Saturday, 2 May 2009

News this week

Using various websites' "most popular" function, I'm looking for a good news and a bad news article from each site.

BBC World News:
Good: umm, "World moves to contain swine flu" has the most positive sounding headline of the "most viewed" over each of the past 5 days.
Bad: "Car attack on Dutch royal parade"

Guardian website most viewed:
Good: Revolutionary Espresso Book Machine launches in London
Bad: Southampton will fold in eight days without a buyer

NY Times most emailed:
Good: After 341 Years, British Poet Laureate Is a Woman
Bad: Personal Health: Paying a Price for Loving Red Meat

Economist Most Read:
Good: The American economy: Better than it looks?
Bad: Chrysler: End of the road

To be clear, these aren't all the "top" story on each list, but are chosen to represent as many different stories as is reasonable, using the top 5, top 10 or whatever the website offers. Swine flu dominates all of the lists, obviously.

Markets this week

Swine flu became a global obsession, it was announced that the US economy was still shrinking faster than 6% a year (meaning it is currently about 3.3% below its peak) and as ever there was much bad news all around.

None of it appears to have surprised the markets, however. Here's the current levels and their change on a week earlier.

FTSE: 4243.22 (up 87.23, or 2.1%)
DOW: 8212.41 (up 136.12 or 1.7%)
£: $1.4911 (up 2.39¢ or 1.6%)
£: €1.1239 (up 1.56¢ or 1.4%)
Oil: $52.42 (up 76¢ or 1.5%)
Oil: £35.36 (down 6p or 0.2%)
Oil: €39.51 (up 49¢ or 1.3%)
Gold: $884.5 (down $23 or 2.5%)
Gold: £593.19 (down £25.34 or 4.1%)
Gold: €666.68 (down €18.83 or 2.7%)

Interestingly, the movement in the DOW and the £/$ exchange rate have been remarkably similar of late. If the DOW were measured in £ terms, it would lie 11.3% below it's 03/01/2009 peak, compared to 11.4% last week, 11.5% the week before and 11.2% three weeks ago. This is a highly unusual correlation, but implies that any optimism about the US economy either weakens the dollar or strengthens the pound. It also means that in any common currency, the FTSE has outperformed the DOW recently. Graph below, of both indices, quoted in £, rebased so that their recent peak is set at 100.

Wednesday, 29 April 2009

"The truth about the EU"

(Edit: Part 2 of my retort to my response to a flyer I received from UKIP, part 1 can be found below)...


The EU subsidises farmers,
but penalises them when they grow too much which
leads to higher food
prices. If we import cheaper non EU food, we have to pay
huge import duties
direct to Brussels. (eg 105% on meat, 88% on Bananas

Membership of the EU costs the average family an extra £30 per week in
ASDA charges 8p per 100g for bananas, and I've never seen cheaper bananas than that, even at a greengrocer. This works out as £800 per tonne. Import duties on bananas are €176 per tonne. Am I missing something here?
Assuming their other claims to be just as accurate, that saving will swiftly turn into £7/week savings. This is before they encourage ALDI and LIDL to leave (EU, aren't they?) reducing competition at the supermarket, probably costing families money.

Nonetheless, the CAP is stupid, and in great need of reform. It is merely not as stupid as they claim.

EU law allows foreign companies to buy our utility companies, who then
overcharge us. The EU's high renewable energy targets will cost British families
£750 a year in higher energy prices - on top of the increases we are already

Water bills are also rising by 20%, thanks to new EU regulations.

Several claims, there. Firstly, that foreign energy companies overcharge us. We are free to choose our energy suppliers, might I suggest googling a price comparison site? If these companies prosper here, it is because they UNDERCUT UK firms. They suggest limiting the ownership of companies, which would reduce competition, which would actually lead to an INCREASE in prices.
Secondly, the claim that EU renewable energy targets cost British families money. This is probably true, but is surely preferable to increasing our use of and reliance upon fossil fuels.
Thirdly the claim that we are already suffering increases: surely they haven't heard that bills are coming down this year (in resonse to the falling oil price, amongst other things). Unless they mean over the longer term, in which case they would SUPPORT green initiatives, which reduce the long term energy prices.
On water bills, I am ignorant both of the price rise (our bill was the same this year as last) and of the relevant regulation. That doesn't make their claim false, of course.

We have to comply with costly EU recycling rules, or Brussels imposes
finces on our local councils.

Have no doubt that the UK government would enforce those rules anyway.

  1. British jobs will be given to European workers because of EU laws.
  2. The EU will take control of our North Sea oil and gas fields.
  3. EU reception centres will be set up in African countries to process even
    more immigrants to Europe.
  4. Britain's amateur sea fishermen will have to fill in forms to register all
    catches, and may then be unable to take fish home.
  5. Our farmers will not be allowed to use certain pesticides, which will reduce
    yields and push food prices even higher.
  6. Car repair prices could double, because Brussels wants to phase out small
    garages - forcving us to go to main dealers.
  7. They intend to ban ordinary light bulbs and replace them with low energy
    ones which cost 5 times more, give poor light and can cause health

1.In the future? Also, EU jobs will be given to British workers because of EU laws. And in more provincial news, Scottish jobs were given to English workers under UK law (and vice versa) many many years ago.

2. From the Norweigans? I haven't heard this proposed, but it will soon matter little, since production has long past its peak there.

3. The reception centres would be to prevent immigration, which is perceived to be a greater problem in several EU countries than it is here. Or would you prefer more people to come on little dinghies and drown at sea.

4. Quite right too. These waters are heavily overfished and every effort should be made to prevent further destruction. Of course, throwing back dead fish won't help, but I doubt UKIP would prefer heavy fines for unlicensed fishing, regardless of catch.

5. Certain pesticides: unsafe ones, perhaps? Again, so much the better, congratulations EU.

6. Another policy I've not heard about, but I can't imagine they want to "phase out small garages". More likely, I expect they want to ensure providers of a crucial safety service are licensed in some way.

7. I spent less than £2 on the 5 low energy bulbs in my room. They provide an awful lot of light, and cost LESS, because they use less energy. Also, "in the future"? These plans are set, and no UK government would back out of them, EU or no EU.


80% of our laws are made in Brussels. We just do what we are told. UKIIP is
the only major political party committed to leaving the EU and making Britain
great again.

I had no idea that MEPs were so productive. They must be great value for money, if an entire continent can get 4 times as many laws for about twice the price the UK pays for its own. And UKIP is a major political party - why do none of the opinion polls list it in their weekly/monthly releases then? Making Britain great again - is this a promise of re-colonisation, empty rhetoric or a heartfelt desire to work hard and improve those things that bring this country down, in the esteem of others (teenage drinking/pregnancy, football hooliganism)? I hope it isn't the first.

A few of the benefits of staying in the EU

Through the post today, I received a leaflet from UKIP, which I actually read. I'm going to go through, point by point, why I disagree with what I disagree with.

  1. Spend the £30m a day that we pay the EU out of our taxes - on new hospitals
    and schools and higher pensions.
  2. Thousands of jobs would be regained when we regain our fishing waters, and
    fish would be cheaper.
  3. Remove the threat of the EU Lisbon Treaty and keep full control of our
    courts and our army.
  4. Without Brussels red tape, British business would boom and create more
  5. We could stop unlimited EU immigration and make it easier to deport

That was the front page. My response:

1. Open Europe, a Eurosceptic think tank estimates that over the period 2007-13, the UK will make a net contribution of €57bn. This amounts to €26m a day, or about £24m. Perhaps UKIP has some other data, but they don't cite it. I'm citing a Eurosceptic organistation that debunks a UKIP lie. That £24m a day is £8.6bn a year, which is not nothing, but amounts to less than 5% of our DEFICIT, let alone our budget. Small fry, in other words.

2. The EU's common fisheries policy has lead to OVERFISHING in all EU waters. Allowing the UK to set its own target will only reduce the surviving fish (tragedy of the commons) and the UK's fleet would also be excluded from EU waters. If we got cheaper fish, it would only be for 3-4 years before they started becoming scarce.

3. I don't perceive the Lisbon Treaty as a threat. The European Court of Human Rights is a superb institution, which we would have to be crazy to leave. The additional European courts complement, rather than supplant our own. Also, since the Falklands, when did Britain last enter war without allies, and why would we want to?

4. A more fashionable view is that too little regulation led us to where we find ourselves, namely in the midst of a massive recession. I wonder where they think the finance would come from, to fund this boom. China, perhaps?

5. True, but undesirable. The free movement of people is the EU's single greatest sucess, in my view (it is one of the things that makes war unthinkable).

Later pages will be analysed in future posts

**UPDATE (16/05/2009): In their Party Political Broadcast for the upcoming local elections, Nigel Farage (UKIP) claimed that the Eu is taking £40m per day from Britain. Obviously, being a Party Political Broadcast, there is no sourcing of this information, but it further extends the difference between truth and claim.**

Tuesday, 28 April 2009

Why banks might need further support

In 2006, and more so in 2007 (until "the bubble burst") houses were being bought and sold at unprecedented prices. Many other assets were similarly "overvalued", simultaneously. How is this possible?

Firstly, let's start with the money supply. It has formed a bit-part of political vocabulary since the days of Reagan and Thatcher, and in Economics a little longer. Many laymen would first think of the money supply as what exists in coins and notes.

In reality this amounts to a tiny proportion of total money. To this can be added all money that is instantly accesible, in the form of current account deposits, and overdraft allowances (you have this money, since you can spend it instantly at no great cost to yourself). A precise definition of what should and shouldn't be counted as money isn't available, instead we have several measures, which reflect things you can trade with differing degrees of ease.

Ultimately, lots of money can be created through leveraging. A bank receives a £10000 deposit, and is permitted by law to lend £9000 out. This £9000 is spent, and the recipients then deposit it. £8100 of this £9000 is lent out in the same manner as the £9000 originally. This process repeats until £100k has been deposited. This is how much can be created with leverage ratios of 10%.

In a boom, it is essential for banks (from a competitive sense) to lend as much as possible, and so they extend their leverage, keeping, say 5% in house, so that £10k can become £200k instead of £100k. As leverage increases, so does the money supply.

A similar procedure occurs with houses. Where a minimum deposit of 20% prevails, prices are low, because fewer people can afford the house, reducing demand. When this requirement is reduced to 5%, people with only a quarter of the means can suddenly afford the house. This naturally increases the price, and so encourages banks to reduce their requirements (if prices are rising, defaults are rare, so deposits are less necessary).

However, when "the bubble bursts" or faith is lost, the required deposit surges cutting the number of people who can afford a house, and therefore house's value. Now the owner can't sell, even if they wanted to, simply because the leverage requirement/limit changed.

As banks deleverage, it is important to increase their "capital base" artificially, since moving from 5-20% whilst maintaining the same money supply (important to keep the economy going) requires a QUADRUPLING of the banks stocks. And a 20% holding is required in crisis periods, because people are more likely than usual to withdraw their money at short notice.

That is why the banks needed the support they've had so far, and will possibly continue needing more. I don't have their balance sheets, and am uncertain as to how "de-levereaged" they want to become, so I can't be sure HOW MUCH money they'll need. It is also why we use the credit crunch term to describe the cause, rahter than just the nature, of the crisis.

Economics for beginners #1

Also available on Greg Mankiw's blog, which is appropriate, since it his his "10 principles of Economics" which are being translated into non-specialist-ese.

Swine response #3

"Mad cows, bird 'flu, swine flu... Wouldn't it be better if we all became vegetarians?

At work, we came up with a new conspiracy: it's the vegan mafia who set all this up.

Swine flu responses #2

Yesterday I posted some trivial responses to the epidemic in Mexico, that is worrying many.

Here's how some shares are doing this week:
Ryanair (Friday close 3.41, now 3.15) down 7.6%
Easyjet (was 335.25, now 298.25) down 11.0%
Delta Airlines (was 7.88, now 6.75) down 14.3%
British Airways (was 163.9, now 143.5) down 12.4%
TUI (was 271.75, now 247.75) down 8.8%
Thomas Cook (was 282.75, now 257.75) down 8.8%
Pfizer (13.17 becomes 13.49) up 2.4%
GlaxoSmithKline (was 1006 now 1080.5) up 7.4%
AstraZeneca (was 2394 now 2466) up 3.0%

So not everybody loses in a pandemic scare.

Monday, 27 April 2009

On the crisis

New design for Rejkavik toilets.
Steve Bell on, well figure it out for yourself.
Chris Riddell on the response to the budget.

On pigs

Cartoon in today's Guardian.
Krugman points out flaws in the Republican Party criticism of the stimulus bill

Google trends (tracks the frequency of particular search terms):
Gripe porcina, gripe, influenza, flu, swine. All show dramatic upticks over the past day or two. It is interesting to note that it is not as frequently searched as it was in the bird flu crisis, but is appearing in more news articles. The first two terms are the Spanish words for swine flu and flu and are listed because the crisis is originally Mexican.