that come from Sir Fred?) may yet be crystallised in the coming months. I doubt any principal asset manager would entertain any of these positions now that we know the on-balance position (& I expect there are still £trillions off-balance that we have yet to hear about; until it is too late) and presuming RBS, like all the other banks, is trying to offload these positions in an orderly way as possible the omens for further extreme losses dwarfing today's record loss of £24.1bn for 2008 is highly likely. With a bank now effectively being run by Gordon Brown I wouldn't want to bet my City umbrella on RBS surviving in its present format too much longer. With a Market Capitalisation of £11.4bn I think the London Stock Exchange has a responsibility to ask the RBS board to clarify its financial position because on the face of this travesty it would appear that a false market is being maintained which may impact badly on the status of the London Stock Exchange. As Mr Levett, the former SEC Chairman, suggested only yesterday describing the US intervention in Bank of America and Citigroup, "these banks are all but nationalised already with governments representatives on the boards". If this indeed is the case then surely the respective "Global" Stock Exchanges should suspend dealings in these rotten "BAD BANKS" shares forthwith as I don't believe there is a remit in any FREE market enterprise to maintain a market in this sort of (in)security.
Ou est la grenouille de Threadneedle Street audjourdhui?
The market has reacted favourably to the big announcement by Royal Bank of Scotland this morning, with losses not as bad as feared.
Broker Panmure Gordon believes the favourable pricing of the asset protection scheme, along with the £25.5bn capital increase, “will remove the immediate capital concerns about RBS”, and also bodes well for Lloyds Banking Group, although Lloyds has said it may not get the same bail-out terms as RBS.
“While we do have concerns about further losses and capital strains, particularly in the £991bn of derivatives, we expect these concerns will crystallise over the next six months; for now, the markets will probably focus on the favourable terms of this bailout,” suggests Panmure analyst Sandy Chen.
Nevertheless, the broker retains its “sell” recommendation on RBS.
***this is quite incredible; I love the so matter of factness on the numbers and the fact that the derivatives number is just thrown in as an aside***
Richard Hoblyn says; Sandy Chen of Panmure's is probably the most respected banking analyst in London but even his take on the scenario unfolding appears understated. Notwithstanding that he has a reiterated SELL on RBS (personally I think the stock is worthless) it should be noted that today RBS has passed over to the UK government scheme (beautifully described as The Asset Protection Scheme) circa £325bn of toxic assets which only a matter of months ago this bank, like many others, claimed they didn't have. Nothwithstanding the fact that the taxpayer is effectively bailing out these huge bank positions (and it's unclear whether losses have been realised as yet on this transfer) it should be noted that there is no guarantee that these positions, these toxic assets, will protect the government nor indeed the tax-payer. The bravado of this ill-conceived rescue plan dwarfs anything that even Hollywood could dream up. But to really put the icing on the cake, it has been stated, now in BLACK & WHITE, that the derivatives totalling £991bn (where did that come from Sir Fred?) may yet be crystallised in the coming months. I doubt any principal asset manager would entertain any of these positions now that we know the on-balance position (& I expect there are still £trillions off-balance that we have yet to hear about; until it is too late) and presuming RBS, like all the other banks, is trying to offload these positions in an orderly way as possible the omens for further extreme losses dwarfing today's record loss of £24.1bn for 2008 is highly likely. With a bank now effectively being run by Gordon Brown I wouldn't want to bet my City umbrella on RBS surviving in its present format too much longer. With a Market Capitalisation of £11.4bn I think the London Stock Exchange has a responsibility to ask the RBS board to clarify its financial position because on the face of this travesty it would appear that a false market is being maintained which may impact badly on the status of the London Stock Exchange. As Mr Levett, the former SEC Chairman, suggested only yesterday describing the US intervention in Bank of America and Citigroup, "these banks are all but nationalised already with governments representatives on the boards". If this indeed is the case then surely the respective "Global" Stock Exchanges should suspend dealings in these rotten "BAD BANKS" shares forthwith as I don't believe there is a remit in any FREE market enterprise to maintain a market in this sort of (in)security.
Ou est la grenouille de Threadneedle Street audjourdhui?
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