Thursday, 31 December 2015

Oil prices

Global stock markets fell yesterday [Wednesday 30-Dec-2015] as oil prices slumped toward 11-year lows, sapping investors' appetite for risky assets on the penultimate trading day of 2015. Investors need to pay attention to specific issuers in oil production states so they’re not blindsided in 2016.

Stock markets rallied the previous day as oil prices rebounded on prospects for lower temperatures on both sides of the Atlantic. But on Wednesday benchmark Brent crude slid below $37 a barrel, with investors worried about slowing demand and high supplies.

Slumping oil prices have been a major driver of financial markets this year, hammering energy companies, lowering inflation expectations and reinforcing bets on loose monetary policy in Europe and a slow tightening in the United States.

As the price of crude falls for a second year, marking the steepest decline since the recession, the impact is cascading through the finances of states, cities and counties, in ways big and small. Once flush when production boomed, some governments in major energy producing regions are facing a new era of unwelcome austerity as wells are shut.

A global glut of crude has weighed on the market for more than a year. Oil prices are on course to fall by more than a third this year as big suppliers such as Saudi Arabia and Russia have continued pumping crude in a bid to defend their market share. Meanwhile, U.S. crude output has been resilient despite the low prices, and much of the excess has gone into storage.

Brent is under particular pressure after the recent US budget deal that lifted a ban on US oil exports and is expected to reduce the international benchmark's premium.

Who is benefiting from this situation?

Domestic customers in the UK through low petrol pump prices and heating oil, but it is only temporary as the oil price controls more than just a few filling stations.

Tuesday, 29 December 2015

Environment Agency

The head of the Environment Agency Sir Philip Dilley, under pressure to defend his handling of Britain’s worst flooding crisis for years amid reports that he has left the country to spend time at his luxury Caribbean home in Barbados.

The Environment Agency is a non-departmental public body, established in 1996 and sponsored by the United Kingdom government's Department for Environment, Food and Rural Affairs [DEFRA], with responsibilities relating to the protection and enhancement of the environment in England [and until 2013 also Wales].

The Environment Agency employs around 11,200 staff. It is organised into eight directorates that report to the chief executive Sir Philip Dilley, another £100,000 a year waste of space.

The Environment Agency's total funding in 2007–08 was £1,025 million, an increase of £23 million on 2006–07. Of that total, £628 million [61 per cent] was provided in the form of 'flood defence grant-in-aid' from government [£578 million for England and £50 million for Wales]. In addition, £347 million [34 per cent] was raised through statutory charging schemes and flood defence levies; and a further £50 million [5 per cent] came from other miscellaneous sources.

In 2007–08 had an operational budget of £1.025 billion, of which £628m was grant from the Agency's sponsoring Government Departments. Approximately half the Agency's expenditure is on flood risk management, and a third is spent on environment protection (pollution control). Of the remainder, 12% goes to water resources, and 6% to other water functions including navigation and wildlife.

Since the establishment of the Environment Agency several major flood events have occurred and the Agency has been the target of criticism. A number of reports have been produced which chart various developments in flood management.

Easter 1998 Floods and Bye report
Autumn 2000 Floods and Learning to Live with Rivers
June 2007 National Audit Office report
Summer 2007 Floods and the Pitt Review

What happens when you build a wall to stop water from entering the designated area, it usually flows around the side. The biggest single problem the Environment Agency has still not fathomed is it's main purpose.

Monday, 28 December 2015

A Year of Reckoning

Most people have been writing about the last twelve months as an overview of what has happened, I am more interested in what could happen in 2106.

What lessons have we learned about 2015 and the increase in terrorism attacks.

The type of attacks that have happened seem to suggest the marauding type has become popular mostly because of the coverage they attract but perhaps because of the logistics involved. With Shengen [although not much free movement in Europe at the moment as Shengen is broken] entering Europe and travelling round the 26 countries has not posed much of a problem with groups of people shipping in arms and attracting newspaper offices, football groups, bars, restaurants and music venues has not been complicated either.

If the security forces start to work on disrupting these types of events the protagonists will presumably move on to plan B.

What about the political side of events. What are the fundamental problems in the region? Civil war in Syria, bad governance in Iraq, no final strategy for Libya.

There could be a deal in connection with Libya, there are talks in Yemen that could ease the situation, there are planned, also Syria talks next month in January, what can be achieved from these, a little at a time and goals could succeed. If not ISIS has the ability to move into Yemen and Libya unopposed.

What can be achieved from these events? The reactive approach must be left in the past and a more proactive approach must be taken. Apart from peace being the overriding goal, are there individual goals that can be achieved in each country that will appease all?

Thursday, 17 December 2015

Interest rate rise

The US Federal Reserve raises interest rates by 0.25 percentage points [the first increase since 2006] in a move likely to have global repercussions.

The world has experienced the deepest recession since the 1930s. In an attempt to boost the flagging economy, the Federal Reserve, European Central and the Bank of England cut rates aggressively, their rationale being that the cheaper money is the more likely people are to borrow thereby stimulating growth, because after all the interest rate is simply the price of money.

It seems a very small move but the ramifications could be enormous.

First question will the UK follow suit, hardly, inflation in the UK today is about 0.1% and the Bank of England wants inflation to be steady at 2%. It will be a long time before that happens. However, the UK will not want to move against the US rate it would rather reflect a similar change, so perhaps the Bank of England Monetary Policy Committee will have a difficult decision to make.

But what about the smart money?

Because of this rate rise America will now look more attractive for the smart money to move into and away from emerging markets that have had very cheap money for the last seven years.

A rate hike by the US Federal Reserve could cause fresh turbulence, especially in emerging markets, as investors take the opportunity to switch money back to the safer haven of the US. The much less successful eurozone, while out of crisis mode for now, is presently pondering ways to combat the threat of deflation.

All eyes will be on the BoE Monetary Policy Committee and the result of their next meeting which is next year on Thursday 14th January 2016?.

Monday, 14 December 2015

Low Carbon Economy

After Paris, everyone seems a tad optimistic about what 'they' have achieved.

The question now is can our government provide a low carbon economy.

Firstly what is a low carbon economy:-

A low carbon economy [LCE], low fossil fuel economy [LFFE], or decarbonised economy is an economy based on low carbon power sources that therefore has a minimal output of greenhouse gas [GHG] emissions into the environment biosphere, but specifically refers to the greenhouse gas carbon dioxide.

How will our government achieve their target.

1) get rid of carbon producing sources such as coal fired power stations, this is already in action.

2) energy use in buildings and industry, again to a certain extent this is in action, the quality of buildings erected in the last ten years has increased substantially.

3) reducing domestic transport emissions, this was going well until the VW scandal.

4) reducing international aviation and shipping, this is not going so well as more people are using these services today that at any time in the past, and it is not as though these types of craft are produced rapidly.

As the government has recently cut back on sponsoring certain new age technology, the challenge for Britain will be to rebuild its economic model around investment and innovation with little direct public money. Over the last three decades the knowledge economy has been the fundamental engine of growth. Through this period, the number of jobs that require degree level of professional skills has steadily risen, while the companies and sectors that have grown are those that have found new and innovative ways to add value.

One of the agreed points is the first stock take in 2023 and then every five years, do we have to wait eight years to see if change is taking place?

Friday, 11 December 2015

Britain's airports

The airport commission, chaired by Sir Howard Davies, recommended to the government that a third runway at Heathrow represented the best of all the options, and the government vowed to respond to the recommendation – in the form of a concrete decision – by the end of this year 2105.

What exactly was the point of the Airport Commission?

The exercise cost £20m and was designed, in part, to remove the decision from the hands of politicians.

The Prime Minister had promised to say by the end of the year whether he backed a 23-billion-pound runway at Heathrow Airport after a 3-year independent review named the site in densely populated west London as the preferred location.

Instead Cameron's government said late on Thursday [10-Dec-2015] it needed more information on the environmental impact before it could sign off on an issue that has split the party and is already 25 years in the making.

Heathrow, which is operating at full capacity, says a new runway would add 100 billion pounds to the economy and more than 120,000 new jobs. Business groups say expansion is vital if Britain is to keep up with the likes of Paris and Amsterdam in building ties to emerging markets.

The airport said it was confident that expansion could be delivered within the environmental limits while Gatwick, which is still campaigning to be allowed to expand, said it was now clear that its rival was no longer a viable option.

Lilian Greenwood, Labour's shadow transport secretary, said "Tonight's statement owes more to political calculations than genuine concern for the environment or residents who now face another year of blight and uncertainty, this shambolic announcement is an embarrassment and no one will be convinced that the Government is taking our runway capacity or environmental needs seriously."

Business has every right to feel let down by this decision and will question whether ministers are delaying critical upgrades to our national infrastructure for legitimate reasons, or to satisfy short-term political interests.

Thursday, 10 December 2015

Troops on the ground

Kurdish fighters, known as the peshmerga, backed by U.S.-led airstrikes emerged as one of the most effective counters to the jihadists in Iraq and Syria.

The Kurdistan Regional Government, which was formed in 1992 and rules an area larger than the Netherlands from its capital in Erbil, is locked in a dispute with Iraq’s central government in Baghdad over the sharing of revenue from oil sales, reported by Bloomberg. Finances already squeezed by the impasse have been further eroded by the global slump in crude prices, which are still falling rapidly.

Iraqi Kurdish leaders consolidated their power following the first Gulf War as the U.S.-led coalition created a partial no-fly zone in northern Iraq to protect the region from Saddam Hussein’s regime. Despite the turmoil in Erbil, Kurdish forces have remained effective. They retook the symbolically important town of Sinjar from Islamic State last month, and have pushed the militants out of other northern towns and cities.

Kurdish fighters in northern Syria have also had battlefield successes against Islamic State. They forced the militants from areas on the Turkish border, and have won strategic victories closer to the jihadists’ stronghold of Raqqa.

The cash-strapped KRG has fallen months behind in paying public-sector wages, which account for more than 70 percent of its budget. An undercurrent of tension erupted into view in October, when five people were killed and 200 wounded in unrest following protests in several towns and cities, reported by Reuters.

If the west does not want to put troops on the ground as NATO confirmed recently, then the least they can do is financially support the locals, as it may go some way to bolster David Cameron‘s 70,000 figure.

Tuesday, 8 December 2015

Economic Collapse

In 2008 there was an incident that has since been labelled the global economic crisis.

A lot of people have been blamed, the labour government at the time has been blamed and forced the then Prime Minister Gordon Brown out of the door.

The time scale is well known, Lehman Brothers collapses on September 15, 2008 and is not saved, at the same time Merrill Lynch [the bank I worked for] is sold to Bank of America which can only be described as a back room deal amidst fears of a liquidity crisis, Northern Rock collapses on 22 February 2008 and is saved by nationalisation [bad idea ~ another story] and does not need to be repeated here, however, is it happening again legally under Basel III and is it being ignored?

"Basel III" is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector.

Sub-prime mortgages, widely blamed for causing the 2008 financial crisis, are making a surprise comeback in the UK, with several new lenders launching home loans for people with poor credit histories. Lenders are targeting people who have faced serious financial problems including repossession and bankruptcy, as well as those with more minor blots on their records.

The problem is stricter rules on mortgages were introduced in the wake of the financial crisis, but this type of lending was not banned, checkout Basel III, and amid an easing in lending conditions and rising house prices, more companies are now starting to offer deals.

The regulatory process has an issue that cannot be easily resolved, they have stipulated that banks MUST keep enough capital to be liquid in form at the same time encouraging them to lend to business and domestic for economic growth purposes, but the banks have been placed between a rock and a hard place and no one has come up with a solution so far.

Monday, 7 December 2015


Why are pollsters and forecasters getting it wrong?

Last Thursday at the Oldham and West Royston by-election the results were:-

Labour 17,209   [majority 10,722]
UKIP 6,487
Conservative 2,596
Lib Dem 1.024
Green 249
Monster Raving Looney 141

In May 2015 the general election looked like:-

Labour 23,630   [majority 14,738]
UKIP 8,892
Conservative 8,187
Lib Dem 1,589
Green 839

During the 4-6 weeks running up to 3-Dec-2105 Oldham election it was being reported the 14k Labour majority could be as low as 3k, in the final week some said Labour might lose the seat albeit narrowly, but this was not believed to be accurate, the low majority figure was however.

As it turned out, the forecasters got it wrong.

It also happened in the 2105 general election where pollsters, forecasters and bookies had being saying for literally weeks before the election "it was too close to call", in the end the results speak for themselves:-

Conservative 11,334,576  seats 331
Labour 9,347,304  seats 232
UKIP 3,881,099  seats 1
Liberal 2,415,862  seats 8
Green Party 1,157,613  seats 1

So why are they getting it so wrong now?

There are several possible reasons for this, including people making up [or changing] their minds very late, Labour voters not turning out in the numbers that they told pollsters they would [lying - hardly] not telling pollsters which party they would vote for [this can always happen] and problems assembling accurate data from small selections, polls are usually 1,013 or 1.043 or something similar. I have often wondered if there was not a better solution to small number polls.

If times change and people change with the times, are the questions the pollsters asking the same as they have always asked and are they still relevant today, perhaps the pollsters should up their game by modernising their questions to meet the market?

Thursday, 3 December 2015

Syria Vote

Yesterday [Wednesday 2-Dec-2015] MPs voted 397 to 223 for the extended bombing in Syria. We have heard that the first raid has already happened and it hit the Omar oil fields in eastern Syria.

If we spend the next few weeks going after oil targets to affect the war chest financing Daesh, how will it affect global oil prices?

A year ago, Saudi Arabia led the Organization of Petroleum Exporting Countries in keeping production quotas steady, exacerbating a global glut and sending prices tumbling. Analysts surveyed by Bloomberg expect a repeat this year when the group meets tomorrow [Friday 4-Dec-2015] in Vienna. Iran has said it will announce plans during the meeting to expand its output.

Obviously it is too early to affect this meeting and the already tabled motions should go ahead, however, by the time of the following meeting if all the Syrian oil fields are wiped out a portion of the oil production expected by the committee will not be available, this will affect prices and you will notice your local petrol stations reflecting the changes by increases prices at the pumps.