Friday, 23 January 2009

Bond Spreads Increase Again

This will be my last blog for a week as I am off ski-ing.

The Greek 10 year bond spread today reached 2.97% and the Italian 1.71% over German bunds. Spreads on Italian bonds were much higher in the run up to Euro day, 1st Jan 99 but before that date Italian bonds were denominated in lira so that the Banca d’Italia could, and did, print with gay abandon. The lira sank as the pound is now doing and the Italian economy recovered as the UK economy will eventually if government does not interfere.

The problem for the UK is the gilts bund spread is now 0.31% but more worryingly UK credit default swaps are now 5 times the German CDS. This means that the market thinks the UK is 5 times more likely to default on its obligations than the Germans. The next step on the slippery slope for the UK is like Spain we will lose our AAA credit rating. Put this together with Sterling’s slide and it’s a one-way bet against Sterling. John Foreigner won’t be buying Brown’s gilts!

Interesting to note the DMO that issues gilts is recruiting furiously. We will then see a phenomenon called ‘crowding out’ in which pension funds will increasingly buy gilts for safety and company corporate bonds will be shunned. Thus UK industry will be starved of capital and the UK slide will continue. Unfortunately David Cameron is no Mrs Thatcher. He does not have the balls for it.

Tuesday, 20 January 2009

Spanish Debt Downgrade and Gordon can run out of money

Yesterday S&P lower the credit rating on Spanish government bonds from AAA to AA+, a significant downgrade reflected in the jump in Spanish bond spreads to 1.15% over comparable German bonds. Greece, already down at A- trades at an eye watering 2.5% over bunds. Credit default swaps, the cost of insuring Spanish bonds against default, also rose to record levels. Both Greece and Spain have high, say 18%+ and rising unemployment. Civil unrest will increase in these countries and when it hits the political elite then policy, even Euro membership, will change! Politicians do not like being assaulted by the populace. Monetary policy is boring and arcane but it is its failure that led to the closure of high street names like Woolies. By this summer I expect High Street, UK to be littered with to let signs. This is not academic as many pension funds own many of these retail units so pensions are now in danger.

Doug and Ian have put another two clips from my take on the EU on Youtube. One deals with the possibility the UK government will run out of money and have to resort to the Mugabe solution and the other on why vote UKIP. I strongly support UKIP policies but I cannot support the despicable treatment that has been meted out to long serving UKIP activists like John West by the NEC’s ruling cabal and the imposition of dubious non-UK nationals on to UKIP slates.

Click on the links below to see further clips from my unscripted talk at Lexdrum last month.

Why you should vote UKIP

The Government is running out of money

Monday, 19 January 2009

A Greek Tragedy

Greece's financial troubles move on with all the inevitability of a classical tragedy. Today S&P downgraded their sovereign debt from A to A-.Obviously this was expected in the markets as a few days earlier the Greeks did not even try to refinance at a 2 to 10 year tenor.The interest spread on Greek 10 year bonds
is 244 basis points over German bunds. As bunds currently yield 2.9% it means the Greeks are now having to pay approaching twice the German interest rate and this rate would increase if they tried to issue at 10 years with the high chance much of their offering would be left on the shelf.

Consequently the Greeks raise 2.5bn mainly in 3 month paper a few days ago where the spread is much smaller. They are like Mr Micawber hoping for something to turn up. I fear they are only postponing the inevitable. In 3 months time things will be worse.

Greek unemployment will rise. Their political active, unemployed, well qualified students will create more civil unrest and we may well see the government fall with the possibility of a military junta. In this scenario the EU would prefer to release Greece from the Euro as the lesser of two evils but then who falls next? Portugal is next for a downgrade but my money is on Italy.

I started writing this blog on Friday since when things have taken a turn for the worse in Euroland. In the Sunday Telegraph, AEP notes how membership of the Euro has left half Europe PIGS + Eire trapped in recession. Mr Farage even gets an honourable mention for sounding a discordant note at the Euro birthday party, a Volker-Kerker moment borrowed from an earlier empire – the Austro-Hungarian. Civil unrest has surfaced in Lithuania & Bulgaria. These states are not full Euro members but are being got ready for membership. Spanish unemployment could hit 25% as the Euro prices Spanish workers out of a job.

AEP notes banks are dumping PIGS and Irish debt into ECB Euro Repo operations but what AEP is obviously unaware of the Bank of England is also being stuffed with this crap in its Sterling Repo Operations by investment banks.

As AEP notes the earthquake will come quickly without warning. It will be like the collapse of a travel company but with millions of people left stranded.

Finally, today, Monday I read that a former Irish central bank official, David McWilliams, said on RTE radio,

“It is essential we go to Europe and say we have a serious problem. We say either we default or pull out of Europe”

The hidden hand of the bond market is all powerful! Ireland is too small to matter. Greece is bigger but manageable. Add in Spain or Italy and the house falls down.

Before Xmas I recorded an off the cuff unscripted talk I gave for the SW media team. It is up on YouTube and the latter part deals with Euro problems. I recommend listening to it. You can see it if you CLICK HERE:

Thursday, 15 January 2009

Yeovil UKIP & Chairman Nuttall

In my blog of 11th Dec I noted how proud I was of my local branch committee over the support they gave me following my illegitimate expulsion from the NEC. I reproduce it below.

"On Tuesday, 9th Dec, I attended a meeting of my local branch committee to which our excellent chairman, Ken Perry, had invited our RO and long time friend of Mr Farage, Malcolm Wood to explain by what authority the NEC could remove an elected member whose only crime was to disagree with some of the great leader's views. Ken and the other committee members were clear that they were minded to dissolve the branch if necessary. I was humbled and proud of the way Ken and all the committee members refused to be distracted by Mr Wood's dissembling and obfuscation. They repeated their argument that UKIP's ruling cabal had no democratic authority to expel me. That by so doing they were behaving just like the EU and were turning UKIP into a Fascist organisation. Why do we have elections at all if the NEC ignores the result? How can the NEC be prosecutor, judge and jury in its own case? They have written to Nuttall demanding I be reinstated.The decision to disband will be deferred until they get his answer but they demand his answer by Xmas. "

Mr Nuttall's reply came by snail mail. Mr Nuttall does not like using email as it can be copied on too easily so UKIP has to live with the resulting inefficiency.

Dear Mr. Perry,
You are absolutely correct to state that NEC members are elected. Equally, when a member chooses to put their name forward to the NEC, they are making a commitment that they will behave with integrity in certain matters.
They agree to the principle that they will not publicly criticise NEC decisions. They agree to the principle that they will conduct themselves in a reasonable manner during meetings. Should they 'fall far below these standards, they have let down both UKIP and all of the members who voted for them. As with any election, they are elected subject to the standard rules that members have to follow.
The NEC has the right to expel or suspend a member of the commit-tee under Rule 7.l 8 of the UKIP Constitution, however, due to the seriousness of such a move, it requires a two-thirds majority. Rule 7. 1 8 of the UKIP Constitution states that grounds for expulsion/suspension from the NEC shall be the following:
· Public opposition outside the NEC to measures duly approved by it if it is considered that the said public opposition has caused or is likely to cause the Party or its leadership to be brought into public disrepute.
· Breaching of NEC or Party confidentiality.
· Persistent non-attendance at its meetings without good cause.
· Unbecoming conduct in the course of NEC meetings.
Eric Edmond's case concerned a breach of the fourth of these, namely unbecoming conduct in the course of NEC meetings.
At the meeting of and November, the NEC considered that it had no option but to make such a decision.
Having been present at that meeting and having spoken to some of the NEC members concerned, l know that this action was taken with a heavy heart. Nevertheless, the breaches of the rule were deemed so serious that without such action being taken, the integrity of UKIP'S highest decision-making body would have been undermined. Consequently, the votes taken on the expulsions of Eric Edmond and David Abbott were passed by a majority of 1 1-0 and 9-0 (2 abstentions) respectively.
I cannot, as Party Chairman, override a unanimous decision taken by the democratically-elected committee and therefore I am unable to agree to your request for Eric Edmond to be re-admitted to the UK Independence Party NEC.
Yours sincerely,
Paul Nuttall (Chairman, UK Independence Party)

First note there are no specific details given of my alleged mis-conduct. That is because there was no improper conduct by David Abbott or me. Consider however the conduct of my accusers.

At the NEC on Nov 3rd N Farage admitted he had deliberately set up Martin Haslam to be phoned by a journalist from the Independent so that he, Farage, could then demand Martin's resignation for speaking to the press without informing NF. NF then brazenly added he had done this to 'test' Martin's loyalty. David, Martin and I told NF that this was a despicable thing to do to his blameless NEC colleague and we left the meeting in protest. Del Young left 5 minutes later and in our absence we were voted off the NEC. Is not entrapping NEC colleagues unbecoming conduct? It is difficult to work with some one who you know at any time will be seeking to entrap you.

This is the reason the expulsion votes were unanimous. They were taken in the absence of me, David and Del, all of whom would have voted against. The authors of the allegations, Bannerman, an EU employee and Oxley were both allowed to vote on their own case. Clearly UKIP NEC believes in EU style justice. UKIP now behaves like the EU, a worrying development.

A few weeks earlier D Bannerman had attempted to entrap David Abbott into leaking by sending out a spoof email appearing to go to all the NEC but in fact only going to David Abbott. David and I spotted this crude device. We demanded an explanation from Bannerman for his duplicitous behavior but of course got none. Is Bannerman's deceitful action not conduct unbecoming an NEC member? How can one trust and work with someone who does this to their colleagues?

At an earlier meeting in September, M Zuckerman went off on a loud rant against me that was heard in the corridor outside accusing me of being mentally ill with Tourettes. This was a slander on me and a deeply hurtful insult to those genuine sufferers from Tourettes. Is this not unbecoming conduct?

On a number of occasions after David Abbott has spoken N Farage broke out into a schoolboy chant, "BNP, BNP, BNP". Is this not unbecoming, childish conduct?

I have never seen or been given any NEC rules of procedure. D Denny claimed he had such rules but when I asked him for a copy he said he would have to 'get them typed up'! That says it all about UKIP NEC procedures. They are made up to suit the ruling cabal as circumstances demand.

Nuttall's statement, "As with any election, they are elected subject to the standard rules that members have to follow." is quite ludicrous. Did UKIP insist Mr Spink resign and fight his seat when he left the Tories for UKIP? The only 'rule' is to honestly represent the electorate to the best of your ability. Of course not every party member will have voted for me but my job was to try and represent the views of all the members as honestly as I could. I chose to do this by upholding a policy of truth, decency, honesty and transparency. One thing however is certain, no one voted Nuttall, Arnott or Andreasen onto the NEC. They have no democratic legitimacy. They are Nigel Farage's place men and can be removed by Farage any time he chooses. They therefore cannot disagree with Mr Farage.

Nuttall's final comment "I cannot, as Party Chairman, override a unanimous decision taken by the democratically-elected committee" is pure Animal Farm. All democratically elected members are equal but some are obviously less equal than others as in the case of David Abbott and myself.

The history of UKIP NEC speaks for itself. It is people like N Farage, D Bannerman, and M Zuckerman etc who have exhibited unbecoming behavior at the NEC. Nevertheless I would never have voted for their expulsion on such a charge as they were democratically elected. Democracy means accepting you have to work with people you don’t like or agree with. In Bannerman’s position however I would have stood down when I became a hired hand of the EU.

The truth is David Abbott, Martin Haslam and I have behaved correctly but we have asked questions about subjects, particular party finances, that the cabal wish to keep secret from our members. That, and that alone, is why we were expelled.

Friday, 9 January 2009

EU Bond Investors Seek Yield

The French and Spanish government bond auctions yesterday, Thursday 8th Jan went better than the German auction the previous day. The French sold 10.5 bn Euro bonds at various maturities out to 30 years and the Spanish 5bn Euro bonds split between 3 and 5 year maturities. The French sale at the benchmark 10 year maturity was 3.6 bn Euro. Both auctions were well covered with between bids for between 1.3 to 2.0 of the bonds offered better covered than in their last auctions. Clearly investors are seeking yield, 3.46% on French bonds, 3.83% on Spanish bonds compared with 3.00% on German bonds all at 10 year maturity.

This is exactly how investors were enticed to buy mortgage backed, nominal AAA, securitized offerings from US investment banks. Although France is nominally AAA it is nothing like as good a credit as Germany. Insurance and pension funds have very short memories and would do well to consider the universal truth that increased yield only comes at the price of increased risk and decreasing liquidity.

On UKIP matters there seems to be some confusion amongst Mr Farage's spin meisters about the MEP slate in the SW region. The membership voted for:

1 Trevor Colman
2 Earl of Dartmouth
3 Gawain Towler
4 Jeff Beer
5 Eric Edmond
6 Julia Reed

Trevor has led the election steering group brilliantly. William Dartmouth and I have supported him throughout and the South West region is now in good shape for the coming European and CountyCouncil campaign. We could not however have done it without the hard dedicated work of the Lexdrum House staff. It is galling to read that Mr Farage now wants to close Lexdrum House and shift the office to London. Does he not understand how demoralising this is for people who have worked so hard? Lexdrum House is an efficient low cost operation. Shifting to London will be a distaster for UKIP and a tragedy for the Lexdrum staff. If they are really concerned for UKIP Farage's spin meisters should put this top of their priorities rather than their pitiful personal attacks on me.

Thursday, 8 January 2009

The Power of the Bond Market, Uk and the Euro

Two days ago I wrote about the overwhelming power of bond market. At yesterday's Bund auction reported in today's Telegraph,

33% of Germany's 6bn Euro offering of 10 year bonds were left on the shelf. The yield on these bonds jumped 34 basis points to 3.29% later pared back to around 3.20%. Every other Eurozone countries' bond yields shifted up in parallel. Even mighty Germany has to bend the knee to the bond market and pay up more to borrow. What hope for the PIGS?

German bond auctions are usually oversubscribed by a factor of two or more and I cannot recollect any auction where bunds have been left unsold.

As AEP says in his piece,

'Traders will be watching very closely to see whether today's bond auctions in Spain and France go ahead as planned, or whether the world is starting to see a "buyers strike" as deluge of sovereign debt floods the market.'

I will also watch this closely.

This will push up rates in the swap market which will be passed straight through to the EU fixed rate mortgage market and also the UK mortgage market.

Darling Brown's quantitative easing solution amounts to nothing more than printing more money. This was Mr Mugabe's 'solution' in Zimbabwe but Darling Brown has already followed Mr Mugabe's example on how to rig ballots and avoid democracy in the Lisbon Treaty fiasco.
Darling Brown can pressure our seriously non-independent central bank, the Bank of England to print this inflationary money. The ECB will never do this. The Germans have been burnt twice in living memory by the consequences of this lunatic policy and will never agree to it. The Bundesbank is a true independent central with the dominating voice in the ECB. Our lot of course can be bent, bought and manipulated at will by Darling Brown and we could end up like Zimbabwe, a once rich country living on handouts like Darling Browns payroll vote. Politicians will say it can never happen in the UK but never is a long time. We have lost our democracy and our politicians are answerable only to themselves.

The second intersting piece by AEP in todays Telegraph quotes the ECB as saying, "Britain not fit for Euro membership". Click on link for full article:

This will come as a shock to the Europhiles but not to me. The ECB's view is rightly based on the UK's spiralling public debt but even if this were magically fixed there is a further deep seated and more dangerous ECB objection to UK joining the Euro. Euro membership requires under the Maastricht Treaty an independent national central bank, an NCB. It is not clear to me that Darling Brown's Bank of England would satisfy the ECB interpretation of the Maastricht rules on NCB independence. I remember this happened with Hungary and it led to the NCB governor being giving a longer single term to put him beyond political control. I can't see Darling Brown, guru Mr R Mugabe, buying this diminution of their power and control.

I turn to UKIP matters. Yesterday I attended a meeting of the South West European Election Steering Committee. Ken Irvine, the National Strategist also attended. It was good to know how well advanced and funded we are in the South West. Trevor Colman, Malcolm Wood and Alan Wood deserve great credit for this and we, in the South West, can look forward to the June election with some confidence.

Tuesday, 6 January 2009

Luxembourg Calls for EU Treasury DT 5/1/09

I read this with some professional satisfaction as it is exactly what I forecast in my last, pre-Xmas blog on 24th Dec 08. I summarise AEP's piece below.

"Germany is coming under mounting pressure to rescue Europe’s weaker states by agreeing to an EU agency with powers to issue bonds for the eurozone as a whole for the first time.

Any such move would amount to the creation of an “EU Treasury” to back up the single currency, in effect compelling Germany to share its elite credit rating with weaker states such as Italy, Greece, Spain and Ireland

The proposal is certain to cause apoplexy in Berlin where any suggestion that German taxpayers should be made liable in any way for the huge public debts of Europe’s weaker states is a neuralgic subject."

The stresses in the Euro system are starting to show particularly in the Greek-German bond spread which is now 2.14%. The Greeks and the Italians have many billions of maturing Euro bonds to refinance this year. Who is going to buy these bonds? Greece and Italy have 'previous' on bond defaults so it is going to be very difficult. The pressure for an EU Treasury and tax base will grow but as AEP says its the German tax payer who will have to pay and they are not happy bunnies at this prospect.

The bond market is the most powerful force on Earth. As Bill Clinton's first campaign manager James Carville put it:

"I used to think if there was reincarnation, I wanted to come back as the President or the Pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everyone."

The EU are on collision course with the bond market and my confident prediction is the market will win. This is a god sent opportunity for UKIP as EU reputations will be trashed in this confrontation. But is UKIP, current sole proprietor N Farage, up to capitalising on this opportunity? Well time will tell. I hope NF can and will exploit this chance to do real damage to the EU.

I read with sadness that Gawain Towler may be in some difficulties re his MEP candidacy. If true, it is disappointing this was not detected earlier in the MEP selection process as it may be potentially damaging to all candidates on the SW list. The SWCC passed a resolution before the MEP selection process started that the candidates selected by the SW selection sub-committee of Elizabeth Burton, Jeff Mager and David Bendall and non-voting chairman Malcolm Wood should be presented first to the SWCC for approval before being sent to Mr Gill and the NF's national political committee. This resolution was not accurately reproduced in the final SWCC committee minutes and was not implemented by the selection sub-committee. The sub-committee's recommendations went straight to Mr Gill bypassing SWCC scrutiny.

Whether this would have helped Mr Towler we will never know. I am portrayed by some as anti UKIP. I am not. I stand for sticking to the rules and upholding democratic decisions. Those who think that they know better put us on the slippery slope that leads to the swamp of endemic sleaze that engulfs the UK's three main political parties.

My views have not changed since I stood for MEP selection and can be found on my web site