Monthly Archives: June 2016

The Brexit Campaign. The realities are coming home.

One week after the Brexit vote, we are seeing real facts that are worrying.

The Vote Leave campaign claimed that the UK would save £2bn on energy bills. Leave promised the UK could end VAT on household energy bills. While that is  possible, it won’t save us any money in reality because we rely on imports for so much of our energy as we import gas from Norway, (the Troll field from Norway) gives the UK a lot of gas. However, as UK£ Sterling has fallen, the cost of imports rises, and thus energy prices will rise, so there will be no £2bn saving.

Also if the economy hits hard times, it is very unlikely that the VAT will be reduced, as this tax is an important revenue earner for the government.

There was huge talk about getting our sovereignty back. Talk about unelected officials in the EU making decisions and passing legislation on our lives. Now if Boris Johnson becomes PM, it will be down to the Conservative Party and the 1922 Committee internal election of the 330 Conservative MP’s deciding on the replacement to David Cameron. 330 officials deciding on the new PM. The UK electorate have no say in this decision. This is Sovereignty is action.

Vote leave promised £350m a week that would stop going to the EU and be diverted into the National Health Service. Our NHS. Now that figure is thoroughly avoided by the Vote Leave team, and are trying to distance themselves from this promise. incredible.

Most concerning is that during the recession of 2008 onwards, funding for our universities fell, that was offset by the huge rise in tuition fees for students. However lets us never forget the £7bn in science funding alone between 2007 – 2013 that came from the EU.
And what happens to our membership of key technical programmes like The European Space Agency or the world leading Physics laboratories of CERN.

The UK could suffer from this decision.

Brexit: Now “Lower Economic Activity” and potentially “Falling Interest” rates for savers.

The Bank of England on Friday 24th June after the Brexit vote was announced had to make an immediate announcement to calm the nervous markets.

“…these actions, UK banks have raised over £130bn of capital…..”

“…Moreover, as a backstop, and to support the functioning of markets, the Bank of England stands ready to provide more than £250bn of additional funds through its normal facilities…..”

Let’s take each of these two statements to the natural conclusion based on the research carried out by

1. £130bn of new capital. That means the high street banks now hold an extra £130bn inside them (on their balance sheet, as new assets). This money can NOT be used to generate loans or mortgages. It is held by the clearing banks. Thus credit to give to small or medium enterprises (the role of the clearing bank) is now reduced by £130bn. Thus potential economic activity like creating jobs or lending to companies to grow is now reduced by £130bn. This cannot be a good thing for the economy, but it is wise our banks have money to weather any storms ahead.

2.£250bn of additional funds. This means that now savers are going to be potentially punished. Why ?
Banks raise cash to fund themselves by either borrowing on the wholesale markets, such as getting money from pension funds or mutual funds or issuing bonds, or offering savers (regular depositors) attractive savings rates to attract then to deposit their money into savings accounts. Now with £250bn available from the central bank (the Bank of England), then the need to get savers money to deposit money now with them, immediately reduces, and thus no incentive to offer generous savings rates to lure in savers. Potentially they do not need that source of cash, so when times are tough, why offer decent interest rates to savers ?

Thus the irony is that older people who have saved, and have been punished with pathetic interest rates since 2008, now face the potential prospect of even lower rates on their savings due to the £250bn of Bank of England funding, and when one looks at the Brexit demographics of who voted to leave The EU, a large proportion of older people voted to leave. Sadly they are now potentially facing a poorer futures with near zero % savings rates on their long term savings. Perhaps they never  thought about being poorer after voting to leave the European Union. A consequence of the Brexit vote

Finally, two annuity firms, Just Retirement and Retirement Advantage, announced annuity rate cuts yesterday. Just Retirement’s rates are down by around 2pc. Almost certainly, this is the just the start of falling annuity rates. This is just one of the first effects of the Brexit vote on our pensioners and for those who are saving for retirement. Our elderly generation deserve decent pensions. Yet, someone retiring today will have less money from their pension.

After Brexit: Our next chapter.

Yet the truth is that we have little idea what will happen now, but can make some basic assumptions on the next stages of what may happen:-

Economic Confidence effects may become forceful. Confidence, very much long fragile, had just been starting to return, worries about China’s growth were reducing, and in the UK too. However, the uncertainty that Brexit brings a guess is that now investment weakness now seems almost inevitable.

Brexit will weaken GDP at first. Stronger exports, stronger manufacturing, and weaker services may well follow the weaker pound. But the UK has a relatively small export business, yes we export, such as Jaguars, Land Rovers, Range Rovers, BMW Mini’s, Vauxhall Astra’s etc , but to take advantage of the weak pound we need to rebalance the economy and develop that export base and make it bigger, which means wide scale reform, which takes time, so real GDP weakens before, ultimately, it strengthens if companies decide to expand.

Foreign direct investment may well fall aggressively. Indeed it already is. Ford has already paused investment plans, HSBC may move 1,000 jobs to Paris, and Morgan Stanley may move 2,000 jobs to Dublin. In the current uncertainty, Why would anyone make a long term decision on investing in the UK ?

Political turbulence set to endure. The Labour party is in total meltdown, resignations by the hour from the opposition front bench. The Conservative party is torn; and sadly the Liberal party pretty much irrelevant. Scotland is toying with the idea of seeking independence and would like to join the EU, but no guarantees that they could join the union, as Spain will have potential have objections due to its own internal issues. Wales is a net gainer from the EU, and they voted out, they clearly do not know what they want. What about Ulster, as The Republic of Ireland faces the prospect of an EU south, a non-EU province north. The Union has some choppy times ahead

Financial services will come under pressure. Yesterday Barclay’s fell 10% in value and shares were initially suspended. Banks will follow the business, and the business will follow the regulations. Banks can easily move to Paris, Zurich, Frankfurt or Dublin, unless it is hard to replicate the London workforce.

Trade negotiations will likely take years. They generally do. Could take 5-7 and the UK will have over 60 agreements to finalise.

Lack of Government. So let’s hope our Bank of England can meet the challenge, as it is the only relevant institution that remains fully functional, ironically run by an immigrant, the migrant from Canada, Mark Carney who is exceptionally brilliant.

What I have documented are the Real Risks that we face, these are my humble views, but I have been taught about risk by some exceptionally superb people, thank you Peter Harris…..

The Shrinking Balance Sheet of The Royal Bank of Scotland

The Royal Bank of Scotland that is 70% owned by the UK Tax Payer, has had a programme of reducing its balance sheet. The bank has sold assets all over the world as it becomes a UK focussed lender.

Looking at the annual report that was published on the 26th Feb 2016 once can see the real contraction in the bank

Year:                                 2016        2015         2014
£m          £m            £m

Total assets:                   815,408    876,684    1,051,019
Customer deposits:      343,186    346,267     354,288
Derivatives:                    254,705    288,905     349,805
loans to customers:      306,334    311,383    334,251
Wholesale funding:       59,000      66,000       90,000

One can see from a few metrics that I have pulled of the report, it is reducing its reliance on wholesale funding, also reducing the loans given out to customers.

in 2008, the balance sheet was over £2 Trillion, now it is £0.815 Trillion

UK GDP is about £1.5 Trillion, so the RBS Balance Sheet is 54% of UK GDP.
It is still a massive bank.

The view on BREXIT

The nation has spoken. What will happen is anyone’s guess. Here is what has to say.


The country will probably start to experience labour shortages in many sectors that are reliant upon immigration due to many EU immigrants currently living in the UK potentially leaving in due course and new EU immigration slowing quickly. When the prospect of a long term future in the UK diminishes we at expect potential immigrants to make decisions to go elsewhere from today onwards, not in two years’ time when the UK exit’s Europe. This may affect many industries, with for example the already understaffed NHS frontline potentially losing many much needed workers but housebuilding could also slow substantially too through an even worse lack of labouring skills and this could apply upward pressure on prices. The retail sector could see a significant difficulty to find staff and restaurant, bar and coffee shops could see a significant fall in staffing and service levels. Businesses who have benefitted from immigration delivering much needed staff to support expansion and also benefitted from this holding back wage inflation could see both more staff shortages and upwards wage pressure.


The pound has weakened significantly following the vote and whilst this may help exports it will also drive inflation as we are so reliant on imports as a country. It will be a decision for the Bank of England as to whether to raise base rates to support the pound and strengthen it or to lower base rates further and even restart quantitative easing (QE) to stimulate the economy if it slows down. It is a very difficult decision for them but we at feel given the pound has been far weaker than this a few years ago the decision will be to lower base rates and restart QE. Yes falling interest rates from 0.5% to 0.25%. Trust me, I am after all.


Overall the economy is expected to slow for a while and businesses will probably see a short term fall in confidence and at we may well see a technical recession for a short period as businesses tighten their belts in anticipation of a dip in profits which will become self-fulfilling in the short term. Nonetheless at we expect the economy to recover relatively quickly as the uncertainty over what an exit from Europe actually means becomes clearer and the country moves on although there could well be unhelpful turmoil in the political corridors in the short term if a power struggle develops.

Interest Rates

Given at we think that the Bank of England will act to support the economy rather than support the pound the base rate will probably go to zero very quickly now and they could in fact go negative (contrary to protestations that wouldn’t happen as it has in several other countries) and at we could also see bank savings accounts go to near zero interest rates to reduce demand from savers because we also expect to see banks quickly reduce lending to businesses and housebuilders again and they will therefore have less need for those deposits. The Prudential Regulation Authority will also probably step in and impose tougher requirements on banks that hurt their profits and that will also lead to further reductions in lending to businesses and developers and hence the banks’ and housebuilders’ share price falls this morning by around 35%. Nonetheless this benefits our investors like YOU…. and at we will now discuss this below.

Look at what the Bank of England said:-


Property – Buy to Let and House Prices

In terms of buy-to-let, we at  could see prime London house prices supported by the significantly weaker pound, spurring renewed investments from EU and global investors after a period of weakness in demand from those overseas investors. Nonetheless this will need to be weighed against the economic and currency uncertainty that will slow down those decisions. Overall At we still expect prime London prices to continue falling and many of the tens of thousands of £million+ flats in the pipeline to be mothballed as demand from all over the world fails to meet that potential level of supply. The rest of London will definitely be hit by a perfect storm of several factors hitting house prices which is great news for house-buyers but not for investors and homeowners. At I know that the City is going to relocate large numbers of highly paid bankers to Paris, Dublin and the rest of Europe and the loss of these highly paid house buyers and renters can only have a negative effect. Add that to the new buy to let mortgage interest tax and we see no appeal for speculative house price growth and negative cash-flow in London for the foreseeable future and expect a substantial continuation of the move of buy-to-let investment to the Northern Powerhouse.


The rest of the country is likely to be far more stable and we expect house prices to be very slow to react, if at all, as a minor economic slow-down is balanced by low mortgage interest rates (and probably falling further) and huge demand for housing. Nonetheless At we expect to continue to see developers offer ‘deals’ and price reductions on some properties. Expect to also see large discounts to original asking prices in the pipeline of luxury London flats London property (some amazing places in Maida Vale for example…if you do not believe me just ask SW…) but best wait a year or two before trying to catch that ‘falling knife’ as initial price cuts don’t necessarily mean that type of property is correctly priced yet. Rents outside London will remain strong and continue to grow steadily, created by a modest reduction in house building as the banks reduce lending again.

In summary buy-to-let outside central London remains a strong contender for cash rich investors seeking to protect capital and produce an income well above bank interest rates

And remember I am

BP Dividend Q1 (June) 2016 Payment.

BP, is one of the worlds largest energy companies.

On Friday 17th June (last Friday), BP pays out its Q1 Dividend of $0.10 dollars per shares. That is 6.9167 pence per share.

Now the issued share capital of BP p.l.c. comprised 18,646,586,876 ordinary shares.

So today, one can calculate the cash leaving BP PLC to its shareholders:

18,646,586,876 x £0.06.9167 = £1,289,728,474

That is £1.289 Billion cash leaving the bank account of BP PLC to be paid to the shareholders.

The effect of the Brexit debate on UK £Sterling

The UK Pound (Sterling) has come under pressure with the toxic debate on Brexit, remaining or staying in the European Union.

What we have seen in the past 4-5 months is that Sterling has depreciated against major currencies such as the dollar.

Here is a very simple example of the effect of this effective devaluation of Sterling.

Royal Dutch Shell

Pays quarterly dividends to shareholders, and reports its financial figures in US Dollars.

Its dividend payment was $0.47 per share for the Q4 2015-16 Dividend.

On March 11th 2016, it announced the conversion of the $0.47 in UK £pounds. It’s 32.78p per share.


Its dividend payment was the same $0.47 per share for the Q1 2016-17 Dividend.

On June 13th 2016, it announced the conversion of the $0.47 in UK £pounds. It’s 32.98p per share.


One can immediately see the dividend has remained at $0.47 per share, but due to devaluation of Sterling has resulted in people receiving the dividend in UK£ have made an extra 0.2p per share

So as a simple example a shareholder with 1,000 shares in Royal Dutch Shell:=
in March 2016:-

1,000 x £0.3278 = £327.8 as a dividend

on June 2016

1,000 x £0.3298 = £329.8 as a dividend.

£2.00 more for doing NOTHING.

The NB Global Floating Rate Income Fund

The NB Global Floating Rate Income Fund is a great fixed income fund, managed by Neuberger Berman. Neuberger Berman is a private, independent employee-controlled asset management company, managing approximately £250 billion.

This fund has the top ten holdings:-

Valeant Pharma   2.06%
Avago Technologies  2.01%
First Data   1.90%
Scientific Games  1.64%
Numericable   1.40%
Community Health Systems 1.27%
Cablevision Systems  1.22%
Petsmart   1.17%
Univision Communications 1.10%
Mohegan Tribal Gaming  1.03%

This makes up 14% of the fund.

It total holdings are documented here.

The fund is worth nearly £1bn.

A yield of over 6%. Amazing

Morrisons Dividend June Payment.

On June 15th, Morrisons PLC paid its dividend.

The final dividend payment is 3.5p.

The share capital of Morrisons PLC is 2,335,203,487

Thus the cost of dividend to Morrisons is:-

2,335,203,487 x £0.035 =  £81,732,122.

£81 million cash leaves the business to pay the shareholders.

Chinese Oil Reserves.

China believe it or not, actually is a minor oil producer, with 1.1% of the worlds reserves. That equates to 18,500,000,000  barrels.

Of course one has to realise that China consumes 11,056,000 barrels of oil a day.

So what is the value of the 18,500,000,000 barrels ?

So crude today trades at about $50.06 a barrel which is £32.23


18,500,000,000 x £32.23 = £651,895,600,000

That is £651 Billion which is about 43% of annual UK GDP

Prudential PLC: May Dividend

On Friday 20th May 2016, The Prudential PLC, the massive UK life insurer, paid out a dividend to shareholders.

It is the owner of M&G Investments, Jackson National Life and InfraCapital.

Prudential paid out 36.47p per share to its shareholders. The share capital of Prudential PLC is made up of  2,572,762,666 shares.

So how much did Pru pay out on Friday 20th May ?

2,572,762,666 x £0.3647 = £938,286,544.29

That is £938m to its shareholders. That is the cost of the dividend.

That is a 3% yield.

The Legal and General June Dividend 2016

Today on the 9th June 2016 Legal and General PLC pays out is dividend to shareholders.

LGEN are paying out 9.95p per share.

Now Legal and General has 5,949,115,915 shares. Thus the cost of the dividend paid today is:-

5,949,115,915 x £0.0995 = £591,937,034

That is £591 million cash that leaves the business today to the lucky shareholders.

The Reality of the Japan’s Public Finances.

The Japan in an incredible country. A nation of vast beauty, a rich and deep culture, amazing food, highly intelligent people and also it commands a very high standard of living.

Home to the creative nation of high quality consumer goods, from household names like Sony, Nikon, TDK, Olympus, Mitsubishi, TEAC, Nissan, Toshiba, Toyota, NEC, Nintendo, Mazda, Ricoh, Panasonic, Honda, Hitachi, Canon, Fujitsu to name just a few.

It’s public finances are shocking however. The Government of Japan is funding its operations on debt. The Bank of Japan is buying the debt. It is the most extreme form of Quantative Easing


33% of all of all Japanese Government Bonds (JGB) are owned by the Bank of Japan


Japan’s Debt to GDP is over 230%

The figures are of the chart….

HM Government Borrowings: May 2016

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 2016, 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 ( to raise cash for HM Treasury:-

18-May-2016 4¼% Treasury Stock 2036 £1,500 Million
10-May-2016 0 1/8% Index-linked Treasury Gilt 2058 £756.1400 Million
05-May-2016 1½% Treasury Gilt 2026 £2,874.9840 Million
04-May-2016 1½% Treasury Gilt 2021 £3,162.4980 Million

When you add the cash raised:-

∑(£1,500 Million + £756.1400 Million + £2,874.9840 Million + £3,162.4980 Million) =  £8,293.622 Million

£8,293.622 Million = £8.293622 Billion

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

£267 million each day for the 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 2021, 2026, 2036 and 2058. All long term borrowings, we are mortgaging our futures, but at least “We are in it together….

UK Mortgages Maiden Dividend.

UK Mortgages PLC is an investment fund that is buying high quality mortgages from banks and building societies.

A £247m fund that paid on the 9th May 2016 to shareholders a dividend of 1.5p.

They play to pay a dividend to shareholders each quarter.

This equates to a potential yield of 6%

Incredible if they can maintain this yield in a deflationary economy.