Monthly Archives: June 2014

The balancing of the world economy

19 of the top 30 economies in 2050 will be from currently deemed “Emerging Markets

in 2010 the GDP of top 30 economies were worth US$37 Trillion = £21 Trillion

It is projected by 2050 the GDP of top 30 economies will be worth US$106 Trillion = £61 Trillion

by 2050 the % of Global GDP:

20% Mainland China
7% India
2% Brazil
2% Mexico
2% Turkey
14% Other Emerging Markets
18% US
5% Japan
3% Germany
2% UK
2% France
2% Canada
4% Other developed nations.

What is tells us that The Emerging Markets in the next 35 years are going to dominate global commerce and trade.

Shale Gas: Egdon Resources

Egdon Resources [] is UK based oil and gas exploration and production company listed on AIM (the alternative investment market).
With a value of £60m, it is in the media spot light as it has discovered shale gas (Fracking) on the UK mainland.


What is interesting is to see some of the major shareholders:


Yes, the UK’s Premier Oil [] who own over 17% of the stock.

With Egdon having over 15 sites in the UK that it is currently investigating for oil and gas reserves.  As oil becomes harder to find, and also with all the geo-political risks that face the global energy sector, domestically sourced energy is a great opportunity for the UK.

The United Kingdoms’ National Debt.

The UK National Debt is the total amount of money the British government owes. The UK government borrows from creditors who buy gilts (UK Sovereign Bonds). Thus the ability for the UK to bridge the gap from its public expenditure and its tax revenue comes from the fact it is able to borrow on the fixed income (bond) market.

In 2014, the public sector net debt was £1,268.7 billion, this is just over 75% of gross domestic product (GDP). [UK GDP is about £1673 Billion (approx.)]

But let’s keep things in context:

Japan for example has a National debt of 225%,
Italy is over 100%.
US is about 100%

Also after Second World War, the UK debt  was over 180% of GDP.

However with all borrowings, the interest is an issue, one has to pay interest on the debt.
Thus the cost of National debt is the interest the government has to pay on the gilts it auctions.

In the next 5 years this is the estimate on what could have to be paid:

2014-15: £52 Billion
2015-16: £57 Billion
2016-17: £62 Billion
2017-18: £68 Billion

These are huge numbers, on money that brings no economic benefits such as creating jobs. It is just payments to creditors.

The only way to reduce the debt is via economic expansion and government spending cuts.

Final point on government debt, perhaps the number is higher, if you consider PFI programmes, or perhaps pensions that the government is obliged to pay and the liabilities of bank loans from the old Northern Rock (now UKAR) it has to guarantee. So perhaps the UK National Debt is actually well over 100% of GDP

Fund Focus: The Legal & General Distribution Trust

An £45million investment fund, that gives an interest rate (coupon) of 3%.


It is a fund of fund, is a part from high quality securities, it also has significant holdings in the Legal & General Dynamic Bond Trust, the Legal & General High Income Trust, the Legal & General Managed Monthly Income Trust, the Legal & General Sterling Income Trust and the Legal & General Fixed Interest Trust.

The high quality blue chip investments are equity stakes in Rio Tinto, HSBC, Vodafone, BP and UK Gilts.

Its top 10 holdings are:

4¾% Treasury Stock 2015 (Bonds) =  8.41%
AstraZeneca (Pharmaceuticals & Biotechnology) = 2.26%
Rio Tinto (Mining) =  1.95%
BP (Oil & Gas Producers) = 1.41%
Prudential (Life Insurance) = 1.29%
Aviva (Life Insurance) = 1.24%
British American Tobacco (Tobacco) = 1.09%
Royal Dutch Shell B (Oil & Gas Producers) = 1.04%
Imperial Tobacco Group (Tobacco) 1.01%
HSBC Holdings PLC (Banks) 1.00%

To get 3% in a climate of near zero interest rates, it is an incredible fund.

Energy: Fracking with iGas

Fracking with iGas

A potential energy bonanza is under our feet, quite literally.
Locked in rock underground is Oil and Gas that is potentially able to be extracted using the technology called Fracking

At the forefront of this in the UK is IGas plc. []
IGas [] listed on the London Stock Exchange is a £283 million company, that just just purchased Dart Energy and has plans to drill in North West and in the East Midlands of England.

Strategic Investors are:


39.08% shares in issue are considered not to be in public hands, they are held by the strategic investors.

The UK is no stranger to onshore oil, with the former BP site of Wytch Farm in Dorset [], that BP sold to Perenco.

With the geo-politics always surrounding the energy sector, and more recently the concerns with gas supplies from Gazprom and the Ukraine crisis, being dependent on energy from overseas is always a risk, but with energy locked beneath our feet, the ability to get oil and gas is a real opportunity and of course is good for the UK balance of payments and the wider economy, as it offers the ability to create UK jobs and delivering energy security.

Woodford Investment Management

The highly revered UK investment manager, Neil Woodford has left Invesco Perpetual [] to set his own fund management business called Woodford Investment Management


During his time at Invesco Perpetual, he ran the famous flagship funds The Invesco Perpetual Income and Invesco Perpetual High Income fund. These funds had about £30bn under management. Neil bought high quality stocks such as BT plc, Astra Zeneca plc  to name just two famous names.

Now with his own fund management company, the new fund to watch is The Equity Income Fund.

A good reason to watch this new fund, is because of Neil Woodford’s track record:

If one had put £1,000 into the Invesco Perpetual High Income fund when Neil Woodford took the helm 26 years ago, it would now be worth £25,349

A rock star fund manager.

Iraq’s Oil Production

The current news from Iraq is most alarming, seeing the political instability and the country now having the humanitarian crisis brought on the  militant insurgency coming from the Syrian border. With its rich culture and history, it is a tragedy to see the suffering brought on by the sectarian division in the country.

Today Iraq’s economy is based on oil. But what is the value of this crude oil ?
Iraq produces 3,115,000 barrels of oil a day, and with the political problems this level of production will fall.

3,115,000 barrels of oil is about 3% of total world oil production per day.

With oil at $113.18 per barrel:
Iraq’s daily value of oil production is:

3,115,000  x US$113.18 = $352,555,700 = £207,663,000

That is £207 million a day.

With that level of oil revenue, Iraq should be an extremely wealthy country, but with the turmoil on these lands, the outlook for Iraq in the short term looks very uncertain

Legal & General’s June Dividend

Legal & General is one of the largest insurance and investment companies in the UK. Owning over 5% of the UK stock market, and being an active investor, under the stewardship of Dr. Nigel Wilson, they are a giant in the investment and fund management sector.


This FTSE-100 Life and Property Insurer has 5,917,933,444 shares.


On Wed 4th June 2014, it made a dividend payment that was 6.9p.

So with 5,917,933,444 shares each commanding a payment of 6.9p the cash leaving Legal & General PLC on Wed 4th June was:-

5,917,933,444 shares x £0.069 = £408,337,408  = £408 Million = £0.4 Billion.

The numbers are incredible to think that it was able to pay £0.069 per share, equating to over £400 million to shareholders, a reward for holding this share, that is a cornerstone and fundamental investor in the UK.

HM Government Borrowings: May 2014

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 May 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” 3 auctions of Gilts (UK Government Bonds) by the UK Debt Management Office ( to raise cash for HM Treasury :-

28-May-2014 0¼% Index-linked Treasury Gilt 2052  £1,209.97 Million
15-May-2014 4½% Treasury Gilt 2034  £2,181.56 Million
07-May-2014 0 1/8% Index-linked Treasury Gilt 2044  £1,272.96 Million

When you add the cash raised:-

∑(£1,209.97 million + £2,181.56 million + £1,272.96 million) = £4,664.49 Million

£4,664.49 Million = £4.664 Billion

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

£150 million each day  for 31 days of May. 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, 2034 and 2044. All long term borrowings, we are mortgaging our futures, but at least we are “in it together…

Silver Lake Partners: Technology Investment.

Silver Lake Partners are a US private equity investment firm based with offices around the world, specialising is the Technology sector.


With £13.7 Billion under management, some very names are owned or part owned by the investment funds of Silver Lake.

Alibaba Group
Go Daddy
Virtu Financial

Are just some names that are relatively well known.

Technology companies are the backbone to raising living standards, and creating new opportunities and opening new frontiers

The Mond Cloud

Technology brings many benefits to personal users and enterprises. We are in the midst of a technology tidal wave that is known as Cloud Computing, this is a game changing technology that will see businesses become more agile and responsive to the changing environment.

MOND Cloud is at the forefront of this, [] with the delivery of the pulse of intelligent business transformation. Mond are able to deliver this with the capability of reduction in time to market, improved efficiency, application integration, workflow, collaboration and documentation exchange, enterprise bus capability, security and optimisation in the cloud.

In the world of financial services for example the issue is the impact of complexity in the following areas:

data, business processes, technology portfolios, management systems, and critical infrastructure.

The financial markets remain volatile and as banks reduce risk, and shrink balance sheets, they are looking at solutions to provide accurate, complete and timely information to various stakeholders so people can make better and more informed decision to satisfy regulatory reporting with customer insight and business improvement seen as ancillary benefits.

Imagine an environment where one can automatically convert existing format to any other formats like XML, EDI, IDOC, FIX, SEPA, SWIFT and others. This brings:

-Improved decision making
-Regulatory Compliance
-Increased Information Quality
-Quicker Results
-Improved Business Productivity
-Create intelligent business operation
-Lower Total Cost of Ownership (No licensing)

Data sovereignty is making it difficult to centralise data at multi-nationals. Likewise, data stored at third parties compounds the challenge of understanding the movement and location of data. That notwithstanding, an array of solutions to the data problem were presented (e.g. data governance, enterprise integration, industry utilities for standardisation, and Enterprise Data Management).

Compliance related projects are consuming IT budgets and deferring permanent solutions to address complexity. In many cases, improvements in systems cannot keep up with the pace of change. Meanwhile, changing markets are shifting revenues and business priorities. Support business transformation strategies such as the move to a digital bank Improve business agility – Unified messaging FIX, FpML, SWIFT, JSON (PayPal) etc.
Optimise the IT cost structure  – {MOND has the integral ability to build rapid business process enabling  high performance Intelligent Business Operations
Provide scalable performance – the ability to ram up and down – no licensing just subscription}.

The High Availability Infrastructure based on a 64-bit platform that has Disaster Recovery as data is replicated from one data centre to another data centre, with automatic failover with 24 * 7 monitoring and support.

The MOND Cloud, The Intelligence Business Operation

Negative Interest Rates and the ECB.

On Thursday 5th June 2014, the European Central Bank cut interest rates from 0.25% to 0.15%.


However the big news was the Deposit Facility Interest Rate, that was cut to:


Yes, a negative interest rate.

In the UK the base rate is 0.5%. This means, a UK clearing bank depositing money with the Bank of England gets 0.5% on cash that is deposited with the Bank of England.

However in the Eurozone, this is now not the case, clearing banks operating in Europe, depositing money in the ECB will get an interest rate of -0.1%.

So this is what will happen as a worked example:

Friday 6th June 2014, a clearing bank depositing €1,000,000 Euros with the ECB get -0.1%, after 12 months of that €1,000,000 Euros on the deposit with the ECB will become €999,000.

Yes, a loss of €1,000.

The reality of this is a direct measure of the European Central Bank to force banks to lend. Thus the negative rate acts a disincentive to deposit cash with the ECB, and lend to businesses and consumers to help the European economy. Perhaps what this tells us the poor shape of the Eurozone economy.

UK Bank Notes and Coins in circulation & on deposit.

The only lady of Threadle Street, The Bank of England [] has some very interesting statistics that gives an insight into the UK economy.

This shows the amount of cash in circulation, and also the amount of money the UK banking sector has on deposit with the UK Central Bank, The Bank of England.

In May 2014 from reading the Bank of England press release we see:

£67,558 million = £67.5 Billion of notes and coins are in circulation. So this tells us the physical cash being used in the economy, this is money in banks and building societies that is available.

What is very interesting is the amount of cash that the UK banks and building societies have on deposit with The Bank of England.
£304,891 million = £304 Billion that the “clearing banks and building societies” have deposited with The Bank of England.
Money that is earning the 0.5% The Bank of England Base Rate.

Perhaps this is some level of insight, into the risk adverse nature of the banking sector, money that has been saved by the banks and then put onto deposit with the Bank of England, rather than being lent out to consumers or businesses. Or perhaps there is not the demand from consumers and businesses to borrow from the banks.

Either way, it is incredible to see that the Bank of England has £304 Billion on deposit from the UK banking sector.

This is why one reads about the potential benefits of “negative interest rates” at the central bank. A way to increase lending, is to create the negative interest rate environment where clearing banks are penalised by negative interest rates with cash on deposit at the central bank, and then this creates the incentive to lend money to businesses and retail consumers and make a real return, this is what has been discussed with the ECB in recent weeks.

Aberdeen Asset Management

Scotland has a great tradition of money management. Aberdeen Asset Management [] is a member of the FTSE-100, and a relatively new company being formed in 1983. By strategic acquisitions over the years, some famous names have been absorbed into Aberdeen Asset Management:

UK and US institutional businesses of Deutsche Asset Management.
Edinburgh Fund Managers
Murray Johnstone
Prolific Financial Management
Parts of Credit Suisse Asset Management
Goodman Property Investors
Scottish Widows Investment Partners

Today, Aberdeen Asset Management has £324.5 billion under management. To put that into context, that equates 21% of the annual UK GDP.

What is interesting is seeing who some of the largest shareholders in Aberdeen Asset Management are:

Mitsubishi UFJ Trust and Banking Corporation with 18% of the stock.
The Capital Group Companies with 3% of the stock.

A major player in the fund management business looking after the savings and investments of retail and institutional investors.


What is incredible is that the stock yields over 3.5%.


The Technology of The Cloud

No one is unaffected by globalisation and most companies in one way or another operate in a global market. Businesses must be enabled to fully leverage globalisation to seek out new markets, rapidly deploy to new low cost sources of supply and bring together the best talent across the world to solve today’s difficult problems. With economic uncertainty, and the hyper competitive world with the added dimension that the pace of technological change is rapidly changing at the same time, the increasing regularity of technology discontinuities makes critical strategic ICT decisions difficult to undertake. Cost reduction by the introduction of new technologies such as Cloud Computing and Software as a Service, are key trends that organisations are adopting in the response to the downturn to reduce the enterprise cost base and give business agility with infrastructure which reacts dynamically to business needs

Cloud computing is the current hot topic that describes the major IT mega trend in which information infrastructure is moving. It is the creation and deployment of services and applications over the internet, supported by a central computing infrastructure. In cloud computing a customer rents processing time rather than buying computer infrastructure to run applications. Cloud therefore has the potential to replace the need for major investment in IT infrastructure to run high-end applications for businesses. Cloud computing is rather about packaging IT capabilities that can be delivered via networks − this is the very essence of the convergence that has been taking place in the industry. The definition of cloud computing is best explained from a utility model. Nicholas Carr’s book ‘The Big Switch’ sums it up nicely, comparing where we are with cloud computing to the electricity supply industry in the 19th century.


The volume of cloud computing market opportunity could amount to $200bn.

One has to look at the technology pioneer MondCloud

The technology from MondCloud, enables the ability for companies who want to access services without investing in new infrastructure, the appeal of cloud computing is clear. Customers have the ability to plan and pay for the average load and then flex up to cope during peak loads and flex back down again afterwards. The flexibility of The MondCloud, removes wastage by removing unused storage capacity from customers’ operations. It improves the cost base, increases corporate productivity, and with an increasing interest in sustainable development, green issues and long-term energy use reduction and energy efficiency are all benefits of cloud computing. Imagine running a finance business where your transactions are managed and run in the cloud, or a trading business, such as commodities house, the day to day operations are run the cloud while the business can focus on customers, business strategy and developing new markets.

It is my view that customer’s needs, can be more simply defined. Getting the computing infrastructure job done as cheaply as possible with no CAPEX without negatively impacting business policies or creating an unbearable risk profile. Furthermore as the industry moves forward with innovation from companies like MondCloud working toward an architecture that offers networked IT services solutions of the future for major, global enterprises the benefits of cloud computing are compelling – reduced cost and improved productivity.

In summary cloud computing is primarily about convergence, the convergence between networks and IT. The network is the key, that offers technology in more cost effective manner. The network of the future will have to provide high availability, flexibility, scalability, and efficiency. With cloud computing, the industry has come full circle, the efficiencies of a centralised computing infrastructure that can be easily accessed via the internet are just too compelling to ignore.