Monthly Archives: December 2014

FTSE-100 15 years on…

15 years ago to the day, the 30th of December 1999 the UK’s flagship index FTSE-100 closed at an all-time high of 6930.2

Today the FTSE is at about 6594.91.

Going back and looking at the FTSE-100 in December 1999, we were coming to the peak of the Telecoms and Technology Bubble. Looking back this it was a purely speculative bubble. Remember those days, when companies made little profit, burnt cash with little regard for shareholders and were given crazy valuations ?

Remember these iconic names:-

Baltimore Technologies

Justin Urquart Stewart who at the time was the face of Barclays Stockbrokers (now at Seven Investment Management fame) called the FTSE-100 an “Drug related Financial Call Centre” due to index been driven by Pharmaceutical, Telecoms and Financial companies.

Today the FTSE is a very different index, dominated by the giant five, HSBC, BP, Shell, GlaxoSmithKline and Vodafone, with BHP Biliton and Rio Tinto in close pursuit.

The UK’s inequality of wealth

An unbelievable fact in the UK, is the massive divide between rich and poor:

The wealthest 2,500 people in the UK have the combined wealth of the bottom 8,000,000. Yes the poorest 8 million.

What this tells us, is that the UK is following the pattern of a growing divide in wealth equality. We see this in The USA and also in India were the gap between the rich and poor is getting wider. This is very bad for social cohesion and for generating opportunities of all citizens.




The Crisis with the Russian Economy

In the media, one sees each day the Russian Rouble depreciating in value against the international currencies.

The facts are clear.

On Friday 21st March 2014 €1 = 49 Roubles.
On Friday 19th Dec 2014 €1 = 79 Roubles.

The crash in value is incredible, and the issue is that Russian companies that had borrowed from banks in foreign currencies are now having to pay huge amounts to meet the same loan repayments. This simple examples shows:-

March 21st 2014, a Russian company borrows €100 from an European Bank. It then has €100 which it then converted into Roubles, and thus became 4900 Russian Roubles.

Now say on Monday 22nd Dec, the European Bank calls in the €100 loan. Now the Russian company needs 7900 Roubles to pay the debt back. The currency movement, has resulted in the loan ballooning from 4900 Roubles to 7900 Roubles.

The elephant in the room, is that the Russian economy has been based on Oil and Gas exports, and all that money has never been used to diversify the economy away from oil and gas. Thus it is evident to see that the Russian economy is totally dependent on these natural resource / energy exports as when one looks at the fundamentals, when was the last time anyone you know bought a Russian made mobile phone, a car, a washing machine, a television, an Android Tablet ?

The slump in oil prices has resulted in major financial stress for the Russian economy. Its exports are not bringing in the income, and the over dependence on this commodity is now resulting in this situation.

The BP December 2014 Dividend.

On Friday 19th Dec BP plc paid its Quarter 3 Dividend. BP paid to its shareholders, £0.063769 per share (6.3p per share).

With the oil price under pressure, due to the down turn in the global economy, new shale oil and gas reserves coming on line, the oil price has been in decline for months, which has manifested itself with cheaper petrol and diesel prices at the pumps.

Already BP has warned of $1bn of restructuring charges over the coming year on Wed 10th Dec, as turmoil in the crude market continued with prices dropping to a fresh five-year low.


However look at the yield of BP plc.

Yes, over 6%.

River and Mercantile UK Micro Cap Investment Company Limited

The River and Mercantile UK Micro Cap Investment Company Limited (RAMMIC) is a newly floated investment company.

It is a currently a £50million investment fund, that will invest in micro-cap companies listed on the London Stock Exchange. It plans to invest in companies with a market value of £100 million or less in a concentrated portfolio of 30-50 stocks on either the AIM market, which specialises in smaller companies or the main market of the London Stock Exchange


The risk of investing is smaller companies compared to “blue chips” is that smaller companies are a much higher risk to the very nature of the business, however the higher the risk the greater the reward.

Cohort PLC

Cohort is an AIM listed £100m company that specialises in Defence, Security and Regulated Markets. It is a pure play technology company, with the executive team from BAE Systems.

The major shareholders are:-

10% Marlborough Fund Managers Ltd
0.871% Cazenove Capital Management Limited
11.050% Schroder Investment Management Limited

This little company has the ethos a parent company running central functions, and the subsidiary companies then doing the day job.


A technology company, and still able to pay a dividend of 1.8%

RIT Capital Partners

The RIT Capital Partners Investment Trust is worth over £2bn.


RIT Capital Partners traces its origins back to the earlier Rothschild Investment Trust, which was originally associated with the family bank, N. M. Rothschild & Sons. Today, Lord Rothschild remains as Chairman. He and his family are the largest shareholders with a holding of 18%.

Thus one can see that some of the wealth of the Rothschild’s is tied up in the RIT Capital Partners Investment Trust.


Its investments are spread over many asset classes.

Quoted Equity – Long
Quoted Equity – Hedged
Private Investments – Direct
Private Investments – Funds
Absolute Return & Credit
Real Assets

A long term investment fund, that manages the wealth of the family but also offers the same level of investment exposure to international markets.

Peak Oil

The term peak oil comes from the thought that the quantity of crude oil is ultimately fixed. The production of crude oil into components such as petrol, diesel etc. etc. then must inevitably reach a peak and then it is from this peak where it has to go into decline.

Peak oil has its origins from the work of M. King Hubbert, a geologist working for Shell in the 1950s. In the mid 1950’s he published a prediction of US crude oil would peak in about 1970. That was a very accurate calculation.

However the US discovered massive oil reserves in Alaska, and this created a massive new source of oil. Then in the past 5 years US Shale Gas has bought new reserves on lines. So perhaps we hit peak oil too early ?

Well since 2009, the trend of declining US crude oil production reversed, and since then the US output has surged upwards until in 2013, production was higher than any year since 1988-89.

Perhaps Peak Oil has been hit, but then again, perhaps we may find new reserves. Only time will tell.

The facts about the UK budget deficit

Last week the UK Chancellor of the Exchequer made the 2014-15 HM Government Autumn Statement.


Again, the main headline, is the UK Government, is spending more than it receives in taxes.

So for 2014-15 tax year, HM Government will have to borrow £91.3bn (yes billion) to meet all spending  commitments. Or another way of looking at it, the government will spend on top of its income, (tax revenues) £91.3bn. That money comes from issuing Gilts (UK Government Bonds) to investors to bridge the gap.

But this is only for this current tax year. Looking forward, the same is yet to come, more spending funded from more borrowings.

2015-16 the budget deficit is projected to be £75.9bn
2016-17 the budget deficit is projected to be £40.9bn
2017-18 the budget deficit is projected to be £14.5bn

and it is projected by 2018-19 before reaching a £4bn surplus (yes, spending less than income)

So looking at the figures. For the current tax year and the next 3 years ahead, the national debt will increase

£91.3bn + £75.9bn + £40.9bn + £14.5bn = £222.6 billion.

The interest payments on the UK National Debt is now a very large item that has to be paid by HM Government, something that is rarely discussed by the politicians.

UK HM Government November 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 November 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 :-

20-Nov-2014 0 5/8% Index-linked Treasury Gilt 2042  £3,951.9800 Million
13-Nov-2014 2¾% Treasury Gilt 2024  £3,299.9600 Million
04-Nov-2014 0½% Index-linked Treasury Gilt 2050  £869.9250 Million

When you add the cash raised:-

∑(£3,951.9800 Million + £3,299.9600 Million + £869.9250 Million) = £8,121.87 million

£8,121.87 million = £8.121 Billion

On another way of looking at it, is in the 30 days in November, HM Government borrowed:-

£270 million each day for the 30 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 2024, 2042 and 2050. All long term borrowings, we are mortgaging our futures, but at least “we are in it together…

Self-Investment Opportunities.

The power of the Internet and the ability to find information has resulted in a revolution in investors at home can access the world of capital markets and investment funds.

There are various sites now that allow investors at home buy investment products without the need to pay a professional advisor for investment advice.

Take a look at these sites:

They offer the ability access funds from the leading investment houses as an execution service and online management way to manage one own investment funds. This is allowing investors at home, to choose funds with all the risks and opportunities that self-decision making creates.

The internet changes everything.