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.

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 October 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” 3 auctions of Gilts (UK Government Bonds) by the UK Debt Management Office (http://www.dmo.gov.uk/) to raise cash for HM Treasury:-

17-Oct-2013 1¼% Treasury Gilt 2018  5,224.8720 Million
08-Oct-2013 0 1/8% Index-linked Treasury Gilt 2019  1,786.2500 Million
03-Oct-2013 2¼% Treasury Gilt 2023 4,399.5340 Million

When you add the cash raised:-

∑(5,224.8720 Million + 1,786.2500 Million + 4,399.5340 Million) = £11,410.66 Million
£11,410.66 Million = £11.410 Billion

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

£368 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, 2018, 2019 and 2023. All long term borrowings, we are mortgaging our futures.

Prudential PLC is a UK insurance and savings financial giant.

[www.prudential.co.uk]
In the US, it owns Jackson National Life, in the UK it also owns M&G Investments.
Also a huge presence in Asia.

Looking at the annual report, some salient information can be obtained.

[http://www.prudential.co.uk/investors/download-library/annual-reports]

£405 Billion Under management, of this, £228 Billion is with M&G Investments.

Insurance premium income are broken down into three regions
45% Asia
35% US
20% UK

Yes, Asia is nearly half the business.
Indonesia, Hong Kong, Singapore, Malaysia, the Philippines, Thailand and Vietnam are the key markets.

4 Major Shareholders:

Legal & General Group plc of 3.99 %
Norges Bank of an interest in 4.03 %
BlackRock, Inc. of an interest in 5.08 %
Capital Group International Inc of an interest in 10.39 %

A Balance Sheet of £310,253 Million = £310 Billion in assets.

Real Estate / Property investments of £10,880 Million = £10.88 Billion

Dividends to shareholders £747 Million.

The man from the Pru, is huge.

M&G Investments is a part of Prudential PLC, one of the world’s largest insurers.

M&G is the fund management arm of Prudential. In 1931 they launched the first Unit Trust (collective investment fund) to UK investors. With over £230 Billion under management, they really are an investment giant.

A very highly regarding fund from M&G is the Optimal Income Fund. With £15,662 Million = £15.6 Billion in this fund, it is massive.

The Fund aims to provide a total return to investors through strategic asset allocation and specific stock selection. The Fund will be at least 50% invested in debt instruments, but may also invest in other assets including collective investment schemes, money market instruments, cash, near cash, deposits, equities and derivatives. Derivative instruments may be used for both investment purposes and efficient portfolio management.

[http://www.mandg.co.uk/investor/-/media/Imported-Documents/OPTI/Mandg-Optimal-Income-Fund_Factsheet_XXXX-XX_GBP_A_UK_Consumer_ENG_UK.pdf]
It holds:

Government bonds 21.5%
Investment grade bonds 46.8%
High yield bonds 18.1%
Equities 11.3%
Cash 1.4%

In the past 5 years this fund has grown, and even in the financial crisis of 2008.

The top investment holdings are:

Verizon Communications 2.7%
Granite Master Issuer 2.1%
Lloyds Banking Group 1.9%
BAA 1.1 %
GE Capital 0.9%
HSBC 0.9%
EDF Energy 0.8%
Enel 0.8%
Microsoft 0.8%
Telefonica 0.8%

Interesting to see that this fund is holding Blue Chip Assets, such as financial securities issued from corporates like Microsoft, General Electric, HSBC etc. Profitable companies that are able to pay dividends and interest on bonds.

Out of the FTSE 100, the UK flagship index of the 100 largest companies, 5 PLC’s paid about 36% of all the dividends paid. Incredible to see the reliance of pension funds and income investors of a few companies.
But one thing is sure for dividend paying companies, they are able to pay cash to investors which is a clear sign of good management and corporate governance. The ability to manage the business and generate cash.

In Emerging Markets, like India, Brazil etc, companies too are now able to pay dividends, showing a level of maturity in the market. Also one has to note that law and politics are an issue, so holding shares in say the Brazilian energy giant, Petrobas is lucrative, as in Brazil companies have to pay by law 25% (at least) of their profits in dividend payment.

An amazing snippet I have found, is that there are about 18,000 listed companies in Asia (this excludes Japan, New Zealand & Australia), of which nearly 9,000 paid dividends to shareholders in the past 12 months. Perhaps one can make an assumption that there is the realisation that many emerging markets are not so emerging anymore.

Temasek Holdings is one of the two state investment companies of Singapore, (the other one is known as GIC, Government Investment Corporation). This is a sovereign wealth fund.

£107 Billion under managed (Singapore Dollar SG$215 Billion). The history of growth is very interesting. Formed in 1974, Temasek began with a portfolio of £176 million. It has grown and in 2003 it was worth £30 Billion, and now it is £107 Billion in 2013.It mainly invests in shares (equities)

Portfolio is broken down into 6 sectors:

31% Financial Services (Global Banking & Financial Markets)
24% Telecoms, Media & Technology
20% Transportation & Industrials
12% Life Sciences, Consumer and Real Estate
6% Energy & Resources
7% Others

The Geographic Breakdown is:
30% Singapore
41% Asia (outside Singapore)
25% North America, EU, Australia & New Zealand
4% Latin America, Africa, Central Asia & Middle East.

It’s largest equity investments are in these companies:

AIA Group
Bank of China
China Construction Bank
DBS Bank
ICBC Industrial and Commercial Bank of China
Ping An Insurance
Danamon PT Bank Indonesia
Standard Chartered Bank

It holds its portfolio of the £107 Billion in 6 currencies:
Singapore Dollars, Hong Kong Dollars, US Dollars, UK Sterling, Euros and Others.

A diverse investment fund, across the globe, securing Singapore’s long term wealth.

On Sunday 20th Oct 2013, AT&T announced the plan to raise $4.85 Billion = £2.99 Billion by leasing the rights of its wireless (base stations) to Crown Castle

[http://www.att.com/gen/press-room?pid=24913&cdvn=news&newsarticleid=37107&mapcode=att-business-news|mk-att-wireless-networks]

AT&T will lease its 9,708 towers.

Reading the financials from Crown Castle gives an insight to the business:
[http://www.crowncastle.com/investor/presentations/Q3-2013EarningsPresentation.pdf]

Crown Castle pays $4.85 Billion, to operate the towers for an average of 28 years, and AT&T commits an initial lease term for 10 years.
AT&T will pay $1,900 per site.

This means each month Crown Castle will earn from AT&T £1900 x 9708 = $18,445,200 ($18.445 million) which is $221,342,400 per year ($221 million = £136 million), and get this for 10 years.

And in this each year Crown castle will increase the charge by 2%.

A nice monthly revenue from AT&T, for Crown Castle running and maintaining the radio towers, and AT&T gets a cash injection of $4.85 Billion.

Crown Castle who own the 7,100 T-Mobile USA tower network could have the option to manage the overlap, and optimise the 2 networks, and bring cost savings, and after 10 years, has the option from AT&T to buy the network too.

Crown Castle is clearly an infrastructure company, that is getting stable returns each month.
The share price is about $75 a share
[http://investor.crowncastle.com/phoenix.zhtml?c=107530&p=irol-stockquote]

They are proposing an annual dividend of $1.4 a share which equate to a yield of 1.86%.
So in these low interest rate times, the US Federal Reserve Base Rate is 0.25%, so by investors investing in Crown Castle, they are able to obtain a return of 1.86%.
The ability to fund this dividend comes from the stable and safe monthly rent obtained from the leases from AT&T and USA T-Mobile, and other carriers whose radio towers it runs.

Also what will be interesting to see, is what AT&T does with the $4.85 Billion. It could use the money for a share buy back, pay down some debt, or perhaps use it buy strategic assets, like more spectrum, or perhaps buy another carrier in Europe.

The Pacific Investment Management Corporation [PIMCO] is the famous fixed income fund manager, made famous by the two chief investment officers, Bill Gross and Mohammed El-Erian.

[www.pimco.com]

Founded in 1971, the money that Pimco manages is huge. They are a fixed income investor, that are mainly investing in bonds (debt)

Numbers are staggering:

$1.97 trillion (£1.21 Trillion) in assets under management
$1.61 trillion (£995 Billion = £0.995 Trillion) in third party client assets

The flagship invesment fund, and perhaps the fund that has made Bill Gross and Pimco famous is the Pimco Total Return Fund. This is a bond fund

PIMCO Total Return Fund has assets $251,105 million = £156,848 million = £156 Billion.
This giant fund has its investments spead in these sectors:
US Government-Related Bonds 35.00 %
Mortgage Bonds 36.00 %
US Credit Bonds 9.00 %
Non-U.S. Developed Bonds 2.00 %
Emerging Market Bonds 6.00 %
Other 5.00 %
Money Market and Net Cash Equivalents 7.00 %

The UK Operation of Pimco has Andrew Balls as the UK Managing Director. Andrew is the brother of the Shadow Chancellor Ed Balls, the MP for Morley and Outwood, West Yorkshire. [http://www.edballs.co.uk/]

Pimco is owned by the German insurer Allianz, [www.allianz.com]

In the financial press these past few days, the big news that has been making the headlines that Neil Woodford a highly successful fund manager at Invesco Perpetual is leaving to set up his own fund management business.

Neil Woodford runs quite a few funds at Invesco Perpetual, such as the Invesco Perpetual High Income Fund, The Edinburgh Investment Trust and The Invesco High Income fund to name just three.

The Invesco Perpetual High Income Fund, is huge, This fund £13,971 million = £13.971 billion.

£10,000 in 1990 invested The Invesco Perpetual High Income Fund would be worth over £200,000 today.

[http://www.invescoperpetual.co.uk/site/ip/pdf/3303148_EN_GB-ip-hgh-inc-fnd-fctsht.pdf]

The total number of holdings are 122
The Top 10 holdings are:-

AstraZeneca 8.68%
GlaxoSmithKline 8.44%
BT 6.35%
BAE Systems 5.51%
Roche 5.50%
British American Tobacco 5.05%
Imperial Tobacco 4.82%
Reckitt Benckiser 4.42%
Reynolds American 4.32%
Capita 4.18%

This makes 57% of the entire fund.

Very interesting to see BT in the fund, a long term investor in the world’s most dynamic telecoms group, look at the sound fundamentals of BT

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?username=&ac=&csi=10025&record_search=1&search_phrase=BT]

With 6.35% of the £13.971 billion fund in BT, that equates to £887million worth of shares in BT held by The Invesco Perpetual High Income Fund. Not entirely surprising having such a high quality investment, as in these times of low interest rates, BT is yielding 2.5%.

Now BT has about  7,910,539,487 shares on issue, so the market capitalisation (value) of BT is 7,910,539,487 x £3.64 (the current share price) = £28,802 million (£28.8 billion)
With the The Invesco Perpetual High Income Fund owning £887 Million worth of shares, that equate to just over 3% of BT.
This fund from Invesco Perpetual owns 3% of BT. Almost certainly other funds from Invesco Perpetual own shares in BT, so one can see, it is a strategic investor in BT Group PLC.

Berkshire Hathaway, the name says it all. This is the investment company lead by Warren Buffet.

www.berkshirehathaway.com

A very humble website, from the most respected investor in the world.

The top 10 holdings in listed companies are:

Wells Fargo = 21.47% of the BH Portfolio = 463,131,623 shares
Coca Cola Co = 18.02% of the BH Portfolio = 400,000,000 shares
IBM = 14.62% of the BH Portfolio = 68,121,984 shares
American Express = 12.73% of the BH Portfolio = 151,610,700 shares
Procter & Gamble = 4.57% of the BH Portfolio = 52,793,078 shares
Wal-Mart Stores = 4.12% of the BH Portfolio = 49,247,235 shares
U.S. Bancorp = 3.18% of the BH Portfolio = 78,277,301 shares
DIRECTV Group Inc = 2.58% of the BH Portfolio = 37,275,400 shares
DaVita HealthCare Partners = 2.03% of the BH Portfolio = 29,947,812 shares
Phillips 66 = 1.80% of the BH Portfolio = 27,163,918 shares

Total Number of stocks held by Berkshire Hathaway is 42.
The value = $89,031,205,000 = $89 Billion
Financials make up = 40.86% of the Portfolio

The shares are 2 classes of stock, A and B

Berkshire A [http://www.nyse.com/about/listed/lcddata.html?ticker=brk.a]
Berkshire B [http://www.nyse.com/about/listed/lcddata.html?ticker=brk.b]
This explains the difference:
[http://www.berkshirehathaway.com/compab.pdf]

A share of Class B common stock has the rights of 1/1,500th of a share of Class A common stock
except that a Class B share has 1/10,000th of the voting rights of a Class A share.

Class A share price analysis of the shareprice.

27 Oct 1993 = $17,100
24 Oct 2006 = $100,000
9 Oct 2013 = $168,075

Today the share price is about $171,295

Imagine owning one share in Berkshire Hathaway in the 1980s….

Buffett insists on keeping at least $20 billion in cash on Berkshire’s balance sheet at any given time.

A brilliant investor, a long term value investor.

The Government Pension Fund of Norway is also known as The Norwegian Sovereign Wealth Fund.

With $760bn = £477bn in the fund, it is one of the world’s largest sovereign wealth.
it is projected by 2020, the fund could be over £600bn

This fund is so large, 2.5% of every listed European company and is often in a group’s top 20 shareholders, also incredibly the fund holds on average 1.25% of the world’s shares, that is why when looks at the annual report of large listed companies, one sees this name:

Norges Bank Investment Management (NBIM). This is the investment arm of The Norwegian Central Bank.

It holds:

Equities = 63.4% of the fund
Bonds = 35.7% of the fund

The UK’s Tony Watson sits on the corporate governance advisory board to the fund. A famous name who was the former CEO of Hermes Investment Management, the fund manager of the UK’s largest pension fund, the BT Pension Fund.

Amazing to think a fund started in 1996, has become this large, what is true, is acorns become oak trees.

Total Telecom published the revenue figures for the global carriers.

Some very interesting numbers that explain this mission critical industry.

The Global 100 Telecom Operators, gross revenue was flat at €1.28 trillion = £1.08 Trillion = £1,080 Billion

US players–AT&T, Verizon and Sprint–together contributing €211 Billion = £178 Billion

Telefonica, Deutsche Telekom, Orange, Telecom Italia and BT generating €215 Billion = £181 Billion

Top 20 Carriers on Revenues.

1 AT&T  £81,352 Million = £81 Billion
2 NTT  £74,765 Million
3 Verizon  £73,954 Million
4 China Mobile £56,642 Million
5 Telefónica £52,617 Million
6 Deutsche Telekom £49,493 Million
7 Vodafone £44,442 Million
8 America Movil £37,999 Million
9 Orange  £36,719 Million
10 China Telecom £28,610 Million
11 KDDI £25,588 Million
12 China Unicom £25,159 Million
13 Telecom Italia £24,895 Million
14 Softbank  £23,604 Million
15 Sprint £22,564 Million
16 BT £18,015 Million
17 Telstra £15,388 Million
18 Vimpelcom £14,722 Million
19 KT £14,253 Million
20 BCE £12,791 Million

Large Numbers from one of the most dynamic industry sectors.

Also worth considering how the industry is changing. Look at BT, perhaps the most innovative telecoms operator in the world, the global MPLS network, a television broadcaster, a solution provider, and broadband service provider, as financial technology service operator. A world class player.

The US Federal Government on Sunday 30th Sept 2013, at midnight, had to shut down, unable to agree the federal budget. The reason being, the government literally has run out of money, it was unable to borrow any more, as it had reached the legal debt ceiling.

The US has a huge national debt, caused by a simple fact, that the US government spends more than it earns in taxes. It runs a budget deficit.

Thus to bridge that gap, the US government borrows, it issues T-Bonds (Treasury Bond).

What is the US National Debt ?

A good site:

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

As you can see, over $16 trillion.

[$1000 Million = $1 Billion]
[$1000 Billion = $1 Trillion]
US National Debt is $16.9 Trillion = £10.5 Trillion

US 2012 GDP was $15.68 Trillion = £9.74 Trillion

Thus Debt / to GDP Ratio is 108%

These numbers are incredible.

Interesting days ahead with the Initial Public Offering (IPO) of The Royal Mail (formerly known as Consignia…). The shares are eagerly awaited and look like they will rise on the first day of trading due to strong demand, and also the hard assets it owns. For example the property (real-estate) alone is worth a fortune, such as the London Mount Pleasant Complex near Kings Cross. So good to see demand for equities, and this lead me to look at share ownership of UK shares.

The ONS (Office of National Statistics) published a report on the 25th Sept 2013.
It is gives a breakdown of who owns UK shares:-

[http://www.ons.gov.uk/ons/dcp171778_327674.pdf]

Some fantastic figures:

At the end of 2012, the UK stock market was valued at £1,756.3 billion. UK quoted ordinary shares was £1,756.3 billion. Of this, the rest of the world held 53.2% (£935.1 billion).

UK individuals owned an estimated 10.7% of the UK Stock market.

Unit trusts held an estimated 9.6% of the UK Stock market

Insurance companies held an estimated 6.2% of the UK Stock market

Pension funds held an estimated 4.7% of the UK Stock market

Non-British shareholders owned 53% of the UK Stock market

The financial crisis of 2008 led to unprecedented government intervention in the UK financial industry. There was initial recapitalisation of The Royal Bank of Scotland Group plc (RBS) in November 2008 with a further injection in 2009. The recapitalisations of LloydsTSB Group plc and HBOS plc took place in 2009. Government also participated in two subsequent recapitalisations of Lloyds Banking Group plc. in 2009. On 31 December 2012, these interventions equated to shareholdings valued at £42.6 billion. The 2.5 % of UK shares are held by HM Government, almost all in FTSE 100 companies. This is due to the government interventions in Lloyds Banking Group and Royal Bank of Scotland.

Interesting numbers from our Office of National Statistics.

The Polar Capital Technology Investment Trust is a FTSE Listed Investment Company (Investment Trust) that buys shares in technology companies.

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

The financial fundamentals are:-

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?username=&ac=&csi=12294&record_search=1&search_phrase=pct]

The share price is about £4.46. The market capitalisation is £572 Million.

The Top Ten holdings are:-

Google 6.4%
Apple 5.8%
Cisco Systems 2.8%
Samsung Electronics 2.5%
Facebook 2.3%
Microsoft 2.0%
Amazon 2.0%
Qualcomm 1.9%
Oracle 1.7%
SAP 1.6%

These ten holdings make up 29% of the total holdings.
70% of the holdings are in the USA so clearly the investment has significant exposure to currency movement of the US Dollar to UK Sterling.

Interesting to see that “financial companies” like MasterCard are in the portfolio of investments of The Polar capital Investment Trust. Not surprising, these companies like banks are really technology companies, due to their investment in global technology. Perhaps one can say, Global Banking and Financial Markets  companies are really technology businesses

With the USA  just over 100% debt to GDP, the UK too spending more than is earned in taxes, Japan looks totally unstainable.

The article by Kate Allen in the FT on the 1st October, gives some real insight to Japan.
It is amazing to know since 1975, Japan’s government has spent more than income. This is where government expenditure is higher than tax income. So for 38 years, the government has had to bridge that annual deficit by issuing bonds, known as Japanese Government Bonds (JGB’s).

Today 2013 Japan’s government revenue is about 40 Trillion Yen (£0.25 Trillion), and government expenditure is about 90 Trillion Yen (£0.56 Trillion).

¥1,000,000,000,000,000 is the Japanese National Debt (yes, 1000 Trillion Yen, my numbers are correct).
(15 zeros if you are interested…..to be honest, (¥1.008 quadrillion is easier to say)

That is $10.46 Trillion = £6.45 Trillion

The UK national debt is £1.2 trillion and our GDP is about £1.5 trillion
(we in the UK are about 80% Debt to GDP)

This Japanese level of debt is more than twice the size of the economy. debt versus the country’s GDP is 230%, the highest in the developed world

The debt is mainly held by domestic fixed income investors.

What is effecting the Japanese economy is the high standard of living in Japan, and that has resulted in the aging population, and the need to pay for the pensions and long term health care of an aging population, putting pressure on the government’s finances.

The most crazy figure, is that today the Japanese government has to spend over 20% of all its expenditure on debt interest.
the UK pays about 6% of government expenditure on debt interest.
Now one can understand why Japan has such low interest rates, when the level of government debt is so high, it needs low rates to be able to finance itself, and also needs access to the bond market to simply bridge the gap of its tax income and outgoings. So clearly their is confidence in the Japanese government to borrow, as domestic creditors are funding the Japanese government. As long as this confidence remains, the debt cycle continues.

On Tue 24th Sept, Blackberry (Research in Motion), headquartered in Waterloo, Ontario, announced it was going to be taken over and go private. This means delisting its shares from the stock exchanges where the shares are traded (Nasdaq and Toronto), and become a privately held stock. From reading the media it is to be bought by a consortium led by Fairfax Financial for $4.7bn (£3bn).

So while the shares are still listed on the Nasdaq and Toronto stock exchanges, I undertook some analysis into the stock

[http://www.nasdaq.com/symbol/bbry]

Today about $8 a share, 12 months ago $18 a share. Over 50% decline in value.

The Market capitalisation is $4,623,089 = £2883 Million = £2.8 Billion

The annual report gives some insight too.

[http://uk.blackberry.com/company/investors/documents.html]

524,159,844 Common Shares in issue.
54.6% of BlackBerry users based outside of North America

Revenue (U.S $) March 2, 2013 = $11,073 million = £6,905 million
Revenue (U.S $) March 2, 2012 = $18,423 million = £11,489 million

A near 40% decline in revenues.

The Company’s revenues by geographic region are as follows:

6% = Canada
20.2% = USA
11.2% = UK
29.5% = Europe
19.1% = LatAm
14% = APAC

Despite increased competitive pressures in consumer segments, the Company remains a leader in enterprise mobility, with deployments in over 90% of the Fortune 500 companies

As of March 2, 2013, the Company’s research and development team consisted of approximately 6,000 full time employees. Research and development expense was approximately $1.5 billion.

As of March 2, 2013, the Company had approximately 12,700 full-time employees.

Cash and cash equivalents on the balance sheet of  $ 1,549 Million = £966 Million
Short-term investments $1,105 Million = £689 Million
It’s debt is tiny, it is only accounts payable.

Advertising expense, which includes media, agency and promotional expenses totalling $925 million = £576 Million.

One thing that jumps out, the very low level of debt that Blackberry carries. So despite the falling sales, and shrinking market share, the company has been able to develop new products, as it has not had the burden of loans, interest payments etc, when it has had to deal with the competition from Apple and Android. A company with fantastic technology, that is swimming against the tide of the competition.

Another month, guess what, 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 September 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 4 auctions of Gilts (UK Government Bonds) by the UK Debt Management Office (http://www.dmo.gov.uk/) to raise cash for HM Treasury:-

19-Sep-2013 1¼% Treasury Gilt 2018  £5,083,730,000
12-Sep-2013 2¼% Treasury Gilt 2023  £4,124,604,000
10-Sep-2013 3¼% Treasury Gilt 2044  £3,017,840,000
03-Sep-2013 0 1/8% Index-linked Treasury Gilt 2024 £1,627,140,000

When you add the cash raised:-

∑(£5,083,730,000 + £4,124,604,000 + £3,017,840,000 + £1,627,140,000) = £13,853,310,000

 £13,853,310,000 = £13,853,310 Million  = £13.853 Billion

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

£461 million each day for 30 days. We are fortunate, 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, 2018, 2023, 2033 and 2024. All long term borrowings, we are mortgaging our futures.

Cinven is an investment firm, that is a private equity investor that invests in 6 sectors:
Business Services, Consumer, Financial Services, Healthcare, Industrials and Telecoms, Media and Technology.

www.cinven.com

Some famous names have been owned by Cinven: Eutelsat, Hamleys of Regent Street, NCP Car Parks, Sema, Tetley Tea.
Today it owns Pizza Express via its ownership of Gondola.

More recently it bought Heidelberger Leben from Lloyds Banking Group, a German Life Insurer that was owned via Halifax Bank of Scotland, a member of the Lloyds Banking Group

[http://www.cinven.com/mediacentre/default.asp?mediaid=366]

That was a €300 million investment from Cinven, one can see, it is entering the world of financial services with investments in the UK too in Life Assurance from Guardian Financial Services and life policies from Phoenix Life.

Founded in 1977, with money from the Coal Board Pension Fund, Barclays Pension Fund and Railway Pensions, it invests in private equity buy outs, with a minimum investment of £100 million. The name Cinven comes from Coal Investments.
Final thoughts, if one eats Pizza from Pizza Express, it is funding the pensions of UK coal miners, retired railway workers and Barclays workers.

HM Government expenditure comes from our taxation and borrowings. How is this money spent ?

HM Government collects about £580 Billion in Taxation and has to borrow a further £120 Billion on the global banking and financial markets (the Bond Market). We are running a deficit, spending more than we earn.

With this approximate £700 Billion, where does the cash go ? Here are the rough numbers:-

£202 Billion Benefits and Pensions
£202 Billion Health
£69  Billion Education
£42  Billion Debt interest
£36  Billion Defence
£30  Billion Local government
£26  Billion Scotland
£19  Billion Law and Order
£14  Billion Wales
£10  Billion Northern Ireland
£8   Billion EU contributions
£7   Billion Transport
£6   Billion International aid
£125 Billion Other departments

Total government spending £698 Billion.

£42 Billion on Debt Interest, this is the interest HM Government has to pay on the bonds (Gilts) issued to fund the deficit. We spend more on our interest repayments, than we spend on defence. What is worrying is that with an aging population, the cost of pensions and healthcare are going to rocket. Looking after our elderly families is essential, and our retired population of about 12 million deserve decent pensions. However when debt interest payments on the ballooning debt mountain are non-trivial at £42 Billion, cutting the welfare, state pension and health budgets is simply too easy for governments. We need underlying investment assets to pay decent pensions for our retired citizens.

The 2nd most famous communications company is AT&T, American Telephone and Telegraph.
[BT Group PLC is the most famous telecommunications company]

Looking at the annual report and financials some key information can be found.

[http://www.att.com/gen/investor-relations?pid=18777]

Revenues of $126.4 Billion = £78.9 Billion

What is very interesting is that break down.

19% on Voice
28% on Data
53% on Wireless

$20.4 Billion = £12.7 Billion  in capital expenditures & and spectrum purchase.
Paid out more than $10 Billion = £6.24 Billion in regular quarterly dividends
1,300 scientists and engineers at AT&T Labs

Key financials:

Total assets $272,315 Million = $272 Billion = £169 Billion
Total debt $ 69,844 Million = $69 Billion = £43.6 Billion
$4,868 Million held in cash and cash equivalents

Voice revenues decreased by 10.0%, in 2012 primarily due to declining demand for traditional voice services by our consumer and business customers.

Pension benefit obligation at end of year $58,911 million = £36.7 Billion
Fair value of plan assets at beginning of year $45,907 Million = £28.6 Billion
Unfunded status at end of year $13,851 million = £8.65 Billion

Yes, AT&T has a Pension Deficit.

Number of employees 241,810
106 Million Wireless Subscribers.

American Telephone and Telegraph, the North American Giant, like a lot of companies, the pension fund is deficit. In mature economies, the aging population and retired workers living longer are putting a financial strain on pension funds.

BP (Formerly known as British Petroleum) is a giant. It started life as The Anglo Persian Oil Company, then via huge expansion globally, and acquiring companies in the US such as Atlantic Richfield (Arco), Amoco and in the UK, Burmah Castrol is an energy giant, but also a financial giant, with massive treasury operations, and huge financial trading operations.

A member of the FTSE-100, accounts for nearly 5% of the FTSE-100 Index.

With a Market capitalisation of about £83,000,000,000 = £83 Billon, the dividend yield is 4.8%.

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

Reading the annual report can get a grasp of the financial position, and despite the 2010 tragic Deepwater Horizon accident, the company is still vast.

[http://www.bp.com/en/global/corporate/investors/annual-reporting.html]

BP employ nearly 86,000 people.
Capital expenditure to be in the range of $24-27 billion per year
2012 Profit was US$ 11,582 Billion = £7,234 Billion
Balance Sheet cash and cash equivalents at the end of 2012 totalled $19.5 billion.
Dividends to shareholders of $5.3 billion = £3.31 billion during the year.
BP owns 19.75% of Rosneft, the Russian energy giant.
Total revenues and other income in 2012 = $388,285 million = $388 billion = £242,536million = £242 billion
[UK 2012 GDP = £1, 483 Billion, BP revenues = £242 billion.]
BP revenue = 16% of UK GDP !!
Balance sheet assets  of £187,510 million = £187 Billion

Major Shareholders:

Guaranty Nominees Limited 27.05 %
BlackRock, Inc. 5.39%
The Capital Group Companies, Inc. 3.88%
Legal & General Group Plc 3.82%

A World Class Energy Giant.

In the abnormal climate of low interest rates, finding a decent income is exceptionally hard. Pension funds, pensioners, or investors looking for an income, are struggling to find anything that returns anything over 3%.

However, there are investment funds that can offer over 4%.
The Legal & General Managed Monthly Income Unit Trust, is a £390 Million fund, holding 425 individual investment holdings, and today is yielding 4.3%, and what is incredible, this fund pays out to investors on the 21st day of each month.

[http://i.legalandgeneral.com/consumer/investments/products-and-funds/actively-managed/income/investments-productsandfunds-activelymanaged-income-fund-managedmonthlyincome.jsp]

The top ten holdings account for 14% of the overall fund. These are all bonds issued by these companies in UK Sterling (GBP)

BARCLAYS BANK PLC (GBP 10%, 21-May-2021)
PRUDENTIAL PLC (GBP 11.375%, 29-May-2039)
SOUTHERN WATER SRVCS FIN (GBP 6.64%, 31-Mar-2026)
STANDARD CHARTERED PLC (GBP 5.375%, Perpetual)
HSBC HOLDINGS PLC (GBP 6.5%, 20-May-2024)
COVENTRY BLDG SOCIETY (GBP 6%, 16-Oct-2019)
E.ON AG (GBP 6%, 30-Oct-2019)
EDF SA (GBP 6.125%, 2-Jun-2034)
ENEL SPA (GBP 5.625%, 14-Aug-2024)
NATIONWIDE BUILDING SOC (GBP 5.625%, 9-Sep-2019)

Very interesting to see some of the bonds issued by blue chip companies and the coupon paid, yes 10% by Barclays, 11.375% by Prudential and 6.5% by HSBC. It is incredible to see, these 3 giants in global banking and financial markets, need to offer creditors (the purchaser of these bonds) such a large interest rate. The cost of capital is huge. Of course, one has to be logical and scientific, and it is my assumption, but perhaps for example Barclays when it tapped the fixed income market with this bond issue at 10% maturing in May 2021, raised the money during the financial crisis of 2008, where only the brave were willing to buy bonds from financial institutions, and only credit worthy organisations were able to tap the bond market. It is always about timing.

A fund that offers a monthly return, but it is not a deposit account, the risk is the potential of default from the bond issuer.

On Wed 9th of September, Verizon, the US Telecommunications giant, issued some bonds. Nothing new or unusual in that. Except, this issue, was to raise US$49 Billion = £30.7 Billion.

It was the largest ever corporate debt sale in history. They issued US$49 Billion worth of bonds in 8 blocks, that were a mix of fixed and floating-rate debt spread across six different maturities that ranged from three years to 30 years. The interest (the yield / coupon) on the pile of debt was over 5%.

Clearly the money being raised is to finance the purchase of the 45% of Verizon Wireless that is owned by Vodafone PLC. The sale of these Verizon bonds, was managed by Barclays Plc, Bank of America Corp., JPMorgan Chase & Co. and Morgan Stanley.

5% yield in these near zero interest rates, Verizon are rewarding investors with a generous interest rate.

Yesterday, HM Government’s UK Financial Investments (UKFI) sold 6% of the shares held in Lloyds.The price obtained was 75p a share, raising £3.2bn for HM Treasury. The disposal cuts the government’s stake in Lloyds from 38.7% to 32.7%.

[https://www.gov.uk/government/news/government-begins-sale-of-its-shares-in-lloyds-banking-group]

Interesting to read the press release from HM Treasury.

“A profit has been made from the sale, which will be used to pay down the national debt…….The money will be used to reduce the national debt by over half a billion pounds”

Makes a change to see a reduction in the UK National Debt.

In April this year, Apple raised US$17 Billion, by issuing bonds. They were raising cash as a part of a programme to return cash to shareholders via the most tax efficient process.
The issue was done in 6 blocks (parts), these offerings from Apple included benchmark maturities of three-year, five-year, 10-year and 30-year fixed rate bonds, along with three-year and five-year floating rate notes.

Now what is curious, and not widely reported (you have a dig a bit to find it, all public), that the 30 year bond issue was for $3 billion is now underwater.
Issued with an interest rate of 3.85%.

At issuance it is worth 100 Cents on the Dollar.

Today  nearly 5 months on after issue, the 30 year Apple bond is trading on the bond market (fixed income) at about 95 Cents on the Dollar. Yes.

So now with these bonds that are traded are worth $2.85 Billion.
Thus investors are now nursing paper losses on these bonds. Incredible.

The Abu Dhabi Investment Authority is the world’s largest sovereign wealth fund

 [www.adia.ae]

The money from the sale of oil and gas from the Emirate of Abu Dhabi, is then given to the Abu Dhabi Investment Authority, to invest globally, and provide an income to Abu Dhabi, but also de-risk and diversify the reliance on the sale of oil and gas.

Created in 1967, has developed a Portfolio with this break down:

Development Market Equities      32.00% – 42.00%

Emerging Market Equities            10.00% – 20.00%

Small Cap Equities                       1.00% – 5.00%

Government Bonds                      10.00% – 20.00%

Credit                                           5.00% – 10.00%

Alternative                                    5.00% – 10.00%

Real Estate                                   5.00% – 10.00%

Private equity                                2.00% – 8.00%

Infrastructure                                1.00% – 5.00%

Cash                                             0.00% – 10.00%

The Abu Dhabi Investment Authority does not publish the assets under management, but it is considered to have about US$800 Billion = £505 Billion.

Salient Information:

9.9% stake in Thames Water. Approximately 80% of ADIA’s assets are managed by external fund managers. Approximately 60% of ADIA’s assets are invested in index-replicating strategies. 1275 Employees.

The BG Group is one of the UK’s largest oil and gas exploration and production companies.

[www.bg-group.com]

A member of the FTSE-100, related to the former British Gas, BG-Group is a result of the de-merger of the Lattice Group, British Gas UK and is effectively the exploration and production arm of the old British Gas. Today, with a market capitalisation of about £41 Billion, it is an UK giant, and a world player on the energy market.

Looking at the financial statements [http://www.bg-group-ara.com/financial-statements/index.html], the company is excellent shape.

A balance sheet of £65 Billion in total assets and only £32 Billion in total liabilities, thus the shareholders have £33 Billion in Equity in the company.

Looking at the annual report [http://www.bg-group-ara.com/shareholder-information/shareholder-information.html] one find some useful information.

page 29: [$2.1 billion equivalent of hybrid bonds issued in three tranches and maturing in 2072]

page 29: [net borrowings were $10 624 million]

page 33: [Some of the major risks involved in BG Group, activities cannot, or may not, reasonably and economically be insured.]

page 76: The Major Shareholders:
BlackRock Inc 7.6%
Legal and General Group plc 3.52%
Norges Bank 4.48%

Very interesting to see that some of the bonds issued by BG Group mature in 2074, paying an annual interest rate of 6.5%. That rate is incredible.

[http://www.bg-group.com/INVESTORRELATIONS/Pages/BondholderInformation.aspx]

Yes, able to borrow on the bond market, for 61 years. What this means, is that creditors are willing to lend to BG Group, getting a fixed income on their money of 6.5% each year until 2074, as they must be confident in the long term ability (financial credibility) of BG Group to meet all its debt obligations. Thus they have confidence in the credit worthiness of BG Group. A very stable company.

The Ontario Teachers’ Pension Plan is a world class active investor. It is also one of the largest pension funds in the world.

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

Based in Toronto, in the province Ontario, Canada, it looks after and pays the pensions and investment plan assets on behalf of 303,000 working and retired teachers. Incredibly only established in 1990.

Canadian $129.5 Billion in net assets = US$124.9 Billion = £79.5 Billion
10.1% Annualised rate of return since 1990

The Fund:

Equities $59.5 Canadian Dollars, 47% of the Fund
Significant Investments
Camelot Group plc (UK National Lottery)
Hitachi Ltd.
Michael Kors Holdings Ltd

Fixed Income $60 Canada Dollars, 48% of the Fund
Significant Investments
Government of Canada nominal and real return bonds
Canadian and international corporate bonds
U.S. treasury inflation protected securities

Commodities $7 Canada Dollars, 5% of the Fund
Significant Investments
Commodity derivatives

Real Estate $28.7 Canada Dollars, 23% of the Fund
Significant Investments
Toronto Eaton Centre shopping and office complex
Toronto-Dominion Centre shopping and office complex
Lakewood Mall, California
Copenhagen Airport A/S (Infrastructure)
GCT Global Container Terminals Inc. (Infrastructure)

Total Assets of $127.3 billion

A long term investor, looking after the futures of Ontario’s teachers. Intersting to see that it an active investor in Infrastructure investments, an investment class that is becoming more mainstream as an underlying investment that gives stable and steady returns.

Vodafone PLC is selling its 45% shareholding in Verizon Wireless, and later in the year will get about £84 billion (US$130 billion)

[http://www.vodafone.com/content/index/media/group_press_releases/2013/vodafone_to_realiseus130billionforits45interestinverizonwireless.yes.html]

A lot of this money will be returned to Vodafone shareholders via a special dividend. This got me thinking about the Vodafone dividend.

Today, owning shares in Vodafone, is quite handy in these times of 0.5% interest rates. The yield on Vodafone stock is about 4.8%.
[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=10097]

So £100 invested in Vodafone stock today will earn £4.80 a year.

So what is the cost of the dividend to shareholders from Vodafone ?

In 2013, Vodafone has paid 2 dividends:

7 August 2013 Final dividend 2013 payment of 6.92p

6 February 2013 Interim dividend 2013 payment of 3.27p

That is 10.19p for the year. [£0.1019]

Now, the total number of voting right shares in Vodafone is 48,450,408,385.

Thus, the cash to fund the Vodafone 2013 dividend is 48,450,408,385 x £0.1019

= £4,937,096,614. YES, £4,937 Million = £4.937 Billion.

To pay the 2 dividends this year, Vodafone needed £4.937 Billion in cash to meet this payment.
Our pension funds need companies like this, that reward long term investors.

The life sciences sector of the economy offers to bring better healthcare, quality of life and a better understanding of diseases that affect us all.

Some very high tech companies are working in this area, take mySymptoms from Skygazerlabs, [www.skygazerlabs.com] a privately held business, that has some very clever technology.

One can get access to quoted (listed) Bio Tech and Pharma companies with investment funds like the Legal & General Global Health and Pharmaceuticals Index Trust

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

The top 10 holdings in the fund portfolio are:

Johnson & Johnson (US)
Pfizer (US)
Novartis (Switzerland)
Roche (Switzerland)
Merck & Company (US)
Sanofi (France)
GlaxoSmithKline (UK)
Novo Nordisk (Denmark)
Amgen (US)
AstraZeneca (UK)

These represent almost 50% of the Trust by market value and consist of the 10 largest pharmaceutical companies in the world.

A £63,952,194 fund (£63.9 million) that gives access to the one of the most critical sectors of the market.

The one the largest utilities and infrastructure companies in the world is the UK’s National Grid PLC. [www.nationalgrid.com]

Because of the nature of its business, hard physical assets (gas pipelines, electricity network, substations, transmission lines, liquid natural gas [LNG] storage) National Grid is able to borrow huge quantities of money to finance its day to day capital intensive operations and able to meet debt repayments from the cash flow of its business.

It borrows on the Bond Market and one can see the various programmes of bond issuance.
[http://www.nationalgrid.com/corporate/Investor+Relations/DebtInvestors/Debt+information/Programmes/]

Looking at this debt profile [http://www.nationalgrid.com/corporate/Investor+Relations/DebtInvestors/Debt+information/] one can see it has a debt profile of about £2bn – £1bn of debt each year maturing for the next 20 years.

When you add up all this debt (bonds outstanding) it equates to:

£21.4 Billion = £21,400 Million = £21,400,000,000.

The creditors of these bonds, such as pension funds, fixed income unit trusts, income ISA’s etc are getting a stable and safe income and have the reassurance of the debt secured against hard assets and also from a company with strong and regular cash flows.

I read this article of the IFA Hargreaves Lansdown, on the benefits of regular savings:

[http://www.hl.co.uk/news/articles/features/how-just-5-a-day-has-grown-to-over-275,000-over-25-years?]

It shows how £150 a month over 25 years has become £275,000, when the £150 a month was invested in a fund (unit trust).

The article shows that £150 a month, over 25 years = £150 x 12 x 25 = £45,000 total paid in.
The investment would be worth £276,261

So shows the benefit of drip feeding into a fund. I want to show this in reality over a 12month period.

Regular investment allows you to invest in a fun each month using a fund that allows monthly investment. This then allows one to build up an investment fund and can help to smooth out fluctuations in share prices over time.
For example, let’s say one has £1,800 to invest. We’ll compare buying £1,800 worth of “generic fund” called Asad Investments PLC in January or investing £150 per month over the whole 12 month period:

Month  Share price (p-pence)    No of Shares (bulk)         No of Shares (monthly)
                                              
Jan        100                                         1800                                       150
Feb       90                                                                                           167
Mar       105                                                                                         143
Apr        110                                                                                         136
May       100                                                                                         150
Jun        90                                                                                           167
Jul         80                                                                                           188
Aug       95                                                                                           158
Sep       95                                                                                           158
Oct        98                                                                                           153
Nov       105                                                                                         143
Dec       104                                                                                         144
                                              
                                                                1800                                       1856
what this shows, if one bought in January @100p that would equate to 1800 shares
If one bought monthly, the £150 each month the total shares bought equate to 1856 shares.

Wealth in Dec: Bulk                     = 1800 shares x £1.04 = £1872
Wealth in Dec: Monthly                = 1856 shares x £1.04 = £1930

invest a monthly sum of £150 into a fund/share. In a month of falling markets, you will get more shares for your money. If the market rises, you will purchase fewer shares, but your existing shares will also be worth more. Over the long term, this means that the average price of the shares you hold may in fact be lower than the average share price for your investment period, since you have bought more shares when the price is lower and fewer when it’s higher. A crude example that shows over the long term one can accumulate securities by taking advantage of market volatility, and potentially gain greater wealth.

Another month, 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 August 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 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-Aug-2013 0 1/8% Index-linked Treasury Gilt 2019  £1,794,585,000
15-Aug-2013 4½% Treasury Gilt 2034 £2,250,000,000
08-Aug-2013 0¾% Index-linked Treasury Gilt 2034 £1,408,087,000
06-Aug-2013 1¼% Treasury Gilt 2018 £4,931,465,000

When you add the cash raised:-

∑(£1,794,585,000 + £2,250,000,000  + £1,408,087,000 + £4,931,465,000) = £10,384,137,000

£10,384,137,000  = £10,384 Million = £10.384 Billion

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

£346 million each day for 30 days. We are fortunate, 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, 2018, 2019 and 2034. All long term borrowings, we are mortgaging our futures.

Yesterday in the media was the news that Vodafone was selling its 45% in Verizon Business, returning £84 Billion to Vodafone PLC. I thought I would look closer into Vodafone.

It is only you look at the pension fund of Vodafone, one realises how “young” this company is.  [http://www.vodafone.com]

Vodafone was subsidiary of Racal and in the early 1980’s was known as Racal-Vodafone and was spun out of Vodafone in the early 1990’s to become a standalone listed business. Fast forward on to today, and it is the UK’s 2nd largest company in the FTSE-100. A great success story from the late Ernie Harrison who handed the baton over to Chris Gent.

If you look at the annual pension report [http://www.vodafonepensionsupdate.co.uk/documents/vodafone_pensions_report_2012_clickable.pdf] this is when you understand the “youth” of the company.

 A fund of “only” £1,078,838 = £1.078 Billion (BT’s fund is £38 Billion).

Incredibly only 1796 people are claiming a pension from the fund, 13,726 deferred members (people who have benefits in the Scheme but have not started to take them.)

In total only 15,522 people.

The £1.078 Billion is split over 5 asset classes:

7.6% in UK Equities

55.7% in Overseas Equities

31.6% in Corporate Bonds

4.8% in UK Government Bonds

0.3% in Cash

Interesting to see the over 60% exposure to Equities, as the facts are simple, with only 1796 claiming pensions, the need for fixed income securities to finance these commitments is relatively low. Having exposure to equities that in general over the longer term give higher returns, means the fund has time to grow to fund the future pensions of the 13,726 future pensioners.

Vodafone PLC, just over 5% of the FTSE-100

RSA Insurance provides risk cover against its high quality assets.

Formerly known as Royal & Sun Alliance, a FTSE-100 member, is a major global insurance business. Its business is relatively straight forward, it takes in insurance premiums, and pay-outs if disaster hits. It does this, by simply taking on risk from the premium payer (insurance holder) and accepts that risk against the assets the RSA holds.

A simple way to understand the insurance business is to know the “operating ratio.” That is the insurance pay-out (losses it has to pay to holders) against the income it receives.
For RSA that number is 95%

Thus makes a profit, (takes in £100 in premium income, and pays out £95)

The 2012 premiums income was £8,353 Million (£8.352 Billion). The assets that RSA holds to secure itself against losses have to high quality and liquid assets to meet any claim.

RSA holds a £14.3bn asset portfolio (£14,300,000,000) that is made up of government bonds, high quality corporate bonds, cash, equities and property.

Bonds   = 82%
Cash      = 9%
Shares  = 4%
Property= 2%
Others  = 3%

Total = 100%      
A very salient facts from the annual report [http://www.rsagroup.com/rsagroup/en/investor-relations/investor-kit].

Page 3: Due to low interest rates, it only managed to have investment income of £515m impacted by the continued low yield environment. (An effect of low interest rates).

A very sobering fact, with £14.3bn of investment assets it is only making a return of £515m. (3.5% return) This shows that insurance companies are struggling to make money in this climate, which in the UK will last at least for 3 years according to the Bank of England.

The largest pension fund in the USA is Calpers. A fund with assets totalling  £169.4 Billion ($263.9 billion)
Calpers is the California Public Employees’ Retirement System.

[http://www.calpers.ca.gov/]

Calpers provide retirement and health benefits to more than 1.6 million public employees in California at its retirees.

The Pension Fund:-

ASSET CLASS                 ACTUAL INVESTMENT ($BILLIONS)        INVESTMENT %

Growth Funds                                 $170.5                                                  65.0%
Income Funds                                 $42.8                                                    16.0%
Liquidity Funds                               $10.5                                                    4.0%
Real Estate                                       $21.1                                                    8.0%
Infrastructure                                  $3.4                                                      1.0%
Inflation Funds                                $9.8                                                      4.0%
Absolute Return Strategy                $5.3                                                      2.0%
Multi Asset Class                             $0.5                                                      0.0%

Total Fund                              $263.9  billion                          100.0%

Big numbers to meet the pension obligations. Interesting to see the largest segment of assets are held in growth funds (equities). With an aging pension population, the funds needs to invest in growth stocks. This fund controls assets of $263 Billion, and thus has significant influence on the shares it owns and thus the boards of companies it invests in. A long term investor.

Nuclear & Uranium Technology

An unusual investment company, providing investors with exposure to companies involved in the exploration, development and production of energy, predominantly within the uranium industry.

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?csi=192043]

Interesting to see the share price is about 25p but the assets owned by the fund are worth 34p. This means you are buying 34p for the price of 25p. The investment company is trading at a discount of about 20%.

The company has 47 shareholdings in Nuclear & Uranium technology companies:

1. Cameco 13.1%

2. Uranium Energy 11.3%

3. Uranium Participation 8.5%

4. Fission Uranium 7.0%

5. Uranium One 6.1%

Top 5 Holdings Represent 46% of the fund.

A high risk fund that has the usual risks of investments going up and down.

Barclays announced plan to raise more capital:

[http://group.barclays.com/Satellite?blobcol=urldata&blobheader=application%2Fpdf&blobheadername1=Content-Disposition&blobheadername2=MDT-Type&blobheadervalue1=inline%3B+filename%3DBarclays-PLC-2013-Interim-Results-Statement-PDF.pdf&blobheadervalue2=abinary%3B+charset%3DUTF-8&blobkey=id&blobtable=MungoBlobs&blobwhere=1330701422600&ssbinary=true]

This got me thinking to look at the equity in Banks.

Look at the balance sheet of our large banks, something that jumps out, is the difference in low levels of equity compared to level of debt (liabilities). It is totally unique to banks.

Take HSBC, the annual report [http://www.hsbc.com/investor-relations/financial-results] page 374. Total shareholder equity= £183,129 million = £183 Billion

Total liabilities   =  £2,509,409 million = £2509 Billion

HSBC Equity:Liabilities Ratio = 0.07

Take Barclays the annual report [http://group.barclays.com/about-barclays/investor-relations/annual-reports] page 233

Total shareholder equity= £62,957 million = £62 Billion

Total liabilities    =         £1,427,364 million = £1427 Billion

Barclays Equity:Liabilities Ratio = 0.04

Then look at other industries: Telecoms.

Vodafone, the annual report [http://www.vodafone.com/content/index/investors/investor_information/annual_report.html] page 95

Total shareholder equity =  £78,202 million = £78 Billion

Total liabilities    = £61,374 million = £61 Billion

Vodafone Equity:Liabilities Ratio = 1.27

Then look at other industries: Retail

Tesco, the annual report [http://www.tescoplc.com/index.asp?pageid=548] page 74

Total equity = 16,661 Million = £16.6 Billion

Total liabilities =  14,483 Million = £14.48 Billion

Tesco Equity:Liabilities Ratio = 1.14.

Our banks have Too Little Equity compared to other industries.

A really good read is the book called Stock Cycles by Michael Alexander.

[http://www.amazon.co.uk/Stock-Cycles-Stocks-Markets-Twenty/dp/0595132421/ref=sr_1_1?ie=UTF8&qid=1377184981&sr=8-1&keywords=Stock+Cycles+by+Michael+Alexander]

As a scientist (mathematician and physicist), numbers intrigue and fascinate me.

Take Pi, it is mysterious, it is elegant, it is beautiful, and has been known for thousands of years. It is irrational, The number Pi (π) is so magical that its decimal portion is unique and there is no repetition of patterns. It is defined as the ratio of the circumference of a circle to its diameter.  Pi Day is celebrated by math enthusiasts around the world on March 14th. [Pi = 3.1415926535..]

One of the most famous equations in all of physical sciences is theLeonard Euler  identity equation that is the most powerful and yet simple expression: [ei * pi + 1 = 0]

This is the Euler identity [http://en.wikipedia.org/wiki/Euler’s_identity]

Just in case you want to know pi (π) is in number format to 1,000 decimal places:

[3.1415926535897932384626433832795028841971693993751058209749445923078164062862089986280348253421170679821480865132823066470938446095505822317253594081284811174502841027019385211055596446229489549303819644288109756659334461284756482337867831652712019091456485669234603486104543266482133936072602491412737245870066063155881748815209209628292540917153643678925903600113305305488204665213841469519415116094330572703657595919530921861173819326117931051185480744623799627495673518857527248912279381830119491298336733624406566430860213949463952247371907021798609437027705392171762931767523846748184676694051320005681271452635608277857713427577896091736371787214684409012249534301465495853710507922796892589235420199561121290219608640344181598136297747713099605187072113499999983729780499510597317328160963185950244594553469083026425223082533446850352619311881710100031378387528865875332083814206171776691473035982534904287554687311595628638823537875937519577818577805321712268066130019278766111959092164201989]

The study of market cycles and market geometry uses pi (π) to pin-point the exact reversal date and price for stock markets and other financial markets. Yes it potentially appears in stock market indices. Imagine that, Pi and Economics.

What is interesting, is that by measuring the average distance between market ups and downs through the 19th and 20th centuries, it is thought that there is a an economic rhythm or  cycle that is now referred to as the Princeton Economic Confidence Interval of 8.6 years. It is thought that a multiple 8.6 year cycles in the markets existed that build in intensity to form a long-wave of economic activity measuring 51.6 years. Now 8.6 years happens to equate to 3,141 days which is very close to the mathematical value of pi (3.14159) times a thousand. Twice pi times 1000 is 6,283 days or 17.2 years.

Hmmmmmmm. Perhaps pure co-incidence or a fluke, or perhaps something beautifully clever in the mystery of Pi.

The FTSE-100 Index is made up of 100 companies. They are across many sectors, but what are these sectors, and what are the percentages of these sectors that make up the FTSE-100 ?

Oil & Gas Producers — 16.40%
Oil Equipment, Services & Distribution — 0.34%
Chemicals — 0.50%
Industrial Metals & Mining — 0.03%
Mining — 6.11%
Aerospace & Defence — 2.20%
General Industrials — 0.52%
Industrial Engineering — 0.68%
Support Services — 1.83%
Automobiles & Parts — 0.27%
Beverages — 4.84%
Food Producers — 2.60%
Household Goods & Home Construction — 1.76%
Personal Goods — 0.34%
Tobacco — 5.48%
Health Care Equipment & Services — 0.39%
Pharmaceuticals & Biotechnology — 7.20%
Food & Drug Retailers — 2.42%
General Retailers — 1.24%
Media — 1.83%
Travel & Leisure — 2.21%
Fixed Line Telecommunications — 1.27% [BT plc the only company]
Mobile Telecommunications — 5.59% [Vodafone plc the only company]
Electricity — 0.90%
Gas, Water & Multi-utilities — 3.44%
Banks — 13.45%
Nonlife Insurance — 0.38%
Life Insurance — 3.99%
Real Estate Investment Trusts — 0.94%
Financial Services — 0.65%
Software & Computer Services — 0.24%
Technology Hardware & Equipment — 0.82%
Oil Equipment, Services & Distribution — 0.21%
Mining — 2.09%
Support Services — 1.17%
Pharmaceuticals & Biotechnology — 0.62%
Media — 0.81%
Life Insurance — 0.21%
Construction & Materials — 0.58%
Travel & Leisure — 0.28%

The two biggest sector is Oil & Gas at 16.4% & Banks at 13.45%.

Interesting to see that BT Group PLC is 1.27% of the FTSE-100 and Vodafone PLC is 5.59% of the FTSE-100.

This is an economic concept that means if everyone tries to save an increasingly larger portion of their income, they would become poorer instead of richer. This is due to the economy will rapidly slow down from reduction in demand (consumers stop buying and start saving) and the very same people would lose their jobs. This theory, however, applies mainly to Keynesian economics where increased savings represent a diminishing circular flow of income. Thus the notion that an increase in saving, which is generally good advice for an individual during bad economic times, can actually worsen the macro economy causing a reduction in overall income, production, and paradoxically a decrease in saving.

So suppose that members of the household are concerned that a recession is forthcoming. Anticipating that their future incomes might decline, they are motivated to be a bit on the cautious side, and thus begin to save, as such, they curtail current expenditure plans and decide that more income should be diverted to saving to protect against future problems. This is certainly good advice for any individual. In total, the household sector increases saving with new bank deposits. Because this extra saving is NOT the result of a change in income (no payrise)  it is an autonomous change, demand to buy goods drops off.

“The paradox states that if everyone tries to save more money during times of economic recession, then aggregate demand will fall and will in turn lower total savings in the population because of the decrease in consumption and economic growth. The paradox is, narrowly speaking, that total savings may fall even when individual savings attempt to rise, and, broadly speaking, that increase in savings may be harmful to an economy. Both the narrow and broad claims are paradoxical within the assumption underlying the fallacy of composition, namely that what is true of the parts must be true of the whole. The narrow claim transparently contradicts this assumption, and the broad one does so by implication, because while individual thrift is generally averred to be good for the economy, the paradox of thrift holds that collective thrift may be bad for the economy”

Thus with everyone saving (or not spending), demand for goods from suppliers / manufacturers falls off, and thus everyone gets poorer. This is exactly what happened at the end of 2008, with the financial world in turmoil, people stopped spending, the world slide into recession, people lost wealth.

In the media recently, there has been a lot of news about the Co-Operative Bank, and a whole in the balance sheet. This was down to the level of PIBS issued by the Co-Operative Bank, and level of interest having to be paid, and also loans at the bank turning sour. (Thus issuing PIBS to raise cash, the cash used to create loans, the loans then go bad, the bank then has a problem).

However PIBS offer a great source of income for fixed income investors like pension funds, pensioners etc etc. The interest rate (yield) can be very generous, over 7% !

PIBS, are issued by mutual building societies, like Nationwide and Yorkshire Building Society as simple examples.

Nationwide [http://www.nationwide.co.uk/popup/pibs_registrars.htm]

10 funding programmes at Nationwide:

∑ (£200,000,000 + £100,000,000 + £400,000,000 + £350,000,000 + £60,000,000 + £125,000,000 + £60,000,000 + £80,000,000 + £10,000,000 + £30,000,000) = £1,415,000,000 = £1.415 Billion

Yorkshire [http://www.ybs.co.uk/your_society/treasury/documents/PIBS_Prospectus_0603.pdf]

£150,000,000 @ 5.649 %.

What this is, another form of funding for the financial institution. It gives them the ability to raise more finance, to meet the demands from customers for loans and mortgages.It is a form of wholesale funding, borrowing on the fixed income market place.

Having exposure to companies like Apple is of great benefit. A company that has changed the way we listen to music, we way with interact with mobile phones to the way we use computers from lap tops to tablets.

Look at the share price.

http://www.nasdaq.com/symbol/aapl

$454 = £292 a share.

Another way is to buy into a fund, a low cost fund that has all the famous technology names like Apple, Google, Microsoft is the Legal & General Global Techology Tracker

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

A £28million fund, grown by 60% in the past 5 years.

Its top 10 holdings:  

Apple Technology  12.78%
Microsoft Corp.  8.98%
Google  8.21%
International Business Machines  7.31%
Cisco Systems  4.43%
Intel Corp.  4.16%
Oracle Corp.  3.86%
Qualcomm Technology  3.63%
Taiwan Semiconductor 3.04%
SAP AG 2.23%

These ten companies account for over 58% of the £28 million fund.

A low cost way to gain access to the most dynamic companies that change our world.

On Wed 7th August, the Bank of England made clear, UK Interest Rate Policy.

The Bank of England governor Mark Carney has said the Bank will not consider raising interest rates until the jobless rate has fallen to 7% or below.

In the Inflation Report, published on the 7th August.

[http://www.bankofengland.co.uk/publications/Pages/inflationreport/2013/ir1303.aspx]

Some important comments from Mark Carney.

“While job growth has been a relative positive in recent years, unemployment is still high.
There are one million more people unemployed today than before the financial crisis; and
many who have jobs would like to work more than they currently can.”

“In practice, that means the MPC intends not to raise Bank Rate above its current level of
0.5% at least until the Labour Force Survey headline measure of unemployment has fallen to
a threshold of 7%. While the unemployment rate remains above 7%, the MPC stands ready
to undertake further asset purchases if further stimulus is warranted. But until the
unemployment threshold is reached the MPC intends not to reduce the stock of asset
purchases from the current £375 billion.”

So looking at the comments and facts, with the UK unemployment rate currently standing at 7.8%, the UK base rate will remain at the historic low of 0.5%, great news for people on fixed rate mortgages but a crushing blow for savers. The Bank of England is determined to fight unemployment, buy keeping the cost of capital ultra-low, in the hope to create jobs, but giving certainty to the market and thus creating investment.

In all likelihood, rates are now to be fixed for the next 3-5 years at least.

The BT Pension Fund is the largest UK pension scheme. The scheme is so large it has a dedicate investment house to manage the fund, Hermes Investment Management.
[www.hermes.co.uk]

Some interesting facts can be found in the annual report
[http://www.btpensions.net/41/scheme-report-and-accounts]

Some useful information from the report:

page 4: to mitigate the risks facing the Scheme from the on-going effects of the financial crisis and, in particular, the resulting economic and political fallout in the Eurozone. This was achieved through a lower exposure to Eurozone assets, particularly the countries in Southern Europe, and a lower exposure to equity markets.

page 6 The scheme’s assets are £38,783 million

page 32 Asset Allocation:

Equities                            31%
Fixed interest                  22%
Inflation-linked                15%
Alternatives                     21%
Property                           12%

page 33 External Fund Managers also manage the fund:

Hermes managed approximately 52% (In house manager)

The Scheme holds the majority of its UK equities in a passive portfolio managed by Legal & General Investment Management (LGIM) which tracks the FTSE 100 Index
M&G Investment Management manages the majority of the Scheme’s UK corporate bond investments, totalling  approximately 10% of Scheme assets
[M&G is a part of Prudential PLC]

Page 76 lists the top 30 Investments

Investment                             Market value £ million     % of net assets
UK Treasury 0.625% 2040                  642                                         1.7%
UK Treasury 2% 2035                         566                                         1.5%
UK Treasury 2.5% 2024                      550                                         1.4%
UK Treasury 0.75% 2034                    496                                         1.3%
Kemble Water Holdings                      487                                         1.3%
UK Treasury 1.875% 2022                  444                                         1.1%
UK Treasury 0.125% 2044                  433                                         1.1%
UK Treasury 4.125% 2030                  430                                         1.1%
UK Treasury 1.125% 2037                  405                                         1.0%
UK Treasury 1.25% 2027                    359                                         0.9%
The Centre: MK Property                    329                                         0.9%
UK Treasury 2.5% 2020                      313                                         0.8%
Bridgewater Pure Alpha Fund II        303                                         0.8%
UK Treasury 0.125% 2029                 299                                         0.8%
UK Treasury 1.25% 2032                   296                                         0.8%
UK Treasury 0.625% 2042                 281                                         0.7%
Milton Park Property                         280                                         0.7%
Network Rail 1.75% 2027                   271                                         0.7%
BlueCrest Capital International        257                                         0.7%
BBTPS Fund                                       245                                         0.6%
Hermes GPE Global Secondary        236                                         0.6%
UK Treasury 1.25% 2055                  194                                         0.5%
Ashmore Debt Fund EMarkets         176                                         0.5%
UK Treasury 0.5% 2050                    167                                         0.4%
RWC Specialist UK Focus Fund        162                                         0.4%
UK Treasury 0.375%                        162                                         0.4%
UK Treasury 0.75% 2047                 161                                         0.4%
RH Fund 1 L.P.                                 141                                         0.4%
Bluewater Property                          132                                         0.3%
Castle Court Property                      130                                         0.3%
                               
Totals                                               9,347                                     24.1%

Interesting to see that the top 30 Investments  of £9,347 million (£9.347 Billion) account for 24.1% of the fund.
Also notice the need to invest in government yielding gilts, the need is clear, to meet monthly pension payments to deserving retired people who have worked hard for BT. This is known as Liability Driven Investment, the investments held are meeting immediate liabilities.

Standard Life is the revered Scottish financial institution. It was a mutual life insurer, founded in 1825, and de-mutualised in 2006 and floated on the London Stock Exchange to become a member of the FTSE-100.

Just looking at basic financials, in these 0.5% interest rate times, Standard Life PLC is able to pay a 3.8% coupon on this shares.
[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?username=&ac=&csi=186960&record_search=1&search_phrase=sl]

A financial giant, with expertise in long term investment, the 2012 annual report, one can collect some salient information.
[http://www.standardlife.com/investor/financial_reports.html]

page 5: Focus on Emerging Markets: Dubai, India, China and Singapore.

page 11: Assets under administration of £218.1 Billion (£218,100 Million)

Page 15: Highly Liquid with £1,064 Million (£1.064 Billion) in cash and short term debt securities)

page 19: Investment in technology is delivering lower costs.

page 126: Investment return of £13,982 Million (£13.982 Billion) on its investments.

page 136: Investment in property of £8,565 Million (£8.565 Billion)

page 141: Derivative Financial Instruments held for trading: £82,979 Million (£82.979 Billion)

A very strong institution with a prudent approach to investment management.

In July 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 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-Jul-2013 3¼% Treasury Gilt 2044, £2,575.0150 Million

09-Jul-2013 0 1/8% Index-linked Treasury Gilt 2029, £1,487.1650 Million

02-Jul-2013 2¼% Treasury Gilt 2023, £3,849.7770 Million

When you add the cash raised:-

∑(£2,575.0150 Million + £1,487.1650 Million + £3,849.7770 Million) = £7,911.96 Million

£7,911.96 Million = £7.911960 Billion

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

£255 million each day for 31 days. We are fortunate, 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, 2044, 2029 & 2023. All long term borrowings, we are mortgaging our futures.

The Templeton Emerging Markets Investment Trust PLC.

The Templeton Emerging Markets Investment Trust (TEMIT) was one of the first dedicated emerging markets funds in the UK. Run from Singapore as a part of the investment house of Franklin Templeton.

[http://www.shareshop.hsbc.co.uk/shareshop/security.cgi?username=&ac=&csi=10319&record_search=1&search_phrase=tem]

A £1,800,000 million (£1.8 Billion Fund), it is one of the largest emerging markets investment companies listed on the London Stock Exchange.

If one had invested £10,000 in (TEMIT) when it opened for business 1989, one’s holding would have grown to over £220,000 today, (the beauty of hindsight). An incredible track record, run by Dr. Mark Mobius based Singapore. He is a bit of an investment guru with numerous accolades and books to his name “Trading with China” “The Investor’s Guide to Emerging Markets” “Mobius on Emerging Markets”  to name just three.

The top 10 holdings:

Brilliance China Automotive Holdings Ltd. (Consumer Discretionary) Hong Kong/China 9.7%
Tata Consultancy Services Ltd. (Information Technology) India 5.0%
Dairy Farm International Holdings Ltd. (Consumer Staples) Hong Kong/China 4.9%
Siam Commercial Bank PCL, fgn. (Financial) Thailand 4.6%
PT Astra International Tbk (Consumer Discretionary) Indonesia 4.4%
VTech Holdings Ltd. (Information Technology) Hong Kong/China 4.1%
Banco Bradesco SA, ADR, pfd. (Financial) Brazil 4.1%
Itau Unibanco Holding SA, ADR (Financial) Brazil 4.0%
Akbank T.A.S. (Financial) Turkey 3.9%
Kasikornbank Public Co. Ltd, fgn (Financial) Thailand 3.4%.

Interesting to see the no Russian companies in the top ten, when one thinks of emerging markets, one immediately thinks of BRICS (Brazil, Russia, India and China), as named by Jim O’Neil of Goldman Sachs Asset Management. One here can see the importance of Thailand and Indonesia now in emerging markets.

Over the past 10 years, TEMIT has delivered a total return of 541%, which represents a compound growth rate of 20% a year. This does including the reinvestment of dividends.

Word of caution, past performance is no guide to the future performance of the fund.

Vodafone PLC is one the largest telecommunications operator in the world, a household name and is 2nd largest company in the UK FTSE-100 Index.

Apart from its shares in issue it has a large debt issuance programme, its bond issue programme to finance its day to day business operations
[http://www.vodafone.com/content/index/investors/debt_investors.html]

Vodafone issues bonds (debt) to investors who are looking to get a regular fixed income.
It has two programmes a US Shelf [http://www.vodafone.com/content/index/investors/debt_investors/bonds/us_shelf.yes.html] and a EU Shelf [http://www.vodafone.com/content/index/investors/debt_investors/bonds/european_shelf.yes.html].

What is the level of debt issued by Vodafone ?

US Shelf = $16,739,400,000
EU Shelf = $16,683,496,000

∑ ($16,739,400,000 + $16,683,496,000) US Dollars.

That is $33,422,896,000 = $33 Billion = $33,400 Million of outstanding bonds.

With such strong cash flows, (eg prepaid sims, where Vodafone gets the cash up front, or contract customers paying every 31 days) servicing this debt is no problem, but also Vodafone is able to satisfy fixed income investors such as pension funds by offering them bonds that gives a safe, regular and stable fixed income to meet monthly pension commitments to pensioners.

The bond market is essential to the smooth functioning of the Global Banking and Financial Markets.

In the banking, insurance, fund management & financial markets industry some names have vanished, due to merger and acquisition. Here is a snapshot of a few famous names that no longer exist.

Smith New Court:Acquired by Merril Lynch
Mercury Asset Management:Acquired by Merril Lynch
Merril Lynch:Acquired by Bank of America
James Capel:Acquired by HSBC
National Westminster Bank:Acquired by Royal Bank of Scotland
Schroders Investment Bank:Acquired by Solomon Smith Barney
Midland Bank:Acquired by HSBC
William & Glyns Bank:Acquired by The Royal Bank of Scotland
SG Warburg:Acquired by UBS
Dillon Read:Acquired by Swiss Bank Corporation
Swiss Bank Corporation:Acquired by UBS
Philips & Drew:Acquired by UBS
Barings Bank:Acquired by ING
Adam & Co:Acquired by Royal Bank of Scotland
Morgan Grenfell:Acquired by Deutsche Bank
Murray Johnstone:Acquired by Aberdeen Asset Management
Edinburgh Fund Managers:Acquired by Aberdeen Asset Management
ING Direct UK:Acquired by Barclays
Newton Investment Management Limited:Aquired by Bank of New York Mellon
Hambros Bank:Acquired by Soc Gen
Kleinwort Benson:Acquired by Dresdner Bank
Scottish Life:Acquired by Royal London Assurance
Egg:Acquired by Yorkshire Building Society
Wachovia:Acquired by Wells Fargo
Barclays Global Investors:Acquired by Blackrock
Merril Lynch Investment Managers:Acquired by Blackrock
Standard Life Bank:Acquired by Barclays                     
Abbey National:Acquired by Santander
Alliance and Leicester:Acquired by Santander
Samuel Montagu:Acquired by HSBC
Morley Fund Management:Acquired by Commercial Union
General Accident & Commercial Union:Mergered to form CGU
Norwich Union & CGU:Merged to form Aviva
Robert Fleming:Acquired by Chase Manhattan
Chase Manhattan:Acquired by JP Morgan
Hill Samuel:Acquired by TSB
TSB and Lloyds Bank:Mergered to form LloydsTSB
Scottish Widows:Acquired by LloydsTSB
Cheltenham & Gloucester:Acquired by LloydsTSB
Clerical Medical:Acquired by Halifax
Halifax & Bank of Scotland:Mergerd to form HBOS
HBOS:Acquired by LloydsTSB
Woolwich:Acquired by Barclays
Friends Provident:Acquired by Resolution
New Star:Acquired by Henderson Investors
Gartmore:Acquired by Henderson Investors
M&G Investment Management:Acquired by Prudential
Scottish Amicable:Acquired by Prudential
Bear Stearns:Acquired by JP Morgan Chase