Last week, on Thursday 24th April, Barclays PLC had is Annual General meeting at the Royal Festival Hall in London. Massive UK press coverage about how the bank has had reduced profits, yet the bonus pool was up. A large investor, the revered Scottish investor of Standard Life objected to the bonus pool, a sign that a crucial long term shareholder, objected to the size of the bonus pool, when business performance over the past 12months was down, thus the reduced profits.

One can get great insight into the bonus pool and what the shareholders get when you drill down into the annual report.

[http://reports.barclays.com/ar13/]

Firstly let’s look at the balance sheet:

Total assets £1,312,267million = £1312 billion = £1.312 Trillion

Now UK GDP is £1.5111 Trillion, so Barclays balance sheet is 86% of the UK GDP. It is incredible.

Page 46 shows the size of the trading activity of the Investment Bank (Barclays Capital). “Total assets decreased £209.9bn to £863.8bn, primarily reflecting decreases in derivative financial instruments, cash and balances at central banks, and trading portfolio assets.” Yes, assets of £863.8 billion. (that is equal to 57% of UK GDP)

Now page 58 is where the numbers get interesting, as this is where we see The Remuneration Report.

“…After adjustments for risk and conduct, total incentive awards granted were £2,378m,…” That tells us the bonus pool is £2,378m = £2.3 Billion.

Page 12 shows us the dividend paid to shareholders. That is 6.5p per share.

Who are the largest shareholders? See page 90

Qatar Holding LLC with  813,964,552 shares

BlackRock, Inc with 805,969,166 shares

The Capital Group Companies Inc with 809,174,196 shares.

These top three shareholders own over 15% of the bank

Now reading the regulatory report [http://otp.investis.com/clients/uk/barclays/rns/regulatory-story.aspx?cid=68&newsid=402209] the total number of shares in Barclays are: 16,390,273,900

So one can now work out the total dividend received by shareholders:

16,390,273,900 shares X £0.065 = £1,065,367,804 = £1,065 million = £1.065 Billion

So we can see that the bonus pool of £2,378m is more than twice the amount of money than what the shareholders get which is only £1,065 million.

So in the past 12 months, HM Government has had to tap the bond market to raise money as the UK government spends more money that is receives in income. Government income of course comprises of income tax, corporation tax, duties on alcohol and tobacco, oil leases, mobile phone spectrum auctioned etc etc. To bridge that gap, HM Governmen via the Debt Management Office (www.dmo.gov.uk) issues bonds known as Gilts.

In 2013-14 HM Government had to borrow £107.7 billion. That is £8980 million a month !!

[2012-13 HM Government had to borrow £115.1bn for the year which was £9591 million a month]

So what we see here is a clear example of how the UK’s structural debt is growing each year, in the past 2 years we see the debt has grown by £107.7 Billion + £115.1 Billion = £222.80 Billion]

Just looking at the past 12months, with borrowing of £107.7 Billion, taking an approximate interest rate of 2% on that annual debt, then the interest (not the capital), alone is costing the UK Taxpayer £2.154 Billion a year just on the debt of 2013-14.

Now the UK has been running a deficit each year for over 10 years, so that is why UK Debt repayments are now over £20 Billion a year. It is incredible for all the wrong reasons.

The good news is that “we are in it together“

Yesterday (Wed 23rd April 2014), Facebook and Apple both posted impressive earnings for the first quarter (Jan-March), showing investors that technology is a good business.

The UK has a much smaller technology business, but is home to some very creative companies, such as Skygazer Labs the home of the superb mySymptoms app,  Shazam the music discovery app, BT plc the most dynamic telecoms company in the world, to name just three UK technology players.

Silicon Valley in California is home to the global technology industry. Created in the 1950’s with the start up of Shockley Electronics, that then lead to new companies, such as Robert Noyce, Gordon Moore and Andy Grove leaving Shockley Electronics to form “Integrated Electronics” that is known today as Intel Corporation. This innovation and creativity has lead to many companies in Silicon Valley, such as:-

Intel, Oracle, AMD, Facebook, Google, Symantec, eBay, Hewlett Packard, Yahoo, Apple, Cisco, Juniper, Adobe and Sandisk is name but a handful.

An interesting statistic is to look at the latest annual revenue of these firms:-

Intel US$52.70 billion
Oracle US$37.18 billion
AMD US$5.30 billion
Salesforce $3.05 billion
Facebook US$7.872 billion
Google US$ 59.82 billion
Symantec US$ 6.73 billion
eBay US$ 16.05 billion
Hewlett Packard US$ 112.298 billion
Yahoo US$4.68 billion
Apple US$ 170.910 billion
Cisco US$ 48.607 billion
Juniper US$ 4.66 billion
Adobe US$ 4.40 billion
Sandisk US$ 6.2 billion
Netflix US$4.37 billion

Just these 16 famous name companies, their total annual revenue is US$544.827 Billion

Now that US$544 Billion is only for the just 16 companies that I named above in the past 12 months. US GDP is US$16,000 Billion, (US$16 Trillion) So the 16 famous Silicon Valley companies annual revenue equate to 3.41% of the US annual GDP. Of course their are hundreds of technology companies in Silicon Valley, and I did not mention Microsoft, who are based in Seattle. So one can see the size of the US Technology sector. It is vast.

Silicon Valley is a massive contributor to the US and global economy.

Gold is a beautiful precious metal.  It is often considered a safe option for investment, and is also known as hedge against inflation. The approximate value today is US$1299.25 per ounce. That is about £772 per ounce.

A great place to read about Gold is from Thomson Reuters GFMS (Gold Fields Mineral Services).

[https://thomsonreuterseikon.com/markets/commodities/gfms/]

Some interesting statistics about gold.

Annual Approximate Mine Production: 2,864 tonnes Annual Approximate Old gold scrap: 1,591 tonnes

Total = 4,455 tonnes

The top Ten miners for gold are:

Barrick Gold
Newmont Mining
AngloGold Ashanti
Goldcorp
Kinross Gold
Newcrest Mining
Navoi MMC
Gold Fields
Polyus Gold International
Sibanye Gold

Now in Physics, DENSITY is defined as mass / volume

The density of water is 1,000 kg/m³ 

The density of gold is 19,320kg/m³

Yes 19.32 times heavier than water, it is very heavy. So in simply terms, a 1 Litre Carton of Tropicana Juice full of water is 1 Kg, and is that same carton was a solid piece of gold, that would be 19.32 Kg.

Now from Thomson Reuters GFMS have said there is 174,100 tonnes of gold = 174,100,000 kilogrammes  have ever been mined in total.

So with the equation of density = mass / volume one is able to calculate the volume (size) of the total amount of gold mined.

The density of gold is 19,320kg/m³. We know mass is 174,100 tonnes.

By re-arranging the density equation: Volume = Mass / Density

Volume = 174,100,000 / 19,320 = 9011 m³

And 9011m³ = 9011 metres cubed. So the cube root of 9011 is 20.8m. Thus a solid cube of gold. 20.8m long, 20.8m deep and 20.8m high is the total amount of gold mined. That is the equivalent of a small office block or a large house.

Now what is the value of this 9011 metre cube = 174,100,000 kilogrammes ?

1 ounce = 0.0283495 kilogrammes.

1 Kilogram = 35.27 Ounces.

We know that Gold is £772 per ounce.

So 35.27 Ounces (= 1 Kg) = 35.27 x £772 = £27,231

Yes 1kg (a bag of sugar) is worth £27,231.

So 174,100,000 x £27,231 = £4,741,007,777,914

Thus 174,100,000 kilograms (the 20.8 metre cube) = £4,741,007,777,914 = £4.7 Trillion

Since the 1980’s privatisation of the UK telecoms, water and the energy markest, the UK has a highly competitive but closely regulated telephony, water, power market.

The issue with close regulation, is the fine balance that the regulator has to get right, when it comes to being the champion of the consumer, and also ensuring an economic landscape that encourages investment and the ability to make an economic return for the industries, shareholders and offer decent customer service.

If companies fail to invest in the infrastructure of telecoms, water and energy, the national economy could suffer that in turn could cause long term structural issues, such as poor 3G and 4G coverage, lack of water supply or potential energy shortages whose consequences could be rising prices for the consumer, whether business or retail.

In late March, the UK energy regulator Ofgem [https://www.ofgem.gov.uk/] proposed the UK energy market needs to be referred to the UK Competition and Markets Authority [https://www.gov.uk/government/organisations/competition-and-markets-authority] in response to rising UK energy bills and the dominance of the big six energy suppliers [https://www.ofgem.gov.uk/press-releases/ofgem-proposes-reference-cma-investigate-energy-market]

The risk of this, is that the result of the investigation, could lead of the break-up of the big six players. However now with the risk of a potential divesture of the big six, will the current six players be willing to invest any new money into the UK energy market to develop new sources of energy supply ?

The UK as some structural issues when it comes to energy production. The last coal fired power station to be built was in 1974, the last nuclear power station to be built and turned on was Sizewell B in beautiful Suffolk in the early 1990’s, the legacy Magnox nuclear power stations of the 1950’s and 1960’s are now end of life. The UK as a massive energy shortfall.

It seems like “playing with fire” to disrupt the market with an investigation, when the UK is desperate need for new energy sources, and clearly needs new investment in the energy generation mix of power sources. With the crisis in Crimea and Ukraine, now is the time to invest in new domestic UK energy sources and new supply, rather than being dependent on supplies from Gazprom. The investigation is sending out the wrong message to the power companies, with this level of uncertainty hanging over the sector, investment is now on hold.

Peer to Peer lending is a new form of finance, using money from many people (a crowd) to generate a loan. There are some platforms that offer greater security by asking from borrowers a form of security, such as collateral such as deeds to a property or a baskets of shares in listed companies as security for the cash loan.

www.assetzcapital.co.uk is an example of this type of lending.

Here is a hypothetical example of how Peer to Peer secured lending works:

A company called Martlesham Industries, needs £100,000 for a new business venture. The owner of the Martlesham Industries, called Mr. Heath owns a house in the postcode of IP5 (Ipswich, Suffolk) worth £300,000 and has no mortgage on his this property, and has the deeds to the house from HM Land Registry.

Goes to a bank for a loan, the bank says no, as they do not want to lend to a small business.

So decides to see if a peer to peer lender can get him the £100,000 loan. The peer to peer lender undertakes some due diligence into Martlesham Industries.

The peer to peer lender says to Mr. Heath they will ask there lender community, made up creditworthy folks such as Mr. D. Launders, Mr P. Graham, Mr. M. Stonebridge, Mr. A. Karim, Mr.M.Hans, Mr I Dufour, etc to see if they can generate the loan.

The peer to peer lender then runs an auction, and money is pledge by the lender community. 2000 good lenders offer £50 each in an auction, [2000 x £50 = £100,000]

The auction closes, all £100,000 is accumulated from the lenders (the lenders each win the auction) and £100,000 now sits with the peer to peer lender The peer to peer lender now go back to Mr Heath (the owner of Martlesham Industries) and tell him they have the £100,000.

Before they release the £100,000 cash, the peer to peer lender want security for the loan, incase Martlesham Industries fails in the future and they can get the £100,000 back for the lender community.

Mr.Heath offers his house as security, and hands over the deeds to his house to The peer to peer lender. The peer to peer lender check no one else is laying claim to Mr Heath’s  house. This of course is important to secure the lenders money, and this takes a little bit of time, perhaps 3-4 weeks. In the meantime, the lenders are earning NO interest. They are waiting.

Once Due Diligence is done, and the peer to peer lender finds that  Mr. Heath is a decent man, they issue the cash to Martlesham Industries, that is known as loan draw down,  and then Martlesham Industries puts the money to work in the business, and makes interest payments, meeting all loans obligations to the peer to peer lender, who then give the cash to the lenders. Simples.

The USA is home to the most advanced higher education system in the world, which is directly connected to the reason why the USA is home to the largest economy in the world, which boasts some of the most advanced companies in the world.

We all depend on companies like IBM, Intel, Ford, BTPrivateWires, General Electric, Berkshire Hathaway, Facebook, Walmart, Pfizer, Oracle, Hewlett Packard, Apple, Exxon Mobile etc etc.

I was reading this website [http://www.nacubo.org/Documents/Endowment%20Files/2013NCSEEndowmentMarketValuesRevisedJan232014.pdf] that shows the largest 849 US and Canadian University Investment Funds.

This is a snapshot of the top 30.

Harvard University   $32,334,293,000
Yale University    $20,780,000,000
University of Texas System  $20,448,313,000
Stanford University   $18,688,868,000
Princeton University   $18,200,433,000
Massachusetts Institute of Technology $11,005,932,000
Texas A&M University   $8,732,010,000
University of Michigan   $8,382,311,000
Columbia University   $8,197,880,000
Northwestern University   $7,883,323,000
University of Pennsylvania  $7,741,396,000
University of Notre Dame  $6,856,301,000
University of Chicago   $6,668,974,000
University of California  $6,377,379,000
Duke University    $6,040,973,000
Emory University   $5,816,046,000
Washington University in St. Louis $5,651,860,000
Cornell University   $5,272,228,000
University of Virginia   $5,166,660,000
Rice University    $4,836,728,000
University of Southern California $3,868,355,000
Dartmouth College   $3,733,596,000
Vanderbilt University   $3,673,434,000
Ohio State University   $3,149,169,000
Johns Hopkins University  $2,987,298,000
University of Pittsburgh  $2,975,896,000
Pennsylvania State University  $2,956,803,000
New York University   $2,949,000,000
University of Minnesota & Foundations $2,757,476,000
Brown University   $2,669,948,000

Total:    $246,802 Million = $246 Billion

The US top 30 Universities have total investment funds of $246 Billion, that is just shy of a quarter of a Trillion US Dollars. (a bit of trivia, that is about 1.5% of the total US National Debt) Education is the mechanism of wealth creation and innovation.

Canada over the past decade has become a very wealthy country due to its oil reserves. By reading the BP Annual Statistical Review of World Energy, we can learn more about Canadian Oil Wealth

[http://www.bp.com/content/dam/bp/pdf/statistical-review/statistical_review_of_world_energy_2013.pdf]

Canada has 174 Billion Barrels of Oil Reserves, and a lot of this is from the Tar Sands in Alberta. [174,600,000,000]

Now with Crude Oil at US$106.59 a barrel a crude value to Canadian Oil Reserves is:

174,600,000,000 x $106.59 = $18,610,614,000,000 = $18 Trillion = £10.85 Trillion.

Today Canada produce 3,741,000 Barrels a day from its oil reserves, that is worth:

3,741,000 Barrels x $106.59 = $398,753,190 = $398 Million a day = £240 Million a day.

Now one can see why The Canadian Dollar is becoming so strong, and with the USA on the door step, the Canadian oil industry has a very nearby consumer.

Incredible to think that it was only 15 years ago that Nortel, was the world’s largest company, whose value was so great that is was 30% of the Toronto Stock Exchange, a name that has sadly vanished, and today, Canada has moved from a telecoms giant to an energy powerhouse.

UK HM Government March 2014 borrowings…..

Another month, guess what, take a lucky guess, it is the same old story, HM Government, spends more money than it receives via taxes and duties. Another deficit month, thus to bridge the gap, needs to borrow on the bond market.

In March 2014, the HM Government had to borrow money to meet the difference between tax revenues and public sector expenditure. The term for this is The PSNCR: The Public Sector Net Cash Requirement.

There were “only” 4 auctions of Gilts (UK Government Bonds) by the UK Debt Management Office (http://www.dmo.gov.uk/) to raise cash for HM Treasury :-

27-Mar-2014 0¼% Index-linked Treasury Gilt 2052 £900 Million
13-Mar-2014 0 1/8% Index-linked Treasury Gilt 2019 £1,592.712 Million
11-Mar-2014 2¾% Treasury Gilt 2024 £3,282.766 Million
04-Mar-2014 1¾% Treasury Gilt 2019 £4,303.205 Million

When you add the cash raised:-

∑(£900 Million + £1,592.712 Million + £3,282.766 Million + £4,303.205 Million) = £10,078.683 Million

£10,078.683 Million= £10.078 Billion

On another way of looking at it, is in the 31 days in March, HM Government borrowed:-

£325 million each day  for 31 days. We are fortunate, while the global banking and financial markets still has the confidence in HM Government to buy the Gilts (Lend money to the UK), the budget deficit keeps rising. What is also alarming, is the dates these bond mature, 2052, 2024 and 2019. All long term borrowings, we are mortgaging our futures, but at least we are “in it together….”