Spain is undergoing a massive run on its banks and hardly anyone has noticed. This is what has been reported by the welliegraph;-
Spain has suffered the worst haemorrhaging of bank deposits since the launch of the euro, losing funds equal to 7% of GDP in a single month. Data from the European Central Bank shows that outflows from Spanish commercial banks reached Euros74bn (£59bn) in July, twice the previous monthly record. This brings the total deposit loss over the past year to 10.9%, replicating the pattern seen in Greece as the crisis spread. The Bank of Spain said the fall is distorted by the July effect of tax payments and by the expiry of securitised funds. On the other hand, Julian Callow from Barclays Capital said the deposit loss is 65bn even when adjusted for the season....Deposit outflows are clearly picking up and the balance sheet of the Spanish banking system is contracting.
***SO WHERE'S ALL THE CASH GOING?***
So then, hard cash is rapidly disappearing from the spanish banking system but consumers and businesses aren't spending. So what is happening to all the hard cash? I don't believe that anyone is seriously putting it 'sous leur lits' as the french would say. If history is anything to go by there could well be a run on prams in Spain as millions replace firewood with euro banknotes once the inevitable hyper-inflation finally happens ( a few years down the road). In the short-term there's little evidence that spaniards might be a. buying government bonds b. buying spanish equities c. buying any other sovereign debt d. investing abroad e. buying Gold f. buying agriculture, agri-foods, normal food g. buying art h. buying property (from the Brits?) ......shall I go on? Perhaps there's a massive pay down of debt occurring. The destination of all these euros is rather curious though. Maybe there's a similar thing happening as to when Greece (2 years ago) ran into difficulties; the herd back then sent 100's of millions of euros abroad (Suisse banks) and many bought into London property at drastically high levels. And then of course there are the spanish footballers; I understand their contracts are now being traded as debt too. Maybe there are a few spanish towns buying footballers debt but I doubt their degree of sophistication.
I anyone has any insights on this I'd love to know what is really happening in Spain. One thing is certain though is that things are beginning to look as though it may get very ugly in Club Med (Spain, Italy, Greece, Portugal) before long.
Stand by for a substantial equity and bond re-rating. Ostensibly a 1987 style crash that may make the 23% daily correction back then look like a walk on a Costa Brava beach.
Sell EUROS Buy GOLD (the new global currency).
Wednesday, 29 August 2012
Friday, 24 August 2012
I think I know how Lance Armstrong feels
I'm sure many of us have been somewhat amazed by revelations that Lance Armstrong was and is (allegedly) a drug cheat. But is it as simple as the media suggest?
It does seem incredible that any sportsman can achieve such extraordinary status and yet years after his last great success be on the receiving end of a witch hunt addressing concerns that he systemically cheated the sport that he had dedicated his life to. But is the situation that Lance Armstrong has found himself in an isolated incident or is it symptomatic of a society that now tests, overtests, examines, regulates, spins just about everything in the name of upholding integrity? The financial services industry that I was part of from March 1976 to June 2012 has and still is undergoing a witch hunt and it's incredible to think that '000s like myself are being forced out. Of course the reasons are very different on the surface. There is no accusation of drug abuse within the anti-RDR lobby. Lance Armstrong is NOT being told to go back to school to learn to ride a bike. Yet the results are exactly the same. Just like Lance (we're not on first name terms yet) my reaction is the same.
"I can't really be bothered dealing with the regulators and do gooders who have achieved very little and yet lord over us like vultures!"
Lord Turner is a hypocrite just like the people who are turning en masse on Armstrong. Nothing good can be achieved by all of this excessive intrusion and yet it's happening to '000s of people globally. One doesn't have to feel sympathy for L A. I doubt he wants anyone's sympathy anyway. Like him I worked and cycled my way through Capital Markets for many years. He did the mileage whereas I did the trades. He took the drug tests (presumably the Tour regulators took blood samples too) whereas I remained compliant. In both cases nothing was found to lead anyone to assume or presume any form of abuse was taking place. L A had already suffered at the hands of testicular cancer and presumably taken shed loads of drugs to combat this and yet he still managed to respond to sports regulators probing him. He was clean then and yet we're now being told he wasn't. The similarities here with the way that '000s of IFA's and Stockbrokers are being treated are somewhat obtuse but there is something rather sinister in all of this. Why are millions of people globally being so gullible regarding the benefits of any form of regulation? I'm convinced REGULATION & REGULATORS everywhere are the real enemy. I wish that the media would redress the imbalance on this kind of reporting but like many I'm suspicious as to who is controlling them.
Walking away from this intrusion and orwellian discrimination and holding one's head up high just shows that there are men out there who have woken up to this hypocrisy.
I'm just off to the shed to fix my bike!
It does seem incredible that any sportsman can achieve such extraordinary status and yet years after his last great success be on the receiving end of a witch hunt addressing concerns that he systemically cheated the sport that he had dedicated his life to. But is the situation that Lance Armstrong has found himself in an isolated incident or is it symptomatic of a society that now tests, overtests, examines, regulates, spins just about everything in the name of upholding integrity? The financial services industry that I was part of from March 1976 to June 2012 has and still is undergoing a witch hunt and it's incredible to think that '000s like myself are being forced out. Of course the reasons are very different on the surface. There is no accusation of drug abuse within the anti-RDR lobby. Lance Armstrong is NOT being told to go back to school to learn to ride a bike. Yet the results are exactly the same. Just like Lance (we're not on first name terms yet) my reaction is the same.
"I can't really be bothered dealing with the regulators and do gooders who have achieved very little and yet lord over us like vultures!"
Lord Turner is a hypocrite just like the people who are turning en masse on Armstrong. Nothing good can be achieved by all of this excessive intrusion and yet it's happening to '000s of people globally. One doesn't have to feel sympathy for L A. I doubt he wants anyone's sympathy anyway. Like him I worked and cycled my way through Capital Markets for many years. He did the mileage whereas I did the trades. He took the drug tests (presumably the Tour regulators took blood samples too) whereas I remained compliant. In both cases nothing was found to lead anyone to assume or presume any form of abuse was taking place. L A had already suffered at the hands of testicular cancer and presumably taken shed loads of drugs to combat this and yet he still managed to respond to sports regulators probing him. He was clean then and yet we're now being told he wasn't. The similarities here with the way that '000s of IFA's and Stockbrokers are being treated are somewhat obtuse but there is something rather sinister in all of this. Why are millions of people globally being so gullible regarding the benefits of any form of regulation? I'm convinced REGULATION & REGULATORS everywhere are the real enemy. I wish that the media would redress the imbalance on this kind of reporting but like many I'm suspicious as to who is controlling them.
Walking away from this intrusion and orwellian discrimination and holding one's head up high just shows that there are men out there who have woken up to this hypocrisy.
I'm just off to the shed to fix my bike!
Tuesday, 21 August 2012
Shakedown Shakedown!
I've been pretty quiet over the summer as temperature in Europe dance in the high 30s but the current topic "Shakedown Shakedown" has got me thinking during some of the hot nights. My friend over in Virgina USA has reminded me that in US of A the government (the Fed et al) are pretty well acting like Al Capone in more ways than one. He calls it a classic 'Shakedown'. I've met many good brokers,fund managers, hedge fund managers over the years but there are only a few that I would classify (re-classify) as 'guru' material but my friend in Virginia is one of them. He had worked till relatively recently on Wall Street both in NY and London and his knowledge, experience and valuable insights are something I take very seriously. We don't always agree on everything but one thing that we do agree on is that there are 'Shakedowns' occurring and not just in USA.
Several years ago a UK listed company 'H' that I invested in on behalf of clients saw the writing on the wall in Sub-Saharan Africa and did a clever deal with a FTSE100 constituent 'T' allowing for a special dividend to get paid. After completing the deal the African nation retrospectively charged the PLC with tax evasion (some $400m +) which clearly the company wasn't prepared to pay (& rightly so). Having taken legal advice the London based int'l courts covered the case and after a while the UK PLC 'H' put the sum into an escrow. The money is still there as far as I know and now the African nation is making life more difficult for 'T' too. SHAKEDOWN 1.
The BP oil spill in Gulf of Mexico has been well documented but hardly any journalists have questioned as to why the int'l board of BP allotted billions of shareholders funds to a US lawyer representing the US government. To date most of the allotted funds have yet to be distributed as perceived environmental and business losses were overcooked by a severe margin. It'll be interesting to see if the US lawyer returns the funds to BP shareholders but I'm not holding my breath. SHAKEDOWN 2. (Ed's note. Normal procedure would entail insurance claims taking the slack for any accident followed by an investigation and perhaps a fine. The interference by Obama provoked BP into paying out for questionable failures despite adequate US insurance cover)
In the last month my former employer, Standard Chartered PLC, paid a $345m fine to a NY Federal regulator because the bank allegedly dealt with and for Iranians in the US despite strict embargoes. What is strange about Sands predicament is that Chartered Bank have operated in Iran for nigh on a century, created the Irano-British Bank in 1959 (49%) and have been the primary western banking link between Iran and the region, Iran and the rest of the world and Iran and the US during, before and since the Shah was deposed. Thousands of Iranians live in the US today as opponents to the Ayotullahs and yet no-one seems a bit curious to reflect on how these Iranians can a. obtain investment finance from their relatives and b. simultaneously return income and investment returns to their families in Iran presumably abling and assisting pro-US iranian interests. Granted, there may have been a few rotten deals but surely this was factored in when the banking licence was obtained and renewed in NY. SHAKEDOWN 3. (What happens to the fine $? I doubt US tax-payers will see a dime).
The strange curiosity surrounding the last SHAKEDOWN mentioned is that the chief UK regulator, Lord Turner of FSA, was a Non-Exec Director of Standard Chartered (£180,000 salary) till c. 2008. Ironically he was responsible for remunerationa and ethics. Have you taken your Integrity Matters online test (£20) yet Lord Turner? Anyway his fee for a few hours work a month appears to be an Appendix to SHAKEDOWN 3. Lastly, has anyone worked out the obvious conflict of interest here?
It seems that indebted governments everywhere, failed regulators everywhere, are conducting undemocratic and uncapitalistic SHAKEDOWNS on cash rich businesses so expect more of the same.
Let's not forget that 'Shakedowns' are not confined to big business. Has anyone noticed how the same is happening to customers of utilities businesses? More on that later.
"The 21st Century Shakedown is here to stay!!
Several years ago a UK listed company 'H' that I invested in on behalf of clients saw the writing on the wall in Sub-Saharan Africa and did a clever deal with a FTSE100 constituent 'T' allowing for a special dividend to get paid. After completing the deal the African nation retrospectively charged the PLC with tax evasion (some $400m +) which clearly the company wasn't prepared to pay (& rightly so). Having taken legal advice the London based int'l courts covered the case and after a while the UK PLC 'H' put the sum into an escrow. The money is still there as far as I know and now the African nation is making life more difficult for 'T' too. SHAKEDOWN 1.
The BP oil spill in Gulf of Mexico has been well documented but hardly any journalists have questioned as to why the int'l board of BP allotted billions of shareholders funds to a US lawyer representing the US government. To date most of the allotted funds have yet to be distributed as perceived environmental and business losses were overcooked by a severe margin. It'll be interesting to see if the US lawyer returns the funds to BP shareholders but I'm not holding my breath. SHAKEDOWN 2. (Ed's note. Normal procedure would entail insurance claims taking the slack for any accident followed by an investigation and perhaps a fine. The interference by Obama provoked BP into paying out for questionable failures despite adequate US insurance cover)
In the last month my former employer, Standard Chartered PLC, paid a $345m fine to a NY Federal regulator because the bank allegedly dealt with and for Iranians in the US despite strict embargoes. What is strange about Sands predicament is that Chartered Bank have operated in Iran for nigh on a century, created the Irano-British Bank in 1959 (49%) and have been the primary western banking link between Iran and the region, Iran and the rest of the world and Iran and the US during, before and since the Shah was deposed. Thousands of Iranians live in the US today as opponents to the Ayotullahs and yet no-one seems a bit curious to reflect on how these Iranians can a. obtain investment finance from their relatives and b. simultaneously return income and investment returns to their families in Iran presumably abling and assisting pro-US iranian interests. Granted, there may have been a few rotten deals but surely this was factored in when the banking licence was obtained and renewed in NY. SHAKEDOWN 3. (What happens to the fine $? I doubt US tax-payers will see a dime).
The strange curiosity surrounding the last SHAKEDOWN mentioned is that the chief UK regulator, Lord Turner of FSA, was a Non-Exec Director of Standard Chartered (£180,000 salary) till c. 2008. Ironically he was responsible for remunerationa and ethics. Have you taken your Integrity Matters online test (£20) yet Lord Turner? Anyway his fee for a few hours work a month appears to be an Appendix to SHAKEDOWN 3. Lastly, has anyone worked out the obvious conflict of interest here?
It seems that indebted governments everywhere, failed regulators everywhere, are conducting undemocratic and uncapitalistic SHAKEDOWNS on cash rich businesses so expect more of the same.
Let's not forget that 'Shakedowns' are not confined to big business. Has anyone noticed how the same is happening to customers of utilities businesses? More on that later.
"The 21st Century Shakedown is here to stay!!
Friday, 29 June 2012
140 Years up in smoke thanks to FSA, my own trade body and the half wits who now run the securities industry
Many of you are probably extremely puzzled about my 'Letter' explaining my 'Exit' from the London Stock Exchange which was sent out this week by the firm that I have been attached to as an Associate these last 7 years.
Today is the last day, barring some miracle, that I am working on the London Stock Exchange and frankly I can't wait until 16:30 hours later today.
I know that I have made the correct decision.
Just in the last hour 3 emails have arrived (alongside the other 70 or so I receive daily) all commenting on important matters of REGULATION. As many who might have read my blog these last few years know full well I believe passionately that my favourite topic, REGULATION is NOT just part of the problem but is in fact THE problem. How do I know this? Well, I had the good fortune to accompany my father one day on to the old floor of the old Stock Exchange in the early 1960's when Hoblyn & King was circling various firms. In those days the brokers spent 100% of their time (when they weren't entertaining in their clubs and local watering holes) dealing on the market, studying stocks & shares (the old terms are always the best) and speaking to their clients who were their life blood. This old way of doing business always put the client first and all aspects of the firms, from the office manager to the the most junior settlements staff as well as the famed tea ladies, all understood that it was their roles to support the brokers in this great adventure. The adventure was indeed a daily buzz as all around everything to do was investment and client driven. I still believe passionately that this should be the case.
The first email was from a colleague wishing me luck for the future and finished by saying that
"I can understand your point of view but you are more than capable of doing these stupid exams, RDR or whatever so why give up if you love the business".
I've lost count of the number of times people have said this to me in the last 18 months. The next 2 emails received today may explain why the "capability" argument is a nonsense. The 1st email is from the iFS School of Finance which used to be the Institute of Bankers in the old days. Just like the LSE it too got hijacked somewhere along the way. This is the thread of the iFS email;-
Dear Mr Hoblyn
Essentials of supervision: helping to prepare your firm for the RDR
Don't forget to book your place at our forthcoming Institute event with Charles Cattell, founding Partner of the Cattellyst Consultancy, which is being held on Tuesday 10 July! Charles is a consultant and training practitioner with extensive expertise across the financial services sector.
This taster workshop will provide an opportunity for those with supervisory responsibilities for advisers under the RDR to explore the nature of those responsibilities, to identify some of the key activities which the role demands of them and to consider how to address some of the challenges they are likely to face.
By the end of the workshop, participants will be:
• aware of the expectations that the firm and the regulator place on them as supervisors
• able to recognise some potentially challenging supervisory situations and be equipped with some pointers and tips for handling them
• able to identify some specific responsibilities for supervisors created by the implementation of the RDR
Has everyone read this as you'll be tested on this subject later? Actually once digested it says absolutely nothing. In fact it is claptrap and reminds me of that course that health & safety officers preach to show decorators and firemen how to climb ladders.
The 3rd email though is my favourite., It comes from Goodacre, a firm that has studied RDR to the nth degree and makes rather a splendid living from the 600 odd pages that the RDR document encompasses. It reads;-
Gap-fill training really needs to be completed in the next couple of months to allow sufficient time to process the necessary registrations. Goodacre has designed specific training courses to fulfill the gaps between CISI qualifications and the new RDR (Retail Distribution Review) standards.
LSE Gap-fill is running over four full-day sessions in London from 09:00-17:00 each day on the following dates:
10th, 17th, 21st & 31st August
A full day session of Securities runs from 09:00-16:00 in London on 6th July
We are also running PCIAM Gap-fill training and Derivatives training on an in-house basis.
CPD Certificates will be issued on completion of the training
In the column attached to the email it proudly states;-
4-day LSE Gap-Fill Training
£992+VAT
Covering the 28 core hours or Financial Services, Regulation & Ethics, Investment Principles & Risk and Personal Taxation.
1-Day Securities Course
£225+VAT
Covering the main topics of The Securities Market, Dealing Principles, Clearing & Settlement
Influences, and Behaviours & Risks.
So there you have it. The RDR is a milking machine for all concerned and the best part of the RDR is that it isn't going to go away. Investors (let's call them clients or customers but I suspect many will think that they're suckers as many brokers and wealth managers will be away from their desks doing all this compliance gap filling alongside a host of other compliance driven courses) are going to end up paying for all this against a backdrop of an ever decreasing standard of service.
Just how am I as a stockbroker in UK supposed to talk to market counterparties, attend market driven meetings (I get invites daily), liaise with 150 clients, deal with settlements issues and at the same time analyse, recommend, buy and sell securities when I'm being dragged away to attend claptrap meetings? I'm afraid 'life is just too short' for all of this.
Next stop.......well has anyone guessed what I'll be doing and where I'll be doing it from in future?
Hasta la vista FSA! And the same to you FCA, having rebranded yourselves. The age of the ninkumpoop is upon us.
ps My exit letter will be published in due course along with more comments of my real life experiences in the age of the fascist compliance regime.
Today is the last day, barring some miracle, that I am working on the London Stock Exchange and frankly I can't wait until 16:30 hours later today.
I know that I have made the correct decision.
Just in the last hour 3 emails have arrived (alongside the other 70 or so I receive daily) all commenting on important matters of REGULATION. As many who might have read my blog these last few years know full well I believe passionately that my favourite topic, REGULATION is NOT just part of the problem but is in fact THE problem. How do I know this? Well, I had the good fortune to accompany my father one day on to the old floor of the old Stock Exchange in the early 1960's when Hoblyn & King was circling various firms. In those days the brokers spent 100% of their time (when they weren't entertaining in their clubs and local watering holes) dealing on the market, studying stocks & shares (the old terms are always the best) and speaking to their clients who were their life blood. This old way of doing business always put the client first and all aspects of the firms, from the office manager to the the most junior settlements staff as well as the famed tea ladies, all understood that it was their roles to support the brokers in this great adventure. The adventure was indeed a daily buzz as all around everything to do was investment and client driven. I still believe passionately that this should be the case.
The first email was from a colleague wishing me luck for the future and finished by saying that
"I can understand your point of view but you are more than capable of doing these stupid exams, RDR or whatever so why give up if you love the business".
I've lost count of the number of times people have said this to me in the last 18 months. The next 2 emails received today may explain why the "capability" argument is a nonsense. The 1st email is from the iFS School of Finance which used to be the Institute of Bankers in the old days. Just like the LSE it too got hijacked somewhere along the way. This is the thread of the iFS email;-
Dear Mr Hoblyn
Essentials of supervision: helping to prepare your firm for the RDR
Don't forget to book your place at our forthcoming Institute event with Charles Cattell, founding Partner of the Cattellyst Consultancy, which is being held on Tuesday 10 July! Charles is a consultant and training practitioner with extensive expertise across the financial services sector.
This taster workshop will provide an opportunity for those with supervisory responsibilities for advisers under the RDR to explore the nature of those responsibilities, to identify some of the key activities which the role demands of them and to consider how to address some of the challenges they are likely to face.
By the end of the workshop, participants will be:
• aware of the expectations that the firm and the regulator place on them as supervisors
• able to recognise some potentially challenging supervisory situations and be equipped with some pointers and tips for handling them
• able to identify some specific responsibilities for supervisors created by the implementation of the RDR
Has everyone read this as you'll be tested on this subject later? Actually once digested it says absolutely nothing. In fact it is claptrap and reminds me of that course that health & safety officers preach to show decorators and firemen how to climb ladders.
The 3rd email though is my favourite., It comes from Goodacre, a firm that has studied RDR to the nth degree and makes rather a splendid living from the 600 odd pages that the RDR document encompasses. It reads;-
Gap-fill training really needs to be completed in the next couple of months to allow sufficient time to process the necessary registrations. Goodacre has designed specific training courses to fulfill the gaps between CISI qualifications and the new RDR (Retail Distribution Review) standards.
LSE Gap-fill is running over four full-day sessions in London from 09:00-17:00 each day on the following dates:
10th, 17th, 21st & 31st August
A full day session of Securities runs from 09:00-16:00 in London on 6th July
We are also running PCIAM Gap-fill training and Derivatives training on an in-house basis.
CPD Certificates will be issued on completion of the training
In the column attached to the email it proudly states;-
4-day LSE Gap-Fill Training
£992+VAT
Covering the 28 core hours or Financial Services, Regulation & Ethics, Investment Principles & Risk and Personal Taxation.
1-Day Securities Course
£225+VAT
Covering the main topics of The Securities Market, Dealing Principles, Clearing & Settlement
Influences, and Behaviours & Risks.
So there you have it. The RDR is a milking machine for all concerned and the best part of the RDR is that it isn't going to go away. Investors (let's call them clients or customers but I suspect many will think that they're suckers as many brokers and wealth managers will be away from their desks doing all this compliance gap filling alongside a host of other compliance driven courses) are going to end up paying for all this against a backdrop of an ever decreasing standard of service.
Just how am I as a stockbroker in UK supposed to talk to market counterparties, attend market driven meetings (I get invites daily), liaise with 150 clients, deal with settlements issues and at the same time analyse, recommend, buy and sell securities when I'm being dragged away to attend claptrap meetings? I'm afraid 'life is just too short' for all of this.
Next stop.......well has anyone guessed what I'll be doing and where I'll be doing it from in future?
Hasta la vista FSA! And the same to you FCA, having rebranded yourselves. The age of the ninkumpoop is upon us.
ps My exit letter will be published in due course along with more comments of my real life experiences in the age of the fascist compliance regime.
Friday, 1 June 2012
PGS + PQE = Common Sense
As US 10-year Treasury yields flounder in 1.73% territory, UK 10-year around 1.69%, as ultra high risk euro-sovereigns yield (ex-Greece & Portugal) and trade in the 6-7% universe (Spain c.6.7% Italy c.6%) , as monetarists stand by the taps to turn on the QE printing presses for an umteenth time there is one thing that everyone should be made aware of now. Well, two things actually but who's counting in the scale of incalculable accounting inaccuracies everywhere.
It has been my studied belief for the last decade now that we are entering a period that monetarists and economists everywhere will in years to come call the 'the second coming of the gold standard' but actually I have coined a name for this phase that I think is more appropriate. We're now in the "PGS" era or as I like to call it, "The Pseudo Gold Standard" period. Heck, if that eternal optimist from Goldman Sachs Economics team, Jim O'Neill (he's being lined up for the Bank of England Governorship), can achieve eternal recognition, near immortality for coining the phrase "B R I C" (Brazil Russia India China in case anyone has missed it) then please give ME the credit for "PGS". By the way whilst we're at this game I may as well tell you that my friend Mr Finbar Taggit of http://www.fintag.com/ has already coined the abbreviation "P I I S" which I think takes into account the expected ejection of Greece (or is it a retreat?) from the "P I I G S" fiasco. Please don't take exception to "P I I S". I believe it stands for Portugal, Italy, Ireland and Spain who possibly are next up for a wee spot of bother although with spanish banks currently in the doldrums I think Finbar could have chosen the more chronological "S I I P", "S I P I" or perhaps "S P I I". Anyway he's taken the "P I I S" abbreviation and we must all live with it.
"PGS" for the sake of asking is in fact the blatant recognition from 'credit economies' that they'd prefer to back their currencies with bullion whilst the US, UK and all of the old European powers prefer to trash their currencies and economies through the daft and persistent programs known as QE. Just recently the IMF reported the following gold bullion purchases ;- Philippines (32 tonnes), Sri Lanka (2), Turkey (29), Mexico (3), Kazakhstan (2) and Ukraine (1.4). Can anyone spot the anomaly here? No european super-powers and just Ceylon as the former colony. Or the curiosity? Just why would Turkey buy gold and still want to join the EU.....of boy! It seems the developing world understands basic global economics and sensible sovereign governance better than many of our own central bankers, politicians, economists, etc. I'd expect more of the same here for many years to come as (financial, social and military) stress seems to be the order of the day everywhere.
In reference to the titled equation at the top of this blog just what is "PQE" then? Well, it's something else I've just coined. It's called "Personal Quantative Easing" and it goes like this. If say Mervyn King thinks that future generations of Brits are having their jobs and incomes protected through QE then "PQE" may be a valid alternative for those fed up with QE and the lack of growth equating to job creation, etc. QE as we all know creates electronic money in order to buy gilts (UK gov debt) with the idea of injecting liquidity into the financial markets and eventual economy. It's supposed to catalyse bank lending too but since there wasn't any lending to SME's before the crisis started in 2007 I don't see how we can expect to have a banking system designed to stimulate business when actually it has been profiting from the very same businesses the banking industry is and was designed to support. Pretty well since the late '80s all our commercial banks have traded against us not with us. This has been particularly true ironically of the financial services industry as we all know. That subject is for another day.
So if one has cash and one is concerned about the UK economy what does one do with it? Buying gilts has been and is a pointless exercise. They are all horrendously over-priced and only for the brave bar the odd index-linked variety. With official inflation today at c. 3% (from 5%) and possible real inflation ("pri" oh stop it!) nearer to 10% there is little scope for liquid asset protection. Banks are paying zero to a farthing on deposits and current accounts whilst higher risk building societies challenge the bank rate mechanics by offering HIGH RISK RATES without health warnings to countless unsuspecting depositors. Are these cash packages really protected by FSCS £80,000 threshold? Well, time will tell.
No, the extraordinary observation and opportunity is in "PQE". Whilst tax payers annd ordinary citizens stand by to allow QE there is a market methodology all of its own that is being devised as I speak. Starting with the premise that Gold is cheap and going up (see countless sensible analysts and their arguments for this premise) then it is easy to assume that a bonanza in gold shares will ultimately follow. Meanwhile today one can take very little risk in capital markets by purchasing shares (is the risk really any different to government backed guarantees in an horrendous debt enforced environment?) in some of the large producers at rock bottom prices (p/e's in low single digits). For example (note ALL gross yields before tax) Newmont yields 2.87%, Freeport McMoran 3.86%, Agnico Eagle 2.01%, Barrick Resources 2.00% (on LSE African Barrick yields 3.01%, Petropavlovsk 3.25% and Randgold 0.50% by comparison), GoldCorp 1.43% and there are countless others also paying out dividends on a more favourable basis than bank deposits and with the added bonus of a major pick up in prices in the foreseeable future. Much has been stated about the reason for the pricing anomaly but in essence it would appear that our old adversaries at JP Morgan and Goldman Sachs have been shorting gold shares for several years whilst going LONG the gold ETF market. It's feasible that the hedging will get reversed quite soon with new sovereigns openly buying bullion positions. The IMF and UK are just two powers that have virtually exhausted their gold reserves. I'd expect this to be reversed as the penny is indeed dropping. As an aside Newmont has stated that it's dividend policy will reflect the gold price; so if Gold goes say to $3,000pto the dividend should increase pari passu. It's mind boggling to consider though if Gold goes to the top end forecast of $60,000pto. Who said that Gold is NOT a credible investment (or currency) against a derivatives driven banking and capital markets universe? In addition if one's a bull of the oil price similar attractive yields can be found in oil majors right now. Conoco Phillips yield 4.98%, Royal Dutch Shell 5.11%, Encana 3.84% with a host of others offering returns around 2 x (+) higher than current UK and US 10-year yields. DYOR.
So try a bit of "PQE" if you recognise "PGS", you know it will one day make sense and may well get us all out of a rather large hole.
NOTE THIS BLOG IS NOT DEEMED TO BE AN INVESTMENT RECOMMENDATION FOR ANY COMMODITIES OR EQUITIES MENTIONED IN THE ARTICLE.
It has been my studied belief for the last decade now that we are entering a period that monetarists and economists everywhere will in years to come call the 'the second coming of the gold standard' but actually I have coined a name for this phase that I think is more appropriate. We're now in the "PGS" era or as I like to call it, "The Pseudo Gold Standard" period. Heck, if that eternal optimist from Goldman Sachs Economics team, Jim O'Neill (he's being lined up for the Bank of England Governorship), can achieve eternal recognition, near immortality for coining the phrase "B R I C" (Brazil Russia India China in case anyone has missed it) then please give ME the credit for "PGS". By the way whilst we're at this game I may as well tell you that my friend Mr Finbar Taggit of http://www.fintag.com/ has already coined the abbreviation "P I I S" which I think takes into account the expected ejection of Greece (or is it a retreat?) from the "P I I G S" fiasco. Please don't take exception to "P I I S". I believe it stands for Portugal, Italy, Ireland and Spain who possibly are next up for a wee spot of bother although with spanish banks currently in the doldrums I think Finbar could have chosen the more chronological "S I I P", "S I P I" or perhaps "S P I I". Anyway he's taken the "P I I S" abbreviation and we must all live with it.
"PGS" for the sake of asking is in fact the blatant recognition from 'credit economies' that they'd prefer to back their currencies with bullion whilst the US, UK and all of the old European powers prefer to trash their currencies and economies through the daft and persistent programs known as QE. Just recently the IMF reported the following gold bullion purchases ;- Philippines (32 tonnes), Sri Lanka (2), Turkey (29), Mexico (3), Kazakhstan (2) and Ukraine (1.4). Can anyone spot the anomaly here? No european super-powers and just Ceylon as the former colony. Or the curiosity? Just why would Turkey buy gold and still want to join the EU.....of boy! It seems the developing world understands basic global economics and sensible sovereign governance better than many of our own central bankers, politicians, economists, etc. I'd expect more of the same here for many years to come as (financial, social and military) stress seems to be the order of the day everywhere.
In reference to the titled equation at the top of this blog just what is "PQE" then? Well, it's something else I've just coined. It's called "Personal Quantative Easing" and it goes like this. If say Mervyn King thinks that future generations of Brits are having their jobs and incomes protected through QE then "PQE" may be a valid alternative for those fed up with QE and the lack of growth equating to job creation, etc. QE as we all know creates electronic money in order to buy gilts (UK gov debt) with the idea of injecting liquidity into the financial markets and eventual economy. It's supposed to catalyse bank lending too but since there wasn't any lending to SME's before the crisis started in 2007 I don't see how we can expect to have a banking system designed to stimulate business when actually it has been profiting from the very same businesses the banking industry is and was designed to support. Pretty well since the late '80s all our commercial banks have traded against us not with us. This has been particularly true ironically of the financial services industry as we all know. That subject is for another day.
So if one has cash and one is concerned about the UK economy what does one do with it? Buying gilts has been and is a pointless exercise. They are all horrendously over-priced and only for the brave bar the odd index-linked variety. With official inflation today at c. 3% (from 5%) and possible real inflation ("pri" oh stop it!) nearer to 10% there is little scope for liquid asset protection. Banks are paying zero to a farthing on deposits and current accounts whilst higher risk building societies challenge the bank rate mechanics by offering HIGH RISK RATES without health warnings to countless unsuspecting depositors. Are these cash packages really protected by FSCS £80,000 threshold? Well, time will tell.
No, the extraordinary observation and opportunity is in "PQE". Whilst tax payers annd ordinary citizens stand by to allow QE there is a market methodology all of its own that is being devised as I speak. Starting with the premise that Gold is cheap and going up (see countless sensible analysts and their arguments for this premise) then it is easy to assume that a bonanza in gold shares will ultimately follow. Meanwhile today one can take very little risk in capital markets by purchasing shares (is the risk really any different to government backed guarantees in an horrendous debt enforced environment?) in some of the large producers at rock bottom prices (p/e's in low single digits). For example (note ALL gross yields before tax) Newmont yields 2.87%, Freeport McMoran 3.86%, Agnico Eagle 2.01%, Barrick Resources 2.00% (on LSE African Barrick yields 3.01%, Petropavlovsk 3.25% and Randgold 0.50% by comparison), GoldCorp 1.43% and there are countless others also paying out dividends on a more favourable basis than bank deposits and with the added bonus of a major pick up in prices in the foreseeable future. Much has been stated about the reason for the pricing anomaly but in essence it would appear that our old adversaries at JP Morgan and Goldman Sachs have been shorting gold shares for several years whilst going LONG the gold ETF market. It's feasible that the hedging will get reversed quite soon with new sovereigns openly buying bullion positions. The IMF and UK are just two powers that have virtually exhausted their gold reserves. I'd expect this to be reversed as the penny is indeed dropping. As an aside Newmont has stated that it's dividend policy will reflect the gold price; so if Gold goes say to $3,000pto the dividend should increase pari passu. It's mind boggling to consider though if Gold goes to the top end forecast of $60,000pto. Who said that Gold is NOT a credible investment (or currency) against a derivatives driven banking and capital markets universe? In addition if one's a bull of the oil price similar attractive yields can be found in oil majors right now. Conoco Phillips yield 4.98%, Royal Dutch Shell 5.11%, Encana 3.84% with a host of others offering returns around 2 x (+) higher than current UK and US 10-year yields. DYOR.
So try a bit of "PQE" if you recognise "PGS", you know it will one day make sense and may well get us all out of a rather large hole.
NOTE THIS BLOG IS NOT DEEMED TO BE AN INVESTMENT RECOMMENDATION FOR ANY COMMODITIES OR EQUITIES MENTIONED IN THE ARTICLE.
Thursday, 24 May 2012
FACEBOOK FADEBOOK FACECROOK FUDGEBOOK
I had a call from a lady client a few hours before the Facebook (ticker FB: issue US$38) IPO launch earlier this week. She said that her sister had rung her to suggest that they both participate in Facebook because "it seems such a good idea". What did I think of it? Well, it's the answers to these questions that I get paid for, although NOT for much longer thanks to the Financial Services Authority RETAIL DISTRIBUTION REVIEW (more on RDR later!).
The lady client isn't one of the more fundamental or technically minded type of clients. The sort of conversation that I was preparing in my mind mirrored the type of conversation that most people might have with their dentist. How big is the hole? Quite big. Does it need a filling? Yes. A small one. And before one can comment the dentist has plugged the hole and sent one on one's way.
I told her straight. This is blunt broker speak when one can see a raw deal..."I wouldn't touch it with a barge pole." -"Why?" The lady enquired. "It's on a price/earnings ratio of around 10 times that of Apple or Google and Facebook doesn't in fact make anything. It has limited earnings and is 100% reliant on advertising revenues which could disappear at the flick of an eye if the depression that I think we're beginning to witness gets hold." I should point out at this juncture that for months now I've seen ALL kinds of experts roll up on my Bloomberg TV channel saying what an exciting IPO Facebook is going to be. The bull commentators outnumbered the bear commentators about 5:1. But I didn't need anyone to tell me this because I have pretty compelling experience of knowing how Wall Street operates and more importantly how it is supposed to operate. I then told the lady that I didn't expect to see a large premium over $38 (the pundits were all saying $45-$50), thought that it was too late to get an allocation anyway and on a two year view "I wouldn't be surprised to see FB trading at $5 to $10. It's looking nigh on impossible to monitarise alot of Facebook's traffic." Enough said. The conversation then moved on to more enjoyable topics such as her family and art exhibition. For record I got no business from this conversation and actually didn't achieve any commission either. I wonder how many brokers are left in the business who turn orders away as I had just done! The old brokers who taught me the basics used to always say that broking is 50% business and 50% turning away business BUT this is not how Wall Street works anymore nor indeed what is left of Threadneedle Street.
There's been alot of debate recently about how IPO's (new issues) and Secondaries (these are probably better known as rights issues, placings, entitlement offers) should manifest themselves in the modern world where the internet is such an important aspect to distribution. It's clear that fund-raising and listings everywhere are malfunctioning. Why is this happening? There are regulators and investment banking names with the supposed kudos and credibility to ensure that shareholders are ALL treated the same way on a level playing field. Unfortunately the reality is very different. In 1980's my father, a respected London stockbroker, specialised (note I don't use the word "expert") in US market and at the time there was an abundance of IPO's. Most of the major US players had offices in London but the UK broking business that my father managed was plugged into brokers in Tampa, Minneapolis and a number of other US cities. It was a people's business then and just about every deal had underwriters in New York. The business was very active indeed because in those days the US houses relied on other brokers almost exclusively for distribution outside their own institutions. The pricing mechanism was determined by whether brokers (effectively clients of the US issuing brokers) thought the deal attractive or not. Contrary to a few "experts" that appeared on Bloomberg this week there were quite a few bio-technology stocks floated on Wall Street in '82-'82 period that had p/e ratios (multiples) of 100 x to 200 x earnings. I heard a few times that the Facebook valuation was "unprecedented". It wasn't! The TMT bubble in 2000 often repeated the same experience.
What was different though is that in the modern market these very same Wall Street goliaths need to rely on retail distribution. None of these 3 major underwriters are renowned as retail specialists anyway anymore (Dean Witter had long ago been absorbed into Morgan Stanley). In fact Morgan Stanley rarely need retail at all. It now appears that 25% of the allocation was given to private punters as the Street calls them. This is a big "HELLOOOOO" and why anyone couldn't see this or make a judgement beggars belief. Incidentally because hedge funds now dominate IPO's pretty well everywhere one doesn't need to be a rocket scientist to work out that they'll be on the SHORT SIDE within days or even hours or minutes. The current legal wranglings over financial information are being investigated by SEC but I'd be surprised if Morgan Stanley or any of the underwriters did anything wrong. The scale of the issue was vast but the mechanics are always the same. The order flow delayed the float time but this has happened countless times before and is ONLY delayed to ensure a balanced opening market.
What is needed though is a SEC and FSA review (this is really what regulators should be doing) on how IPO's are distributed. For record I haven't had a call from a single US broker for years and if I did then I know that it's a signal that a deal is probably over-priced and about to be shorted by proprietary desks, hedge funds,etc. What is unforgiveable is to allow thousands of gullible US investors to get fleeced in this way.
An old brokers adage is..... "There is no such thing as an EXPERT"
Even the Greeks had theirs....."Beware of ******* bearing gifts"
"If it's TOO good to be true it usually is"
Facebook. Next stop 10 bucks.
The lady client isn't one of the more fundamental or technically minded type of clients. The sort of conversation that I was preparing in my mind mirrored the type of conversation that most people might have with their dentist. How big is the hole? Quite big. Does it need a filling? Yes. A small one. And before one can comment the dentist has plugged the hole and sent one on one's way.
I told her straight. This is blunt broker speak when one can see a raw deal..."I wouldn't touch it with a barge pole." -"Why?" The lady enquired. "It's on a price/earnings ratio of around 10 times that of Apple or Google and Facebook doesn't in fact make anything. It has limited earnings and is 100% reliant on advertising revenues which could disappear at the flick of an eye if the depression that I think we're beginning to witness gets hold." I should point out at this juncture that for months now I've seen ALL kinds of experts roll up on my Bloomberg TV channel saying what an exciting IPO Facebook is going to be. The bull commentators outnumbered the bear commentators about 5:1. But I didn't need anyone to tell me this because I have pretty compelling experience of knowing how Wall Street operates and more importantly how it is supposed to operate. I then told the lady that I didn't expect to see a large premium over $38 (the pundits were all saying $45-$50), thought that it was too late to get an allocation anyway and on a two year view "I wouldn't be surprised to see FB trading at $5 to $10. It's looking nigh on impossible to monitarise alot of Facebook's traffic." Enough said. The conversation then moved on to more enjoyable topics such as her family and art exhibition. For record I got no business from this conversation and actually didn't achieve any commission either. I wonder how many brokers are left in the business who turn orders away as I had just done! The old brokers who taught me the basics used to always say that broking is 50% business and 50% turning away business BUT this is not how Wall Street works anymore nor indeed what is left of Threadneedle Street.
There's been alot of debate recently about how IPO's (new issues) and Secondaries (these are probably better known as rights issues, placings, entitlement offers) should manifest themselves in the modern world where the internet is such an important aspect to distribution. It's clear that fund-raising and listings everywhere are malfunctioning. Why is this happening? There are regulators and investment banking names with the supposed kudos and credibility to ensure that shareholders are ALL treated the same way on a level playing field. Unfortunately the reality is very different. In 1980's my father, a respected London stockbroker, specialised (note I don't use the word "expert") in US market and at the time there was an abundance of IPO's. Most of the major US players had offices in London but the UK broking business that my father managed was plugged into brokers in Tampa, Minneapolis and a number of other US cities. It was a people's business then and just about every deal had underwriters in New York. The business was very active indeed because in those days the US houses relied on other brokers almost exclusively for distribution outside their own institutions. The pricing mechanism was determined by whether brokers (effectively clients of the US issuing brokers) thought the deal attractive or not. Contrary to a few "experts" that appeared on Bloomberg this week there were quite a few bio-technology stocks floated on Wall Street in '82-'82 period that had p/e ratios (multiples) of 100 x to 200 x earnings. I heard a few times that the Facebook valuation was "unprecedented". It wasn't! The TMT bubble in 2000 often repeated the same experience.
What was different though is that in the modern market these very same Wall Street goliaths need to rely on retail distribution. None of these 3 major underwriters are renowned as retail specialists anyway anymore (Dean Witter had long ago been absorbed into Morgan Stanley). In fact Morgan Stanley rarely need retail at all. It now appears that 25% of the allocation was given to private punters as the Street calls them. This is a big "HELLOOOOO" and why anyone couldn't see this or make a judgement beggars belief. Incidentally because hedge funds now dominate IPO's pretty well everywhere one doesn't need to be a rocket scientist to work out that they'll be on the SHORT SIDE within days or even hours or minutes. The current legal wranglings over financial information are being investigated by SEC but I'd be surprised if Morgan Stanley or any of the underwriters did anything wrong. The scale of the issue was vast but the mechanics are always the same. The order flow delayed the float time but this has happened countless times before and is ONLY delayed to ensure a balanced opening market.
What is needed though is a SEC and FSA review (this is really what regulators should be doing) on how IPO's are distributed. For record I haven't had a call from a single US broker for years and if I did then I know that it's a signal that a deal is probably over-priced and about to be shorted by proprietary desks, hedge funds,etc. What is unforgiveable is to allow thousands of gullible US investors to get fleeced in this way.
An old brokers adage is..... "There is no such thing as an EXPERT"
Even the Greeks had theirs....."Beware of ******* bearing gifts"
"If it's TOO good to be true it usually is"
Facebook. Next stop 10 bucks.
Tuesday, 22 May 2012
The London Stock Exchange is in an unholy mess Mr Cameron, sort it out NOW please
Dear Mr Cameron
The old Stock Exchange Members book of 1973-74 (I'm sure your family still have a copy in your possession after your late father's exploits at Panmure Gordon & Co) 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 FSA and CISI (APCIMS are the only ones who can hold their heads up at these difficult times) 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 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 found out by chance over the weekend. 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 as Mr Osborne has correctly pointed out. No, the secret ingredient is "HEART" Mr. Cameron.
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 coalition 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 and now FSA towards FCA already known as "fuCA" and other hydras) 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 Plus 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 FSA doctrine that is called mildly 'The Retail Distribution Review'. Thousands of brokers will be wiped out by this (including myself) 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 55 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 Mr. Cameron. 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 taxpayers or workers.
Incidentally I'm still awaiting your response to my previous communications regarding FSA and RDR. I hope that you might have the decency this time to respond to my concerns.
Yours
Richard Hoblyn
The old Stock Exchange Members book of 1973-74 (I'm sure your family still have a copy in your possession after your late father's exploits at Panmure Gordon & Co) 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 FSA and CISI (APCIMS are the only ones who can hold their heads up at these difficult times) 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 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 found out by chance over the weekend. 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 as Mr Osborne has correctly pointed out. No, the secret ingredient is "HEART" Mr. Cameron.
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 coalition 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 and now FSA towards FCA already known as "fuCA" and other hydras) 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 Plus 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 FSA doctrine that is called mildly 'The Retail Distribution Review'. Thousands of brokers will be wiped out by this (including myself) 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 55 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 Mr. Cameron. 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 taxpayers or workers.
Incidentally I'm still awaiting your response to my previous communications regarding FSA and RDR. I hope that you might have the decency this time to respond to my concerns.
Yours
Richard Hoblyn
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