Wednesday 19 December 2012

Hector the bureaucrat slayer

The FT reports that Barclays have announced the appointment of Hector Sants to their executive board as  a measure to ward off evil from bureaucrats;

“The package will make the former chief executive of the Financial Services Authority, who is set to become Barclays’ head of compliance and government relations at the end of January, one of the 10 best-paid executives at the UK lender.”

I applaud Barclays on having the honesty to put ‘government relations’ in Hector’s job title! Much more brazen than the sort of shady nomination that Tony Blair got as a “senior advisor” at JPMorgan. Barclays are going out and calling a spade a spade.

More interestingly Hector has a pay package to the tune of up to £3m including LTIP bonuses. Bizarrely Barclays make the following statement;

“Barclays would not comment on the figures, but pointed out that executives’ LTIPs had paid out at only 37 per cent of the maximum over the past five years.”

This does try to diffuse the pay debate  but it rather insinuates that present management are incompetent at meeting their goals?

Tuesday 18 December 2012

Sensationalism

If ever proof were needed that financial journalists are biased, stupid or both the Telegraph has a wonderful confirmation out today.

The subheading reads;

"Apple's share price has dropped below the $500 threshold for the first time since February, fuelled by fears that the world’s biggest company is starting to lose its shine."

This sounds bad - perhaps a clear technical support has been broken? The stock falling is fuelled by fears! ooooh! But wait the facts lie below;

"Analysts warned Apple could be losing momentum as it briefly slipped as low as $497 in pre-market trading. It returned to $508.92 before the markets opened and closed at $518.83."

In what way is this article not misleading? The stock closed up 1,77% and traded in illiquid premarket at $497. I love how journalists are always the last to the party on these stories right behind my favourite lagging indicator; the sell side analyst (of which she quotes plenty).

It is pretty obvious that any darling momentum stock that consistently beats earnings will one day dissapoint. But never fear because Katherine Rushton is there to stick the knife in a twist the actual facts to support her bearish conclusion. Misrepresenting opinion for fact. Who would have thought it?

Monday 17 December 2012

Newspeak

FT Alphaville has a good comment today indicating the great perils awaiting China with its broken social model. Most noteworthy to my mind is the newspeak which creeps out of the government to soothe the media and analysts with popular buzzwords;

"China’s central bank has called its monetary policy “prudent” since late 2010 even as it has swung back and forth from extremely loose to relatively tight and back to relatively loose again.

Fiscal policy has been “proactive” since late 2008, when Beijing unveiled a Rmb4tn stimulus package in reaction to the global financial crisis but no economists expect the government to launch anything near that kind of response in the foreseeable future."

It sounds like the allusions are all getting a bit stale. Perhaps they need a crack consulting team from the Daily Mail to help them up the hyperbole in their statements.

Wednesday 28 November 2012

More evidence that the reality tapes were switched

The BBC has a rather odd news item today from the land of European disciplinarians and moralising creditors. Two things rather stand out in this article;

First is that sex with animals was ever made legal in Germany.

"Germany legalised bestiality (zoophilia) in 1969, except when the animal suffered "significant harm"."

Who lobbied for this law?

The other thing that makes me wonder is the comment from a self-professed zoophile;

"Michael Kiok, the chairman of the pressure group Zoophile Engagement for Tolerance and Information (Zeta), said he was going to take legal action to fight the proposed changes.

"We see animals as partners and not as a means of gratification. We don't force them to do anything. Animals are much easier to understand than women," Mr Kiok claimed."

Whilst I do concur with Mr Kiok on the latter point I can’t see this as a legitimate reason to abandon attempts at fornication with the fairer sex in favour of creatures who will never realise that the reflection in the mirror is themselves.

If this story wasn’t about Germany and wasn’t so utterly bizarre I would definitely be checking my diary for April 1.


Portfolio Update November 2012


Another update to talk my own book on my current personal positions and the why I hold them. I like to think of my portfolio as a way to outperform cash so Im looking for total returns and the key is capital preservation.


SBRY: I topped up some SBRY in June which was a great decision. Since then the stock as gone vertical up 60p to £3.50. Sainsburys is way ahead of Tesco in terms of store quality and home delivery and its outperforming both Tesco and Morrisons. It now looks fairly valued to me unless bid rumours start to resurface but Ill continue to collect my healthy dividend yield and reinvest.


Pandora A/S: I sold out of this completely a few months back around the 80DKK mark. I am of course gutted to see it now trading up at 118DKK which would have been a 200% return rather than the 60-100% return I saw on my sales. Still one can’t be too greedy.


RSA: This stock still just looks cheap to me as it’s a good franchise, internationally diversified and it throws off cash. Dividend yield looks fantastic and is much better than this renewed wave of buy-to-let for income optimism since the yield on RSA is better and one can sell a stock in an instant with no material fees. The UK fetish for all things property continues unabated however.


BBd/B: This stock has continued to languish below $CAD  4 per share which is a shame. Hence I’m nursing a loss here but this still looks like a solid industrial to me which actually makes things that people, companies and governments need. So much so that I bought some more shares around the $CAD  3.3 mark this month. It has continued to decline until yesterday when a massive new order for small jets was announced setting off an 8% rally.  At 7x forward P/E this looks too cheap to me.


ABX: I bought into Barrick Gold during July at $36 and $33 per share because it frankly looked very cheap for a mega cap miner albeit it one suffering from a lack of momentum in the gold price. Since then the stock was doing well but realtively poor results in Q3 caused a significant drop. Im around break even here but I still think it looks cheap albeit not ridiculously so. I continue to like its exposure to gold as most of the mines are in locations which are not politically dangerous or difficult (mines in Nevada rather than South Africa).


FGP: I bought some FirstGroup shares the day after their bid on the west coast mainline was cancelled. I take the view that not winning that bid was a good thing as they had overpaid. It looks to me like it could easily pickup a bit from here with bad news priced in but not my idea of long term fundamental holding. Currently it just lacks a catalyst to see it rerate toward sector peers.


MAYG: I bought shares in May Gurney after their profit warning in September as the stock looked cheap at 4x fwd P/E (it still does; 6x fwd P/E with a 5% yield) with low financial leverage and the bad news seemed well priced in. An intraday drop of >40% seemed like an overreaction to what was basically some poor management decisions. I bought into the shares at £1.32 and £1.20. I sold all my shares this month for a tidy 27% profit at £1.60. I was a bit early as they rallied as high as £1.77 but again to my mind this isn’t a great company it just had an oversold valuation.


Performance has been down a bit with the market and ABX suffering and I’m measuring on a period of around 18 months since April 2011 during which time my total return has been 20.3% to date. My only realised loss was 6% on a short platinum ETF. I have had a dividend yield of 1.73%, realised gains of 20.4% and unrealised losses are currently 1.9% overall. The biggest contributor to my returns has been Pandora where I saw gains of more than 65% overall across my sales.


Current unrealised gains:


SBRY and RSA


Current unrealised losses:


ABX, BBd/B and FGP


Caveat: Clearly I have a financial interest in these investments and this post relates solely to my personal investment positions. It is in no way a solicitation to buy or sell these investments nor does it constitute advice to do so.

Thursday 15 November 2012

Living in a glass house and throwing stones

It started with the bankers. The bankers were to blame for the great crisis of 2008 with their greed and their slick suits. The politicians were quick to stick the knife in apportioning blame (their favourite pastime) across those evil and greedy bankers.

But alas their moment in the sun was short lived as the expenses scandal revealed they too had been living high on the hog flipping homes all over the place and building moats or bathing in champagne or whatever the media decided was an exciting and controversial waste of public funds.

Now having thrown their stones the media too are enjoying their day under the glare of the limelight for many forms of questionable ‘news’ reporting around the Jimmy Savile borefest and a flurry of online name dropping.

The most important question is who next? Probably the general public who like to spend their days blaming others for their problems and tweeting gossip. So to get ahead of the curve I might start punching myself in the face.

Friday 9 November 2012

The power of suggestion

From where we stood, the top of the hill was not so round and smooth as it had seemed to be from the distance. There was a cave, or a hole, near the top. I looked at it fixedly because don Juan was doing the same. Another strong gust of wind sent a chill up my spine. Don Juan turned towards the south and scanned the area with his eyes.

"There!" he said in a whisper and pointed to an object on the ground. I strained my eyes to see. There was something on the ground, perhaps twenty feet away. It was light brown and as I looked at it, it shivered. I focused all my attention on it.

The object was almost round and seemed to be curled; in fact, it looked like a curled up dog. "What is it?" I whispered to don Juan. "I don't know, " he whispered back as he peered at the object. "What does it look like to you?"

I told him that it seemed to be a dog.

"Too large for a dog, " he said matter-of-factly.

I took a couple of steps towards it, but don Juan stopped me gently. I stared at it again. It was definitely some animal that was either asleep or dead. I could almost see its head; its ears protruded like the ears of a wolf. By then I was definitely sure that it was a curled-up animal. I thought that it could have been a brown calf. I whispered that to don Juan. He answered that it was too compact to be a calf, besides its ears were pointed.

The animal shivered again and then I noticed that it was alive. I could actually see that it was breathing, yet it did not seem to breathe rhythmically. The breaths that it took were more like irregular shivers. I had a sudden realization at that moment.

"It's an animal that is dying, " I whispered to don Juan.

"You're right, " he whispered back. "But what kind of an animal?"

I could not make out its specific features. Don Juan took a couple of cautious steps towards it. I followed him. It was quite dark by then and we had to take two more steps in order to keep the animal in view.

"Watch out, " don Juan whispered in my ear. "If it is a dying animal it may leap on us with its last strength." The animal, whatever it was, seemed to be on its last legs; its breathing was irregular, its body shook spasmodically, but it did not change its curled-up position. At a given moment, however, a tremendous spasm actually lifted the animal off the ground. I heard an inhuman shriek and the animal stretched its legs; its claws were more than frightening, they were nauseating. The animal tumbled on its side after stretching its legs and then rolled on its back. I heard a formidable growl and don Juan's voice shouting,

"Run for your life!"

And that was exactly what I did. I scrambled towards the top of the hill with unbelievable speed and agility. When I was halfway to the top I looked back and saw don Juan standing in the same place. He signalled me to come down. I ran down the hill.

"What happened?" I asked, completely out of breath.

"I think the animal is dead, " he said.

We advanced cautiously towards the animal. It was sprawled on its back. As I came closer to it I nearly yelled with fright. I realized that it was not quite dead yet. Its body was still trembling. Its legs, which were sticking up in the air, shook wildly. The animal was definitely in its last gasps. I walked in front of don Juan. A new jolt moved the animal's body and I could see its head. I turned to don Juan, horrified. Judging by its body the animal was obviously a mammal, yet it had a beak, like a bird.

I stared at it in complete and absolute horror. My mind refused to believe it. I was dumbfounded. I could not even articulate a word. Never in my whole existence had I witnessed anything of that nature. Something inconceivable was there in front of my very eyes. I wanted don Juan to explain that incredible animal but I could only mumble to him. He was staring at me.

I glanced at him and glanced at the animal, and then something in me arranged the world and I knew at once what the animal was. I walked over to it and picked it up. It was a large branch of a bush. It had been burnt, and possibly the wind had blown some burnt debris which got caught in the dry branch and thus gave the appearance of a large bulging round animal. The color of the burnt debris made it look light brown in contrast with the green vegetation.

I laughed at my idiocy and excitedly explained to don Juan that the wind blowing through it had made it look like a live animal. I thought he would be pleased with the way I had resolved the mystery, but he turned around and began walking to the top of the hill.

"What you've done is no triumph, " he said. "You've wasted a beautiful power, a power that blew life into that dry twig." He said that a real triumph would have been for me to let go and follow the power until the world had ceased to exist.

I felt embarrassed. I began to apologize for my tendency of always being so sure of my ways. "It doesn't matter, " he said. "That branch was a real animal and it was alive at the moment the power touched it. Since what kept it alive was power, the trick was, like in dreaming, to sustain the sight of it. See what I mean?" In a controlled fashion, without losing my mind or becoming deranged with excitation or fear, I should have striven to "stop the world."

Carlos Castenda, Journey to Ixtlan

Thursday 25 October 2012

Portfolio Update October 2012

Another update to talk my own book on my current personal positions and the why I hold them. I like to think of my portfolio as a way to outperform cash so Im looking for total returns and the key is capital preservation.

SBRY: I topped up some SBRY in June which was a great decision. Since then the stock as gone vertical up 60p to £3.50. Sainsburys is way ahead of Tesco in terms of store quality and home delivery and its outperforming both Tesco and Morrisons. It now looks fairly valued to me unless bid rumours start to resurface but Ill continue to collect my healthy dividend yield and reinvest.

Pandora A/S: I sold out of this completely a few months back around the 80DKK mark. Its since managed to trade a bit higher but I don’t think there is a lot of value left there since reliable female sources inform me the brand is very yesteryear.

RSA: This stock still just looks cheap to me as it’s a good franchise, internationally diversified and it throws off cash. Risks for this are obvious; it is a European financial in a mega low rate environment so could get blown around by further chatter regarding the glacial unfolding of the euro area collapse. It is also a global insurer so all kinds of catastrophes pose a risk to medium term underwriting results. Still enjoying collecting my dividends and reinvesting this one.

BBd/B: This stock has continued to language below $CAD  4 per share which is a shame. Hence I’m nursing a small loss here but this still looks like a solid industrial to me which actually makes things that people, companies and governments need.

ABX: I bought into Barrick Gold during July at $36 and $33 per share because it frankly looked very cheap for a mega cap miner albeit it one suffering from a lack of momentum in the gold price. Since then the stock has done well off the back of QE and I continue to like its exposure to gold as most of the mines are in locations which are not politically dangerous or difficult (mines in Nevada rather than South Africa).

FGP: I bought some FirstGroup shares the day after their bid on the west coast mainline was cancelled. I take the view that not winning that bid was a good thing as they had overpaid. Since then I’m nursing a small loss on these shares as FGP continues to languish. The issue is FirstGroup is a relatively weak company financially (it probably needs to raise capital) and managerially (the CFO is actually called “Tim O’Toole”!).  However FGP is also very cheap and suffocating under a weight of negative newsflow. Looks to me like it could easily pickup a bit from here with bad news priced in. But not my idea of long term fundamental holding.

MAYG: I bought shares in May Gurney after their profit warning in September as the stock looked cheap at 4x fwd P/E (it still does; 6x fwd P/E with a 5% yield) with low financial leverage and the bad news seemed well priced in. An intraday drop of >40% seemed like an overreaction to what was basically some poor management decisions. I bought into the shares at £1.32 and £1.20. I wish id been available to trade on the 12th September when these shares bottomed at 99p. Since then we had a favourable trading update for H1 (quelle surprise) and the stock has picked up. Again not my idea of long term fundamental holding but it looks good on a ‘special situations’ basis.

These kind of stocks can sometimes be very attractive especially small caps like MAYG or hot issue darlings who disappoint like Pandora as all the institutional money dumps them at the same time shutting the gate on a bolted horse leaving some pretty obvious value on the table for investors who don’t have to answer to any client but themselves. This is an arena where individual investors can easily beat the market because the market is herding. Forget about high frequency traders the long term fundamental value is what matters here.

Performance has been good and I’m measuring on a period of around 18 months since April 2011 during which time my total return has been 24% to date. My only realised loss was 6% on a short platinum ETF. I have had a dividend yield of 1.6%, realised gains of 16.9% and unrealised gains are currently 5.6% overall. The biggest contributor to my returns has been Pandora where I saw gains of more than 65% overall across my sales.

Current unrealised gains:

ABX, MAYG, SBRY and RSA

Current unrealised losses:

BBd/B and FGP

Caveat: Clearly I have a financial interest in these investments and this post relates solely to my personal investment positions. It is in no way a solicitation to buy or sell these investments nor does it constitute advice to do so.

Tuesday 23 October 2012

Transience


How long does a lifetime last? If one stops to consider, it is like a single night’s lodging at a wayside inn. Should one forget that fact and seek some measure of worldly fame and profit? Though you may gain them, they will be mere prosperity in a dream, a delight scarcely to be prized. You would do better simply to leave such matters to the karma formed in your previous existences.

Once you awaken to the uncertainty and transience of this world, you will find endless examples confronting your eyes and filling your ears. Vanished like clouds or rain, the people of past ages have left nothing but their names. Fading away like dew, drifting far off like smoke, our friends of today too disappear from sight. Should you suppose that you alone can somehow remain forever like the clouds over Mount Mikasa?

The spring blossoms depart with the wind; maple leaves turn red in autumn showers. All are proof that no living thing can stay for long in this world. Therefore, the Lotus Sutra counsels us, “Nothing in this world is lasting or firm but all are like bubbles, foam, heat shimmer.”

- The Writings of Nichiren Daishonin, 1263

Monday 22 October 2012

Quis custodiet ipsos custodes


“Mr Brennan also insists that the administration adopts “rigorous standards and process of review” when deciding who to target “outside of the ‘hot’ battlefield of Afghanistan”. The New York Times has reported that Mr Obama personally approves the names on the “kill list”.

As Georgetown University legal scholar Rosa Brooks put it recently:“That amounts, in practice, to a claim that the executive branch has the unreviewable power to kill anyone, anywhere, at any time, based on secret criteria and secret information discussed in a secret process by largely anonymous individuals.””


“The divine right of kings, or divine-right theory of kingship, is a political and religious doctrine of royal and political legitimacy. It asserts that a monarch is subject to no earthly authority, deriving the right to rule directly from the will of God. The king is thus not subject to the will of his people, the aristocracy, or any other estate of the realm, including the Church. According to this doctrine, only God can judge an unjust king. The doctrine implies that any attempt to depose the king or to restrict his powers runs contrary to the will of God and may constitute a sacrilegious act.”

In the end there is no absolute rule of law, no guard watching over the guards.

Sadly there is only might and might makes right. To the victors; the spoils and the spin.

Friday 12 October 2012

Ok, who switched the tapes…

 I am now convinced that sometime in the last week somebody switched over the news and put in the “fiction” tape. This is the only explanation I can arrive at to explain recent events.

We have entered the twilight zone.

Obama tries to keep a straight face.
The EU gets the Nobel peace prize! If I were a respectable former holder like Yasser Arafat, David Trimble or Barrack Obama (who won for not being George Bush) I would be disgusted at this blatant devaluation of my Nobel peace prize. Clearly the central bank of Nobel has gone on its own QE splurge to award the most absurd prize to the most absurdly vast number of people possible. Well done you brave 500 million people living on something which is not a real ‘continent’ who apart from the odd skirmish have managed not to annihilate each other in death camps for 60 years.

Meanwhile in the domestic news we can see that Jimmy Savile is rapidly being erased from history except news footage of him in shorts from the 1970s;

“The removal of the headstone comes days after a footpath sign in Scarborough commemorating Savile was taken down by the borough council.

A plaque outside his flat in Scarborough was also removed last week after the words "rapist" and "paedophile" were written on it.

Leeds City Council has taken Savile's name off an inscription on a wall commemorating high profile citizens at the city's Civic Hall.

Officials at the Royal Armouries International events centre in Leeds have confirmed they will rename their Savile's Hall site, named in honour of the late presenter, "out of respect" for public opinion.”

For some reason nobody thought this guy was weird when he kept a shrine to his mother whom he referred to as “the duchess.” I could have told you at 6 years old I thought Jimmy Savile was sinister because hopefully I wasn’t alone in finding ‘Jim’ll Fix It’ unbelievably disturbing.

Now would someone please turn reality back on because this is all getting a bit too weird.

Tuesday 18 September 2012

Misinformed

The Boris bus has long been a bone of contention for the dogs on either the red or blue sides of the mayoral camp to bitch over. Exciting new news means that there will be more of these slightly doe-eyed and asymmetrically bottomed scandal-buses about in London over the next few years and not just running to Hackney.

Yes according to the BBC it seems TFL want to build 600 of the Boris babies at a cost of £180m which equates to around £300k per bus. Now Tom Edwards asks you to twitter him;

“Let me know what you think about the new bus and if it's worth the money.”

But how can you, a lowly soul in this ill informed world possibly make such a judgement. Is it worth the money? I had to do a seriously extensive google search to find out the cost of a ‘normal’ london bus amongst a million hits for the costs of bus fares. I found this gem from the propaganda bureau;

“But in an open letter to the mayor, Labour MP for Tottenham David Lammy said each new bus costs £1.4m compared with the conventional double-decker bus which costs about £190,000.”

So at least I have a sample of one figure which suggests built to scale of 600 each Boris bus is 58% more expensive than a normal bus. With so few buses the current cost is £1.4m each.  Alas I’m not sure I should trust Lammy who clearly is either a demagogue or a moron;

"Riding this bus is surely the most expensive bus ticket in history," he said.
"With 62 seats at a cost of £1.4m, the cost per seat is £22,580. At £22,695, you can buy a brand new 3 series BMW."

Lammy presents us with the most useless statistic. I could buy a BMW for the cost of a seat but since people don’t buy private seats on a bus the comparison is totally meaningless. This is the kind of totally pointless bit of arithmetic poisoning what should be a reasoned debate on whether the bus represents value for money vis-à-vis other buses in London. Note also how Lammy used a BMW instead of say a VW just to demonstrate a little ‘class warfare’.

Whether the longer term savings in fuel and leasing costs justify the 58% higher capex of the Boris bus only time will tell. But I cannot possibly answer that question when the information surrounding the ‘debate’ is totally opaque and the level of political discourse frankly retarded.

Wednesday 29 August 2012

Living in the twilight of democracy...

The end result of complete cellular respiration is cancer. Democracy is cancerous, and bureaus are its cancer. A bureau takes root anywhere in the state, turns malignant like the Narcotic Bureau, and grows and grows, always reproducing more of its own kind, until it chokes the host if not controlled or excised. Bureaus cannot live without a host, being true parasitic organisms.

Bureaucracy is wrong as a cancer, a turning away from the human evolutionary direction of infinite potentials and differentiation and independent spontaneous action to the complete parasitism of a virus.

Bureaus die when the structure of the state collapse. They are as helpless and unfit for independent existence as a displaced tapeworm, or a virus that has killed the host.

William Burroughs - Naked Lunch (1959)

Friday 10 August 2012

The red devil in the detail

The FT has some detail on the Manchester United FC IPO today. This must be one of the worst IPO opportunities in modern times. Lest we forget;
  • The Glazers maintain 99% of the voting rights by issuing the new deceptively titled "A Shares" with only 1/10th the voting power of the greater "B Share". This is typical newspeak from a people that tried to nuance the meaning of things like used cars by calling them "preowned" as if this endowed some exclusivity.
  • The Glazers couldn't even flog the stock to Asian investors (twice!) who actually know that Manchester United play football as opposed to 'soccer'.
  • The IPO has fallen off the bottom of the range and is still a rip off. 4.6x estimated Sales when you can buy Junventus for 0.5x according to Bloomberg (I am sure Juve have more debt though). I mean would you pay 230x trailing P/E to own a powerless share in a highly fickle and cyclical business which is run expressely for the enrichment of players and their agents. Even the trailing P/E of facebook at the moment is a modest 45x.
  • These kind of big name IPOs are always a sign of the times as owners try to cash out ahead of a substantial deceleration in their business prospects. This is no different from Facebook this year, Blackstone in 2007 or Petrobras in 2009.
The fact this deal has gone through at all is proof that American investors will buy just about anything.
My favourite titbit from the FT was the following;

"Also, the company has indicated that it may provide limited financial disclosure for US investors as it is raising capital as an “emerging growth” company under the recently passed US legislation Jumpstart Our Business Startups, or Jobs Act.

The law means a company can be exempted from attesting to its internal financial controls and will not be required to file quarterly reports or release information under generally accepted accounting principles for five years."

Governments set themselves up to get exploited in this way. As if a 100 year old UK based football club employing a bunch of young men on £30m a year a-piece is doing anything to jumpstart US business growth or secure new jobs. Football clubs are a funnel for dumping investors cash into Bentley dealerships via a select number of prima donna blokes in shorts who kick balls about.

On this news I would be;
  • Short: MANU, Americans
  • Long: Asian investors, VW (Bentley/Porsche/Audi Q7)

Monday 23 July 2012

London under seige

“Go back to bed, America. Your government has figured out how it all transpired. Go back to bed, America. Your government is in control again. Here. Here's American Gladiators. Watch this, shut up. Go back to bed, America. Here is American Gladiators. Here is 56 channels of it! Watch these pituitary retards bang their fucking skulls together and congratulate you on living in the land of freedom. Here you go, America! You are free to do what we tell you! You are free to do what we tell you!”

― Bill Hicks

Replace America with 'Great Briton' and American Gladiators with the 'Olympic Games'.

News flash

The games lanes causing havoc in London!

This morning I arrived at Tottenham Court Road to hear that due to 'a person under a train' westbound services were suspended.  People often quite irritatingly clamber under tube trains. I do wonder what they do down there.

Fortunately I was going eastbound however I am also somewhat retarded and mistook east for west thus I hurried out of the tube and planned to 'bus it' down new oxford street (A40). Only something strange had happened and it appeared the street had been turned into a bus stand. The street all the way down to Holborn was stationary in all directions (so I walked) .

I suspect an Olympic sized fuck up may have occured. The traffic was so bad even cyclists were stuck.

But alas I was not alone it seems as thousands of people driving into London encountered a fabulous British phenomenon; a large queue. The BBC's Tom Edwards offered some 'profound' analysis;

"What TfL are trying to do is control the amount of traffic that gets onto the Olympic Route Network to - their words - "protect the venues".

What that does in reality is force traffic out of town.

This wasn't a mistake, this wasn't a one-off and it wasn't a freak occurrence. This is part of the plan and it will only get worse when the other Games Lanes are activated on Wednesday. "

Now few sane people attempt to commute into London by car anyway but I suspect much of the traffic is commerical bringing supplies and services into the capital. Is it part of the Olympic plan to starve London in a modern twist on the medieval siege?

Still best not let the 14 million people living in London get in the way of the IOC private party. Alas I hope the delays on the A13 mean their oysters are rather spoiled.

More and more I must agree that these London Olympics look like an event one would have in a Totalitarian state. They make Beijing and their fake singing girl and fake fireworks look rather tame.
;

Friday 20 July 2012

Henderson release flawed PR


Henderson's economist Simon Ward is here to tell us all that UK housing is just 'a-ok' with a tasty piece explaining why house prices are roughly at fair value.

Simon starts by explaing how the typical measure of affordability; price/income is not representative of housing valuation. Lets give it a whirl;

"A national accounts version of this metric is the value of the housing stock divided by aggregate household disposable income. This stood at 4.31 at the end of 2010, 52% above the average of 2.84 since 1965.

The 'equilibrium' level of prices relative to earnings, however, has trended higher over time as rising demand – due to an expanding population, a fall in average household size and the tendency to spend more on accommodation as income increases – has clashed with inelastic supply."

Now to a certain extent the idea that the ratio has been driven higher over time is true in so far as demand has risen and no houses have been built. This UK national ratio also masks regional differences for instance in London house prices are more like 8x income. Bubbles anyone?

But there is another more important factor at play here and it is called leverage. As the only leveraged investment available to UK plebs housing also offers the ability to increase in value as borrowing costs fall. A structural 20 year reduction in interest rates since the early 1990's (incidentaly the last UK property crash point) has made borrowing ever increasing amounts of money more affordable. Today rates for some trackers are below 2% and with 4/10 mortages being interest only im hardly surprised property is still affordable for those with such existing products.

So on measure no.1 Ward totally ignores the real driver of this changing ratio and tries to explain why this ratio should not remain constant whilst then citing another ratio as a constant;

"A superior valuation metric is the ratio of prices to rents or its inverse, the rental yield. Rents already incorporate fundamental influences on housing demand and supply. People need to live somewhere – the choice is between buying your own home or renting, not between spending money on housing or retaining income for other purposes."

Now ward has a point here since the cost of renting vs buying should never deviate greatly being a relative measure. However why should it not also change over time with increased demand for flexibility or other structural factors. Alas this is not explored.

"A national accounts version of the rental yield is the sum of actual and owner-occupied imputed rents divided by the value of the housing stock. This finished 2010 at 3.56% – almost exactly in line with its average since 1965, of 3.57%.

The yield reached a low of 2.77% in September 2007, consistent with house prices being overvalued by 29% (the percentage deviation of 3.57 from 2.77). This excess, however, has been eliminated by a combination of a 5% fall in prices – according to the Department of Communities and Local Government index – and a 24% rise in rents."

Oh dear. You can argue that buying compared to renting will give a relative measure of the affordability of one versus the other since said ratio is not an absolute measure. Therefore just because rents have risen 24% it does not mean house buying is affordable given it has fallen only 5%. It simply means housing across the board has all become more unaffordable everywhere.

We may have discovered that rare breed; a one handed economist! The lack of joined up thinking here is palpable;

"The statement that housing is not expensive does not, of course, preclude a fall in prices to an undervalued level, for example if a shock to household income resulted in forced selling. Displaced owner-occupiers, however, would add to the demand for rented accommodation. Any downside for prices from current levels is likely to be temporary and limited as long as rents continue to increase solidly."

Here our one handed economist has missed the point. When those who cannot afford their homes have them repossesed a surplus appears in the market. This surplus drives down the value of the existing stock of homes. Those stuck renting see the purchasing power of their deposit rise and move out and buy the now more affordable homes just as those who suffer repossesion move into the rental market. Rents do not rise forever.

The only reason housing is not now affordable in the UK against say the US is that homes have not been repossed due to (a) more people retaining their jobs and hence income during the recession (b) more floating rate mortgages linked to the BoE base rate alongside prices remaining robust due to (c) a less fraudulent lending bubble and (d) lack of supply due to planning controls.

Until repossessions rise prices remain above the level at which the market clears and illiquidty reigns.

Tuesday 10 July 2012

Joseph Rowntree grabs headlines

The JRF has been busy updating their survey of how poor all poor people are. 

 A cursory glance of their survey details that they needn’t have bothered since their headline grabbing rise in the minimum income standard is driven solely be the following;

“Over the period as a whole, the joint amount that a couple with two children needs to earn in order to make ends meet has risen by £5,000 a year, after inflation. Without the need for a car, this earnings requirement would have stayed about the same in real terms. However, this is the product of many different factors, some causing earnings requirements to rise, and others causing them to fall.”

The JRF have been busy in their little microcosm of life up in Loughborough a UK town renowned for being the home of nothing. They used many skills to try to communiate with local people and there are some admirable quotes which English speakers should be able to translate;
"Nowadays branded ain’t like when we were kids and it was all designer because T. K. Maxx sells all last season’s don’t it?
– Father, Loughborough"

They have even discovered that living on benefits one cannot meet the MIS. This is a terrible injustice as clearly anybody without a job should have certain rights and privileges. Things are especially tough if you are a loner:

“The substantial increase in the MIS budgets for families with children has caused an erosion in the adequacy of their benefits, especially for lone parents. A lone parent with one child gets 59 per cent of what the family needs through benefits, compared with 68 per cent in 2008. For a couple with two children, the fall has been smaller, from 63 to 60 per cent.”

However the real crux to my mind as Londoner is they set the whole survey in the East Midlands for council housing tenants. It is a well known fact that nobody lives in the East Midlands and nobody can expect to get a council house in the next century if they don’t already have one since the government has been gifting them away to voters for paltry sums for 25 years.

“Applying the low-cost category principle to rent, we have used an average of social rents for each appropriate property type in the East Midlands as a benchmark. While many people do not have the opportunity to live in council housing, a significant proportion of people, especially on low incomes, live in some form of social housing. Social rents in the East Midlands are below average for the country, but this is not the cheapest region.”

I’m continually astonished that these surveys decline to address the real cost issue for British people; housing and the lack thereof (and to a lesser extent childcare which is related in that women are all working to help pay off the mortgage). The chronic lack of housing particularly in the south east and the rise of buy-to-let has permanently raised the rent required for people to simply live under a roof. I hear people chirping about the globalization effects on wages and the price of food and fuel but all we need is a 20% cut in the price of all housing across the board to substantially raise living standards.  I’ll happily take a pay cut and become more competitive if I can waste less of my income handing it to the UK rentier class who produce no productive value at all (be it a bank getting its interest or a landlord his rent; same thing).

Id love to see the JRF MIS for a family with 2 children in London with no benefits/social housing due to their 'middle' income jobs. They might have to draw a new line for relative poverty as I suspect those in the East Midlands on the social are having a better time of it.

Let’s have a go using the national costs plus london rent and childcare (from p.46);

MIS ex rent/Childcare; Couple, 2 Children; £454 p.w (p.46)
Rent in Zone 4 (Finchley for 3 bed semi); £400 p.w
Childcare for London inner per the survey (p.25); £130 x 2 Children = £260
Zone 4 travel cards commuting: 2 x £41 = £82
Total MIS; £1,196 p.w = £62,192 p.a

Annual Middle Income Wages: 2x (Gross £30,000, after tax =  £22,762) = £45,524p.a which is £875 p.w.

Meeting the % of MIS; 875/1196 = 73%.

I could achieve 60% of the MIS doing FA sat on my backside in Derby.

In order to meet my London MIS you would need £62k after tax which requires each of the couple to be earning £42k p.a. That means you need 2 professional salaries (or two tube drivers) to achieve the MIS.

If a couple both working full time with 2 Children can live barely above the poverty line in London it seems pretty obvious where the bulk of the costs are coming from. The MIS decomposes as;

  • 33% Rent
  • 22% Childcare
  • 38% Other inc Car
  • 7% Public Transport
55% of all MIS is occuring in areas which add absolutely no economic value to the UK economy and demand for goods and services.

Note in real terms 46% of all income earned (£875 p/w) is being spent on rent and 30% on Childcare meaning this family has just 24% of its earnings or £210p/w to spend on food, fuel and everything else.

I suspect the only reason politicians harp on so much about food and fuel is this is what old folks (being the largest block that actually votes) moan about since they own their homes outright as they bought them for 10p in the 1970’s but now they are suffering ruin as their pensions can't support their need for ambient temperatures at home of 32’c.

Monday 9 July 2012

Brussels fires blanks

Eurocrats continue their attack on wealth not derived from syphoning off gravy from large public slush funds with a hunt on the wildebeest herds of fund managers feeding upon European pastures; the FT reports;

“Existing pay policies create incentives for fund managers to take excessive risk, lead to short-term decision making and must be revamped to protect investors, according to the European Commission.”

The irony is most asset managers don’t take enough risk! They hug the index like mad and charge investors 75bps a year for the privilege. The perverse incentive is that the way to make money is to take as little risk as possible whilst marketing as hard as possible to gain the largest pool of assets. The IM industry is all about scale and the reason top managers earn so much is scalability.

Of course most ‘long term institutional investors’ have a timeframe of about one quarter. They may pretend to be long term, and they are long term; until you have a bad quarter. So the idea that pay deals on a 3-5 year basis align fund manager interests with those of investors is also incorrect.

So the Eurocrats have totally missed the point here;

“Dan Waters, managing director of ICI Global, an industry trade body, rejected any suggestion that bonus structures were problematic. "“We are not living in a world where anyone thinks Ucits funds have been managed by fund managers who are causing funds to be damaged,”

“Nobody has said remuneration strategies and structures are a problem. Nobody has offered any evidence of that,” he said.””

Bus alas democracy or transparency is not necessary in the great ‘resentiment’ against all things finance:

“Didier Millerot, deputy head of asset management at the Commission, said the proposals were viewed as “non-controversial”, and were likely to be adopted before the end of the year.”

Fund managers much like banks like to have a lot of variable pay so they can cut costs during the regular downturns of the business/asset cycle. In addition increased regulation of recent decades has already raised the fixed costs of the business as the armies of auditors and compliance officers must be paid heavily fixed compensation.

So what happens when you increase the labour rigidity in the industry by raising fixed compensation and multi year deferred remuneration? Nobody moves jobs or is incentivised to improve performance (sounds like French industry!). Instead they just get fired. Maybe portfolio managers need a union?

I am not sure why the EU thinks excessive risk taking is even an issue. If a fund manager screws up the firm will hemorrhage assets Gartmore style and collapse with shareholders getting wiped out. This is called capitalism and nobody sheds a tear. These aren't banks who craftily moved from the 'heads I win tails you lose' risk model to the current nipple of the ECB funding milk to continue to enjoy the high life. In fact the banks' actions make it clear the the best long trade around right now is to declare yourself 'to big to fail' and get a seat at the gravy train.

If you really want a better system then fixed fees should equal manager’s basic expenses and all other remuneration would be performance fee based against benchmarks or total return as per the mandate with claw-backs. But under that scenario who’d bother to run a fund manager anyway because you cant turn any kind of consistent profit.

To know this you might actually have to consult with the people you intend to regulate. That clearly would be too much effort as the bubble of smug surrounding the town of Brussels is becoming increasingly impermeable.

“The only thing that saves us from the bureaucracy is inefficiency. An efficient bureaucracy is the greatest threat to liberty.”

- Eugene McCarthy

Monday 2 July 2012

Plausible Deniability

“No matter what promises you make on the campaign trail - blah, blah, blah - when you win, you go into this smoky room with the twelve industrialist, capitalist scumfucks that got you in there, and this little screen comes down... and it's a shot of the Kennedy assassination from an angle you've never seen before, which looks suspiciously off the grassy knoll.... And then the screen comes up, the lights come on, and they say to the new president, 'Any questions?'

"Just what my agenda is."

-          Bill Hicks

So the great LIBOR scandal deepens. Now it appears the BoE influenced BARC to report a lower rate to help restore ‘confidence’ in the ponzi banking system. But strangely nobody can remember or recall the exact details of the conversation between Bobbie and the bank. Quelle surprise! The BoE and the banks were colluding to appear to still have clothes…go back to bed shorting speculators, your central bank is in control.

Bob diamond plays the usual CEO ignorance by blaming lowly traders – if they are so lowly why are they handling something so important?

It smells of bullshit and right on cue an ‘insider’ provides the vital clue which usually heralds a big pile of bull – convoluted news-speak;

“Before long, though, I was drawing up presentations to explain the "dislocation of Libor from itself" for corporate relationship managers. I was deciphering the subject in emails, internally and externally. And I was using the phrase myself openly with customers of the bank.

What I was explaining was that the bank was manipulating Libor. Only I didn't see it like that at the time.”
- The Telegraph

Bobbie’s ignorance reminds me of Dickie Fuld and Lehman’s Repo 105 accounting fraud. Fuld claimed that he was unaware of the Repo 105 transactions and the spreadsheets of these transactions which were sent to him since apparently he did not have a computer and can’t open attachments on his Blackberry. Now this could almost be credible if he is as technologically retarded as many of those fine old gentelemen of his generation but it does raise the specter of negligence - how the fuck did he do his job?

Claiming ignorance of everything is a great tactic employed by the mafia for many generations. The boss is never caught making a direct instruction or report. All orders are communicated by innuendo through a chain of command to preserve any boss from direct indictment. 

I used to think the judgement of medieval witches was a terrible injustice. You bound them and threw them in the river. If they drowned they were innocent and if they floated they were witches and were burned at the stake. In the case of bank directors I think a similar trial technique would be equally effective. Anybody with a grain of sense knows these chaps are as guilty as OJ Simpson but time and again they employ some implausible deniability to save their skins and the bank shareholders take the hit.

Bobbie’s gotta go.

I like to see my disgraced former banks fronted by men who are now suffering interminable hell be it Horta Osorio' s mental breakdown as the head of the headless horse or Hester losing all his hair. The sight of Bobbie’s fake plastic America veneers has all the sparkling arrogance of Simon Cowell’s face and it really grinds my gears…