The Ecofin Water & Power Opportunities plc is an investment trust listed on the London Stock Exchange

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=133342&action=]

An investment vehicle that is primarily invested in the equity and equity-related securities of utility and utility-related companies. It’s top 10 investments are:

Lonestar Resources USA Energy 7.8% of the fund
Williams Companies US Energy 4.0% of the fund
NextEra Energy US Power 3.9% of the fund
E.ON Germany Power 3.6% of the fund
General Electric US Infrastructure 3.5% of the fund
SSE UK Power 3.1% of the fund
Exelon US Power 2.5% of the fund
National Grid UK Power/Regulated 2.5% of the fund
NRG Energy US Power 2.4% of the fund
Union Pacific US Infrastructure 2.4% of the fund

The top 10 holdings make up 35% of the total investment fund.

The yield is over 4%.

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 December 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 (http://www.dmo.gov.uk/) to raise cash for HM Treasury :-

11-Dec-2014  0¾% Index-linked Treasury Gilt 2034 £812.370 million
09-Dec-2014 3½% Treasury Gilt 2045 £1,924.985 million
02-Dec-2014 2% Treasury Gilt 2020 £3,750.000 million

When you add the cash raised:-

∑(£812.370 million + £1,924.985 million + £3,750.000 million) = £6,487.36 Million

£6,487.36 Million = £6.487 Billion

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

£209 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 2020, 2034 and 2045. All long term borrowings, we are mortgaging our futures, but at least “we are in it together…..”

With the dawn of the new year, one has to look at the bigger picture. Investment is a waiting game, and a brilliant quote from Warren Buffett of Berkshire Hathaway:-

“Games are won by players who focus on the playing field –- not by those whose eyes are glued to the scoreboard”

What Warren Buffett is effectively saying, is to focus on the long term, and not the short term fluctuations of the share price movements.

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
PSION PLC
Thus
Energis
GEC

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.

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.

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.

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.

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?username=&ac=&csi=10022&record_search=1&search_phrase=BP]

However look at the yield of BP plc.

Yes, over 6%.

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

[http://microcap.riverandmercantile.com/]
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

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=36464569]

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 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.

http://www.cohortplc.com/

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.

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=177046]

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

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

[http://www.ritcap.com/]

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.

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?username=&ac=&csi=10281&record_search=1&search_phrase=RIT]

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
Currency

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

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.

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

[https://www.gov.uk/government/publications/autumn-statement-documents]

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.

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 (http://www.dmo.gov.uk/) 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…”

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:

https://www.axaselfinvestor.co.uk/
http://www.youinvest.co.uk/
http://www.nutmeg.com/
http://www.fundsnetwork.co.uk
http://www.hl.co.uk/

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.

1,687,300,000,000 is the massive number that is the total number of barrels of oil that are in the ground. This number is known as the proven reserves of oil.

The 12 nations that make up OPEC have the lion’s shares of this.

Algeria                  12,200,000,000
Angola                  12,700,000,000
Ecuador                 8,400,000,000
Iran                        157,000,000,000
Iraq                        150,000,000,000
Kuwait                  101,500,000,000
Libya                      48,500,000,000
Nigeria                  37,100,000,000
Qatar                     25,200,000,000
Saudi Arabia       265,900,000,000
UAE                       97,800,000,000
Venezuela          297,600,000,000

Total:                   1,213,900,000,000

So OPEC’s 1,213,900,000,000 out of the total of 1,687,300,000,000:
1,213,900,000,000 / 1,687,300,000,000 = 71%.

Thus OPEC “own” 71% of the world’s oil reserves. That is the real big oil.

The Brunner Investment Trust was formed from the Brunner family’s interest in the sale of Brunner, Mond & Co, the largest of the four companies which came to form ICI in 1926.
ICI (Imperial Chemical Industries), demerged to form Zeneca (which is now the AstraZeneca plc), and the remaining part was slimmed down ICI that moved from bulk chemicals to speciality chemicals, that then was acquired by the Dutch Akzo Nobel.

http://www.brunner.co.uk/

The Top Ten Holdings are:

3.4% Royal Dutch Shell “B” Shares
3.0% HSBC
2.5% GlaxoSmithKline
2.4% BP
2.2% Microsoft
2.1% Vodafone
1.9% Roche
1.8% Monsanto
1.7% AbbVie
1.7% Xchanging

Top Ten equates to 22.7% of the total investment.

The Trust has been managed since inception by Kleinwort Benson which is now Allianz Global Investors. Investors in the Brunner Investment Trust who have not only received 42 years of dividend payments, but have enjoyed a rising dividend over the same period.

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?username=&ac=&csi=11174&record_search=1&search_phrase=bru]

A yield of 2.7%

The UK National Grid [www.nationalgrid.com]is the company that moves power from the power stations into the network known as The National Grid. The electricity is then distributed to end users via the local distribution network operators (DNO’s).

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?username=&ac=&csi=51261&record_search=1&search_phrase=ng]

A £35billion company, a member of the FTSE-100

Equity investors are getting a 4.5% yield on the investment.

With a company with such massive cash flows (selling electricity has that benefit…), it is able to issue massive amounts of debt.

[http://investors.nationalgrid.com/~/media/Images/N/National-Grid-IR/content-images/graph-debt-info-highres-new.jpg]

The total level of Debt is just over £21bn, with bonds maturing over an average of 12 years.
So few short term cash calls for debt repayment. 65% issued in US Dollars and 35% issued in UK Sterling.

OPG Power Ventures plc is the London listed power company, that is generating electricity in India.

[http://www.opgpower.com/]

A £376m company, it is a non-trivial business, that is generating power in the emerging economic super power of India.

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=1698767]

The principal business of the Company is developing, owning and operating power stations in India. The electricity generated from OPG Power Ventures power plants is sold principally to public sector undertakings and heavy industrial companies in India or in the short-term market.

The investment arm of the UK insurance giant UK Prudential, M&G Investment Management own 12.5% of OPG Power Ventures plc.

When you look at the fundamentals of India, the currency has fallen from £1 to 80 Rupees to £1 to 100 Rupees, this 20% devaluation means, Indian investment is now very attractive, as things are 20% cheaper when spending in a foreign currency.
More importantly, India needs infrastructure investment, to meet the demands of the growing middle class.

The Internet of Things is something that is attracting a lot of coverage in the technology and mainstream press.

In essence it describes how real world objects can be connected to the internet. Imagine that, a household boiler connected to the internet. One could command and control the central heating, so you come home, and your house is warm, as 45mins earlier you used the internet via the web or smartphone app to allow the heating to be activated.
[https://www.hivehome.com/]

It’s here all ready.

The ability to bring greater control of everyday items has vast potential

[http://share.cisco.com/internet-of-things.html]

Cisco think this market could be worth US$19 Trillion (that is over 100% of annual GDP) by 2020 (that is less than 6 years away…). Cisco expect that the number of connected devices are to hit 25 Billion by the end of 2015 (that is 14 months away…) and that will balloon to 50 billion by 2020.

The efficiencies that being to control things remotely will bring huge economic benefits to the world.

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 October 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 :-

21-Oct-2014 2¾% Treasury Gilt 2024  £3,000.000 million
16-Oct-2014 0 1/8% Index-linked Treasury Gilt 2024  £1,400.000 million
07-Oct-2014 3½% Treasury Gilt 2045  £2,473.537 million
01-Oct-2014 2% Treasury Gilt 2020  £4,399.890 million

When you add the cash raised:-

∑(£3,000.000 million + £1,400.000 million + £2,473.537 million +£4,399.890 million ) = £11,273.43 million

£11,273.43 million = £11.273 Billion

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

£375 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, 2045 and 2020. All long term borrowings, we are mortgaging our futures, but at least “we are in it together….”

The Bank of Japan last week announced another round of Quantative Easing.

[https://www.boj.or.jp/en/announcements/release_2014/rel141031e.pdf]

The announcement on the 31st October is incredible.

“…….effective from November 4, 2014. In principle, the Bank will announce the “Outline of Outright Purchases of Japanese Government Bonds” on the last business day of every month. The next announcement will be on November 28, 2014.
1. Amount to be Purchased Approximately 8-12 trillion yen per month in principle….”

Yes you read that correct.

What this means is that The Bank of Japan will now from November buy 8-12 Trillion Yen of (Japanese Government Bonds) JGB each month, but the government only actually issues (sells) about 5 Trillion Yen of Bonds a month.  No one will ever say but what is happening is pure debt monetisation.

[1 Trillion = 1,000,000,000,000]

so 8 Trillion YEN = 8,000,000,000,000 YEN = £44,567,200,341 GBP

That is forty-four billion, five hundred sixty-seven million, two hundred thousand, three hundred forty-one.

= £44 Billion = £44,000 Million.

So each month the Bank of Japan will spend £44 Billion = 8 Trillion YEN each month on buying Japanese Government Bonds (JGB’s)

To put things into context the Gross Domestic Product (GDP) is £3.06 Trillion.

So if the Bank of Japan executes this plan for say 6 months, this calculates:-

£44 Billion x 6 months = £264 Billion.

In 6 months of Bank of Japan purchases that equate to £264 Billion is equivalent to 8% of Annual GDP.

these numbers are huge. What will the Bank of Japan do with all these bonds that is owns ?

It will never be able release them on the open bond market, as it will flood the market and the prices of existing bonds will slump. The end game of this global policy of flooding the market with cheap capital is impossible to predict, but what are the unintended consequences ?

OPEC is the the Organisation of the Petroleum Exporting Countries was set up in 1960. It has 12 member countries that are known as a cartel when it comes to oil production. These countries are:-

Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates & Venezuela

The daily oil production in barrels per day:-

Algeria                  1,667,000
Angola                  1,784,000
Ecuador                505,000
Iran                        3,680,000
Iraq                        3,115,000
Kuwait                  3,127,000
Libya                      1,509,000
Nigeria                 2,417,000
Qatar                     1,966,000
Saudi Arabia       11,530,000
UAE                       3,380,000
Venezuela          2,725,000

This totals:            37,405,000  barrels per day from OPEC

Now global total oil production is 91,331,000 barrels per day

Thus:-

37,405,000 / 91,331,000 = 40%

OPEC accounts for just over 40% of Global Oil Production. This really is Big Oil.

The UK energy giant, BP [www.bp.com] is one of the world “oil majors” has an energy economics team, that produce the high revered annual Statistical Review of World Energy.

[http://www.bp.com/en/global/corporate/about-bp/energy-economics.html]

This is quite a large document, but is full of interesting facts.

Based on the figures from BP that are known to be used by wider industry one can see the world total of proven Crude Oil reserves are:-

1,687,300,000,000 barrels of crude.

[One trillion, six hundred eighty-seven billion, three hundred million barrels of crude]

Now today, the world consumes:-
91,331,000 barrels of crude per day.

[Ninety one million, three hundred and thirty one thousand barrels of crude per day]

So one can calculate based on current consumption the length of time before crude oil runs out:

1,687,300,000,000 / 91,331,000 = 18474.5 days.

18474 days / 365 to give us years = 50.6 years.

So based on some ball park figures we have just over 50 years left on crude oil reserves.

Now my calculations do not factor in new reserves being found, or consumption of crude falling and new sources of energy such as solar and hydrogen which of course will alter crude oil demand, or even people following the wise example of Dean Lawford and driving a hybrid Lexus, but based on current circumstances, 50 years based on demand today, and with China, India and other Emerging Markets and Frontier Markets all getting wealthier the demand of oil is still on an upward trajectory.

The accounting scandal that has engulfed Tesco PLC is very complex. A hole of £263million that was due to an accounting overstatement.

One has to keep things in context, and by looking at the finances, one can see the scale of Tesco.

[http://www.tescoplc.com/index.asp?pageid=188&newsid=1074]

Sales of £34 billion that was a drop of 4.4% year on year.
What is interesting is the profits at Tesco Bank, that was £102 million, while the actual UK stores delivered total profit of £499 million

The annual report gives a more granular breakdown
[http://www.tescoplc.com/files/pdf/reports/ar14/download_annual_report.pdf]

page 71 is the balance sheet.

The liabilities are the interesting items

£10,595 million of Trade and other payables. This is what Tesco owes to its trade suppliers, from gas and electric to the goods on the shelves that it gets on credit from its suppliers. These are short term liabilities where Tesco has to pay its suppliers within perhaps 30-90 days.

£9,303 million on financial borrowings, such as loans and bonds issued.

£3,193 million in pension liabilities

Now with the deterioration in trading (sales) at Tesco it means that its credit status is potentially under threat, and one can see that it has vast sales of over £34 billion, but with debts totalling over £20 billion, Tesco has to do something to return to strong profitability, to meet all its liabilities.

Algeria on the North Coast of Africa, has large oil and gas reserves. The land mass of Algeria makes it one of the largest countries in the world.

With a troubled political past, today it  has some level of stability.

As the demand for oil intensifies, countries with oil could potentially enjoy great wealth. Sonatrach is the Algerian state oil producers, and is the largest company in Africa.

[http://www.sonatrach.com/]

Algeria today produces 1,667,000 barrels of oil per day.

With oil at $86.54 = £53.96, one can calculate the value of Algerian Oil Production per day.

1,667,000 barrels of oil per day x £53.96 = £89,951,320

That is £89 million a day.

The Foreign & Colonial Investment Trust was Launched in 1868, the Trust was the first ever investment trust, allowing small investors access to the stock market. Since then it has since gone on build a track record where it has increased its dividend each year since 1971, this is an impressive track record. Its aim is to generate long-term growth and income by investing primarily in an international portfolio of listed equities. The Trust is highly diversified and cautiously managed, with exposure to around over 500 individual companies from around the world.

http://www.fandc.com/foreign-and-colonial-investment-trust/

Its top 10 holdings are:-

Private Equity Pantheon Europe Fund V: 2.18%
Private Equity HarbourVest V Direct Fund: 1.52%
Private Equity Dover Street VII: 1.20%
Private Equity Pantheon Europe Fund III:1.17%
Financials Utilico Emerging Markets: 1.02%
Buyout HarbourVest Partners VIII: 1.02%
Buyout HarbourVest Partners VII Buyout: 1.00%
Oil and Gas BP: 0.97%
Private Equity Dover Street VI: 0.91%
Private Equity Pantheon Asia Fund IV: 0.90%

http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=10192&action=

A £2,140.09m (£2.1 Bn investment fund)

It’s total holdings are listed here:

http://www.fandc.com/documents/fcit-portfolio-valuation/

The United Kingdom’s appetite for oil is large. Not entirely surprising when you know that there are 34.5 million cars in the UK today.

The UK consumes 1,468,000 barrels of crude oil a day. (1.4 million a day).

So what is the cost of this daily oil ?

Crude oil is $92.12 a barrel which is £57.65 a barrel.
1,468,000 x £57.65 = £84,630,200

So we see that the UK spends £84million a day on crude oil that we see in our petrol, diesel and other hydro-carbon products that we consume

In the media is a news that Bill Gross, the highly acclaimed bond fund manager is leaving Pacific Investment Management Corporation [www.pimco.com] to join Janus Capital.

[http://www.bbc.co.uk/news/business-29495997]

The Pimco Total Return Fund that was run by Bill Gross and currently has over US$200bn under management

[http://www.google.co.uk/finance?cid=246009576812464]

Nearly 19% of the $200bn is held in US Treasury 10 Year Bonds. One way of looking at major investment is total faith in the US Treasury’s ability to repay its debts.
(that is $40bn exposure).

What is curious, is that in the past 16 months $68 billion has been pulled out of the fund, a sign that the fund has not been performing, and more importantly with Bill Gross (aka The Bond King) leaving, almost certainly more money will be withdrawn.

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 September 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 (http://www.dmo.gov.uk/) to raise cash for HM Treasury :-

11-Sep-2014 3½% Treasury Gilt 2045  £2,199.870 million
09-Sep-2014 0¼% Index-linked Treasury Gilt 2052 £854.050 million
02-Sep-2014 2% Treasury Gilt 2020 £4,177.520 million

When you add the cash raised:-

∑(£2,199.870 million + £854.050 million + £4,177.520 million) = £7,231.44 million 

£7,231.44 million = £7.231 Billion

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

£241 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 2020, 2045 and 2052. All long term borrowings, we are mortgaging our futures, but at least “we are in it together….”

Canada holds 10.4% of the world’s proven oil reserves.

This is 173,900 Million barrels. That is 173.9 Billion barrels.

Yes, it is vast.

What is potential value of this black gold ?

Today (Mon 29th Sept 2014) is $97.70 a barrel.
That is £60.10 per barrel.

So at £60.10 and you have buried 173.9 Billion barrels in Canada one can work out the value.

173.9 Billion x £60.10 = £10,451,390,000,000

Yes, that is £10 Trillion which is over 6 times the UK annual GDP.

Land Securities is the FTSE-100 property giant.

[http://www.landsecurities.com/]

Worth over £8bn it is a major real estate developer and premier landlord in the UK major cities

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?username=&ac=&csi=10054&record_search=1&search_phrase=land]

A major investor in London in the London property sector:

[http://www.landsecuritieslondon.com/]

Just by looking at the financials it’s dividend yield is nearly 3% and back by a set of solid hard assets such as premier property.

Naomi Klein is a Canadian whose is a key critic of corporate greed.
[http://en.wikipedia.org/wiki/Naomi_Klein]

In her latest book “This Changes Everything: Capitalism vs The Climate”

[http://www.amazon.co.uk/This-Changes-Everything-Capitalism-Climate/dp/1846145058/ref=sr_1_1?ie=UTF8&qid=1411455395&sr=8-1&keywords=this+changes+everything]

Without spoiling the overall read, the book effectively is saying that the world’s political and economic corporations and institutions are preventing everyone from meeting the challenge of global warming and climate change. Naomi blames the failure of capitalism for the world’s problems.

An excellent read.

Today China consumes 10,221,000 barrels of oil day.
This is one of the largest consumer nations of oil, with the USA in No.1 position “drinking” 18,555,000 barrels of oil.

China’s consumption is 11.7% of global crude oil consumption.
What is the financial value of this ?

Brent Crude today is worth US$ 101.52 per barrel.

10,221,000 barrels of oil day x US$ 101.52 = US$ 1,037,635,920 per day (that is US$ 1 billion dollars per day) = £635,366,000 per day = £635 million per day.

So as China gets richer, the more money it will be spending on crude oil.

With the referendum date coming close on Thursday on Sept 18th 2014, the result is too close to call. But with news coming each day such as The Royal Bank of Scotland relocating to London, the investment giant, Standard Life also saying moving to England, the stakes are high.

One also needs to see the latest news from the UK telecoms companies.

[http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/11094328/Telecoms-bosses-warn-of-increased-costs-if-Scotland-secedes.html]

The cost of doing business is bound to increase, that ultimately is paid for the by the end user consumer. So let us examine telecoms in more detail.

Looking at say Virgin Media, the cost of looking after a customer in rural Scotland compared to looking after a customer in an English town like Ipswich, there is a massive difference.
Firstly, the length of the line in Scotland will be longer than say in Ipswich, that is just simple geography. So looking after the network in Scotland means more cost, due to a larger physical length of network and of course network components. That means for example Virgin Media’s costs of looking after a Scottish customer is very likely to be more expensive. This could mean the cost for telecoms services in Scotland could be higher than say in Ipswich in England.

Also will Scotland need a new telecoms regulator ?
Currently we have Ofcom for the UK, but now does the Scottish government need to set up a new government department ? Who will pay for it ? The customers and industry end up paying and thus more cost.

Where do these costs stop ?
Will the Scottish government open up say 190 embassies in the 190 or so countries in the world ? Who will pay for this ? Ahhhh, the Scottish tax payer. Just imagine the cost of setting up 190 new embassies, and the cost of all the diplomats, cars, embassy accommodation, ambassadors to hire and the housing, and flights back to Edinburgh. It is going to be billions.

And of course, they claim to want to use the £Sterling. Ahhhh, the central bank will be in a potential foreign country, England. So that means Scottish economic policy will be driven from London. Clearly the cost of doing business in Scotland will rise when the actually monetary policy will be controlled from London.

The Bilfinger Berger Global Infrastructure Fund

[http://www.bb-gi.com/]

is a listed Infrastructure Investment vehicle that is worth £528.14m.

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=2641081]

Investing in solid “hard” infrastructure assets, it’s aim is to invest in 35 infrastructure PFI/PPP assets in the UK, Continental Europe, Australia, Canada and the USA and offer a yield of 5.5% per annum to investors in the fund.

Mainly investing in schools, hospitals, prisons and certain roads it is holding assets that are physical assets were an income can be derived against.
We can see in a low interest rate environment, the search for a decent dividend is exceptionally hard, and a fund like the Bilfinger Berger Global Infrastructure Fund offers access to a steady income stream.

When one thinks of India, one does not automatically think that India is an oil producer.

However, India produces 894,000 barrels of oil a day, which equates to about 1% of worldwide oil production

So what is the value of this crude ?

Oil trades at about US$ 101.52 per barrel.

Thus:-

894,000 barrels of oil a day x US$ 101.52 per barrel = $90,758,880

Yes that is $90 million = £55 million a day.

This is very important natural resource to a country that has to subsidise the cost of oil.

The largest consumer nation of Nuclear energy is the USA.

The United States of America accounts for 32.7% of global nuclear energy consumption. That is equivalent of 183.2 Million tonnes of oil.
France is the next largest consumer is 17.2% of nuclear energy consumption. That is equivalent of 96.3 Million tonnes of oil.

In total North America accounts for 36.9% global nuclear energy consumption and Europe & Eurasia account for 47.6% global nuclear energy consumption.

What is interesting to see is that how outside Europe, Russia and North America, little nuclear energy is consumed, (and thus produced).

However with oil reserves dwindling, one can assume Nuclear Energy will become a key energy factor in the global supply game of energy.

The Invesco Perpetual High Income Fund is a £12,400 million (£12.4 billion) investment fund that is was formerly run by Neil Woodford, and is now under the management of Mark Barnett.

The fund aims to achieve a high level of income, together with capital growth.

Its top 10 holdings are:-

AstraZeneca 5.71%
British American Tobacco 5.71%
Roche 5.29%
GlaxoSmithKline 5.23%
Imperial Tobacco 4.99%
BAE Systems 4.93%
BT 4.71%
Reynolds American 4.37%
Rolls-Royce 3.71%
Capita 3.61%

The total top 10 holdings make up 48.26% of the fund.

One can see it holds high quality stocks that give a decent dividend.

GlaxoSmithKline, the UK’s largest health and pharma company. A dividend yield of over 5%.
[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=10042]

BT the UK’s premier phone and media company is delivering a dividend yield of over 2.5%. [http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?username=&ac=&csi=10025&record_search=1&search_phrase=BT]

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 August  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-Aug-2014 05/8% Index-linked Treasury Gilt 2040 £968.165 million
21-Aug-2014 2¾% Treasury Gilt 2024 £3,568.100 million
12-Aug-2014 4¾% Treasury Gilt 2030 £2,429.980 million
06-Aug-2014 0 1/8% Index-linked Treasury Gilt 2019 £1,539.592 million

When you add the cash raised:-

∑(£968.165 million  +£3,568.100 million +£2,429.980 million +£1,539.592 million) = £8,505.84 million

£8,505.84 million = £8.5 Billion

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

£274 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 2040, 2024 2030 and 2019. All long term borrowings, we are mortgaging our futures, but at least “we are in it together…”

The latest book by the former Wall Street trader and now financial commentator Michael Lewis is called Flas Boys.
[http://www.play.com/Books/Books/4-/60801888/Flash-Boys/Product.html?searchstring=Flash+Boys&searchsource=0&searchtype=allproducts&urlrefer=search]

Without spoiling the book, it is about the growth in High Frequency Traders (Robots). The book revolves are the good guy Brad Katsuyama, a  trader at the RBC (Royal Bank of Canada), who worked out that the high-frequency guys were effectively hijacking his orders by effectively front running his orders. Using low latency high speed fibre-optic cables that link superfast computer servers to brokers, these high frequency traders intercepted and bought his orders, selling the shares back to him at a higher price, and pocketing the margin. Thus an decent trader is unable to get best prices.

The effect of this is most serious, as long term investors like pension funds unable to get best prices for clients, when you have High Frequency Traders just in the market for micro seconds to make a margin. One has to really ask the economic benefit of a robot owning a share or bonds for a few micro seconds.

A good place to see the size of the US National Debt is the famous US Debt clock that is located on Sixth Avenue in Manhattan, New York City.

[http://www.usdebtclock.org/]

How large is the US National Debt ?

It is $17,682 Billion = $17 Trillion = £10.25 Trillion.

This is literally a sum of all the outstanding US Treasury Bonds outstanding, issued by the US Federal Government. This number is now over 100% of the US Annual GDP.

Another way of looking at it, is to divide it across the US population.
319 million is the US population.

$17,682 Billion = $17,682,000 million.

Thus:

$17,682,000 million / 319 million = $55,000 dollars per person in the US.
[=£33,000 per person in the US]

The scale of the US national debt is colossal.

The Balance of Payments is sometimes known as the UK Current Account.
What this is the actual difference between imports and exports.

So for the first quarter of 2014, (April, May & June 2014) the the current account was a deficit of £18,500 Million = £18.5 Billion.

That means the UK imported more goods than it exported to a tune of £18.5 Billion.

[http://www.ons.gov.uk/ons/dcp171778_368808.pdf]

As the economy rebalances, one has to see the UK regaining some lead in exports. With the devaluation in Sterling, the UK as the ability to export itself out of recovery. Look at our Coal and Oil reserves. Jaguar Land Rover, a world class product. Take Astra Zeneca and Glaxo SmithKline workd class pharma. Weir Pumps the leader in industrial pumps. Edwards High Vacuum International, precision engineering. McLaren the main player in Formula 1. Ineos the UK chemical giant with Sodium and Chlorine production.

Bluefield Solar Income Fund

The Bluefield Solar Income Fund in a London Listed investment fund, specialising in the Solar Energy Sector.
[http://www.bluefieldsif.com/]

A £150m investment vehicle.

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=11141510&action=]

This fund, is a newly listed investment fund that started trading in April 2014 is planning to be an equity instrument that pays a healthy dividend to its investors.

The listed investment vehicle Peer to Peer Global Investments is a £217m investment fund.

[http://www.p2pgi.com/]

The objective is to deliver a dividend income and capital growth through investments, directly and indirectly from loans that are originated through online peer-to-peer (P2P) platforms

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=31528630]

By getting access to loans that have come from the Funding Circle, RateSetter, Zopa and Crossflow Payments the potential yield could be as high as 8%.

As peer to peer lending becomes more mainstream, the idea of being able to create loans and help more enterprises get access to credit is a very appealing proposition. As small firms prefer debt finance, the ability to by-pass the banks can only be a good thing. As more and more platforms try and compete to give funding for small businesses, greater access to capital is helping re-balance the economy.

It is easy to blame the banks for not willing to lend, but one has to remember that many peer to peer lenders have just noticed and opportunity to make money from banks by under cutting them as the banks are under pressure from regulators to hold more capital and reduce their balance sheets, retreat from some areas of lending. Peer to Peer lending is filling in that critical gap

On the 6th August (last week) Vodafone PLC paid the final 2014 dividend. This payment was £0.0747 [7.47p].

Now, the total voting rights of Vodafone PLC is 26,497,615,161.

[http://otp.investis.com/clients/uk/vodafone1/rns/regulatory-story.aspx?cid=221&newsid=436685]

This number is the effective numbers of shares that are available in Vodafone PLC.

So with this number, one can work out how much cash was paid to shareholders on August 6th 2014.

26,497,615,161 x £0.0747= £1,979,371,852.53.

That is £1,979 million = £1.97 Billion to the shareholders.

A nice dividend that rewards the long term shareholders in this premier mobile phone company.

The Artemis Alpha Trust PLC is a £125 million investment trust, managed by Artemis Fund Managers.

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?username=&ac=&csi=13105&record_search=1&search_phrase=artemis alpha]

Its top 10 holdings are:

The Hut Group, Internet Retailer: 4.5%
Polar Capital Holdings, Financial Services: 4.2%
All the World’s Entertainment, Media: 3.5%
Skyepharma, Pharmaceuticals & Biotechnology: 3.3%
Reaction Engines, Aerospace & Defence: 2.9%
Brewin Dolphin, Financial Services: 2.7%
Emis Group, Medical Software Provider: 2.7%
Gift Library.com, General Retailers: 2.7%
Metapack, Industrial Transportation: 2.6%
Africa Oil, Oil & Gas Exploration: 2.5%

What is interesting is that this little company has had some good money from wise investments in smalll oil exploration companies, such as Hurricane Energy.

[http://www.hurricaneenergy.com/]

The political crisis in Libya is getting worse.

[http://www.theguardian.com/world/2014/aug/03/royal-navy-libya-rescue-uk-nationals-tripoli]

The tragedy of Libya is that this country has massive mineral wealth.

Just take the oil reserves and its oil production.

Libya has proven oil reserves of 48,000,000,000 barrels of oil.
That is 48,000 million barrels of oil or 48 Billion barrels of oil.

Crude oil today is worth $104.66 a barrel. Thus the oil reserves of Libya are worth

48,000,000,000 x $104.66 = $5,023,680,000,000

That is $5 Trillion = £2.985 Trillion = £2,985 Billion. (that is about 200% of UK annual GDP).

Today Libya oil produces 1,509,000 barrels of oil a day.
That is worth:

1,509,000 x $104.66 = $157,931,940 = £93,855,700, yes £93 Million a day.

It is a real pity that with an income stream of £93 Million a day just from oil, Libya should be a wealthy country, with the EU as a massive customer, just across the water, and yet we see today that Libya is in much a political mess.

The Witan Investment Trust is an investment trust company listed on the London FTSE-250 Index.

[http://www.witan.com/]

Founded in 1909, to manage the estate of the first Lord Faringdon Alexander Henderson today it has assets of £1,501 million (£1.5 Billion)

It’s top 10 holdings are:-

2.0% Reed Elsevier
1.6% Diageo
1.5% London Stock Exchange
1.4% Unilever
1.2% Comcast
1.2% Daily Mail & General Trust
1.2% Pearson
1.2% BP
1.1% Princess Private Equity
1.0% Sage.

The fund is managed by many fund managers:-

Veritas, Pzena, MFS, Tweedy Browne, Lansdowne Partners, Artemis, Heronbridge, Lindsell Train, Marathon, Trilogy, Matthews and Witan’s Executive team.

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?username=&ac=&csi=10348&record_search=1&search_phrase=witan]

A 2% yield on this fund, that offers exposure to international markets.

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 July 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 :-

22-Jul-2014 2¾% Treasury Gilt 2024  £3,567.2500 million
17-Jul-2014 1/8% Index-linked Treasury Gilt 2024  £1,628.4850 million
08-Jul-2014 4% Treasury Gilt 2060  £1,924.9850 million
01-Jul-2014 1¾% Treasury Gilt 2019  £4,000.0000 million

When you add the cash raised:-

∑(£3,567.2500 million  + £1,628.4850 million + £1,924.9850 million + £4,000.0000 million) =

£11,120.72 million

£11,120.72 million = £11.120 Billion

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

£358 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 2019, 2024 and 2060. All long term borrowings, we are mortgaging our futures, but at least “we are in it together…..”

Resolution is a FTSE-100 company that is specialising on consolidating the life insurance sector.

[www.resolution.gg]

The owner of Friends Life (formerly known as Friends Provident) run by Clive Cowdery, this second investment venture, after creating the first Resolution that was sold to Phoenix Life, now the new Resolution, again consolidating life funds, it now owns Friends Provident, AXA Sun Life Holdings UK that it bought from AXA of France and it bought Bupa Health Assurance. Its public name is Friends Life

http://www.friendslife.com/

With over £10 Billion in revenues and £111 Billion of assets under management it is a larger player in the investment management and life assurance sector.

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=1901686]

The dividend yield is over 6%. Yes, in a climate of 0.5% interest rates, the yield is over 6%. Incredible.

The UK Government has been spending more money than it receives from taxation. Thus it is running a budget deficit. In rough numbers, it spends each year about £700 billion and its income is about £580 billion. Thus each year it has been having to borrow £120 billion to meet it public sector expenditure.

Today, the total debt public sector net has now hit a record of £1305 Billion which is £1.305 trillion.

For HM Government to borrow, it issues debt instruments know as Gilts (UK Government Bonds) that is sells to investors such as pension funds, mutual funds, unit trusts etc.

To have accumulated a total debt pile of £1305 Billion, HM Government has issued hundreds of Gilts.
For example in a particular month, if HM Government needs to raise £8 Billion, it would issue Gilts with varying maturities:

£2 Billion @3% Interest (Coupon) maturing in 2020.
£1 Billion @2% Interest (Coupon) maturing in 2030.
£2 Billion @2% Interest (Coupon) maturing in 2040.
£1 Billion @1% Interest (Coupon) maturing in 2044.
£2 Billion @3% Interest (Coupon) maturing in 2065.

So it offers investors different interest rates to meet the demands of varying types in investors.

So the total £1305 Billion has been accumulated by hundreds of auctions.

Thus it is impossible to say this £1305 Billion has one interest rate, but let’s assume the £1305 Billion as an average interest rate of say 2%.
This will then tell us the interest payments HM Government has to pay on its cumulative debt pile of £1305 Billion.

£1305 Billion @ 2% = £26.1 Billion a year in debt payments.

Yes, just on an approximate basis, HM Government needs to spend £26.1 Billion a year in debt payments which clearly comes out of the £700 Billion expenditure budget. However, this £26.1 Billion adds no value to the economy, it is not building schools or creating a new university, it is dead expenditure.

The numbers are staggering. But at least we are all in it together.

Imperial Innovations is a British technology transfer company that is leading the commercialisation of UK University academic research in the UK.

[www.imperialinnovations.co.uk]

Originally formed as an office from The University of London’s Imperial College London
to transfer its technology, today, it is also now investing in technology and intellectual property from the University of Cambridge, the University of Oxford and University College London. Not a bad idea when you consider these institutions command annual research income of £1.3 bn (£1300 million).

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=192185]

With a value of over £619 million, listed on the Alternative Investment Market (AIM) it has some major shareholders:

Woodford Investment Management
Lansdowne Partners Limited
Invesco Fund Managers

An example of the UK’s technological innovation and commercialising the world class expertise from our Universities.

Iran, a country with a deep heritage and rich cultural history in science, literature and mathematics, with pionners such as Omar Khayyam who excelled in mathematics, astronomy and also published some of the greatest literature, such as The Rubaiyat.

Today the country whose history is distorted by the past forty years, is a major oil producer. With 4.2% of global oil production coming from Iran, one can work out the value of this black gold.

Iran produces 3,680,000 barrels a day.
A barrel of oil is $107.18.

Thus each day Iran’s oil production is worth:

3,680,000 x $107.18 = $394,422,400 = £230,793,000

That is £230 million a day, yes nearly a quarter of a Billion pounds per day.

So just by looking at Crude Oil Production, and we are ignoring natural gas production, Iran should be an extremely wealthy country, but with UN sanctions, total economic mis-management and irrelevant political rhetoric from the Iranian government, has resulted in an economy that is weak, and the average person in Iran has not benefitted from the rich Iranian Natural Resources.

The University of Loughborough [http://www.loughborough.ac.uk/] has spun out the company Intelligent Energy.

[http://www.intelligent-energy.com/]

Another sign of Britain’s growing ambition to be a technology leader.

Intelligent Energy  is an energy technology group that has developed advanced, power dense hydrogen fuel cell technology that provides efficient and clean power generation. The company’s intellectual property and expertise is based around its proprietary fuel cell technologies which are the result of over 25 years of research and development.

They have products for the business and consumer market, with power in short supply this company has some clever technology for global markets.

The floatation last week raised £55m after listing on the London Stock Exchange
[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=32844078]

With the initial listing of just 8.76pc of the company that raised £55m, means the total company is worth over £500m. Not bad for a start-up.

A key investor is the GIC of Singapore, the Government Investment Corporation, the massive Singaporean sovereign wealth fund.

British Innovation at its very best.

The Scottish Mortgage Investment Trust managed by Baillie Gifford from Edinburgh.

A £2.5bn Listed Company that is over 100 years old, as it was founded in 1909 as an investment vehicle to help fund the rubber plantations in South East Asia, as there was Credit Crisis in 1909, and the planters had hardship in obtaining credit for their plantations.

Thus an investment company called The Straits Mortgage and Trust Company Limited to lend money to the planters, secured on the rubber estates. This became The Scottish Mortgage Investment Trust.

[http://www.bailliegifford.com/individual-investor/scottish-mortgage-investment-trust.aspx]

What is incredible that this fund has only ever cut its dividend once, and that was in 1933. Today it has over £2.6bn under management.

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?username=&ac=&csi=10304&record_search=1&search_phrase=SMT]

It is an international investor, whose investments are global:-

North America 38.0%

Continental Europe 24.1%

Asia Pacific 21.3%

United Kingdom 9.3%

Emerging Markets 5.2%

Net Liquid Assets and Bonds 1.4%

Japan 0.7%

It’s top 15 investments are:-

Baidu.com 7.8%

Illumina 7.7%

Amazon.com 7.2%

Tencent 6.1%

Inditex 5.2%

Facebook3.0%

Kering 2.9%

Banco Santander 2.8%

Atlas Copco 2.6%

Fiat 2.6%

Prudential 2.6%

Tesla Motors 2.4%

Alibaba Group 2.2%

BASF 2.1%

Apple 2.0%

A diversified investment company, with an investment horizon that is clearly the long term.

Neil Woodford is the former rock star fund manager at Invesco Perpetual.
He runs the new CF Woodford Equity Fund is the new equity fund that has just launched.

[https://woodfordfunds.com/the-woodford-equity-fund/]

With £1.6bn under management in the CF Woodford Equity Fund its top 10 holdings are:

AstraZeneca 8.3%
GlaxoSmithKline 7.1%
British American Tobacco 6.2%
BT 6%
Imperial Tobacco 5.3%
Roche 3.9%
Imperial Innovations 3.6%
Reynolds American 3.6%
Rolls-Royce 3.5%
Capita 3.4%

So with £1.6bn under management on day one and holding world class companies like BT and Astra Zeneca on day one, and also very interesting to see Neil backing British start-ups like Imperial College’s technology spin out Imperial Innovations, a small tech investor that invests in technology companies whose roots are from the University of London’s science and technology university.

We see that the fund has 6% of its £1.6 Billion in BT plc, the world’s most dynamic telecoms and media player, that equates to an investment of £96 Million into BT.
With the BT share price at about £3.80 (Fri 11th July) that means the CF Woodford Equity Fund has about 25,263,157 shares in BT, about 25 million shares in the worlds most innovative telecoms company.

Neil Woodford backing British Industry.

Thomas Piketty’s new book is called Capital in the Twenty-First Century.

[http://www.amazon.co.uk/Capital-Twenty-First-Century-Thomas-Piketty/dp/067443000X/ref=sr_1_1?s=books&ie=UTF8&qid=1404659190&sr=1-1&keywords=thomas+piketty]

A non-trivial read, at over 600 pages, but makes some clear warnings about the future. It is very thought provoking as essentially the message is that the rich are owning a larger and increasing proportion of the developed world’s wealth and are earning a greater proportion of the developed world’s income. With this wealth comes power, and are able to see the cause great divisions in society with the gap between rich and poor getting wider. We can see this is many ways, the power and influence of the UHNW (Ultra High Net Worth), flats in Central London selling for £100m etc.

What is happening is that the wealthy are able to keep their wealth in the family, and pass it down the generations which then produces a privileged class that control more and more assets while the remaining parts of society have their social mobility restricted.

A lot of talk regarding whether this book is trying to scare people, but massive gaps in wealth between rich and poor is never good for society.

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 June 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 (http://www.dmo.gov.uk/) to raise cash for HM Treasury :-

12-Jun-2014 0 1/8% Index-linked Treasury Gilt 2019  £1,469.760 Million
10-Jun-2014 2¾% Treasury Gilt 2024 £3,250 Million
03-Jun-2014 1¾% Treasury Gilt 2019  £4,028.420 Million

When you add the cash raised:-

∑(£1,469.760 Million  + £3,250 Million + £4,028.420 Million) = £8,748.180 Million

£8,748.180 Million = £8.748 Billion

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

£291 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, 2019, and 2024. All long term borrowings, we are mortgaging our futures, but at least we are “in it together…..”

Yesterday (Thur 3rd July 2014) the Dow Jones Index hit 17,000 points.
This was an all time high for the US Flag Ship Index that tracks 30 of the most important US companies as agreed by the Dow Jones team.

Who are the Dow Jones 30 companies ?

3M
American Express
AT&T
Boeing
Caterpillar
Chevron
Cisco Systems
Coca-Cola
DuPont
ExxonMobil
General Electric
Goldman Sachs
The Home Depot
Intel
IBM
Johnson & Johnson
JPMorgan Chase
McDonald’s
Merck
Microsoft
Nike
Pfizer
Procter & Gamble
Travelers
UnitedHealth Group
United Technologies
Verizon
Visa
Wal-Mart
Walt Disney

The United States most valuable companies, General Electric has had the longest continuous presence on the index, when it joined the Index in 1907.

The Boston Consulting Group has published a report on Private Wealth.

[https://www.bcgperspectives.com/content/articles/financial_institutions_business_unit_strategy_global_wealth_2014_riding_wave_growth/?chapter=2#chapter2_section3]

The numbers are incredible.

US$152 Trillion = £90 Trillion.

To quantify that number that is about 9 times the annual US GDP or 56 times the UK GDP.

The report gives the reason for the rise in wealth down to the growth in growth stock markets, but it does not give a reason for that equity inflation. For sure, with central banks like the US Federal Reserve and the Bank of England flooding the markets with cheap cash via Quantative Easing, this cash is driving up share prices.

Why hold cash at 0.5% when shares offer a higher return.

The report talks about the acceleration in growth in Asia-Pacific the Asia-Pacific region and its new wealth will account for about half of the total growth.
China was has 2.4 million people with assets of over $1million and this is more than Japan.

The total number of millionaire households (in US dollars) reached 16.3 million in 2013.

If each of these 16.3 million people each had $1,000,000 each that equates to:-

16,300,000 x $1,000,000 = $16,300,000,000,000.
That is $16,300 Million = $16.3 Trillion of wealth

But of course these 16.3 million clearly have more than just $1,000,000, thus the number of US$152 Trillion = £90 Trillion.

The ten countries and the number of millionaires

USA = 7,135,000
China = 2,378,000
Japan = 1,240,000
UK = 513,000
Switzerland = 435,000
Germany = 386,000
Canada = 384,000
Taiwan = 329,000
Italy = 281,000
France = 274,000

Incredible numbers of the wealthy who are defined with assets over $1,000,000 and the UNHW (Ultra High Net Worth) individuals with assets of $100 million or above.

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.

Egdon Resources [http://www.egdon-resources.com/] 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.

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=107045]

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

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=107045&action=news&story_id=21779343&rns=1]

Yes, the UK’s Premier Oil [http://www.premier-oil.com/premieroil/] 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 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

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

[http://i.legalandgeneral.com/consumer/investments/products-and-funds/mixed-investments/investments-productsandfunds-mixedinvestments-fund-distribution.jsp]

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.

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. [http://www.igasplc.com/]
IGas [http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=112867&action=] 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:

NEXEN PETROLEUM UK 19.25%
FRANCIS GUGEN 13.39%
BRENT CHESHIRE 5.54%
ANDREW AUSTIN 5.32%
HENDERSON GLOBAL INVESTORS 4.36%
BAILLIE GIFFORD 3.92%
PETER LEVINE/PLLG INVESTMENTS LIMITED 2.94%

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 [http://www.perenco-uk.com/about-us/wytch-farm.html], 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.

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

[http://www.woodfordfunds.com]

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.

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 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.

[http://www.legalandgeneral.com]

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

[http://investor.legalandgeneral.com/releasedetail.cfm?ReleaseID=851679]

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.

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 (http://www.dmo.gov.uk/) 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 are a US private equity investment firm based with offices around the world, specialising is the Technology sector.

[http://www.silverlake.com/]

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

Avaya
Dell
Alibaba Group
Go Daddy
Groupon
Intelsat
IPC
Sungard
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

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, [http://www.mondcloud.com] 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

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

[http://www.ecb.europa.eu/]

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

-0.1%.

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.

The only lady of Threadle Street, The Bank of England [http://www.bankofengland.co.uk] has some very interesting statistics that gives an insight into the UK economy.

http://www.bankofengland.co.uk/statistics/documents/fnc/2014/may/notesandcoin.pdf

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.

Scotland has a great tradition of money management. Aberdeen Asset Management [http://www.aberdeen-asset.com/] 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.

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?username=&ac=&csi=10693&record_search=1&search_phrase=ab]

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

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.

[http://www.amazon.co.uk/The-Big-Switch-Rewiring-Edison/dp/039334522X/ref=sr_1_2?ie=UTF8&qid=1401692725&sr=8-2&keywords=Nicholas+Carr]

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

One has to look at the technology pioneer MondCloud

http://www.mondcloud.com

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.

The highly financially rated and very well regarded Scottish financial institution Standard Life paid its shareholders on 22 May 2014 its final dividend.

[http://www.standardlife.com]

This FTSE-100 Life Insurer, that looks after the investments of policy holders, savers, investors and pensioners as well as insuring the lives of millions of people has 2,390,606,374 shares.

[http://otp.investis.com/clients/uk/standard-life/rns/regulatory-story.aspx?cid=65&newsid=406669]

The final dividend payment was 10.58p.

So with 2,390,606,374 shares each commanding a payment of 10.58p the cash leaving Standard Life on Thursday 22nd May was:-

2,390,606,374 shares x £0.1058 = £252,926,154 = £252 Million = £0.252 Billion.

The financial strength of Standard Life is demonstrated by the health progressive dividend policy of this high revered financial institution, who looks after £191 Billion in assets which is equivalent to 12.5% of the annual UK GDP.

The proposed takeover of the UK pharmaceutical giant AstraZeneca [http://www.astrazeneca.com] by America’s Pfizer formally failed on Monday 26th May, when Pfizer failed to agree final price with the AstraZeneca board.

Looking at the fundamentals of Astra Zeneca makes interesting reading

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?username=&ac=&csi=10009&record_search=1&search_phrase=az]

With a market capitalisation of about £54 Billion, the dividend yield is over 3%.
Incredible to think in a 0.5% interest climate, the yield on AstraZeneca stock is 3.8%.

The specialisms of Astra Zeneca are:-

[i]Cardiovascular and Metabolic disease (CVMD)
[ii]Oncology
[iii]Respiratory, Inflammation and Autoimmunity (RIA).
[iv]Infection, Neuroscience and Gastrointestinal (ING) disease areas

It’s top ten products for sales revenues are:-

Crestor for managing cholesterol levels: Sales £3,337million
Seloken/Toprol–XL for hypertension, heart failure and angina: Sales £445million
Iressa for lung cancer: Sales £384 million
Faslodex for breast cancer: £404 million
Zoladex for prostate and breast cancer: £591 million
Pulmicort for asthma: £514 million
Symbicort for asthma: £2067 million
Nexium for acid-reflux: £2298 million
Seroquel XR for schizophrenia, bipolar disorder and major depressive disorder: £793 million
Synagis for RSV, a respiratory infection in infants: £629 million

With around 51,500 people employed worldwide, 34.8% in Europe, 21.7% in North America, 6% in Central and South America, 4.1% in the Middle East and Africa and 33.4% in Asia Pacific.

AstraZenca manufacture medicines and sales in sales in 2012 totalled £15.2 billion, with Research and Development each year at £2.37 billion. The flagship R&D facilities are in Cambridge.

The 2nd largest Pharma company on the FTSE-100 index. Perhaps the reason for the takeover by Pfizer, was the 10 products that generated massive revenues and the R&D Pipeline from Cambridge.

Graphene is a recently discovered new allotrope of Carbon, (Diamond and Graphite being the others) and the properties are now being hailed as a breakthrough in Condensed Matter Physics, and subsequently lead to the Nobel Prize for Physics being awarded to Professor Andre K Geim at The University of Manchester in 2010.

[http://www.nobelprize.org/nobel_prizes/physics/laureates/2010/geim_lecture.pdf]

The famous paper that made Professor Geim [http://arxiv.org/ftp/cond-mat/papers/0702/0702595.pdf] world famous.

The University of Manchester are leading the academic research & development into Graphene.

[http://www.graphene.manchester.ac.uk/story/]

Graphene itself is a remarkable material:-

[http://en.wikipedia.org/wiki/Graphene]

So famous in fact that Professor Geim was featured on BBC Radio Four’s “Desert Island Discs”

[http://www.bbc.co.uk/radio4/features/desert-island-discs/castaway/20e3bf76]

With Graphene being hailed as the new semiconductor for the electronics industry, we are seeing new companies focussing their business of Graphene research and development.

Recently The highly regarded University of Durham [www.durham.ac.uk] spun out a company called Advance Graphene Materials:

[http://www.appliedgraphenematerials.com/]

Shareholder   % holding
IP2IPO    20.4%
North East Technology  14.5%
North East Finance  10.4%
Ruffer    7.6%
Durham University  7.3%
SandAire   4.8%
Insight    4.8%
Directors  
Professor Karl Coleman  10.2%
Jon Mabbitt   0.7%
Bryan Dobson   0.7%
Oliver Lightowler  0.2%
Claudio Marinelli  0.1%

Only 34.6%.Applied Graphene Materials’ shares are on free float.

Look at the financials:

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=18289034]

A £67m spin out from The University of Durham. British Science at its very best.

The FTSE-100 listed bank that is focussed on Emerging Markets.

[http://www.sc.com]

What is incredible is that around 90% of Standard Chartered income and profits are derived from Asia, Africa and the Middle East.

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=10089&action=]
A market capitalisation of over £30billion.

The annual report gives some useful insight:-

[http://files.shareholder.com/downloads/STANCHAR/3161441322x0x729911/A106680C-00E4-40AF-A849-F63875F9B10D/Standard_Chartered_PLC_-_Full_Year_2013_Press_release.pdf]

The Balance Sheet Facts:

Total assets $674,380m = £400,028 million = £400 Billion (about 26% of annual UK GDP)
Debt securities in issue, = $71.4 billion = £42.35 Billion (Bonds issued by Standard Chartered)
Total Assets Under Management from customers $58 billion = £34 Billion
Customer account deposits = $381,066 million = £226,041 million = £226 Billion
Total liabilities = $627,539 million = £372,243 = £372 Billion
Who is the single largest shareholder ?

The Singaporean state investor Temasek Holdings.

Final finding from the annual report “Wealth, The scale of the Private Banking opportunity across our markets is enormous. Today there is some $10 trillion of assets under management (AUM) from high net worth individuals in Asia, Africa and the Middle East. By 2017, this number will more than double”

This is another example of the growth in Asian and Emerging Markets, and of course a key asset is the sponsorship of the most successful team in the world, Liverpool FC, a great bank sponsoring the greatest football team in the world (of course).

The term BRICs came from Jim O’Neil at Goldman Sachs Asset Management. This was the termto explain the growth in certain nations, such as Brazil, Russia, India and China.

One only has to look at these simple facts to see why Emerging Markets are so important.The largest Ferris wheel in the world is in Singapore.The tallest building in the world is now in Dubai.The largest investment fund in the world is in Abu Dhabi (The Abu Dhabi Investment Authority). The largest oil refinery is in India.

One has to thinking about growing companies too, Embraer is one of the worlds largest aeroplane makers, it is Brazilian. Emerging Markets are the growth engine to the global economy.

The Troy Income & Growth Investment Trust is an investment company listed the London Stock Exchange.

[http://www.tigt.co.uk/]

A £150m investment company, whose holdings make interesting reading.

The top ten holdings are:-

Royal Dutch Shell ‘B’ 3.8%
Unilever 3.8%
Reynolds American 3.6%
Astrazeneca 3.4%
British American Tobacco 3.3%
BP 3.2%
HSBC 3.2%
Pennon 3.2%
Centrica 3.1%

This fund is managed by Troy Asset Management [http://www.taml.co.uk/] who are the fund management company set up to manage the wealth of the Weinstock family, who for decades ran the former UK Electronics giant, The General Electric Company, which later became the ill-fated Marconi plc and then made poor investments into Telecoms at the height of the late 1990’s technology and telecoms boom under the poor leadership and bad judgement of Lord Simpson and John Mayo who drove a the FTSE-100 giant into the ground.

[http://www.taml.co.uk/about-us/our-history]

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 April 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 :-

29-Apr-2014 2¾% Treasury Gilt 2024 £3,500 million
24-Apr-2014 1¾% Treasury Gilt 2019 £4,000 million
08-Apr-2014 0¾% Index-linked Treasury Gilt £1,300 million
02-Apr-2014 3¼% Treasury Gilt 2044 £2,715.764 million

When you add the cash raised:-

∑(£3,500 million + £4,000 million + £1,300 million + £2,715.764 million) = £11,516 Million

£11,516 Million = £11.516 Billion

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

£383 million each day  for 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, 2019 and 2044. All long term borrowings, we are mortgaging our futures, but at least we are “in it together…”

The largest takeover of a UK PLC is making all the business headlines, with the US pharmaceuticals company Pfizer trying to by the UK pharma company Astra Zeneca for £63 Billion.

The history of AstraZeneca is an interesting one. they formed in 1999, by the merger of the Swedish company Astra, famous for the medicine Losec, and the UK company Zeneca. Zeneca itself was created from the de-merger of the pharmaceuticals business from ICI in 1993, when ICI decided to split itself into a chemicals business (ICI) and a pharmaceuticals business Zeneca. ICI was later acquired by the Dutch company Akzo Nobel.

Today AstraZeneca is a member of the FTSE-100, the 2nd largest pharmaceutical company on the FTSE-100 after GlaxoSmithKline, today with the share price at £46 a share, it is worth £58 billion

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?username=&ac=&csi=10009&record_search=1&search_phrase=az]

In January this year, AstraZeneca shares were trading at about £36 a share, and now it is £46 a share. This incredible growth has been recently driven by the interest by Pfizer.

Pfizer, was founded by Charles Pfizer in New York City in 1849. today is a member of the S&P500 and the Dow 30. It has grown by massive expansion and acquisition. Famous for the medicine Viagra. Remember these names ?

Warner–Lambert (makers of Listerine mouth wash), Pharmacia and Wyeth.
To explain the size of Pfizer, look at the annual revenues: US$ 58.98 billion = £34.98 billion.

AstraZeneca‘s revenues: US$25,711 million = £15,251 million = £15 billion.

Imagine, these revenues when merged, potentially over £50 billion.

The risk is that the UK will suffer if Pfizer closes key R&D facilities, and skills like that are not easily replaced. The jewel in the crown could be the R&D pipeline or perhaps the world class R&D labs in Cambridge.

Pfizer are offering £63 billion to buy all the shares in Astra Zeneca, this is a battle that is not going to simply vanish, and more and more pharma companies could begin a merger and acquisition frenzy.

Potash is a mined natural resource that contains element number 19, Potassium, the alkali metal. Potash is manufactured mainly for the fertiliser industry, and one of the largest global players is the Canadian company, Potash Corporation, they are the largest maker of fertilisers in the world.

[http://www.potashcorp.com/]

One has to realise that fertilisers are so vital because it allows farmers to produce more crops on less land and Without fertilizers, it is estimated the world would need approximately 50 percent more farmland. The global population has more than doubled since 1950 and is expected to grow from approximately 7 billion to over 9 billion by 2050.
Agriculture is critical to feed this, and with less farmland due to growth in urbanisation, the demand on farmers is growing all the time.

Fertilisers are made from Potassium, Nitrates and Phosphates. Potash Corporation, controls 20% of the world’s potash production capacity, 2% of nitrate production capacity and 5% of phosphate supply.

Potash Corporation is listed on the Toronto Stock Exchange and also listed on the NYSE.

[http://www.nyse.com/about/listed/lcddata.html?ticker=POT]

It has a market capitalisation of Canadian Dollars $33,979,335,250.

Canadian $1 = UK£0.54 (54 pence)

Canadian Dollars $33,979,335,250= £18,348,841,035

Thus a Market Capitalisation of £18 Billion

That is about the same value of the UK supermarket giant, Tesco

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=10091]

As the world’s population grows, the demand for food will of course accelerate, and companies like Potash Corporation will rocket in value.

The M&G Asian Fund [http://www.mandg.co.uk/investor/funds/asian-fund/gb0030939440/overview.aspx] is a £497 million fund, started in 1973.

The top ten holdings are:

Samsung Electronics 5.1%
Hutchison Whampoa 3.8%
AZ Electronic 3.8%
Taiwan Semiconductor 3.5%
Hyundai Motor 3.2%
Jardine Matheson 3.0%
HSBC 2.6%
Hollysys 2.6%
Shinhan Financial 2.6%
Energy Development 2.4%

http://www.mandg.co.uk/investor/funds/asian-fund/gb0030939440/overview.aspx

The top ten holdings account for 32.6% of the fund which equates to £162
million.

It invests in the sectors of Financials, Information technology, Industrials, Materials, Consumer discretionary, Utilities, Telecommunications, Healthcare, Energy and Consumer staples.

A fund that gives exposure to the one of the most vibrant and dynamic parts of the world, where the growth in the middle class is creating investment and prosperity.

In the UK media with the European elections just around the corner, there is mass speculation on the fortunes of the right wing party UKIP (The UK Independence Party) that is effectively a party that blames all problems on Europe. A party with no economic strategy apart from cutting ties with Europe, just a right wing party that is causing division with xenophobia values.

However what is more important, is the reason what makes the UK so great, and lets not dwell on an irrelevant euro-sceptic party. So let’s deal with the facts on why the UK is great and the real benefits of the British Empire and what immigration has done.

Firstly, the revered charity Cancer Research UK [http://www.cancerresearchuk.org].
Who is the Chief Executive ?

[http://www.cancerresearchuk.org/about-us/how-we-are-run/chief-executive-and-executive-board]

Yes, the distinguished scientist Dr.Harpal Kumar, MA MEng MBA DSc

Secondly, let’s look at the two largest companies listed on the FTSE-100, that make up nearly 13% of the total FTSE-100 Index, guess what the names are ?

(i) Royal Dutch Shell
(ii) The Hong Kong and Shanghai Banking Corporation

The value of these two companies are: £269,180 Million = £269 Billion, which is equal to 18% of the annual UK GDP. The two largest UK Companies have non-UK names.

Thirdly, who is the Governor of the Bank of England ?
Yes, Mark Carney, the Canadian Banker
[http://www.bankofengland.co.uk/about/Pages/people/biographies/carney.aspx]

Finally, and very sobering, when you look at the wars that the UK has undertaken to defend freedom and democracy, and the tragic loss of life to our loyal armed forces, one has to look at the foreign soldiers who came to the aid of the UK to protect the UK. Thousands of Indians came from The Punjab; Sikh troops came to help the UK:

[http://www.1914.org/news/empire-faith-war-major-project-on-sikhs-and-first-world-war-gets-go-ahead/]

100 years on as we reflect and remember the Great War, we must always remember the sacrifice made by The British Empire’s troops to defend the UK, and even today we know of the bravery of The Gurkhas, from Nepal who are an integral part of the British Army, and the fantastic campaign that Joanna Lumley has led to ensure the Gurkha’s are looked after.
[http://en.wikipedia.org/wiki/Joanna_Lumley]

The UK is Great down to the fact we have the best from our diverse make up.

Rio Tinto formerly known as RTZ (Rio Tinto Zinc) is an Anglo Australian mining giant, number two after BHP Billiton, Rio Tinto is considered to be the second largest mining company in the world.
A member of the FTSE-100.

Dating back to 1873, it’s major commodities that it mines for are aluminium, copper, diamonds, gold, industrial minerals (borates, titanium dioxide and sodium chloride [salt]), iron ore, thermal and metallurgical coal and uranium.

Annual revenues of US$51.171 billion = £30.851 Billion (£30,851 million).
What is interesting is seeing the level of debt the company carries
[http://www.riotinto.com/investors/fixed-income-investor-5302.aspx]

Just looking at the Bonds issued by Rio Tinto:

Total Bonds Outstanding: US$ 24,994.80 Million = £15,069 Million = £15 Billion.

So with annual revenues of £30,851 million and bonds outstanding of £15,069 Million, at first glance the company is carrying a lot of debt.

But when you look at the maturity times of the bonds [http://www.riotinto.com/investors/outstanding-notes-5306.aspx#6923]

This shows that these bonds are to be repaid from now 2014 to 2042 which is 28 years so doing some rough maths that is about £500million a year, and the bonds repayments are more spread out, in some years, there are no bonds to be repaid.

So when revenues are £30,851 Million and debt repayments of a £2000 Million in 2014, this shows that Rio Tinto are financing their business in an optimal capital management operation.

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….”

The world’s largest mining company is the Anglo-Australian company BHP Billiton.

[http://www.bhpbilliton.com/]

Created from the merger of the South African miner Billiton, and the Australian company Broken Hill Proprietary. Listed on the London and Sydney stock exchange it is the 4th largest natural resources company after Exxon Mobile, Chevron and Royal Dutch Shell.

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=10019]

In London, £38 Billion worth of shares are listed.

Globally, it has a market capitalisation was approximately £89 billion. Total global annual revenue of £40 Billion. Dividends to shareholders of £3.75 billion.  Total Debt of £21.34 Billion

The largest shareholders are Blackrock and Norges Bank

The company mission is “Resourcing The Future“, specialising in Petroleum & Potash, Copper, Iron Ore, Coal, Aluminium, Manganese and Nickel. With 49,496 employees and 79,330 contractors working at 141 locations in 26 countries.

It is a company with deep pockets, long term debt maturities are well managed with a very strong capital management programme.

On Wed 26th March 2014, HM Government sold shares worth £4.2bn of Lloyds Banking Group plc which equates to 7.78% of the Company.

UK Financial Investments which oversees the shareholdings in RBS and Lloyds Banking Group sold the shares to raise cash for HM Government

[http://www.ukfi.co.uk/releases/20140326_lloyds%20pricing%20announcement.pdf]

It managed to achieve a sale price of £0.755 per share. HM Government has now reduced its holding from 23,326,529,533 ordinary shares to 17,771,118,604 ordinary shares.

HM Government shareholding will be reduced to 24.9%. Thus still nearly owning a quarter of the company.

With the shareprice of £0.75 today on Friday 28th March 2014:

17,771,118,604 x £0.75 = £13,328,338,953.
HM Government’s stake of 24.9% is worth about £13 Billion, approximately what the government borrow each month to fund the budget deficit.

HM Government last week announced to Parliament on Wed 19th March, the annual budget.

[https://www.gov.uk/government/topical-events/budget-2014]

In all the facts the figures, some key numbers about the UK public finances are still very concerning.

HM Government will spend more than it earns in just the year year 2013-14, to a tune of £120 billion. Thus borrowings for 2013-14 of £120 billion.

For 2014-15, again another budget deficit year, and could be as high as £96  billion.

It is forecast that in 2018-19, HM Government will have a surplus of £2 billion in that single year. But between now and 2018, each year the government will spend more than it earns, and the only way to bridge that gap is via borrowing.

So just in the past 12 months, and the next 12 months, the structural debt will increase by 120 Billion + 96 Billion = £216 Billion.

The numbers are vast. The public finances are in a terrible state. To quantify simply £1 Billion, that is 1,000,000 (1 million people) in a line, each with £1000. That is ONE BILLION

BP plc, is one of the world’s largest energy companies and makes up about 5% of the FTSE-100. To finance the day to day operations, apart from oil sales, it has a debt programme across various currencies and markets to raise cash.

From reading the annual report one can get some very useful information. [http://www.bp.com/en/global/corporate/investors/annual-reporting.html]

It’s total debt is US$48,192 million = $48 Billion = £29.2 Billion.

This is split across bond issues that are fixed rate and floating rate.

Fixed Rate = US$17, 016 Million = £10.31 Billion

Billion Floating Rate = US$ 31,176 Million = £18.90 Billion

Total Debt: £29.21 Billion.

This debt is spread over multiple bonds, with varying maturities.

But let’s keep things in context, the total revenue for BP in 2012 was £240,238 million = £240 Billion. Thus the debt of BP is less than 13% of annual revenue, thus the bond holders of BP, are holding a very safe investment.

BP: Beyond Petroleum.

Reading the BP Statistical Review of World Energy:

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

One can read some incredible facts about UK Oil production.

In 2002, the UK produced 2,495,000 barrels of oil per day. Ten years on, in 2012, the UK produced 967,000 barrels of oil per day.

A steady decline over 10 years for the UK. The picture is the same for many other counties

Norway in 2002 was 3,333,000 barrels of oil per day. Ten years on, in 2012 in 2002, Norway was 1,916,000 barrels of oil per day

However other countries have grown production, such as the USA, Iran, Kuwait, Russia and Kazakhstan to name just five. It could be considered that we have past peak oil production by looking at production trends over the past decade.

With oil at about US$ 108, UK oil production per day is worth about 967,000 x $108 = $104,436,000 = £62,708,900 a day = £62 million a day.

Global oil production is 86,152,000 barrels of oil per day, thus the UK makes up 1.12% of global production, and yet the UK companies of BG Group, BP and Shell are global energy giants, that the UK is clearly punching above its UK production rate.

LGIM is the fund management arm of Legal and General, the FTSE-100 insurance giant, led by the careful stewardship Dr. Nigel Wilson. [www.legalandgeneral.com]

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=10055&action=

£452 billion is the number of funds under management.

[http://files.shareholder.com/downloads/LGEN/1718128473x0x730641/f4575381-0f5a-4352-ac44-0624aad891ce/LGENprelims2013.pdf]

To put that into context, UK annual GDP is £1,462 Billion. Thus funds under investment management at Legal and General equate to 31% of UK annual GDP.

Legal & General is one of the largest investors in the UK stock market with over 4% of the FTSE All-share Index. That means they own 4% of nearly every UK listed company. It is an incredible statistic.

It is easy to understand why when one read the corporate mission statement of “Every Day Matters”, when one is looking after £452 billion, or 4% of every UK company, it is a responsibility that is taken exceptionally seriously, and thus it’s true, Every Day Matters.

Peer to Peer lending is creating new investment opportunities for individuals, but is also plugging a gap in the market for funding small and medium enterprises with a new source of debt funding.

www.assetzcapital.co.uk

Lead by Stuart Law and chaired by Paul Moore, they today (Mon 17th March 2014) have managed to raise funding for enterprises to a tune of over £20 million since its inception in early 2013.

The principle is very simple, they raise funds for an enterprise by creating a loan from a pool of external investors (a peer group) who bid in an auction to be the contributors for the loan.

To give security to the external investors who join to create the loan, Assetz Capital gets security on the loan from physical assets such as deeds on a property that the borrower may own or personal guarantees from the company directors asking for the loans, and other collateral that secures the loan.

As the loans to businesses are commercial opportunities, it is quite common to get a return of over 10%. When main stream banks are shrinking their balance sheets, SME’s are struggling to get access to capital, it is absolutely fantastic, that Assetz Capital is helping businesses to finance their operations, grow and create employment, and at the same time in these low interest rate times, able offer investment opportunities to individuals looking for a safe and stable place to invest their money.

This is the future of small and medium enterprise lending, and long may it continue.

The M&G Property Portfolio is a special fund known as a PAIF, a Property Authorised Investment Fund.

It gives investors exposure to hard assets, property. The fund today has many assets, the top ten investments are:

The Gracechurch Centre in Sutton Coldfield a retail investment
Castle Vale Retail Park Birmingham a retail investment
Riverside Retail Park Northampton a retail investment
Alder Castle 10 Noble Street London, EC2 an office investment
Ravenside Retail Park London, N18 a retail investment
Wycome Retail Park High Wycombe a retail investment
Chiswick Green, 610-624 Chiswick High Road London, W4 an office investment
Tesco Supermarket Kilverstone Thetford a retail investment
Waverley Gate, 2-4 Waterloo Place Edinburgh an office investment
Tesco Supermarket, London Road, Loudwater High Wycome a retail investment.

As you see it has diversified its holdings to own property for retail businesses and also office blocks for commercial office usage.

Unlike financial investments, that are effectively instruments, property is an asset class that is backed by a physical asset. So unlike currency that can be devalued by market activities or shares that could become worthless, property is a hard asset. In these times of ultra low interest rates, the effective return on renting out an office can exceed 6% or 7%.

With assets of £2,444 million = £2.44 Billion it is a large fund with 46% of its investment in the South East of England.

[http://www.mandg.co.uk/investor/funds/property-portfolio/gb00b8g9tt83/overview/]

The Bank of International Settlements (BIS), is sometimes known as the “Central Bank of Central Banks”, what this means in reality, is what for example when the US Federal Reserve needs to move US Dollars to the Eurozone, the money goes via the BIS who then forward onto the European Central Bank.

The BIS website has a wealth of financial data [www.bis.org]

The level of research and statistical data is vast. [http://www.bis.org/statistics/secstats.htm]

From the BIS figures, globally the total level of government debt is $100 trillion = £59.7 trillion = £59,700 Billion = £59,700,000 Million.

Not entirely surprising, as the 2007 financial crisis began (UK Northern Rock was a sign of dislocations in financial markets), governments borrowed to stand behind the crippled banking sector to stave of financial collapse and out-right depression, the debt mountain surged.

And remember this debt is accruing interest day by day….

Since the recapitalisation of The Royal Bank of Scotland and LloydsTSB in Autumn 2008, the UK has suffered from a problem of low wages. As the economy contracted, banks began shrinking their balance sheets and HM Government increased its borrowings to support the banking sector, public sector spending has been drastically reduced.

A real consequence of this, is falling living standards. The UK is sometimes known as the “Taiwan of Europe“, referring to the UK’s position as a low wage economy to undertake commerce. However the numbers are not good when it comes to living standards.

One sees the poor are really poor. At least one in five workers in the UK economy earns low pay – too little to live on at £7.47 per hour or less. That is not a living wage. These low wages that mean people are struggling to make ends meet.

Work done by The Resolution Foundation shows how the poor are living.

http://www.resolutionfoundation.org/publications/low-pay-britain-2012/

Then when doing some further investigates from the Office of National Statistics,[http://www.ons.gov.uk/ons/dcp171780_305213.pdf]

we then see wages are down in real terms by 8.5%. So when price of bread (a loaf is about £1.35) and wages increases are virtually nil, then purchasing power is falling, means living standards are falling.

Reading the paper on the IFS website (Institute of Fiscal studies) the highly regarded think tank [http://www.ifs.org.uk/comms/r81.pdf] we now see that poor people are really suffering from the financial crisis that has infected the global economy.

Reading from the Joseph Rowntree Foundation [http://www.jrf.org.uk/publications/cities-growth-and-poverty-evidence-review] we see further evidence of poverty.

In the media we hear about zero hour contracts, where people working for large private companies, have no certainty of a wage unless they are called into work. The low-paid workers within the public sector are hard working people such as school crossing patrol staff or dinner staff or care workers and home carers. In the public sector a carer will typically earn between £9 and 11 per hour, but in the private sector the prevailing rate is much lower, at between £6.50 and £7.50, and therefore below living wage.

What is more serious, is that no one seems to talk about the real consequences of this. The reality is high levels of stress for people on low wages, unable to meet daily expenses of living, such as eating or clothing, or feeding families. Poor diet, buying cheap junk food, meaning poor nutrition, and thus greater susceptibility to illness. This will have an effect on the NHS, and thus an increased burden to the tax payer. Also with a gap between rich and poor, perhaps there is a higher risk of crime and mental well-being. It seems that the most vulnerable suffer when the economy is in poor shape.

In the press in the past few days as been a lot of comment on the annual report from Berkshire Hathaway and the comments from the CEO of Berkshire Hathaway, the revered investor, Warren Buffett.

It makes fantastic reading.

[http://www.berkshirehathaway.com/letters/2012ltr.pdf]

Some salient facts. It has  “Big Four” investments:

American Express, Coca-Cola, IBM and Wells Fargo. In the past year Berkshire Hathaway has increased its stake.

Amex 13.7%. [151,610,700 shares worth  $8,715 Million = $8.7 Billion]
Coca-Cola 8.9% [400,000,000 shares worth $14,500 Million = $14.5 Billion]
IBM 6.0% [68,115,484  shares worth $13,048 Million =$13 Billion]
Wells Fargo 8.7% [456,170,061 worth $15,592 Million = $15.5 Billion]

A great quote from the annual report:-

“The four companies possess marvellous businesses and are run by managers who are both talented and shareholder-oriented. At Berkshire we much prefer owning a non-controlling but substantial portion of a wonderful business to owning 100% of a so-so business”

Funding Berkshire Hathaway comes from its insurance businesses, giving Berkshire $73 billion of free money to invest. This is explained by another brilliant quote:

“Property-casualty (“P/C”) insurers receive premiums upfront and pay claims later. In extreme cases, such as those arising from certain workers’ compensation accidents, payments can stretch over decades. This collect now, pay-later model leaves us holding large sums – money we call “float” – that will eventually go to others. Meanwhile, we get to invest this float for Berkshire’s benefit…..This is truly having your cake and eating it too.”

What makes great reading is the dividend policy on page 18, they don’t like them, wanting to invest the money organically.

It is a great read, and a long term investor with insight and common sense.

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 Feb 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 :-

20-Feb-2014 2¼% Treasury Gilt 2023 £3,000 Million
13-Feb-2014 3¾% Treasury Gilt 2052 £1,912.9150 Million
11-Feb-2014 1/8% Index-linked Treasury Gilt 2024 £1,300 Million
04-Feb-2014 1¾% Treasury Gilt 2019 £4,177.4500 Million

When you add the cash raised:-

∑(£3,000 Million million + £1,912.9150 Million + £1,300 Million + £4,177.4500 Million ) = £10,390 Million

£10,390 Million = £10.39 Billion

On another way of looking at it, is in the 28 days in Feb, HM Government borrowed:-

£371 million each day  for 28 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, 2019, 2023, 2024 and 2052. All long term borrowings, we are mortgaging our futures, but at least we are “in it together….”

Technology companies change our world in many ways.

Look at the UK privately held comany, Skygazerlabs (www.skygazerlabs.com), the product is called “mySymptoms” and is helping users to provide insights into the possible triggers of potential symptoms such as food intolerances, irritable bowel syndrome (IBS), diarrhea, vomiting, nausea, headaches, eczema to name but a few. The solutions that these very innovative technology companies provide (like Skygazerlabs) is improving the quality of life for many people.

An easier way to get exposure to the dynamic technology sector is to invest in a technology fund.

The RCM Technology Investment Trust, [http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=11984&action=] is a £143 million investment company, managed by Allianz Global Investors.

[www.allianz.com] by invests in technology companies.

Managed out of San Francisco by Walter Price, a highly regarded fund manager, the top ten holdings are:

Facebook 5.7%
Amazon 3.5%
Google 5.1%
Ehealth 3.1%
SunPower 4.2%
Salesforce 2.9%
Microsoft 4.2%
Soufun 2.9%
ServiceNow 4.1%
Alcatel-Lucent 2.8%

[http://www.rcmtechnologytrust.co.uk/ResourceModule.aspx/Pdf/AGITrusts-FactSheet-TechnologyTrustPLC-enGB-31.01.14.pdf?key=46a7e1d6-6479-4353-8aa6-ea0f9f09271a]

A fund listed on the London Stock Exchange that gives exposure to the most dynamic sector in the global economy

In the press in the UK at the moment, there is a lot of talk about the FTSE-100 breaking the 7000 barrier. It was on December 30th 1999, that the FTSE-100 reached the all-time high of 6930.

That was over 14 years ago, and it was during the Telecoms and Technology boom, when many telecoms and technology companies were major components of the FTSE-100. Remember these names:

Thus plc
Baltimore Technologies
Kingston Communications plc
Orange plc
GEC (later renaming itself Marconi plc)
Bookham Technology
Freeserve
Cable & Wireless Communications
LogicaCMG
Colt Telecom
Energis
Psion
Nycomed Amersham

Just some names that may ring a bell.

On Wed 26th Feb 2014, the FTSE-100 closed at 6799 still below the all-time high, so over 14 years on the FTSE-100 has never reached its peak, but of course the FTSE100 over that 14 year period has paid generous dividends to shareholders with other companies replacing the displaced technology companies as the FTSE-100 was re-shuffled as the tech companies fell away once the Dot.Com bubble burst.

On Monday 24th Feb, the new Vodafone PLC came into effect.

On Friday 21st Feb 2014, Vodafone owned 45% of Verizon Wireless. On Monday 24th Feb it no longer owned that 45%, as it sold its stake to Verzion, getting a huge cash windfall (of $85 Billion) from the proceeds of the sale from Verizon, and is in the process of returning that cash and to its shareholders.

A few weeks ago Vodafone was worth in excess of £100 Billion.

The share consolidation of the new Vodafone PLC is such that shareholder get 6 new ordinary shares for every 11 existing ordinary shares held. So if you owned 110 shares in Vodafone on last week, today you will own 60 in the new Vodafone PLC.

The new Vodafone will have 26,438,136,936 new ordinary shares in issue (excluding 2,373,727,362 ordinary shares held in Treasury).

With the share price of Vodafone trading at about £2.50 per share and 26,438,136,936 new ordinary shares in issue, the new market capitalisation of Vodafone is:

26,438,136,936 x £2.50 = £66,095,342,340 = £66 Billion. That is the new market value of Vodafone PLC.

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=10097]

North Sea oil first came ashore in June 1975. Today there are over 300 active oil fields in North Sea.

A misconception is that the North Sea is running out of oil. It is thought there could be still be between 12 Billion barrels of oil and perhaps the higher estimate is 24 Billion barrels of oil.

So if there is between 12 and 24 Billion barrels left, what is the value of this black gold ?

12 Billion Barrels = 12000000000 Barrels.

24 Billion Barrels = 24000000000 Barrels.

Crude Oil is at $109.92 a barrel.

Thus if we have 12 Billion Barrels remaining, that is worth in today’s prices:-

$1,319,040,000,000.00 = $1319 Billion = £793 Billion

and if we have 24 Billion Barrels remaining, that is worth in today’s prices:-

$2,638,080,000,000.00 = $2638 Billion = £1587 Billion = £1.587 Trillion = over 100% of annual UK GDP.

The potential wealth of future North Sea Oil is huge, that is why it is a political football.

The largest 100 companies in the world sit in the Standard and Poor’s (S&P) Global 100 Index

One can get access to these 100 companies via the Legal & General Global 100 Index Fund

[http://i.legalandgeneral.com/consumer/investments/products-and-funds/index-tracker/investments-productsandfunds-indextracker-fund-global100.jsp]

This fund simply invests in the largest 100 multi-national blue-chip companies on the global stock markets

3M Company
ABB Ltd
Aegon
Allianz AG
Anglo American plc
AstraZeneca
Aviva
AXA
Banco Bilbao Vizcaya Argentaria, S.A.
Banco Santander, S.A.
Barclays
BASF AG
Bayer AG
BHP Billiton Limited
BP plc
Bridgestone Corp.
Bristol-Myers Squibb
Canon Inc.
Carrefour SA
Caterpillar Inc.
Chevron Corp.
Citigroup Inc.
Coca-Cola Co.
Colgate-Palmolive
Compagnie de Saint-Gobain
Credit Suisse Group
Daimler AG
Dell Inc.
Deutsche Bank AG
Deutsche Telekom AG
Diageo
Dow Chemical
DuPont (E.I.)
E.ON AG
EMC Corporation
LM Ericsson Telephone Co. – B shares
Exxon Mobil Corp.
Ford Motor Company
Fuji Photo Film Co.
GDF Suez
General Electric
GlaxoSmithKline plc
Goldman Sachs Group Inc
Hewlett-Packard
Honda Motor Corp.
HSBC Holdings plc
ING Groep NV
Intel Corp.
International Business Machines
Johnson & Johnson
JPMorgan Chase & Co.
Kimberly-Clark Corp.
L’Oréal SA
LVMH Moet Hennessy Louis Vuitton
McDonald’s Corp.
Merck & Co.
Microsoft Corp.
Morgan Stanley
Munich Re AG
National Grid plc
Nestlé SA
Nike, Inc. – class B
Nissan Motor Co.
Nokia Oyj
Novartis AG
Orange S.A.
Panasonic
PepsiCo Inc.
Pfizer, Inc.
Philip Morris International
Koninklijke Philips Electronics NV
Procter & Gamble
Prudential Plc
Repsol YPF, S.A.
Rio Tinto
Royal Dutch Shell – A shares
Royal Dutch Shell – B shares
RWE AG
Samsung Electronics Company Limited
Sanofi-Aventis
Schneider Electric
Seven & I Holdings Co., Ltd.
Siemens AG
Société Générale
Sony Corp.
Standard Chartered Bank
Swiss Re
Telefónica, S.A.
Texas Instruments
Toshiba Corp.
Total S.A.
Toyota Motor Corporation
Twenty-First Century Fox, Inc. – class A
UBS AG
Unilever NV
United Technologies Corporation
Vivendi Universal SA
Vodafone Group PLC
Volkswagen AG
Wal-Mart Stores
Westfield Group

A low cost tracker to get exposure to the global blue chips.

In 1975 John C Bogle founded the investment company Vanguard. Using simple Index Tracking Funds, to create economies of scale, today, Vanguard has $2 Trillion = $2000 Billion = £1194 Billion = £1.194 Trillion under management via its 24 Funds.

www.vanguard.com

A great quote from John Bogle “Don’t look for the needle in the haystack. Just buy the whole haystack”

What he is effectively saying is that the stock market as a whole generally gives good long-term returns, so save yourself the stress of looking for specific companies, and just buy an index fund where you will get all the companies.

A great place for Index Trackers is Legal & General:

http://www.legalandgeneral.com/investments/products-and-funds/index-tracker/

A world choice, low charges, and resulting in buying all the needles in the haystacks.

The Bond market is almost twice as large as the stock market, making it the 2nd largest market after the foreign exchange market.

Shell is one of the largest energy companies in the world. It is Anglo-Dutch, and is the largest company by market capitalisation on the FTSE-100, it is about 7% of the FTSE-100.

It is an active player in the bond market (debt), with a very large issuance programme, as with such stable cash flows, is able to borrow huge quantities of cash on the bond market to fund its day to day activities, and reward its lenders with safe and stable returns.

But how large are the borrowings of Royal Dutch Shell ?
[http://www.shell.com/global/aboutshell/investor/financial-information/bonds-and-credit-rating.html#textwithimage_2]

Lists all the debt issued (money borrowed by Shell from Bond investors)

When you add this list of 23 issued bonds, convert into Dollars it comes to $32,158 million = $32 Billion = £19,338 Million = £19.3 Billion.

Doing a rough estimate on the average interest rate (coupon), that comes to 3.66%. So in these low interest rates, where money is lucky to get 1% on deposit, lending to Shell gets you an average of 3.66%, and even higher if the money is lent over a longer period.

A company whose borrowings are absolutely tiny, when it comes to the actual turnover of the business,
[http://reports.shell.com/annual-review/2012/servicepages/downloads/files/entire_shell_review_12.pdf]

The numbers are staggering:
Capital Investment in 2012: £17,922 million = £17.9 Billion
Revenue in 2012 = £255,223 million = £255 Billion
Shareholder Dividends in 2012 = £6.6 Billion

3 largest shareholders:

BlackRock, Inc.  5.63%
Legal & General Group plc  3.10%
The Capital Group Companies 5.01%

The Anglo Dutch Energy and Cash Generating Giant.

The City of London Investment Trust, is a £1 Billion listed investment vehicle that a member of the FTSE-250 Index founded in 1891.

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?username=&ac=&csi=11465&record_search=1&search_phrase=City of London investment]

Managed by the London investment house, Henderson Investors, shareholders are getting a generous dividend of 3.8% yield.

[https://www.henderson.com/ukpi/fund/169]

This top 10 holdings are:

1 HSBC 5.70%
2 British American Tobacco 5.28%
3 GlaxoSmithKline 5.13%
4 Royal Dutch Shell 5.11%
5 Vodafone 4.91%
6 Diageo 4.23%
7 BP 3.52%
8 Unilever 2.94%
9 Scottish & Southern Energy 2.23%
10 Centrica 2.22%

Top 10 investments make up = 41.27% of the fund and the 40 largest investments represent 74.42% of the whole portfolio. Mainly investing in large cap companies, that provide stable returns.
The single largest shareholder in The City of London Investment Trust is Legal and General Investment Management, who hold 3.12% of the shares.

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 January 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 (http://www.dmo.gov.uk/) to raise cash for HM Treasury :-

23-Jan-2014 2¼% Treasury Gilt 2023  £3,574.738 million
16-Jan-2014 3¼% Treasury Gilt 2044  £2,199.070 million
07-Jan-2014 1/8% Index-linked Treasury Gilt 2029  £1,475.480

When you add the cash raised:-

∑(£3,574.738 million + 2,199.070 million + £1,475.480) = £7,249.290  Million

£7,249.290  Million = £7.249 Billion

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

£233 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. The budget deficit keeps rising. What is also alarming, is the dates these bond mature, 2023, 2029 and 2044. All long term borrowings, we are mortgaging our futures.

Inflation in effectively rising prices.

25 years ago from today was about Feb 1989.
if one looks at the RPI (retail price index) over the past 25 years, inflation has increased by 143%.

Thus to put it bluntly of someone retired in Feb 1989, would need to have pension income grow by 143% to maintain purchasing parity, and thus avoiding a decline in living standards.

Simple inflation calculations show that an increase in prices if 3% per year, in 20 years, if one’s income does not rise, you are only able to buy 50% of the goods in the year 20 compared to the year 1. Or another way of looking at it, in 20 years prices effectively double.

Here is a simple example of 3% inflation.

2014: A load if bread = £1.00
2034: A load if bread = £1.81

2014: Baked Beans = £0.70
2034: Baked Beans = £1.26

2014: Six Eggs = £1.50
2034: Six Eggs = £2.71

This really brings home the cost of living crisis that we see today.
When incomes are fixed and we have inflation on basic items, the vulnerable suffer and can’t afford basic items.

Final point on house price inflation, a home today compared to 1989 has on average risen by a whopping 231%, showing hard assets have risen faster than retail inflation, and if that house was bought as an investment, rental income too would have be received as well as the house price inflation.

Thus holding assets that beat inflation are hard to guess, but one thing is for sure, inflation destroys hard earned savings and is a wicked consequence that creates a spiral of poverty for decent people on low incomes, and our vulnerable retired citizens on modest and fixed incomes.

Vodafone PLC, a FTSE-100 company, that makes up 5% of the FTSE-100, valued at £106 Billion, has equity interests in 31 countries worldwide.

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=10097]

Yesterday, Wed 5th Feb, Vodafone PLC, paid a dividend to its shareholders.

It was a payment of 3.53p per share, it’s Feb 2014 interim payment

Vodafone’s issued share capital consists of 52,821,751,216 ordinary shares of which 4,354,978,270 ordinary shares are held in Treasury.

Therefore, the total number of voting rights in Vodafone is 48,466,772,946
So Vodafone paid £0.0353 on each of the 48,466,772,946 shares.

That means Vodafone paid £0.0353 x 48,466,772,946  =£1,710,877,085 to its investors.

That is £1.7 Billion paid to its shareholders on Wed 5th Feb 2014. Not bad considering Vodafone (Voice & Data Phone) was an newly created 1980’s company that was a subsidary of Racal Electronics, known then as Racal-Vodafone, and was then spun out in the early 1990’s under the leadership of the late Ernie Harrison. Only one of two telecoms companies that are members of the FTSE-100 (the other being BT Group PLC).

Yesterday, Monday 3rd Feb, BT PLC, the world’s leading telecommunications provider, rewarded its shareholders with a 3.4p dividend payment per share.

This is the 2013/14 Interim payment.

[http://www.btplc.com/Sharesandperformance/Dividends/Dividends.htm]

In an interesting fact is how much cash BT has paid out with this dividend payment

The total number of voting rights in BT Group plc is 7,911,832,071

(on Friday 31st Jan 2014, BT Group plc’s capital consists of 8,151,227,029 ordinary shares with voting rights and BT Group plc holds 239,394,958 shares in BT Group plc, this from its share buyback programme)

so with 7,911,832,071 shares and paying £0.034 per share that is:

7,911,832,071 x £0.034 = £269,002,290
Just over £269 Million in cash paid by BT PLC to its shareholders.

BT has paid over a quarter of a billion pounds in cash to the investors on Mon 3rd Feb, rewarding them with the cash dividend, a company on an investment lead growth trajectory, and delivering returns that shows the world’s leading telecommunications provider is also leading the way in its delivery of strategy with strong financial performance.

The late Joshua Lederberg made the very famous quote:

“The single biggest threat to man’s continued dominance on the planet is the virus”

This quote is used at the start of the 1995 film, Outbreak starring Dustin Hoffman, Morgan Freeman and Kevin Spacey. Joshua Lederberg at the age of 33 years won the 1958 Nobel Prize in Physiology or Medicine for discovering that bacteria can mate and exchange.

Today medical and pharmaceutical research is trying to fight disease and solve some of the most deadly threats to mankind.
There are many funds that financing investment into companies that are focussed on Bio-Technology and research into finding cures for medical conditions.

The Biotech Growth Trust is a £350 million fund that is investing in companies that are looking for solutions in the world of medical research.

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=11910]

It’s top 10 holdings are:

Gilead Sciences Inc 9.90%
Celgene Corporation 9.60%
Biogen Idec Inc 8.91%
Regeneron Pharmaceuticals, Inc. 5.84%
Incyte Genomics 5.54%
ONO Pharmaceutical Co., Ltd 4.85%
Amgen Inc 3.86%
Illumina, Inc 3.56%
Impax Laboratories, Inc 2.97%
Alexion Pharmaceuticals, Inc 2.77%

A dynamic fund whose potential investments could herald a breakthrough in life sciences.

In the news recently, has been coverage of activist investors trying to unlock value in companies. Carl Icahn has been said to think Ebay should unlock the value of PayPal the payments business it owns, and give that value back to shareholders. In the UK press there are similar articles about UK Supermarkets who have locked up value on the balance sheet from their property portfolios, and there is the case to try and unlock this value.

Morrison’s [http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=10248] has a share price of about £2.45 a share, and its market capitalisation is about £5.728 Billion.

The actually value of all the supermarket land it owns is about £10 Billion.

This means the shareprice of Morrison’s does not reflect the true value of the business. Or another way of looking at it, is that perhaps one can buy shares in Morrison’s, spend £5.70 and get an asset worth £10, potentially.

Lots of ways to cut this cake, perhaps a more simple way to explain the share price of Morrison’s is that the share price of about £2.45 is about 57% of the total assets (inventory, business brand, customer base, property etc etc) that it owns. By following this argument, then the share price of £2.45 is only reflecting 57% of the true value of the company, and then perhaps the share price should be higher than market quoted price of £2.45 and be actually £4.30.

Or perhaps it is easier to simply state that markets are irrational.

A consequence of “Abenomics” is now the massive trade deficit.

The Japanese Prime Minister Shinzo Abe has lead a policy to devalue the Japanese Yen to ensure Japanese exporters have an advantage with cheaper goods on the international market.  This has lead to an export boom for major Japanese firms like Toyota whose Japanese made products exported onto the international market, then command prices at much lower levels than rivals. Thus these products are cheaper and attracter buyers.

However a side effect of the weaker Yen is that imports become more expensive. So when oil and gas are rising in price on the international market, and it is these two commodities that Japan needs to import, then it means these energy products become more much expensive to Japanese importers.

The Japanese trade deficit for 2013 was £67 Billion.

In 2013, BP plc, (www.bp.com) paid 4 cash dividends to shareholders, as they have a quarterly dividend policy.This makes BP an attractive investment option for investors seeking an income, such as Pension Funds or Investment Funds.

[http://www.legalandgeneral.com/_resources/pdfs/investments/managers-report-interim/IM_SR_UK_Equity_Income_Fund.pdf]

See how this fund the Legal and General Equity Income Fund has investments in BP, the fund needs to pay out to its investors, and thus why 3% of the fund is held in BP.

BP paid the following in 2013:-

28-Mar-13 6.0013p per share
21-Jun-13 5.8342p per share
20-Sep-13 5.7630p per share
20-Dec-13 5.8008p per share

So the interesting calculation is what the actual Ordinary Share dividend costs BP. The issued share capital of BP p.l.c. comprised of 18,638,693,405 shares.

Thus:

28-Mar-13: = 18,638,693,405 x £0.060013 per share = £1,118,563,907
21-Jun-13: = 18,638,693,405 x £0.058342 per share = £1,087,418,651
20-Sep-13: = 18,638,693,405 x £0.057630 per share = £1,074,147,901
20-Dec-13: = 18,638,693,405 x £0.058008 per share = £1,081,193,327

For 2013, the cash dividend cost BP:

∑(£1,118,563,907 + £1,087,418,651 + £1,074,147,901 + £1,081,193,327)

= £4,361,323,786

That is £4.361 Billion = £4361 Million paid out to the deserving shareholders of BP plc. Pension Funds and Income seeking investors deserve a decent dividend stream. BP is delivering stable returns.

Yesterday on Tue 21st Jan 2014, Pimco (www.pimco.com) the world’s largest bond manager (with over £1.198  Trillion = £1198 Billion which is about 85% of the annual UK GDP) under management, made the suprise announcement that it’s Co-Chief Investment Officer, Mohamed El-Erian was to step down, and leave Pimco in March.

[http://en.wikipedia.org/wiki/Mohamed_A._El-Erian]

It is news that will affect the market, as PIMCO dominate opinion in the fixed income market.

A fantastic quote by Warren Buffett of Berkshire Hathaway.

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”

What this means, is when there is a bubble, and asset prices are rising, and then prices are further fuelled by the shear volume and greed of more and more investors rushing in, with the herd mentality, then that is time to be worried and frightened.
When markets are tumbling, and all of a sudden certain assets seem to be oversold and undervalued as everyone is selling, that is the time to enter the market, be greedy and buy assets below their real value.

Despite the term “Big Oil” which is referring to the largest energy companies in the world, the famous names like BP, Shell, Statoil, ExxonMobil, Chevron, Total, Repsol, ConocoPhillips,  etc, the numbers actually tell the real story.

The so called “Big Oil” companies only account for 25% of oil production.

OPEC (The Oil Production Exporting Companies) account for 75% of oil production.
Yes, Saudi Arabia, Oman the UAE, Qatar, Iraq and Kuwait dominate oil production.

Reading the BP Statistical Review of World Energy one gets a grip on the numbers
[http://www.bp.com/content/dam/bp/pdf/statistical-review/statistical_review_of_world_energy_2013.pdf]

Total Oil Production = 86,152,000 barrels a day.
A barrel of oil is about US $111.

Thus crude oil production per day is worth a staggering $9,562,872,000 = £5,814,890,000 a day

Total Oil Consumption = 89,774,000 barrels a day.
A barrel of oil is about US $111.

Thus crude oil consumption per day is worth a staggering $9,964,914,000
= £6,059,360,000 a day

And note consumption is based on production, and the production of £5,814,890,000 per day (£5.8 billion) over 75% of this is from OPEC. The interesting fact is that we consume more oil than we produce, meaning we are pulling against oil reserves to meet consumption demand.

The so called oil majors that make up “Big Oil” are actually oil minors.

On Thursday 9th Jan, The Bank of England (BoE)’s Monetary Policy Committee (MPC) has kept the UK base interest rate at the record low of 0.5% for the 58th consecutive month.

Yes, it is getting close to 5 years now when rates were cut to 0.5% in March 2009.

Since then we have seen £375bn of Quantative Easing, cheap money pumped into the economy. Infact it is more than £375bn, as one has the interest (the coupon) on all the HM Government Gilts that are owned by the Bank of England, that is rarely reported.

Now the Bank of England stated it would not even consider raising interest rates until unemployment reached a threshold of 7.0%, which gave certainty to the market back in mid-2013, so the question is whether rates in 2014 will remain at 0.5%.

It all depends on the UK recovery and the reduction in unemployment.

The International Monetary Fund published a working paper [http://www.imf.org/external/pubs/cat/longres.aspx?sk=41173.0] on the Sovereign Debt Crisis.

A non-trivial paper [http://www.imf.org/external/pubs/ft/wp/2013/wp13266.pdf] that actually makes very scary reading.

Recall in 2013, during the Cypriot Banking Crisis, where people with over €100,000 on deposits last substantial savings, (the term haircut) was used. They lost over 40% of their money from savings above €100,000. It is effectively ripping off savers.

Or to be polite, an enforced deduction, effectively a savings tax on the ones who have saved hard.

The IMF paper is referring to a similar way for governments to pay back these massive debts that they have taken on since 1997 when  the financial crisis began

By reading this one cane make some deductions:

The sheer size of the Western debt pile is just so vast that wealthier countries will need  haircuts, and with higher inflation and financial repression which really means a tax on diligent savers. This has been used in countless IMF rescues for emerging markets.

It seems that savers are getting a bad deal in general. With Quantative Easing it is savers who are being punished, with near zero interest rates with their money on instant access deposit.

If one looks at what happened in Cyprus, then savers were effectively ripped off by having their life savings taken if they had over €100,000. Anything over €100,000 was effectively taxed at over 40%.

There is something very wrong with what has happened, and the school of thought of taxing people for saving is a worrying thought.

The term Working Capital is a very mis-understood term, when one reads the financial press and media.

It is the blood stream of any business, as it is the money needed to run the business, to invest in the business, buying infrastructure, paying staff and also paying for procurement of assets.

if this is miscalculated, the business could run out of cash, and thus potentially fail.
Also, by ‘bungling’ and not understanding the cash in hand means, one cannot use the cash to invest in the business and get a better return or the bad situation, running low on cash and having to borrow and pay a higher rate.

Working capital is a simply the money (cash) locked into running the actual business. When I refer to being locked into the business that cannot be easily used.

Also with the financial crisis, the ability to borrow is not always feasible, in risk adverse markets, if a company is in distress, and is running low on cash, then the company may not be able to borrow, locked out of capital markets, just look at The Royal Bank of Scotland, in the Autumn of 2008, unable to access cash from the global liquidity markets and fund its day to day operations, at which point the UK HM Government had to rescue the bank, as it was unable to borrow on the financial markets, and needed a life line from The Bank of England, and the same was true in 2007, when Northern Rock had to borrow £30 billion from The Bank of England, when it too was locked out of the capital markets.

Thus well run companies have a close watch on working capital, and have also a “headroom” where they can borrow on re-arranged credit facilities to allow them to access funding.

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

In December 2013, 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” 2 auctions of Gilts (UK Government Bonds) by the UK Debt Management Office (http://www.dmo.gov.uk/) to raise cash for HM Treasury :-

12-Dec-2013 1¾% Treasury Gilt 2019  £4,552.3520 million

10-Dec-2013 0¾% Index-linked Treasury Gilt 2047  £1,000.0000 million

When you add the cash raised:-

∑(£4,552.3520 million + £1,000.0000 million) = £5,552.350 million = £5.552 Billion

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

£179 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. The budget deficit keeps rising. What is also alarming, is the dates these bond mature, 2049. All long term borrowings, we are mortgaging our futures.

With the new year upon us as usual there is media speculation from financial pundits on what the FTSE-100 will do in 2014.

It is just an exercise of guess work with clever words. No one can predict the future.

One of the best investment quotes is that of the intellectual giant, John Maynard Keynes.

” Investing is an activity of forecasting the yield over the life of the asset; speculation is the activity of forecasting the psychology of the market “

On Wed 18th of December, the America’s Central Bank, The US Federal Reserve started to reduce the QE programme.
[http://www.federalreserve.gov/newsevents/press/monetary/20131218a.htm]

Currently The Fed is buying $85 Billion = £52 Billion = £52,000 million a MONTH in US Treasury Bonds (T-Bonds) to fight unemployment, and stabilise the US economy.

There have been many consequences of Quantative Easing, by driving interest rates down, financial asset prices have risen.
When money is earning 0.5% on deposit, perhaps the growth in the stockmarket has been driven by money moving from cash to buy shares.
Perhaps the rise in house prices is down to the fact, one may get a better return by putting money into property.

Another less reported consequence is the effect on high quality companies. They have been given the ability to borrow (by issuing bonds) at very low interest rates to fund their day to day business operations.

Verizon was able to borrow $49 Billion = £30 Billion to fund the purchase of Vodafone’s 45% stake in Verizon Wireless. They raised the cash via issuing bonds.

Exxon Mobile [http://www.exxonmobil.com/] have been able to borrow billions at interest rates of less that 2%. This of course is a triple AAA rated company, but with new cash from bond issues at very low interest rates, it has been able to lock in cash to fund the business.

On the horizon, interest rates are going to rise, so during the period of low interest rates, corporates and individuals have been able to lock in low rates and secure a well-funded future.

The Institute if Fiscal Studies recently published some figures about a single-tier pension.
[http://www.ifs.org.uk/publications/6796]

I then under took some of my own research, and the cost to the state for just paying state pension, the numbers are vast.

11.58 million pensioners living in the UK. The basic state pension is £110.15 a week

Thus each year the UK pays £110.15 x 11,580,000 x 52 = £66,327,924,000 a year = £66,327 million

That is £66 Billion. (if everyone gets a basic pension of the £110.15 a week, some obviously get more, due to their higher national insurance contributions or in the State Enhanced Related Pension, known as SERPS), my number of £66 Billion is a much lower calculation.

The Institute if Fiscal Studies stated that today HM government actually pays £94,000,000,000 a year = £94,000 million = £94 Billion today in state pensions, the 2nd largest government expenditure after funding the NHS. The issue also is that is paid for by taxation and national insurance. There is no fundamental investment asset yielding an investment return, to pay for the state pension.

People deserve good pensions, the cost to the state is huge. But how huge ?
Government expenditure is about £700 billion.

Thus 13% (at least) of government spending is on state pensions today, and this is only going to rise as life expectancy rises, and also one has to accept that the basic state pension is simply not a living wage. Pensioners deserve good pensions. HM Government have no underlying asset to pay for our pensioners. The tax payer has to meet this payment, and to be honest, £110.15 a week is simply not a living wage.

The Modigliani–Miller paper and theorem is a well-regarded axiom on the capital structure if a business. It is effectively the cornerstone of modern corporate finance, in the same way was Newton’s 3 laws of motion are to modern physics.

It is states:

(1) In an environment, where there are no taxes, default risk or agency costs, capital structure is irrelevant.
(2) The value of a firm is independent of its debt ratio and the cost of capital will remain unchanged as the leverage changes.

It is quite a complex theorem that has come from papers in the 1950’s and 1960’s. However the world does have taxes, and the cost of doing business (agency costs) are real. So what this then means, under that under some conditions, the optimal capital structure can be complete debt finance due to the preferential treatment of debt relative to shares (equity) in a tax code. For example, in the UK and most other market economies interest payments on debt are excluded from company taxes.

Thus what this means, is a company carrying debt, is worth more to investors, as it pays less tax (interest payments are off set against tax, thus create something called the tax shield).
Thus companies took out debt (issuing bonds) to finance the business also have the advantage to be able to reduce its tax bill and thus enhancing its overall value to investors.

The importance of this cannot be under-estimated, companies that have issued debt, are helping to pay for pensions (buyers of the bonds are investors like pension funds who need the interest [coupon payment] to pay their deserving pensioners).

However there are always pros and cons to debt.

Advantages of Borrowing:

1. The Tax Benefit:  (the tax shield): thus, higher tax rates mean greater tax benefit to the company
2. Added Discipline: (got to meet debt payments, focusses the business on delivering cash flows)

Disadvantages of Borrowing

1. Bankruptcy Cost: If fail to meet bond payments then the business is made bankrupt.
2. Agency Cost: (2 sets of people to please, shareholders and creditors) thus a greater the separation between shareholders & lenders which mean thus a higher cost of business
3. Loss of Future Financing Flexibility: If carrying debt, then harder to borrow more, which means more uncertainty about future financing needs

UKAR is the HM Government company, that is effectively the bad bank loans of Northern Rock, Mortgage Express and the Bradford and Bingley.
The owner of UKAR is UK Financial Investments (UKFI) that manages the assets on behalf of HM Treasury.
It is UKFI, that also owns the 30% or so shareholding of Lloyds Banking Group and The 83% stake in The Royal Bank of Scotland.

Today UKAR has a large balance sheet.

Assets are £623,000 million = £62.3bn, so this is referring to the mortgages outstanding.
Total number of mortgages are 554,000, so this equates to an average mortgage size of about £112,000.

93%, are up to date with their mortgages payments. So these are not really bad loans at all.

£8.3 Billion has been repaid.

Note, that these mortgages are generating interest, to actually what is never reported by the mainstream media, is that HM Treasury are making money on these loans.

The UK’s benchmark index is the Financial Times Share Index 100, commonly known referred to as the FTSE-100.
Oddly enough 100 of the UK largest corporates are what make up the FTSE-100.

What is not widely known is the real distortion of the index by the 5 top UK company titans:

Shell, HSBC, Vodafone, BP and GlaxoSmithKline totally dominate the index. The size of these companies based on their market capitalisation explain the level of distortion of the FTSE-100.

Shell: [Shell A plc] £79,742m + [Shell B] £53,458m = £133,200m = £133 bn
HSBC: £123,609m = £123 bn
Vodafone: £111,879m = £111 bn
BP: £88,851m = £88 bn
GlaxoSmithKline: £77,995m = £77 bn

Total Value = £535,534 million = £535 Billion = £0.535 Trillion

However the % weighting of these 5 companies on the FTSE-100 shows how this £535 Billion skews the FTSE-100.

Shell: = 6.18 % of the FTSE-100
HSBC: = 6.17% of the FTSE-100
Vodafone: = 5.32% of the FTSE-100
BP: = 4.09% of the FTSE-100
GlaxoSmithKline = 3.79% of the FTSE-100

∑ (Shell: = 6.18 % + HSBC: = 6.17% + Vodafone: = 5.32% + BP: = 4.09% + GlaxoSmithKline = 3.79%) = 25.55% of the FTSE-100 = £535 Billion

So the top 5 corporates make up over 25% of the FTSE-100. (thus the ‘other’ 95 companies make up the remaining 75%.

Also with 2012 UK GDP = £1.495 Trillion and the value of the top 5 companies being worth £0.535 Trillion, then the value of Shell, HSBC, Vodafone, BP and GlaxoSmithKline equate to 35% of the annual GDP of the UK.

Useful answer if anyone asks the value of the UK’s top 5 companies.

Yesterday (Thur 5th Dec 2013) HM Government, announced spending plans, and also the public spending numbers for the next 5 years.

The numbers are very clear, HM Government will continue to spend more money than it earns, and for the next 5 years will run a budget deficit each year, and thus have to borrow to bridge the gap between income and expenditure.

2013-2014 = £111,000 Million = £111 Billion
2014-2015 = £96,000 Million = £96 Billion
2015-2016 = £79,000 Million = £79 Billion
2016-2017 = £51,000 Million = £51 Billion
2017-2018 = £23,000 Million = £23 Billion

∑ (£111bn + £96bn + £79bn + £51bn + £23bn) = £360 bn

So the structural debt of the nation will grow over the next 5 years by only £360 bn.

The OBR (Office of Budget Responisbility) predict in the year 2018-19 that their will be a potential budget surplus (income from taxation is greater than government expenditure) of £2.2 bn. The last time the UK government had a budget surplus was in 2001.

What no one ever mentions that it will take decades to repay the outstanding debts.

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

In November 2013, 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” 5 auctions of Gilts (UK Government Bonds) by the UK Debt Management Office (http://www.dmo.gov.uk/) to raise cash for HM Treasury :-

28-Nov-2013 3¼% Treasury Gilt 2044 £2,749.8680 million
21-Nov-2013 1¾% Treasury Gilt 2019 £4,750.0000 million
19-Nov-2013 2¼% Treasury Gilt 2023  £4,124.4880 million
14-Nov-2013 4¼% Treasury Stock 2036 £2,474.9590 million
05-Nov-2013 0¼% Index-linked Treasury Gilt 2052  £1,252.0000 million

When you add the cash raised:-

∑(£2,749.8680 Million + 4,750.0000 Million + £4,124.4880 Million + £2,474.9590 Million + £1,252.0000 Million) = £15,351  Million

£15,35  Million = £15.351 Billion

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

£511 million each day for 30 days. We are fortunate, while the global banking and financial markets still has the confidence in HM Government to buy the Gilts. The budget deficit keeps rising. What is also alarming, is the dates these bond mature, 2019, 2023, 2036, 2044 and 2052. All long term borrowings, we are mortgaging our futures.

I discovered this figure.

Total UK consumer Debt is £1,429,624,000,000.

[http://www.centreforsocialjustice.org.uk/publications]

It has been appearing in the UK media for the past few days.

This reports that the total debt carried by UK citizens (not HM Government) is £1.429 Trillion = £1429 Billion.

To quantify this number:

UK GDP = £1.495 Trillion (£1495 Billion)

This Consumer Debt to GDP as a ratio = 95%

Of course the bulk of the debt is in outstanding mortgage debt. But what this shows is that consumers are carrying massive amounts of debt.

Thus this explains the levels of assets held by banks. (Assets of the bank are the outstanding loans to consumers, such as loans and mortgages)

The BRICS economies (Brazil, Russia, Indiam China and South Africa) tend to dominate the news headlines when it comes to stories of vast economic growth.

But who are these dynamic companies ?

Here is a quick list of some of the fast growing companies in Emerging Markets:

Quinnox
China Mobile
Taiwan Semiconductor Manufacturing
Petroleo Brasileiro
America Movil
China Construction Bank
Gazprom
Companhia de Bebidas das Americas
Vale
Tata Industries
BB Seguridade Participacoes
Grupo Financiero Santander Mexico
Belle International
Bharti Airtel
People’s Insurance Company of China
Sinopec Engineering
MTN
ACER
Sasol
China Galaxy Securities
HTC
ICIC Bank
Astro Malaysia Holdings
CEMEX Latam Holdings
Grupo Sanborns
Dr Reddy’s
Industrial & Commercial Bank of China
Petroleo Brasileiro
Tencent Holdings
Lukoil
Indian Tobacco Company
America Movil
Itau Unibanco
Naspers
Axis Bank
Petrobras
AmBev
EXXARO Resources
Housing Development Finance
Reliance Industries

As you can see, already some of these names are well know brands, in the future, more of them will become household names, that will become more and more famous in the years to come.

3i, once a member of the FTSE-100, today is in the FTSE-250, is a major UK investor.
Found in just after the war in 1945, to help with post war re-construction, and floated on the London Stock Exchange in 1994.

Today it is classed as an Investment Trust, and is a major investor as a Private Equity Investor, with numerous funds under management in Business Services, Consumer, Healthcare, Industrial, also a lender as it has a major Debt finance arm and also a major investor in the Infrastructure sector.

Private Equity Portfolio worth £2,531m
Infrastructure Portfolio with £528m

Total Assets Under Management of £10,493 million = £10.4 Billion.

http://www.3i.com/

The Top 10 investments by 3i PLC are:

3i Infrastructure plc UK valuation of £403m
Action Benelux Earnings valuation of £301m
Quintiles US Quoted valuation of  £145m
Xellia Norway Sales valuation of  £142m
ACR Singapore Industry metric valuation of  £118m
Element Materials Technology Benelux Earnings valuation of  £117m
Foster + Partners UK Other valuation of  £108m
Hilite International Germany Earnings valuation of  £108m
Mayborn UK Earnings valuation of  £100m
Mémora Spain Earnings valuation of £82m
[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?username=&ac=&csi=10050&record_search=1&search_phrase=3i]

As shown above, one can see the financials.

Largest shareholders:

BlackRock, Inc 11.01 %
UBS Global Asset Management 4.79 %
Artemis Investment Management LLP 4.65 %
Sherborne Investors (Guernsey) B Limited 44.93 %
Legal and General Group plc 3.15 %

A company whose role is to invest. Investment creates wealth, prosperity and jobs.

China is sometimes known as the Dragon, and India is known as the Elephant. The I in BRICS is India.

Today £1 buys you 101 Indian Rupees. It was only a few years ago (less than 24 months ago), when £1 bought you 80 Rupees. The decline in the Rupee by over 20% has been a major concern to the Indian economy as now foreign imports such as oil have become very expensive to the Indian market place.

The Indian Central Bank, known as The Reserve Bank of India [http://www.rbi.org.in/home.aspx] has appointed the former IMF man, Dr. Raghuram Rajan as governor.

His book “Fault Lines” is an excellent read.

[http://www.amazon.co.uk/Fault-Lines-Fractures-Threaten-Economy/dp/0691152632/ref=sr_1_1?s=books&ie=UTF8&qid=1384099854&sr=1-1]

Today India has a population of 1.2 Billion, (1,200 Million). 65% of which are under 35, that equates to 780 Million people. This is a massive potential consumer base. Also in 2012 with Europe in recession, the Indian economy grew at 3.2%.

The average age of an Indian today is 26.
33 million land lines (fixed)
894 million mobile phones.

The economy is £1.2 trillion (£1200 Billion) = US$2 Trillion.
Only 2.5% of the population pays income tax.
Manufacturing only accounts for 14% of the economy.
It runs a trade deficit of 17% of GDP (massive imports and humble exports)
50% of the population work in agriculture (thus explaining why India has great food)
The service sector accounts of 50% of India’s economy, e.g. outsourcing and this employs over 25% of the workforce.

India has a middle class of over 200 million, who have disposable income and demand luxury items such as upmarket cars to branded clothes.
A comparison is made to the Chinese consumer. Today the average India consumer drinks 1% the amount of wine that a Chinese person consumes, another benchmark is the consumption of snacks, today an Indian consumer eats only 15% of what a Chinese consumer eats in snacks.

Thus the upside is massive. To see this in action, some Indian companies have a global brand and reputation:

Tata (who own Jaguar Land Rover, and Corus Steel, the old British Steel), Quinnox, Tech Mahindra, ICICI Bank, HDFC, Bajaj Auto, Vedenta Resources, Bharti Airtel, State Bank of India (largest number of bank branches in the world) Zee TV, Infosys, HCL Technologies, ArcelorMittal (the world’s largest steel maker), Godrej Group, Dr Reddy’s Laboratories of Hyderabad, Reliance Industries, Wipro,  and Bank of Baroda.

The Indian economy has massive potential.

The Vanguard Total Stock Market Index Fund, is the largest single investment fund.
With assets of £178,592 Million (£178 Billion) =[US$ 287.68 Billion]

The top ten holdings account for 14.5% of the fund = £25.89 Billion

1 Apple Inc.
2 Exxon Mobil Corp.
3 Google Inc.
4 General Electric Co.
5 Microsoft Corp.
6 Johnson & Johnson
7 Chevron Corp.
8 Wells Fargo & Co.
9 Procter & Gamble Co.
10 Berkshire Hathaway Inc.

Not entirely suprising the fund invests in some of the worlds largest companies, it is tracking the global stock market, that is of course dominated by the largest corporates in the world.

[http://finance.yahoo.com/q?s=VTSMX]

this fund overtook the famous Pimco Total Return Bond Fund, which for the past years was the largest investment fund, run by Bill Gross.
The Vanguard Total Stock Market Index Fund is run by computer, as it is an index tracker, thus Vanguard are able to offer low charges on the fund to investors, and not pay high fees for money managers.

[https://personal.vanguard.com/us/funds/snapshot?FundId=0085&FundIntExt=INT#tab=0]

On Bloomberg on Wed 20th Nov, was an article about the ECB considering negative interest rates. According to the article, the European Central Bank “will offer” -0.1% on deposits

[http://www.bloomberg.com/news/2013-11-20/ecb-said-to-consider-mini-deposit-rate-cut-if-more-easing-needed.html]

What this means, is that clearing banks in the €uro Zone who deposit cash with the European Central Bank will be effectively charged for holding their money with the central bank, thus negative interest rates.

e.g. €1,000,000 on deposit (€1m) over 12 months will become €999,000.
Yes a loss of €1,000 Euros.

One potential positive side effect of negative interest rates, is that the clearing banks may actually decide not to deposit excess cash with the European Central Bank, and instead use the cash to create loans for business, industry and individuals to kick start employment and economic growth.

Perhaps the economic state of the €uro zone is worse than what is actually reported, and the European Central Bank is taking drastic and radical action to fight economic stagnation and the record unemployment that is affecting so many people, and threatens to create lost generation.

In the news on Monday 18th November, it was annnounced that the CEO of BT Openreach’s Liv Garfield is leaving BT to join the Severn Trent, the water utilities company that supplies services in the Midlands.

A lot of overlap between BT and Severn Trent, have both highly regulated business’s (BT Openreach an Severn Trent Water) and non-regulated businesses (BT Global Services and Severn Trent Services), and also they have massive similarities, in the sense they are both infrastructure companies with hard assets, BT has the ducts and fibre, moving information, and Severn Trent has pipes moving water products.

Looking at Severn Trent, it is a massive business.

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=10090]

With a market capitalisation of £4350 million (£4.3 Billion), it is a member of the FTSE-100.

The annual report makes interesting reading

[http://www.severntrent.com/upload/pdf/Severn-Trent-Annual-Report-and-accounts-2013.pdf]

The total 2013 dividend was £0.75. On a share price of about £18.24, the dividend yield is over 4%. (not bad in a near zero interest rate climate)
The dividend cost Severn Trent £322 Million.

Capital expenditure on the Severn Trent network of £555 million

Wages for the staff cost £282.9 Million

Carries quite a large debt load, of £4,297 Million (£4.297 Billion) which is relatively easy to bare, when the company has stable cash flows (people paying the water bill).
Interest payments on debt costs Severn Trent £233 million.

The Severn Trent Pension Fund has assets of £1,724 million, but has liabilities of £2,098 million

The biggest shareholders are:

Blackrock Inc owning 9.87%
Newton Investment Management Ltd owning 5.09%
Legal & General Group Plc owning 4.04%

A large scale utility.

The R is “BRICs” is Russia.

Moving forward from the collapse of political and economic dictatorship in the late 1980’s and early 1990’s and the progressive policies formed from ‘Glasnost‘ meaning openness and ‘Perestroika‘ meaning restructuring, the Russian economy has radically evolved.

The Russian stock market has a huge concentration of oil and gas stocks (names like Rosneft and Gazprom are pretty familiar). Exports from oil and gas make up just over 20% of Russian GDP. Also other companies are raising their profile, such as VTB Capital, Kaspersky Labs, Alfa Bank, Lukoil, Mobile Telesystems, RosTelecom, TNK-BP, Svyazinvest and VimpelCom.

What is interesting is to look at domestic mortgage debt in Russia. Today the mortgage debt in only 3% of total GDP, in the UK mortgage debt is 84% of total GDP, in the USA mortgage debt is 76% of total GDP.
What is also incredible, is that today the Russian government, actually has a budget surplus, it spends less that it earns.

Also the domestic banking sector offers depositors an average interest rate of about 6% on savings. What is also noticeable is the growing middle class, and reading articles from The Boston Consulting Group, by 2016, Russia will overtake Germany as the largest market for cars in Europe, and by 2020, will command sales of over 4.4million new cars. Russia is becoming a more developed and stable economy.

The Edinburgh Investment Trust plc is a listed investment company, whose market capitalisation is £1,136 million = £1.136 Billion

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?username=&ac=&csi=10171&record_search=1&search_phrase=ed]

Day to day management is by Invesco Perpetual, currently managed by Neil Woodford, who shortly will depart from Invesco Perpetual.

Its top 10 holdings are:

GlaxoSmithKline 8.9% of the portfolio
AstraZeneca 8.7% of the portfolio
BT 7.8% of the portfolio
British American Tobacco 6.3% of the portfolio
Roche – Swiss common stock 6.2% of the portfolio
BAE Systems 5.6% of the portfolio
Imperial Tobacco 5.2% of the portfolio
Reckitt Benckiser  4.6% of the portfolio
Reynolds American – US common stock 4.4% of the portfolio
Capita 4.3% of the portfolio

The top 10 holdings make up 62% of the £1.136 Billion.

Looking at the total portfolio [http://www.invescoperpetual.co.uk/site/ip/pdf/The-Edinburgh-Investment-Trust-plc-portfolio-disclosure.pdf]

It only has holdings in 46 companies.

Interesting to note that the largest single holding of the Edinburgh Investment Trust, is GlaxoSmithKline.
It owns 7,733,586 shares. Today GlaxoSmithKline has a share structure of 4,862,666,685 shares.
This means that the Edinburgh Investment Trust plc owns 0.15% of GlaxoSmithKline PLC.

The yield on Edinburgh Investment Trust plc is 3.9%. Incredible yield in this low interest rate climate.

The term BRICS (Brazil, Russia, India and China) came from Jim O’Neil at Goldman Sachs Asset Management. He was of course referring to the economic strength of these new growth markets in these emerging nations. It is these countries and new markets that are beginning to dominate the global economy.

Some very simple statistics explain this.

In 1980 the United States of America accounted for 25% of the world’s GNP (Gross National Product). China in 1980 only accounted for 2.2% of the world’s GNP.
(yes, China was less that 10% of the US economy in 1980).

Now, projections for 2017 (just over 3 years from now), in 2017 the United States of America will account for 17.6% of the world’s GNP (Gross National Product) and China will account for 18% of the world’s GNP.
(Yes, China will overtake the USA).

Another statistic is the consumer base.

Today Europe accounts for 7% of the global population, it is 25% of the global gross national product, and more worrying, accounts for 50% of social spending. This is totally unsustainable. (An Angela Merkel quote)
Today in Asia the middle class, thus consumers with disposable income, account for about 500 million. This number could be as high as 1,750 million (1.75 Billion) by the year 2025.

We are perhaps seeing a shift in global economic dominance, within the next 5 years.

Final point, the largest economies from 1 AD to 1800 AD were India and China. It was the industrial revolution in the 1800’s, the advancement in maths, technology, science and automation from Europe, that made the US and Europe dominate the global economy for the past 200 years.

Perhaps we are seeing history all over again, with wealth and dominance moving back to Asia who dominated the global economy for the first 1800 years. One hopes that global wealth is spread across right across the globe, otherwise we will see a decline in living standards in Europe and North America.

The United States of America is the largest consumer of crude oil. It is a net importer of oil from around the world.
However, domestic oil production is now becoming non-trivial.

Each day, the US produces 7.5 Million Barrels of Oil.
A barrel of oil is about $106

That equates to:

7,500,000 x $106 = $795,000,000 = $795 Million a day. ($0.795 Billion)

Yes, US crude oil production is worth a staggering $795 Million a day to the US Economy.