Tuesday, 29 June 2010

What happens when ECB loans fall due for repayment

The trouble with borrowing money is that it has to be repaid. The ECB is calling in 445bn € on Thursday. Hence the Greek public sector strikes today and the howls of pain from Spanish banks who in the words of Sir Mick can't get no liquidity other than from the ECB. Investors running big Euro bond carry trades are feeling their sovereign risk more acutely. Write downs of their sovereign assets will emerge eventually.

The Euro is falling even against sterling. To cap it all the BIS, the central banks' central bank, is calling for fiscal and monetary tightening. European banks are still on life support is the DT headline on their report on the BIS statement. You can't roll over loans at zero rates indefinitely.

As I reported yesterday even in la Belle France things look less than rosy. For the official view click on link below to see Christine Lagarde putting the French view:

Christine Lagarde

On the sovereign bond markets Greek, Portuguese and Spanish spreads are all higher. In equities, European shares fell to their lowest in nearly three weeks with the main pan-European share index down 1.7 percent. Confidence is fragile and falling.

Meanwhile in Cam land inflation is picking up. Do not believe the arguments that core inflation is going down. All that represents is economists taking the items out of the index that are going up. How long before the UK's comrades start striking?

Monday, 28 June 2010

Cost of LibDem hierarchy deceit shows in poll ratings. UKIP next?

I returned from a few days in South Brittany on Saturday to find nothing much has changed on the euro markets. Spreads to Bunds have changed little, Greek 9%, Portugal 3+%, Spain 2-%. From personal observation the French tourist trade is well down. There was plenty of accommodation and space on the car ferry and a massive increase in unsold properties in the holiday areas. It looked and felt very recessionary to me.

The first poll since the election shows LibDem support is down 16 points in the polls as their duplicity and willingness to abandon electoral pledges for seats in ministerial cars rightly upsets those who voted for them in May. They are now in Cameron's power. He can call an election any time he pleases. The LibDems binding agreement with the Cons for a four year parliament can be easily voided by non-ministerial LibDem MPs, yes there are a few, upsetting the stitch up and the disgruntled non-ministerial Tories, yes there are plenty of them, calling for more Tory policies. Even a few well timed toothaches a la John Major would do!

I wrote last Tuesday calling for UKIP MEPs to resign from this neo-Nazi EFD group. I was gratified to find out on my return that Mike Nattrass had done just that. Good for him! I hope other honourable UKIP MEPs will do likewise. To go into the next elections with Liga Nord and the other neo-Nazis hanging like a millstone round their necks is political suicide for UKIP. The LibDems will be in wholesale retreat in Westminster and will seek to have a triumph in the Europeans of 2014. Farage and his other self seeking political empties have handed it the LibDems a great opportunity to rightly paint UKIP as a neo Fascist party in Europe. I hope the gullible members will wake up to this before it is too late.

Tuesday, 22 June 2010

A Political Cost Benefit analysis of UKIP's membership of the EFD group

The European Freedom and Democracy group (EFD) comprises UKIP, an avowedly non-racist, non sectarian UK party, Liga Nord a North Italy secessionist party plus motley collection of parties from mid European states. The total membership is now 31 following UKIP's Niki Sinclaire's resignation citing the racist and anti-semitic views of some of the non-UKIP members as unacceptable. Leading members of Liga Nord have made xenophobic anti-immigrant statements from time to time that make the BNP look moderate in comparison. For example, in a 2003 interview, party leader Umberto Bossi suggested opening fire on the boats of illegal immigrants from Africa.

One of the other members of EFD is the Slovak National Party the SNP which did very badly in recent elections. I quote from the Junius blog to illustrate the general tenor of this party's leaders views.

Jan Slota – leader of the SNS – had this to say about their defeat:
"Homosexuals and Hungarians will begin to rule in this state, so thank you very much.”

Mr Slota has described Slovak’s Hungarian minority as a a tumour on the body of the Slovak nation. All pretty extreme views but altogether typical of UKIP's allies in the EFD.

So what does UKIP gain from this ill judged alliance? A few more Euros that Mr Farage can use to employ his personal nominees plus an enhanced occasional speaking slot for Mr Farage at the EU talking shop which has no policy influence but gives Mr Farage a chance for a bit of grandstanding and populist posturing that he hopes will enhance his public persona in the UK. In summary there is a a lot in it for Mr Farage but absolutely no benefits to UKIP as a party.

The costs however are all UKIPs. It is a classic privatise the benefits and socialise the costs strategy. UKIP is now seen as a party that supports racists and xenophobes. This will be used to blow  UKIP out of the water at the next UK European elections. However by that time Mr Farage will I opine have jumped ship and at the next election, along with his Cabal, stand representing a pan-European party, the embodiment of Monnet's dream of a European nation. UKIP started on this path in 2009 with the Farage supported  selection and subsequent election of Marta Andreasen, an EU reformist, a non-UK national,  a non -UK resident who did not even meet UKIP's own criteria for MEP selection, as a UKIP MEP. At that point on the NEC Del, David and I knew the sell out was coming.

I am sure some UKIP MEPs are deeply unhappy about what is going on with the EFD. It is a complete betrayal of the ordinary members of UKIP who believe they are in a party that not only does not support the EU but is committed to getting us out of the EU. How much longer can these MEPs go along with this confidence trick? They should do the decent thing as Nikki did, join her, and put their principles and voters before supporting the EU for 30 pieces of silver.

Monday, 21 June 2010

Chinese Currency floats upwards

It seems the the Chinese government will allow the Yuan to appreciate slowly. The US have been pressing for this for many years to try and rebalance their trade with China. Coming on top of Euro uncertainties it must make for a more volatile situation. Simplistically it should reduce overseas demand for Chinese goods and make Chinese imports cheaper. It will thus push up the demand in China for oil. Ho-hum, and with Obama restricting oil supply through drilling bans and ass kicking of oil companies the price of crude will be going up anyway. The Yanks had better be careful. The one thing the Chinese also have is a corrupt and inefficient banking system. Bad news in a country with a huge current property price bubble.

Back in Euroland stories are starting to emerge of covered up Spanish bank problems, two were facing collapse in early May along with very high levels of bank stress as measured by Euribor derivatives and EONIA swaps, hence the incredible increasing bank rescue package at that time. Learn a lesson as the politicians say but never do, whatever the ECB says is happening the truth is always much worse. Even helped slightly by a Chinese revaluation it is difficult to see anything but years of economic misery ahead in Euroland.

Politically Merkel's government looks finished. The Germans are not going to go on paying for the profligate  PIIGS. The PIIGS cannot get out of the mire without a devaluation. The Franco-Prussians won't allow that. The Dutch right winger Geert Wilders is now the second force in Holland a country with a huge Muslim problem. Flemish separatists have won the Belgian elections in  Flanders. Its going to take trillions of Euro bond purchase to stabilise the economic situations. The Germans saw the first small tranche of bond purchases by the ECB as 'a threat to stability'.

I opine that when the boy David visits his new found EU friends in the Autumn he will be faced with huge pressure for further integration and more powers to Brussels. Will he be able to resist these demands. I don't think so.

Friday, 18 June 2010

Spanish bond auction, Barroso & Tony Hayward

Yesterday's Congressional grilling of Tony Hayward for 6 hours gives kangaroo courts a bad name. I was proud the way Tony Hayward, faced with this mainly sleazy group of grandstanding US politicians seeking re-election, stood his ground and kept his cool despite some deeply insulting and unjustified goading. I was impressed however by the background research on BP these congressmen had at their fingertips and the presentation of supporting documentation. The best thing however was their maturity and obvious previous life experience outside politics. These were clearly serious representatives unlike our Spad boy politicians here in the UK

The media labelled Hayward's performance a PR disaster. For what? For refusing to answer questions for which there was no answer at present. For pointing out there could be no clear answers until the defective blow out preventer, a  US, Houston, Texas manufactured component from Cameron Iron Works, was retrieved from the sea bed, brought to the surface and examined by engineers. BP shares rose again this morning by 3.5% so clearly the markets thought otherwise about Hayward's performance.

Spain yesterday sold 3 billion euros of 10-year debt at an average yield of 4.864%. Just prior to the auction Spanish 10 year bonds were trading at 5.04%.

Demand was 1.89 times the amount on offer. Spain also sold 479.2 million euros of 30-year debt at 5.908 percent, and the bid-to-cover ratio was 2.45, higher than the 1.38 at the previous sale in March.

The EU hailed the auction as a success, the Euro rose and the Spain-German bond spread fell. So was it a turning point for Spain enabling them to tap the money markets once more?  As I wrote earlier this week most of these bonds will be bought by national banks having their arm twisted by their politicians. Remember Obama's shake down of BP on Wednesday! Also with the ECB prepared to accept these bonds in their Repo Ops banks will get their Euros back pronto and earn a nice little turn of 3% roughly. Nice business if you can get so the banks have their money back and the Spanish government, who sold the bonds get the money as well. Magic! So where did the money come from? The ECB printed it! Its the Robert Mugabe solution once more.

The investment bank economists have already pointed this out:

Deutsche (Dodgy) Bank said about this auction, “With the current liquidity arrangements in place (Repo Ops) there seem few doubts about the ability to find buyers but the quality of the order book (difficult to find out in an auction ie who bought the bonds) is important.”

and added,

“Greece started to have real problems when the market started to realize that domestic banks were making up a sharply higher percentage in the third of the three syndicated deals earlier this year,”

In plain English the results of these auctions were fixed under national political pressure to buy the crap.

Spain faces a number of financial concerns. It will need to pay back investors 24.7 billion euros in July. It has announced austerity measures to cut its deficit and is recapitalizing some of its banks. Like Greece the tourist trade will keep a lid on things until mid September but then the riots will start.

The main reaffirmation of long term strategy came yesterday from Barroso speaking to the European parliament:

'Once again, we can see that a crisis can accelerate decision-making when it crystallises political will. Solutions that seemed out of reach only a few years or even months ago are now possible. As the history of European construction reminds us it is usually in times like this, in times of crisis that we can make progress in the European project.' ie more power to Brussels. 

Nothing new there. Monnet said it 50 years ago, "Great things are almost always done in crises," Its a pity the boy David does not listen. Adolf Hitler laid it all out in Mein Kampf what he intended to do do but none of our craven politicians could be bothered to read it and listen to what he said. Politicians talk incessantly about learning lessons but they are talking about other people not themselves.

Thursday, 17 June 2010

Spain is a can of worms and Hayward needs George Galloway

The market sees may more Spanish worms crawling out of the financial woodwork. The increasing Spanish - German 10 year bond spread, now 2.28%, is telling us . The Greek spread is nearing 8% which means its not if they default but when. Spain can bring the whole EU edifice tumbling down, Greece cannot, it is too small.

The market talk is of well advanced plans for a €250 bn. support package for Spain. The EU has been trying to kill this story but the German papers are running with citing German sources. There is clear agreement in the market that such a package will be needed if stresses in the Eurozone continue as they certainly will. The problem is the number of Eurozone countries that can fund such a package is now shrinking and what worries the Germans is the political risk to the currency. As Biggles might have said what do you expect with a Portugoose in charge.

The EU initially saw this as a beneficial crisis that would enable them to call for more integration. Barroso is still leading this call for more power presumably so he and his cronies can make a bigger mess. The boy David is in Brussels today and will no doubt roll over for Barroso as he did for Obama over BP. The problem is a cultural one between Club Med  and the Protestant work ethos of North West Europe. A group of Italian economists have written an open letter pointing out that given the Dr Frau's guns or butter choice they would like the spread. Their thesis is that faced with the huge destruction of jobs in club Med Merkel's policy entails some countries may opt to leave the EMU.

Mr Hayward, BP's CEO, is due to be ritually humiliated today by a US Congress committee. Shades of Joe McCarthy and his un-American activities committee. My father always used to say that when a smart businessman meets shyster politicians the businessmen always get shafted. Yesterday with Obama, BP's Swedish chairman seemed as much use as a chocolate teapot. Hayward needs political advice quick. The one guy who put the boot on the other foot in a Congressional hearing was Glaswegian hard man George Galloway. He really knows how to kick American ass big time. Get him on board asap Tony!

Wednesday, 16 June 2010

In Euroland read the small print and follow the doctor's orders

Around 6:30 am today I heard the BBC business reporter saying the latest Spanish, Belgian and Irish bond offerings had been gobbled up by the market. A fishy tale, who would want such rubbish other than banks in Spain, Belgium and Ireland who could immediately get their money back by repo-ing the bonds to the ECB at 1% and making a nice turn in the process. I checked with Reuters on the Spanish offering and found that they were not bonds but 12 and 18 month T Bills. Generally anything less than 18 months maturity is called a Bill not a Bond and what about the interest rate?

The 12-month Spanish bill,  paid an average yield of 2.303 percent after 1.59 percent in the same auction in May, and the 18-month,  2.837 percent, up from 1.951 percent in the May offering. A month is a long time in the Bill market.

"This begs the question how Moody's can rate Spain triple-A when you have an auction result like this. While Spanish 12-month yield was 2.30 percent, France's equivalent is 0.4 percent and below the ECB's policy rate of 1.0 percent. This must now put pressure on Moody's to downgrade Spain," said bond strategist at Monument Securities in London, Marc Ostwald.

Very true. At 10 years the bund spreads are now Greece 7.3% , Spain 2.1% and Portugal 3%. These steadily increasing spreads indicate a higher and higher market expectation of defaults. The test will come on Thursday when Spain has a more important 10- and 30-year bond auction  to repay a 16.2 billion euro redemption due by the end of July. No doubt Spanish banks arms will be twisted to punt in but I opine these bonds will  end up on the ECB books faster than a Nadal forehand.

Personally I believe George Soros who on Monday said " Europe faces almost inevitable recession next year and years of stagnation as policymakers' response to the euro zone crisis causes a downward spiral."

It seems that Bismark Merkel has vanquished Napoleon Sarkozy. The German £66.5 bn austerity model will prevail. Rules will be enforced and red cards shown to the transgressors. Sarky's capitulation was described as a climb down but surely as the hymn says, ' He who is down needs fear no fall'. However not to be out done Napoleon later announced his own £83 bn austerity drive. Merkel has been criticised in Germany for letting herself be bullied by the little frog. Time for the jack boot it seems.

The most depressing thing for me occurred on Andrew Neil's Daily Politics today. Neil's lead in was that Obama was way out of order in comparing BP's accident in the Gulf to the terrorist attack of 9/11. One was an accident and the latter a pre-mediated plot to kill thousands of people. Neither of our 'leading' politicians on the show, Francis Maude (Con) and Yvette Cooper (Lab) would condemn Obama's intemperate provocative and inaccurate rhetoric which is so damaging to BP a core UK company. It is as I wrote on Monday our craven Spad politicians have given our country away and will not stand up for our own people. As John Laurie would say we're doomed.

Tuesday, 15 June 2010

Eurozone does not know the difference between liquidity and solvency

Greek woes continue with their sovereign bonds downgraded to junk by yet another ratings agency. The EU is treating Greek problems as a liquidity crisis. It is not, Greece is insolvent, its expenditure exceeds its income and will continue to do so for the foreseeable future. The only way out as someone remarked is for them to sell off some of their Island assets, economically sound but political suicide.

I remember talking to Richard North about the difference between liquidity and solvency during the Lehman's affair. The difference is one of time scale. If you do not have enough cash to pay bills due today but longer term your income exceeds your outgoings you have a liquidity problem. In such circumstances your friendly bank manager may give you an overdraft facility so you can pay your immediate creditors and not have them foreclose on your business. Greece's bank manager is J-C Trichet of the ECB and that is just what he has done in with credit lines provided by the IMF and the EU.

Overdrafts are as we all know short term loans. So is the Greek support package. At the current rate of money burn in Greece the much vaunted package might last 18 months or so but then what? M Trichet has tried to help out there also by buying up so called Greek assets, their bonds, but unlike Greek Islands they are not real assets only bits of paper.

So what is stopping Greece becoming solvent? In a word corruption. Moody's, the agency that downgraded Greek bonds to junk yesterday sited 'macroeconomic and implementation risks' as the reason for their downgrade. In plain English they don't believe the Greek government's actions will support their fine words, a common problem with politicians. Only if Dr Frau Merkel sends in her Wehrmacht can her iron discipline be enforced on these recalcitrant Greeks

IMF old hands know the rescue package cannot succeed without a currency devaluation, sacre bleu, and a debt rescheduling ie a bond default, sacre bleu again. So the Eurocrats attempt to shift attention and blame to ze horrible Anglo Saxon money market's many failings. The wealthy Greeks say thank you for this welcome distraction and get on shifting their money  out to Switzerland and into dollars and Swiss Francs. As Ms Zemek of the giant French financial group AXA says, ' We are looking at a noble experiment on the brink of failure'. A bit like Napoleons retreat from Moscow, n'est pas.

Monday, 14 June 2010

EU boosts Athens hotel trade this week.

The bureaucrats of the European Commission, the IMF and the ECB are all in Athens this week to check up on Greek promises to reduce their deficit. To keep an eye on this august group the BBC have dispatched John Humphrys to Athens from whence he goes to Berlin to keep an eye on Sarky and Merkel making the real decisions. I woke to his mellifluous tones on Radio 4 this morning and the even more honeyed tones of Christine Lagarde, the elegant and charming French finance minister effortlessly drawing the teeth of the BBC's rottweiler's questions. Click on link below to hear how its done. She had him eating out of her hand!

The problem is that the Greek government is perceived by its own people as corrupt. Figures will be falsified, politicians and bureaucrats vanity flattered and all will be well until the riots start in late September. The Greek- Bund bond spread remains stubbornly above 6%. Ah these markets can resist even the charms of Madame Lagarde! So M. Charisma van Rumpoy piles in. "The euro became a strong currency with very small interest rate spreads (on government bonds). It was like some kind of sleeping pill, some kind of drug. We weren't aware of the underlying problems," Rompuy told the Financial Times.

Rompuy also attacked the financial markets for overreacting to Europe's economic difficulties and being swayed by "rumours and prejudices."

"The markets were too indulgent in the first decade, but now they overreact a lot of the time to small incidents," Rompuy said.

Ah well that's markets for you best humour them. Hence the EU summit on Thursday. M Barroso has also been talking. "Our priority is putting order into our public finances. We need fiscal consolidation and a new financial stability culture in Europe," European Commission President Jose Manuel Barroso said after meeting German Chancellor Angela Merkel on Friday.

"There is new awareness in Europe that rules have not been respected and must now be respected. Circumventing the rules ... is putting at risk our collective economic future. We need to move in the opposite direction. We need to strengthen our rules and the way the EU runs its economy."

Unfortunately Frau Merkel's plebs are less than convinced. Does the euro zone need an economic government? Oui, say the French. Nein danke, say most Germans.

It is the French dirigiste tradition against the German resolve not to let politicians despoil their currency again. As Reuters puts it,

"The French have pressed for an "economic government" since long before the birth of the single currency, seeking to standardize everything from working hours to business taxes at their levels.

Governments of both the left and right, steeped in the dirigiste economic tradition of 17th century statesman Jean-Baptiste Colbert, sought a political counterweight to the independent European Central Bank.

That is precisely the German nightmare. For Berlin, the ECB must be totally independent of governments with the sole mandate of ensuring price stability in the tradition of the Bundesbank."

French ideas on central tax harmonisation are anathema to the Dutch and the Brits.
They also go down badly in Germany, especially with the pro-business Free Democrats, who suspect the French of protectionism and meddling in the market economy.

All is not harmony in the state of Euroland!

Sunday, 13 June 2010

Poor leadership has cost the UK its sovereignty with the EU & US

The European Commission has decided HMG will have to present its budget plans to the EU before they go to parliament in the traditional budget speech. The UK budget will then be peer reviewed under the QMV. This has all come from EU treaties our government signed up to and represents an almost total loss of our sovereignty. We are now just a Brussels province.

Cameron, a man of no principle, obsessed as New Labour was, with PR has caved in to Obama over BP. These are dark days for our country. Our young men and women are dying in Afghanistan supporting the USA in an unwinnable war. If Cameron will not stand up for British interests against Obama, Merkel and Sarkozy then we are lost. If he does not then he is a lame duck Prime Minister from now on. We should pull out of Afghanistan straight away, one of the few sovereign acts we can still take, and support BP in taking on Obama and his bunch of bullying Chicago thugs in the US and UK courts against their unreasonable and illegal demands.

BP are doing all they can to stop the leak and clean up the mess. Obama has not offered one suggestion how to improve on BP's current actions.

But how did we get into this mess? The answer is most clearly seen in the current Labour leadership contenders. That they are all white, Oxbridge, 40 something males has been noted and a token black, Oxbridge, female included to satisfy the feminists and the ethnic minorities. The real common factor they all have in common except Diane Abbott is that they all are Spad, career politicians.

A Spad is a government ministers special adviser, Ollie, in the TV sitcom, "The Thick of It" is a Spad. Portillo, a ex Spad himself, explained the way the system works. You go from Oxbridge to work as an MP's research assistant or party research department, then to a think tank and then as a Spad. By that time you know everyone who matters in the party, you know all the current policy issues and party answers backwards, so when you are put on the short list for the selection interview for the safe seat you will easily outperform the local candidates. After election because you already know all the important party people your progress to the front bench and government is assured.

Did you notice the one thing missing in the above? None of them have ever done a proper job in their lives and they have no intention of ever actually working for a living. They are members of a political elite as exclusive as that which existed in the Russian communist party.

It is of course not just Labour. If you look closely at the oft played TV clip of Norman Lamont, then Chancellor, coming out in Downing Street in 1992 to announce the UK leaving the ERM, the UK's greatest financial disaster, did you notice the young man in the background? It was David Cameron then Lamont's Spad, aged 26 with no experience of economics whatsoever. On Lamont's fall Cameron moved seamlessly on to work as Michael Howard's, then Home Secretary, Spad. True Cameron then did work as Director of communications for 7 years but who smoothed his path into that non-job I wonder?

George, born Gideon, Osborne followed a similar path. While researching this piece I noticed something rather odd. Cameron was born in 1966 and Osborne in 1971. How on earth were they both at Oxford at the same time to appear in the infamous, now censored, Bullingdon Club photograph? His nickname in the Buller was Oik and seems to have been well merited. To add to the confusion, BoJo, also in the Buller picture was born in 1964. Fits with Cameron but makes the Osborne appearance even more curious. Simon Heffer called Osborne a dolt in one of his pieces writing a few months before the general election, "Can a dolt aspire to hold a great office of state?". Well Yes Simon it seems he can. As Napoleon put it 'In politics stupidity is not a handicap'.

Still I have high hopes of Jacob Rees Mogg, Eton and Oxford, a newly elected Somerset Tory MP, who appeared on the Politics show today smirking all over his face with his rather better known Daddy but without his Nanny unfortunately. That is the way the modern Tory party works. Worth Googling his bio. As a reporter wrote of him, "Rees-Mogg may, I suspect, be the last young British male to live as though he is in the 19th century." Oh lucky electors of North Somerset.

So there is the leadership of our once great nation. Is it any wonder our country is in such a mess and is now a client state of the EU and the US?

At least the much maligned Greeks have no illusions about their political elite. A Reuter's poll today reports that ' 78 percent of Greeks accept the view that many or all in government are corrupt'. Time for us to wake up to our political elites common backgrounds.

Friday, 11 June 2010

Why do British officials not help and support Brits

I have just watched Andy Murray lose at Queens in a match delayed from the previous day when his US opponent claimed the light was too bad. Murray had his man on the ropes and he was not even asked by the umpire or referee what he thought of the conditions. I remember watching an exactly similar thing happen to Tim Henman in a Wimbledon semi final against Goran Ivanisevic. Tim had Ivanisevic on the ropes but Wimbledon officials were happy to accede to the Croat's request to go off for bad light. The rest is history and Tim lost his last and best chance of playing a Wimbledon final. Can you imagine any other country France, USA etc where their officials do not do everything they can to support their home players. British tennis needs all the support it can get but its own officials prefer to help the other side.

Its the same with our new PM Cameron with Obama kicking BP. Cameron's initial quoted reaction was to side with Obama! Unbelievable! When the US owned Torrey Canyon went down the British and French had to clean up the US mess themselves. The same with Piper Alpha owned and operated by a US oil company! US companies put their hands up for nothing. They hand it straight to their lawyers who deny liability and spin it out for many years. The US refused to extradite the CEO of Union Carbide to India to stand trial for the Bhopal factory leak which killed 16000 Indians and irreparably damaged many more unborn children. I had hoped the new coalition government would end our master and poodle relationship with the US but obviously not. BP is going to be hung out to dry by the most hypocritical nation on god's earth.

It is the same syndrome that has allowed our interests to be walked over by the EU since before Heath took us in. Why can our leaders and officials not stand up for our interests the way the other nation's governments do? The French are past masters at this. Note how they dominate international organisations by getting their best people into the key jobs. We get ex-social worker Cathy Ashton out of her depth, manipulated by the Eurocrats and the poor cow does not even realise what is happening.

We are now led by boy politicians who move from University straight to MP's Spad, to think tank, to a safe seat. As Portillo, it takes one to know one, pointed out by the time a Spad comes up before a selection committee they have been at the heart of things, know all the arguments and answers inside out and will clearly be the selected PPC. Then when they get in as an MP their experience and contacts gives them first crack at ministerial jobs and then it is onwards and upwards. So we are led by those, largely from Oxbridge, with no experience of doing a real job.

Our country is doomed unless this can be changed to say require 10 years in a proper job out of politics before one can stand for parliament. Short of revolution I cannot see the legions of ex-Spad MPs voting this through.

There is not a lot happening in Eurozone. Greek-Bund spreads remain at 8% and the Euro continues to decline against the dollar. Amusingly one of Merkel's banks, Deutsche, or as Eddy George used to call it Dodgy Bank has been caught shortselling PIGS corporate's bonds. A case of pig on pork as they say in the City.

Thursday, 10 June 2010

Health warning, politicians seeking re-election

One of the few universal truths in politics is that the only thing politicians really care about is getting re-elected. You can call it staying on the gravy train, keeping your snout in the trough or just plain staying in power. This is the what is driving Obama's and the rest of the US administration's inflammatory rhetoric on BP and Merkel and Sarkozy increasingly shrill pronouncements on short selling, hedge funds, bank regulation etc. In short anything that panders to the general populaces worries and prejudices and which might get these sordid politicians the votes of the gullible.

Obama's faces mid term Congressional elections in November. His administration is in deep trouble domestically so he is doing what tyrants, dictators and incompetent politicians have done throughout history, blame the foreigners who of course have no votes in US elections. This is aided by the media in search of a 'story' their largely moronic customers can understand in 5 seconds, their maximum attention span. Hence the media find a worst case like an oil drenched pelican picture and plaster over their front pages, newscasts etc. This is a universal problem in Western democracies and you end up with actions not as it should be for the great mass of the population but for the extreme vociferous minority for whose grievances the great silent majority have to pay.

Damian Reece points out in today's DT that so far a total of 1356 dead animals have been found across 5 Gulf states the vast majority of whom died of natural causes. Also as there is now much more interest in reporting and keeping a count on these animal corpses any comparison with normal times overestimates the effect of the spill. If however we accept the 1356 figure and divide it into the loss of BP market valuation you come out with a staggering £36.6 million per corpse.

Worse, U.S. Interior Secretary Ken Salazar told a Senate hearing he would ask BP to repay salaries of any workers laid off because of the six-month moratorium on deepwater exploratory drilling imposed by the U.S. government after the spill. So BP is to be made responsible for the effect of Obama's actions. This is Robert Mugabe land law.

As a result of this and other inflammatory statements by administration officials BP shares fell heavily last night under fear that they BP may have to file for bankruptcy. Also, US politicians have absolutely no right to influence BP's dividend policy on which many British and US pension funds depend. The only criticism levelled at BP concerns its CEO's inept PR. No one has seriously criticised their technical or engineering people.

I am sure many US oil companies would like to see BP forced into bankruptcy by Obama's boot on BP's neck so they could then buy up BP assets at a knockdown price. But who has the most money to buy up and the expertise to operate BP's assets and has a huge growing demand for oil? China! Let us see how the US people and Obama react if the results of his anti-British spleen is a Chinese boot on the throat of the oil supplies closest to the US.

That well known anti-American organisation, the EU has been conspicuous for its silence throughout. It is interesting to speculate if this silence would have been so deafening if it had been a Shell well. Shell is 60% Dutch owned. So all the Europhile hot air about giving the UK a bigger voice in the world against the large power blocks has been shown to be, well just more hot air.

Back in Euroland Merkel and Sarkozy continue in their doomed attempts to ban standard financial market practices and so boost the Swiss economy. Merkel has of course just had a kicking in the recent Rhine Westphalia elections and Sarkozy has his eye on getting re-elected. Not only do thy both suffer from the re-election imperative but both are hidebound by out dated Soviet style ideology and dreams of restoring their former military supremacy. Not so the Chinese leaders, pragmatic long term thinkers par excellence!

Wednesday, 9 June 2010

Markets give EU's SPV thumbs down

The business Telegraph today carries an article reiteration my yesterday's blog saying the EU's announced SPV was just a rehash of the collaterised debt obligations, CDOs, that got us into the credit crunch. The EU's proposal is exactly the same and consists of producing a non-transparent sausage mixture of bonds that will be sold to the gullible as AAA, a rating produced no doubt by the new SarkyMerkel ratings agency. Politicians talk incessantly about learning lessons but clearly this is for other people not them. The EU's SPV has the potential to wreak the same financial havoc as bank SPVs & CDOs did.

The Eurozone markets were clearly of the same view and they all fell heavily after the latest EU SPV wheeze was published.

As important was the rejection by the Swiss lower chamber of their government's agreement with the US to hand over details of the 250 largest private bank accounts held by US domiciled clients. Put this along with yesterdays announcement that the EU will press ahead alone with Bank levy proposals and Reuters report that in a joint letter published by Berlin on Wednesday, Chancellor Angela Merkel and French President Nicolas Sarkozy told European Commission President Jose Manuel Barroso the EU executive needed to accelerate the pace of financial reform.

Brussels ought to accelerate efforts to impose tougher controls for credit default swaps on sovereign bonds and short selling, and present measures in the next few weeks say Sarkozy and Merkel. Bankers seek the most favourable regulatory regime and that now increasingly looks like Switzerland. Let us hope Osborne keeps us out of these ill thought out Fourth Reich schemes.

Finally the effect of Obama's kicking of BP is starting to take effect but not in the way he intended. Norway has banned new deep water drilling in the North Sea. So what do you think Mr President will happen next? Oil supplies will fall, the oil price will rise and in Louisiana oil workers will be laid off. And the oil companies? Well when oil prices rise their profits go up. Well done Mr President I hope the US citizens sack you in 2012.

Tuesday, 8 June 2010

EU to issue its own Euro bonds

Yesterday Reuters reports Eurozone finance ministers finalised arrangements for a Special Purpose Vehicle (SPV) to raise up to 440 billion euros (363 billion pound) to lend to Eurozone countries that run into Greek-style payments problems. This SPV will be in market jargon a supranational company issuing its own bonds on the market like the European Investment Bank the EIB. The difference is the EIB lends on a large number of relatively small, cost benefit analysed, infrastructure projects The proposed EU SPV will lend huge amounts to one or two bankrupt countries.

This all looks very risky to me remembering Northern Wreck had its very own SPV for packaging and selling on its less than AAA mortgages to the less discriminating investment institutions. So who will lend to this EU SPV and who will give it, and its bonds, a credit rating the market will accept? M Sarkozy, let me have men around me who are short, perhaps but not likely to go down well with those in the market who walk tall and chew gum. So the Eurocrats have arranged that these SPV bonds will have a guarantee from individual Eurozone countries. Who will tell this to the German voters? Not Dr Frau Merkel I opine.

Politically it looks a bit like setting up a common EU Treasury under the nominal control of Barroso and van Rumpoy but the real bosses will be Merkel and Sarkozy. It must breach some of the Maastricht rules but rules are there for M Sarkozy to slither under. Merkel is now embarked on a 30bn € austerity package that will further increase the German balance of payment surplus with the PIGS and more important the USA. Ah Angela after Obama has finished kicking British Petroleum's ass I fear he will be aiming at your well padded posterior.

Meanwhile also in the Land of the Free,yesterday Ben Bernanke, FED chairman, said that "European leadership is strongly committed to doing whatever is necessary to preserve the euro, preserve the euro zone, preserve the European project, and avoid financial problems that would certainly arise,". Then in the true central bank two handed economist tradition he added, "investors were not yet convinced Europe's debt problems would be resolved", and said more European rescue money may be needed.

On US banking regulation reforms Bernanke said, "The acid test of the reform will be, will it control 'too big to fail?'" he said, pointing to measures including tougher bank capital rules, resolution authority to safely close failing firms, and "living wills" that require companies to plan for their own unwinding.

Oh Ben I like the bit about planning for their own unwinding. If you can convince the EU of this I promise I will never write another word of criticism of P. O.

Monday, 7 June 2010

Markets also say the Euro's time is up

Following on from the Telegraph's 25 economists I had a look at the Euro bond and FX markets this morning. First the 10 year bond rates. (For those who may be puzzled why there is always such a rate. In almost all cases it does not refer an actual bond but to the 10 year point on the sovereign yield curve for that country which is an interpolation of yields on actual bonds.)

Sovereign 10 year bond yields
Germany 2.57%
Greece 8.60%
Portugal 5.30%
Spain 4.58%
Italy 4.26%

The Greek German spread of over 6% is back up to what it was before the EU/IMF bail out, a sign the markets have little faith in the bailout working. The Portuguese spread of 2.7% also indicates severe misgivings about Portugal and also Spain at a 2% spread. These three governments will have to pay more and more of their national income to service their debt as they have to refinance maturing loans on the markets. This implies more cuts in their public sector and a higher probability of civil unrest. The only thing that will save the UK from a similar fate is the much longer average maturity of UK debt, around 14 years, so we don't have to come back to the market nearly as often as the PIGS, average bond maturity around 4 years. The reason for that discrepancy is based on the unwillingness of the market to lend long to the PIGS, say 25 years, because of the history these countries have of defaulting on their debt!

Turning now to the Forex market, the Euro is now trading at 1.194 against the dollar in very volatile trading. It is expected to fall further possibly as low as 1.15. This impacts on any asset denominated in Euros e.g. sovereign bonds but also equities. It takes a huge interest rate differential to compensate for the likely FX losses with the Euro falling as fast as it is currently.

The big gainers from this scenario are the Germans with their huge export industry which is becoming more and more competitive with every fall in the Euro. Also, the low German interest rates transmit to commercial rates meaning German industry can raise investment funds at a cheap rate and make themselves even more competitive and their workers better off. The Greek people are the ones whose living standards are being hit and are paying for this German prosperity. German surplus funds should be recycled in part to Greece but this is now political suicide for Dr Frau Merkel. A politicians lot is not a happy one as in G&S!

Sunday, 6 June 2010

End of the Euro is nigh and Obama shoots himself in foot

The Sunday Telegraph business section, page one, lead story, "Euro will be dead in five years". This is the result of a survey of the Telegraph's 25 'top' economists. Well some of them are OK but others are slightly dodgy. The voting was 12 for the Euro's demise and 8 for its survival over the next 5 years with 5 sitting on the fence, the two handed economist's lotus position. Of the 8 seeing the Euro survive two opined this would require losing at least one of its members to a default on its debt. This will be spun euphemistically as a debt restructuring but the bottom line is for every 100€ of debt you hold you will get back around 50€ eventually!

Four of these experts opine Germany is the country most likely to leave as they will not go on subsidising the PIGS bloated public sector. Would that our government took the same view on our EU contributions! Tim Congdon expects most of the PIGS to leave the Euro with a split between France and Germany the Euro's death knell. I hope they are right. I can remember when 364 economists, including the now Governor of the Bank of England, wrote a letter to the Times saying the Thatcher Howe 81 budget would lead to economic disaster. They were all wrong but few had the grace to admit they were wrong and the lady was right. In short, I do not place much faith in economist' predictions. Better to read your horoscope on the back pages.

In South Korea the G20 met and decided not to proceed with a global banking levy so countries can introduce their own bank regulation reforms. Let us hope we do and do not get dragooned into one of Barroso's idiotic 'European' plans. Look at the mess Portugal is in right now. Do you want a Portuguese regulating our banks?

The problem with politicians like Barroso and Obama is that they cannot see past their short term political interest and believe their own rhetoric. I am old enough to remember the last great white hope of US politics, Jack Kennedy. Until Obama he was the most disastrous US President in my lifetime. He almost got us into a nuclear war over Cuba and got the US into the Vietnam war, their worst ever defeat. An unwinnable war just like Afghanistan.

One might describe Obama as the great black hope but like Kennedy his family has a hatred of the UK based on long past conflicts in Ireland and Kenya. The best presidents have always been unprincipled pragmatists like Nixon and Clinton.

Louisiana governor Bobby Jindal is such a man. He is currently making huge political capital out of criticising Obama and BP whom he invariably describes as idiotic. He was quoted on the radio this morning as demanding Obama's ban on off shore deep water drilling be reversed because of the dire effect it would have on the Louisiana economy with job losses of 10,000 in the next 6 months. Well Mr President who is going to want to drill there anyway given your ass kicking performance with BP. Oil drilling rigs will float away to Brazil and South Africa and leaving embittered unemployed oil workers in Louisiana. Worse for Obama, Mr Jindal, a 38 year old son of Indian immigrants, has ambitions to run against him in 2012. Jindal has already extracted 350 million dollars from BP to build the 5 sand barrier islands to protect the Louisiana coast. Obama achievements to date, ehh nil. A man to be reckoned with I think Mr President and coloured to boot.

Friday, 4 June 2010

Why does Obama hate the Brits?

I have been puzzled by the anti-British rhetoric and actions spewing forth from President Obama re the oil spill in the Gulf of Mexico. Why does Obama call it British Petroleum as if British is a dirty word? Why send in the FBI and the US legal establishment to try and discover wrongdoing in BP? How many lawyers does it take to fix a broken pipe a mile down on the seabed? Answer, you would be better sending a plumber. Yet Obama continues with this nasty populist vindictive useless rhetoric that does nothing to solve the problem and will be hugely counter productive in the long run. If he thinks there are votes in it for him in Louisiana or Texas he is wrong. The Rednecks there just think he is a jumped up lippy coloured boy.

I spoke to a friend of mine who works in the under sea oil drilling business who simply said, 'There but for the grace of God go any of us'. BP is one of the best technical oil operations in the world. They are throwing everything they have got at the problem regardless of cost. It is manifestly in BP's interest to fix this problem asap. They pay taxes in the US.The US owners and operators of the rig are registered off shore. To suggest as US Senators have done that BP will put their selfish commercial concerns above fixing the leak is naked political opportunism and stupidity.

Obama would be better to send his Engineers Corps or Navy to the gulf but the truth is they have neither the expertise or the equipment to fix this problem and I guess they have made that plain to this idiotic President. BP is one of the hand full of companies in the world that can fix it so why harass and threaten them.

When the US owned and operated Piper Alpha rig exploded in the UK section of the North Sea 25 years ago killing 165 people there was no anti US rhetoric from British politicians, media or wider populace. When in Bhopal, India a leak from the US owned Union Carbide plant killed 16000 Indians and produced horrible malformations in many more as yet unborn children I don't recall the US president sending in the FBI to Union Carbide but then Indians, especially dead ones don't have votes in the US elections.

It all came up on Andrew Neil's Daily politics show with Irwin Selzer this week. Obama it seems has removed Churchill's bust from the Oval office and returned it to us who gave it to the US just after the war. Neither Neil or Selzer could give any explanation for this anti British behaviour by Obama. I opine the reason is his grandfather was involved with the Mau Mau in Kenya during the 1950s and probably came off second best with the British Colonial police. A friend of mine was in the Kenyan police at the time testified at Kenyatta's trial for terrorism during the 50s. Following Kenyatta's release and his winning power in the 60s my friend had to flees Kenya where he had lived for many years. Obama's behaviour may be similarly motivated but he should remember that Churchill's mother was a US citizen.

I hope as a result of this incredible behaviour by Obama our new government will be less ready to make us a US poodle and ensure we have a genuine independent Foreign Policy that represents this country's interests not the interests of the US. Pulling our soldiers out of Afghanistan would be a good start. How many more of our lads and lasses have to die in this unwinnable war. The US won't learn until in their language they get their ass kicked as happened to the Russians in Afghanistan and the US in Vietnam.

Thursday, 3 June 2010

EU grabs London's golden heart

The EU Commission proposed yesterday a Paris based EU financial regulator with direct powers over credit rating agencies and a co-ordinating role, which is a carte blanche to do anything, over short selling, credit default swaps etc. The existing ratings agencies have angered the EU by daring to downgrade Eurozone debt. The 'speculators' are of course a standard political device for shifting the blame away from the politicians.

Van Rumpy and J M Barroso support these aims saying markets 'tendency of not looking enough at fundamentals etc' must be curbed. I opine that is exactly what markets are doing and they are looking at the fundamentals and they don't like what they see. As for the age old question, 'Who regulates the super regulator?', why Sarkozy and Merkel of course.

The real agenda as I have oft stated is to get the lucrative finance business out of London to Paris and Frankfurt but of course it will end up not there but in Zurich, Singapore or the Caymans.

Just to show we are not so different from the Greeks one proposal to reduce Greek debt was to sell the government stake in loss making Greek nationalised industries like their railways and ports. Guess what solution one of our new clean brilliant MPs proposed yesterday? Sell of HMG's stake in RBS, Lloyds, Northern Wreck etc. I told you Greece and the UK are in the same financial mess for the same reasons.

Our local rag printed mine and other letters calling for a Yeovil by-election following Laws deceit. Here's hoping.

Wednesday, 2 June 2010

EU Green tax grab & LibDem lies

All quiet on the Eurobond front until the next riot. I am glad to see Sterling up to €1.20 for my holiday plans. Not so good for MEPs on large Euro denominated salaries. No change in PIGS bond spreads to Bunds.

A long cherished EU aim is to have its own tax revenue streams. Green taxes give them a splendid opportunity to do this for have not all our wise politicians opined that one of the reasons for being in the EU is so we can have a integrated policy on environmental issues, global warming and especially carbon taxes. Ergo all such taxes should be paid direct to M Barroso or his partner. Thus today's DT business headline 'EU plans green taxes to cut debt'. Well not quite, more increasing the EUs tax take to waste on its pet projects. Their plans for rationalising taxes on fossil fuels will hit manufacturing industry hard during a recession but that is an un-European though and will require me to do time in Brussels for brain washing.

Meanwhile back in Yeovil, the defeated Tory candidate, one Kevin Davies, is quoted in today's page 4 DT headline as saying Laws campaign was fought on a pack of lies. I shall be interested to see if the local rag publishes my letter I included in yesterday's blog on the topic. Mr Davies suggests as I did Laws should stand down. Laws is not a man of integrity or sound political judgement. This is all very embarrassing for David Cameron and let us hope it does not spoil his romance with Nick.

The best bit in today's DT is Simon Heffer's piece on the same topic pointing out that Dave and Nick's new politics seems as obsessed with spin and propaganda as Tony's now failed NuLabour project. He notes as I did that Laws homosexuality is being used to obscure the basic dishonesty of what Laws did. It smacks of the anti Islamic smears trotted out against any criticism of Muslim's actions. Heffer was more scathing than I was about Paddy Ashdown's ludicrous claims that Laws was a man of integrity. To think Ashdown is in line for a nice EU job from that other towering EU intellect Cathy Ashton, van Rumpoy's side kick!

As SH rightly says in finishing, Labour can congratulate itself that it was a very good election to lose. Hear, hear.

Tuesday, 1 June 2010

More Eurozone bank losses likely & more LibDem Laws excuses a certainty

Reuters report that yesterday the ECB warned that Eurozone banks face a second wave of losses up to 190 bn €. The ECB also announced that up to 28th May it had purchased 35bn € of Eurozone government bonds. Although not stated by the ECB you can safely assume these purchases were overwhelmingly Greek, Portugese and Spanish government bonds. ECB council member and president of the Bundesbank, Axel Webber, expressed some unhappiness with this move extending these purchase which started on 3rd May to coincide with the announcement of the EU/IMF rescue package. "The purchases of government bonds in the secondary market should not overshoot a tightly-capped limit," Weber said in a speech prepared for delivery in Mainz, Germany. He did not suggest a particular limit.

The DT reported today that paradoxically the BoE announced it was showing a profit on £8 bn on it gilts purchased under its QE aka money printing programme! Ho, hum! That paper profit would rapidly disappear if they ever tried to sell those £198bn of gilts in the market as gilt prices would take a nose dive. It does show as BarCap said, 'quality is a relative concept'. Gilts are not a great credit at present but Eurocrap is worse hence the small rise in the price of gilts relative to Eurobonds.

Meanwhile Spain continues to suffer credit downgrades from AAA to AA. The Spanish government has announced it aims to pass a much anticipated labour market reform by the end of June with or without consensus with the unions and business representatives. The union boys and girls don't like this so stand by for more Spanish strikes, street protests and riots from the 20% unemployed. Euro equities continue to fall but not as much as UK equities. We will soon be in the spotlight post wee George's 22 June show.

Am I the only person who finds the apologists for D Laws expenses fiddle utterly nauseating. The attempt to conflate the issue with Laws' homosexuality did not go done well with Peter Tatchell the gay rights campaigner on Sopell's Sunday Politics show. As Tatchell said the issue is about honesty not sexuality and hearing Paddy Ashdown describing Laws as a man of integrity is clearly the opposite of the truth in this matter as Tatchell rightly pointed. We in Yeovil are well used to LibDem dissembling but it is good the rest of the UK sees it.

Guido Fawkes makes the same point on his blog, "Nevertheless, none of this trumps the fact that he took taxpayers’ money to pay his boyfriend’s rent on the quiet." and "Because legislators make the law it is surely right that we demand the highest standards from them, law-makers can’t be law breakers. If you don’t think you can merit the public’s trust beyond reproach, maybe public service isn’t for you.". I agree with Guido.

Finally I have written to the Yeovil weekly, the Western Gazette, calling for Laws to stand down as an Mp as he was clearly elected under a false prospectus. I copy my letter below which may well not be published by the West Gaz.


Mr Laws clearly broke the parliamentary rules on expenses by paying a large sum of public money to his long term homosexual partner as rent. Having campaigned as a candidate untainted by the expenses scandal, supported as Mr Integrity by Paddy Ashdown and made much play in the campaign of Mr Letwin, the Tory candidate in Dorset, being forced to repay expenses he wrongly claimed surely Mr Laws should now resign his Yeovil seat and give his constituents whom he clearly misled a chance to re-elect a different MP if they so wish. Mr Laws can of course stand in the subsequent by-election but if he is sincere in his oft stated wish to clean up politics let him put his fine words into practice. It is in his interests, the interests of Yeovil and my interests as one of his constituents for him to do so.

Eric Edmond