Seventh Day Newspaper……

And not long till the launch of the Sun on Sunday, the seventh day paper, with all staff reinstated, and their legal costs paid, unless, and until. Clearly, other titles have benefitted since the demise of the News of the World, but the recent numbers indicate that public demand for print media is declining, inexorably.

Where are all the tourists…..?

Both these problems are not high on the agenda of the people of West Cumbria, where I have been this week. The far, north west, of the Lake District, is gritty, albeit still dominated by the National Trust. Tourism, and tourists, are notable for their absence, even in half term. But, at least, life has picked up for the farmers, lambs now worth a considerable amount of money.

Improving the experience……

Some of the local centres, such as Keswick, have tried to reinvent themselves, with pedestrianisation, and a scheme to charge 1% more on business rates, that goes to improve the experience. In part, it works, but prices remain what you would pay in a pub inManchester, and not far off inLondon. And, whether by design, or default, the High Street looks the same. Obviously not the same as Oxford Street, but every other shop is a branded outdoor walking clothes shop, selling all imaginable goods, including high spec GPS.

…….and considerable wealth

They do not sell corduroy trousers, which are what I wanted, since everyone knows that these are unsafe for walking in. Which is true, but not sure that I needed telling. And they have a branch of Booths, an upmarket version of Waitrose, so there is considerable wealth.

……in places!

Further west, the economic situation deteriorates. Sellafield, the nuclear plant, is a major employer; in fact, one wonders how the place would survive otherwise. The decommissioning is going to take forever, but it is sustainable employment, and they really need that.

Everyone needs footfall……

InEnnerdaleBridge, our nearest village, it is the classic of what happens in these beautiful, remote, places. The little houses have been bought by “outsiders”, and in the evening, their windows stand dark, a monument to greed and stupidity. The new owners want to be part of the local community, but in buying the house, they wreck what they yearn for. No local can compete with City Bonuses. So the infrastructure is destroyed; the shop goes, the post office, etc.

Local fightback……

The locals have fought back, raising £67,000 in eight days, to buy the lease on the former pub, and restart it, as their own. There are now more than 200 shareholders, but the only employee seems to be the chef, and whilst I am all for democracy, you can see why plentiful inclusion might be rather difficult.

For the moment, everyone gives their time for free, and thus the place remains open, but what if the novelty wears off? Free labour has at least sorted out the competition; the only other pub looked distinctly closed….

You can check it out at www.foxandhoundsinn.org

To obtain any supplies, one has to travel to Creator Moor, a former mining village, some three miles west. I guess it is no different to other places that have lost their reason to exist, but the grinding poverty is all too evident. And, unless you have your own transport, you can’t get there.

Skill never to return……

Apart from mining, this was the town that was home to Kangol, founded in 1938. Probably one of the first manufacturers of outdoor gear, they made many of the berets so needed at that time, and seem to have kept up with changing trends before falling victim to private equity; in April 2009, the factory became a warehouse, the headcount reducing from 33 to 7, and it then closed  in August. And it is not just 33, but the families that relied on those wage earners. Now the stuff is made in Eastern Europe, a skill never to return.

In the local shop, I waited behind a guy in his early thirties, I would guess. He was buying a can of fizzy drink, the cheapest packet of cigarettes, and wanted £10 back on his card. Well dressed, articulate, but with the air of no hope. He wandered across the road to his house, inKier Hardie Street, another wretched statistic.

Loss of signal……

Back in the hub of life, they have no mobile signal, so for four glorious days, one can hide. Except, you don’t, and just drive miles every day until you find one. This seems to be the norm in the Lakes, and maybe they should market it as such. Once you get used to it, it is very liberating. But clearly no use, whatsoever, if you are trying to run a business, or even start one.

Sorting Greece……

Whilst I have been away, the powers that be seem to have sorted outGreece, as they always do, when I am not at my desk.

I am not sure if they should default more often, (105 years out of the last 200), or if I should ignore this.

Centenary on its way……

Next week marks the 100^th issue of this blog, which has been continuous, wherever I have been. I do not intend to go back over what has been said, but I hope that reflections from Russia, Austria, Italy and various other places are of interest. Some hundreds follow; we will let you know when we climb above a thousand.

Thank you for your support.

CDO

17^th February, 2012

We spend our time trying to work out the way that short term trends are going to play out, and given that the long term is made up of lots of bits of short term that have been bolted together, it is important that we get these moves right. Often, outcomes are not predicted and in more recent years, increasingly so. Expect the unexpected has become the new mantra.

Short-termism rules… OK?

The recession, and global austerity sweeps most landscapes, and those not yet touched should mind their eye. (Australia?). And, we don’t think that it has really started yet. But the blame game has. Bonuses are the new Daily Mail hate campaign, not that I can remember what the last one was, but this is so self defeating that you begin to wonder who is setting the editorial tone. The answer has to be the politicians, forever pandering to the short term.

Those, for instance, that let Lehman’s go bust; “well, lets see what happens”, or those that refused the increase in the American deficit ceiling last August, an entirely futile gesture that caused utter chaos. You might think that they would learn, since that is human nature; smarter humans learn from the mistakes of others. Well, I have to tell you that one fund manager I met with this week thought otherwise; the better data, including jobless numbers, is only likely to intensify Republican opposition to pretty much anything in their determination to defeat Obama.

You might conclude that they deserve each other, but not that we deserve them, or the consequences.

A spent force…?

Freed of the onerous task of collecting a £1m bonus, Stephen Hester, boss man of RBS, revealed that £38bn of the taxpayer bailout had already been spent on “loan losses, disposal costs and restructuring charges”, which covers a variety of sins. If I heard him correctly, on the wireless, (since we still have these things in the country), he said that the whole £45bn injected by the taxpayer had been “lost”, and some time ago, at that.

Now, if you run an operation which depends on confidence, as any bank does, this is not the smartest comment. The whole structure only survives because people believe it will, and when they don’t, you have the sort of queues seen outside Northern Rock.

So, before too long, up pops Robert Peston of the BBC to explain that the money was not “lost”, and the taxpayer may yet recover the sum invested. Hmm. Anyway, this chap Hester, (never to be Sir Stephen), is clearly not a proper banker if he fails to collect his bonus.

For the record, we delight in sharing the good times with our colleagues who do not sit on the Board, but no bonus has ever been paid to a Director of Mercater.

Swings and roundabouts in Europe…

The denial of banking reality continues at a national level, with Greece either on or off. It has been the story for so long now; but still has the power to shift markets, just when you thought it was all priced in. For the record, we do not believe that the default, either orderly, or disorderly, has been allowed for. Not that it stops the game. The European Central Bank, (ECB), may offload the Greek debt that it owns to the European Financial Stability Fund, (EFSF), just before the inevitable write-down, rumoured at 70%. Apparently, this is just fine, and avoids votes, and other awkward stuff, that people really don’t want to talk about, or recognise.

Vive la Résistance….

Out in the wings, the French Presidential election looms; the challenger, Francois Hollande is 8% ahead of the incumbent Nicolas Sarkozy, who has yet to declare that he is running. The attraction is, apparently, a pledge to scrap all the announced austerity measures, including the increase in the retirement age, and go back to what France does best. Hollande clearly believes in this, albeit that a scorned partner may derail him, which sounds familiar.  I suppose the popularity of this chap tells you all, and is probably an accurate guide for what is, surely, to come. Those who have been accustomed to the good times will not retreat, so it is two fingers to the Germans.

We have been here before, to the benefit of none, but this time, hopefully, without loss of life.

The Wembley way…

Meanwhile, there is always hope. Thus twelve men and true, or should that be 8 men and 4 women, found “Our Harry” not guilty of parking some pocket money in Monaco, and fair call. Why would you not?

There is not the remotest correlation, I am assured, between the resignation of the present England manager, one Fabio Capello, and the outcome. I am really not into football, or soccer, but my colleagues are, but I don’t understand how you can have someone in charge who cannot speak the same language as his squad.

But, I do have some sympathy with his predicament.

And finally…

Next week, I shall be in the far north west of the UK, weather permitting.

My expectations are that the agricultural sector will be doing well, (and they deserve it), and that tourism and retail will be rubbish.

Will report back.

CDO

10^th February, 2012

I suppose that it was all but inevitable that Sir Fred Goodwin would be stripped of his honour by those that have none; he may have made a mess of RBS, but he was not acting alone, and he certainly did less damage than the Right Honourable Gordon Brown. Whatever the rights and wrongs in this particular case, there needs to a recognised procedure rather than a kangaroo court. Or restrict honours to sports stars, and those engaged in voluntary work.

The new mood of mob rule…….

Even that could have its problems, in a week when the English football captain was fired, again, and the favourite to become the next England manager ended up having a very public row with HMRC. Critical to the prosecution case was evidence that poor Harry had once lied to a News of the World journalist, which one would hardly consider a hanging offence, but in this new mood of mob rule, who knows?

Taking the points of others……

And what are we to do with the estimated 300,000 people who have taking speeding points that were not rightfully theirs? I imagine that most did not appreciate the gravity of the offence, but it seems to carry an automatic custodial sentence, which would create some logistical problems. We still have the Ark Royal, of course, so we could bung a few thousand in there.

Anyway, I am sure they will find some space for the Right Honourable Chris Huhne, should he be found guilty; be fascinating to see how he and his ex wife plead; surely if one admits guilt, the other does not have a leg to stand on?

A snip at £680 (+vat)……?

For the moment, it does remove one of the few big beasts in the Liberal Democrat party, although that does not mean that the remaining ones become more valuable; the laws of economic survivorship do not work here. Thus, I found it all too easy to decline an invitation to a seminar on Regenerating the British Economy at which the keynote speaker is to be none other than The Right Honourable Dr. Vince Cable MP, helped by some other worthies. If you would like to go, the rate for the day is £680, on which vat is to be charged, although for the life of me, I cannot work that bit out.

Facebook valuation……

In a week when so many treasures have fallen from their pedestals, it is good to have something to replace them with. Step forward Facebook, which is to float in the Spring, on a valuation of more than twenty times revenues, and up to a hundred times profits. These are very heady numbers for something that doesn’t really seem to do anything, but the skill lies in taking the personal information that people have volunteered to them, and sending targeted advertisements in return.

Preference for Apples…….

Which is both brilliantly simple, and highly effective, and probably knows no bounds. Why not a Facebook phone, for instance? I think I still prefer Apple, which generates $100m of cash every eight hours, and trades on three times estimated earnings for 2014. Whatever, if they get the float away, there are going to be some very rich people around, especially the longer serving members of staff. Whether they can retain their enthusiasm thereafter is one of the key risks.

Monopolies of the dishonourable……

And, as ever, there are plenty interested in the outcome who have not contributed to the success. One of the reasons it has to float is that the founder, Mark Zuckerberg, triggers a tax bill once his stock options are struck, amounting to $1.5bn. You will not be surprised to learn that politicians in his native California are already arguing about how to spend this windfall. So, clearly, we do not have a monopoly of the dishonourable.

CDO

5^th February, 2012.

Mercater Capital Management.

On Monday, the FT reported a slump in bookings at Thomas Cook, the second largest UK tour operator. The year on year decline in January is thought to be 33%, three times worse than rival Tui Travel, whilst online reservations have fallen by 45%. The figures, across the whole industry are alarming, but the mishandled refinancing before Christmas will only have served to increase concerns amongst the customer base. Anyway, they are in to the banks for something like a billion pounds, so maybe it is not their problem. Perhaps Stephen Hester, Chief Executive of RBS might like a cheap holiday, having seen his bonus shredded by the politicians.

Here endeth the rant……

Lots of people vet this blog, before publication, to ensure that it does not become a rant, but as a shareholder, and taxpayer, should we not try and employ the best possible person to sort out this mess? To the benefit of us all. It is not as though he created these problems, and if that is the going rate, globally, why not? Globally is the key word here; we need an environment, not just tax based, where people of enormous talent want to live and work in the UK. End of.

Imagine the human misery…….

The wretched bookings at Thomas Cook will bring no joy in Spain, which has an economy highly dependant on services to the tourist industry. Figures released today show total unemployment at 22.85% of the workforce, whilst 49% of those under 25 years old, do not have a job. Those numbers look bald in print, or on a screen, but that is one in four of the total, one in two of the young. Imagine the human misery behind those, official, figures. Those numbers will only grow, as Europe slides deeper in to recession.

‘Diddling’ the country………

To some extent, this becomes self fulfilling. You may wonder how, in part, these people get by, but the answer is the underground economy. Austerity implies higher taxes, whilst the take thereon declines, as people seek to avoid paying. Here in the UK, the head of HMRC, (the taxman, in case you have not come across him), states that paying cash in hand is “diddling” the country, although you could be forgiven for thinking the quote came from one of the Bishops.

Lords miss out on reality……

Those of them who sit in the House of Lords conspired, with others, this week to reject a Government proposal to limit benefit payments to £26,000 per annum, excluding child benefit, to each family unit. Apparently, this is the take home pay of the “average” worker. I doubt it; seems far too high a figure. Anyway, not high enough for them, despite it being considerably more than a vicar can hope to receive. Reality has yet to reach this part of the population, although that chap who “leads” Labour, for the moment, made the only serious point, on this subject.

Effects of donoughting……

Which is that a universal cap ignores the fact that costs vary widely across the country. Thus in the poorer parts, this is probably a more than adequate provision, whilst inCentral London, it is certainly not. This leads to “donoughting”, seen most recently inParisandDublin, where the essential workers cannot afford to live in the middle. Add in the cost of commuting, and it becomes pointless for a postman, say, to leave home. And certainly not a vicar. Which requires some thought; flogging off the housing stock, owned by the state, to existing tenants, is about as stupid as it gets, but it buys votes. I am going to have to say allegedly, or apparently, here, to get it past the censor.

Law of unintended consequences returns……

Amidst the gloom, (realism?), above, that perennial reappears, the Law of Unintended Consequences. Dividend payments by UK listed companies rose by 19.4% last year, helped by BP restarting, but even without them, the increase was 12.8%. Big numbers, against a weak backdrop. There seem to be a number of reasons. No one is hiring new labour, so productivity is increasing, whilst capital expenditure is being deferred. Neither of these factors can last, indefinitely. Perhaps the strongest, though, is survivorship. If the competition disappears, even in a static market, there is more to go round. More than a few will be clinging to that thought.

Croatia votes……

And talking of hope, against the odds, Croatians voted this week on joining the European Union, with a “respectable” number in favour. (Note the PR spin). Turnout was 37.7%, of which two thirds agreed, so maybe a quarter of the population, at most. I wish them luck, beautiful place, lovely people, and still undiscovered, not least by the wretched cruise ships.

CDO

27^th January, 2012

Mercater Capital Management

Earlier in the week, one of the leading forecasters predicted that the current low level of interest rates is here to stay until at least 2016, and that the economy has pretty much ground to a halt. That might prove to be optimistic if the euro zone goes through a controlled break up, with Capital Economics saying “the crisis could knock some 3% to 4% off UK GDP over the next two years”. Given that the present austerity plans envisage the economy having forward momentum; this would be a big setback.

Time to pay off war loan….?

One of the unintended consequences of these low rates is that War Loan paper almost trades at par. This was originally issued in 1917 with a 5% coupon, but in 1932, the coupon was reduced to 3 ½ %, with no final redemption date. Others have argued that this was tantamount to a default, albeit that present day holders of Greek debt would happily accept such a deal. Indeed, it would be cheaper for the government to pay the loan off, since it can borrow at less than 3 ½ % in the markets. Will it do so?

A peripatetic passage plan……

There has been much discussion about the sunken Italian cruise ship, its peripatetic passage plan, and wayward captain. Maybe this could have been foreseen; the Costa Concordia was named in honour of “continuing harmony, unity and peace between European nations”, but ominously the traditional bottle of champagne failed to break at the launch. The parallels with the wretched currency are all too obvious.

Independence or ‘devo max’……?

Closer to home, the campaign to build a new Royal Yacht seems to be gaining momentum, not least because Nick Clegg immediately opposed it. The idea is not so much to have a floating platform for the first family, but more a showcase for UK plc, as we seek to ramp up our exports.

Of course, we will have to decide what to do with the last one, currently in Leith, if Scotland votes for independence. Whether it does or not seems to hinge on what questions are posed, and who gets to set them, but the most likely answer seems to be “devo max”, which is everything bar total independence. Interestingly, a poll shows that the inhabitants of Shetland are not in favour, which is where a lot of the oil and gas comes ashore.

Problems for retailers……

Finally, the retailers are beginning to release their Christmas sales figures, at least those that have survived thus far. Perhaps the biggest upset was from Tesco, where sales fell 2.3%, but they were not alone with Argos, Homebase, Halfords, Thornton’s and Mothercare all having problems. Winners included Aldi, a low price supermarket, which is benefiting from the new trend to double shop; you start there, and anything they don’t have, you pick up at Tesco on the way back.

Maybe the problem is the prices they charge. You can buy a 25 kg sack of potatoes for £5 locally, and yet a 1kg bag will cost you £1 in the supermarket, a massive mark up. Their annoying strap line “Every little helps” is somewhat of an oxymoron.

CDO

Mercater Capital Management

22^nd January, 2012

It was, however, politics that came to the fore, and dominated markets in the second six months. The uncertainty generated proved too much for investors who fled from risk assets, with major falls in Europe and Emerging Markets.

The trigger for this was a failed attempt to resolve the Greek debt crisis in July, followed by grandstanding over the American debt ceiling in August, which resulted in a downgrading of the sovereign debt rating. In a year characterised by the unexpected, this asset class had a very strong six months, and was one of the outstanding performers of the year, beaten only by UK Gilts.

Hidden amongst all the noise at the time, previously announced GDP figures were revised downwards, indicating that the recovery was not as strong as previously thought. A double dip recession, thought unlikely, suddenly became a near certainty.

The unresolved Greek deficit problem resulted in contagion across the weaker members of the euro zone, leading to the fall of many governments, and in the cases of both Greece and Italy, their replacement by unelected officials. Sovereign debt is widely held across the European banking system, and as the autumn progressed, liquidity deteriorated rapidly.

This was largely the result of the refusal by the German government to allow the central bank to engage in quantitative easing, a method adopted by both America and the UK. Summits followed one another like buses, and markets reacted in either hope or despair, creating great volatility.

Away from the political indecision, companies generally made good progress, although this was drowned out by the euro zone problems, and equities de‐rated again, finishing the year on approximately ten times earnings.

Encouragingly, the data coming out of America has shown an improving trend, and thus that equity market was able to disconnect from other markets, ending the year in marginally positive territory.

The other significant change, albeit on December 21^st, was a move by the European Central Bank to lend EUR 489 billion, an offer accepted by 523 banks. This is 3 year money, at a low rate of interest, and is designed to allow the banks to purchase Sovereign debt, and profit from the differential return.

Outlook

Clearly, after the events of 2011, volatility is going to remain to the fore. The most critical point is to watch for a credible solution to the problems within the euro zone. Realistically, this is not going to be solved until a more federal approach is adopted, and that seems a long way off. In the short term, it is likely that a further tranche of funds will be made available by the ECB on February 29^th, and this may prove enough to remove the log jam in the banking system, and kick start the economy.

Continuing growth in emerging markets, and a more positive backdrop in America could lift the gloom, but politics will continue to have a dominant effect.

By most historical standards, equities are undervalued, and they are certainly unloved, despite yielding substantially more than debt issued by countries deemed to be safe. At some point, investors will recognise this increasing anomaly.

David Oakes, Chief Investment Officer

18^th January, 2012 

Those of you who follow this blog on a regular basis will know that it includes some observations on where our “children”might be at a particular point, both career wise, and geographically. Two of them came back from Courcheval, last Sunday, where no snow has turned in to an abundance. In fact, worse.

Anyway, with no time to spare, I drove Henry back to Newcastle on Sunday evening, staying in a local hotel. Returning from supper, the chap on reception asked what time I would like breakfast, but I thought no more about it till the following morning, when it was clear that I was the only one in the dining room, and the only one staying in the hotel.

Never been so quiet…….

Clearly, at £35 a night, including a wonderful breakfast, they are not making anything, so I got talking to the chap about it. He said that in 26 years, he had never known it so quiet. On Monday morning, I stopped twice at service stations on the M6, heading south. The car parks at both were deserted, could have parked anywhere. I even turned on the news to see if I had missed some major national event, but no.

Be someone or do something……?

Contrast this with the hotel I stayed in on Thursday night, in Mayfair, which was fully booked. Unlike Newcastle, you can opt for breakfast in bed; smoked salmon, scrambled egg, and a touch of caviar a mere £70. The guest speaker at dinner commanded a fee that would not embarrass a footballer; being someone is now far more lucrative than doing something.

London’s new suburb……Birmingham!

Meanwhile, at vast expense, Birmingham is to be the latest suburb of London, following the decision to link the two via a high speed train. You can see why people would want to get out of Birmingham with all due haste, but I don’t think that it works in reverse. I am not sure why it takes 14 years to build 100 miles of railway, and another 18 if it gets as far as Manchester, which already has a very good service.

Cheaper to New York…….

Longer trains, and platforms, would vastly increase capacity in a fraction of the time, and with little cost. Indeed, half the carriages on the west coast mainline seem to be devoted to first class, and even if you could afford the fare, you would not wish to be seen to do so. It is cheaper to fly toNew York and back than get a first class return from Crewe to Euston, so maybe they should redesignate some of the space.

Scotland……be careful what you wish for!

I doubt it will ever get built, and even if it does, it is most certainly not going anywhere near Scotland, where the latest devolution row rumbles on. There is much debate on whether an independent Scotland would join the euro, and indeed what the national finances would look like, ghastly, I suspect. Be careful what you wish for springs to mind.

Sovereign debt downgrade……

Meanwhile, across the Channel, the inevitable downgrade has happened to French debt, which in turn has negative implications for the EFSF, the European bailout fund. With Presidential elections looming in France, it is unlikely that further austerity measures will be introduced in the short term, but the whole currency zone is getting closer to the edge.

UK’s solution……

Here in the UK, we are just fine, because we have a credible plan to reduce the deficit, as long as we just keep moving the target further down the line. Our real secret is that we can print money, and thus recycle the debt, until the confidence trick is exposed. Markets seem oddly calm in the face of the latest news; do not expect that to last.

Costa Concordia……

Finally, anyone who has spent time at sea will be astonished by the pictures of the shipwrecked Italian cruise liner, but the crew clearly forgot two things. The rocks are pretty much where Noah left them, and Friday the 13^th is not the best day to take your eye off the ball.

CDO

15^th January, 2012    

Sovereign bond markets, of those countries thought stable, did exceptionally well, even though buyers were condemning themselves to certain long term losses. As mentioned previously, the ECB lent the thick end of 500 billion Euros to banks before Christmas, collateralised against stuff that most would consider “sub prime”. Indeed some of these banks have returned to the font for overnight money since then.

 Markets begin 2012 on the front foot

But a change in the year makes all the difference; on Tuesday, the FTSE 100 index rose 2.29%, the second best day since records began in 1984. Germany and America also saw massive relative gains. The omens are quite positive from these sort of movements, and no one would deny that equities are “cheap” on an historical basis, or that sovereign debt, (in the US, UK and Germany), is “expensive”.

But has anything actually changed?

I don’t see that any of the fundamentals that we were grappling with through the second half of last year have changed. Indeed, the economic position of the “default” countries in Europe has worsened – significantly.

Well, the Euro is weakening…

Currency movements will help; the Euro weakening considerably against both the Dollar, and Sterling, in the last few days. Not much consolation for those who have had to abandon the slopes, due to an excess of snow, but a helpful rebalancing of relative trade.

It is therefore a happier start to the year, and we would all welcome that.

 But there are new dangers looming…

For our part, we remain cautious; there are so many things that could go wrong, not least the threat by the Iranians to block the Strait of Hormuz. Last year, a third of global oil shipments passed through this 4 mile wide channel. For sure, the Americans would have this problem – and the rest of Iran – sorted in days, but markets don’t need that kind of uncertainty. The UK is to be right there also, notwithstanding that we have yet to recover the two rubber dinghies confiscated from us, by them, last time.

Anyway, we can but observe, and it will be what it will. Unless you do something about it.

Olympic wrestling in Scotland?

Thus, I was amused to see that residents of Edinburgh have, effectively, vetoed attempts by the Olympic logo committee to have the five rings mounted on Edinburgh Castle as a promotional stunt, at a mere cost of £200,000. It is not obvious where the money was coming from or why it would benefit Edinburgh at all, but the committee still maintains that the relevant authorities encouraged them to think along these lines, and they will be seeking an alternative location, nearby.

 And finally…

It is, of course, a total coincidence, but as the Royal Yacht Britannia was moved from her berth in nearby Leith this morning, for the first time in 15 years, she started taking on water and listing to Starboard.  Oddly, this exactly mirrors the rise and fall of New Labour, but I know not whether this is correlated, inversely, negatively, causal, or happenchance.

The comments are to reopen for a couple of weeks, and then we are to kick off with a new website, apparently. We do appreciate your feedback, however it is delivered.

CDO

6^th January, 2012

Resolutions, resolutions…

Feedback is always good, even from a follower at 2.30 a.m. on New Years Day, but I take it on board, and will try to make these things more understandable. It is not that the audience, (who do not have to follow), are stupid. Indeed, many are experts in their own field, but we are all guilty of lapsing in to jargon. So, that is probably the only resolution I will make this year, to make things easier to follow. I will also ask how the comment feature can be reopened, since debate is to be encouraged.

Turning the clock back (or forward)…

 The end of one year, and the start of another brings forth both reflections and predictions; all this based on the Christian calendar, which many do not recognise as their own. Indeed, the 186/- inhabitants of Samoa decided to change their time zone from being aligned to the USA to the one adopted in Australia, thus putting them at the front of the international clock, rather than the end of it. They did this because they can see the way that regional trade is moving.

The 1500 inhabitants of the adjoining islands of Tokelau sensibly decided to follow suit, whilst the mobile phone company reconfigured all their systems in fifteen minutes. Everyone got paid for the 30^th December, a day which did not exist, which proves that the unthinkable is possible, and that a date is but a date.

On reflection…

Anyway, back to the reflections, because this has been a most extraordinary year. You can read about these, endlessly, in the papers, but for me, a few things stood out. Politically, the “Arab Spring” was unforeseen, and is ongoing; one can only hope for an agreed solution in Syria. And this moves on, and on; the demonstrations in Moscow are very significant. Previously, as my trip to St. Petersburg confirmed, the locals were happy to be free of state control, but the pendulum has swung from communism to rapacious capitalism.

There are two main factors behind this, for me. Firstly, speculators, (for there is no other word), drove up the cost of basic commodities such as wheat by some 50%, which is significant if you have no job and live on a subsistence income. Secondly, the growth of “electronic communication” is quite extraordinary, and the ability of the state to regulate it virtually non existent. This is both good, and bad. We want, surely, others to have access to what we have, but the opposite is that our offspring are competing with a very international workforce. Indeed, that is not limited by age. This will become an increasing problem; you don’t have to be too pessimistic to see protectionism coming round the corner, pointless as it is.

Economically, markets dealt well with these events, for the first half of the year, before collapsing in early August in the face of a failed bail out for Greece, and the downgrading of American sovereign debt, which nevertheless proved to be the asset to hold this year, up by some 30%. Rating agencies have had their time, not much of it glorious.

The precipitate fall in risk assets caught many out, including us; those hoping for a normal recovery from an average recession were savagely disabused. The problem was not fixed in 2008, has not been since, and will enter a much darker phase, before it gets better. Many banks are bust, dependant on the sovereign state to prop them up, whilst those that look in a better condition will fall victim to contagion.

Of course, the politicians could have sorted this out, (note, not will), but I don’t think that, collectively, they get it. One suggestion is that markets are regulated to the point where they move slowly enough for the politicians to keep up, hence, in part, the UK veto, at the last summit. Won’t happen.

Looking forward…

So, to my predictions for 2012:

By April, the 15th to be precise, you will become very bored indeed with the Titanic. A tragic outcome, not only for those who perished, but all the others who were involved with the project.

Next up is the Diamond Jubilee; mathematically impossible, in our lifetime, that we would ever have a Sovereign that would be there for so long in future, and equally odd that a combination of Germans and Greeks have kept the UK stable for so long.

Following that, we have the London Olympics. Clue is in the title; bar Weymouth, the whole of the rest of the country is excluded from attending.

And then the big circus in November which is the American presidential election. This should be for the Republicans to take, but they are doing a fine job of missing the target.

As ever, things will come along which we have not anticipated; I hope it is a prosperous one for all of you.

CDO

January 1^st, 2012