Eldon-Online

The ABC of Finance

Now, you may have landed up in this Blog by accident because you were searching Google for something learned or maybe educational, on finance. Perhaps you wanted a forum to exchange views with finance industry participants. Or you may just be curious about the title. Whatever it is, read on. By the time you have discovered it is not exactly what you were looking for, you will have finished it anyway!

But first to the "A". A happy letter - it starts the alphabet, but is now a letter feared in Europe because it is the starting letter of that other "A" word - Austerity. A concept that some European leaders (not that Greece seems to have found a leader yet, following their elections), seem to regard as a recipe for disaster. A concept that politicians from the left seem to find has a particular appeal for their voters, especially those in the "sunshine belt" of the Mediterranean . But I bet those same politicians don't run their homes the same way they want to run their economies. If they want groceries, heating, clothing - they work out what they can afford, and spend within their limits - or close to them. And if times get tough, they cut back on various things. That is austerity, so I wonder which bit of Austerity they don't understand.

They want growth, but they need money to grow and they don't have it. Where does it come from then - the printing presses? Yes, up to a point but then we all know what happens to countries that just print money - eventually it all catches up with them and they enter a period of depression. Worse, much worse, I would suggest than a period of austerity. Oh yes, and another thing, who suffers the most - who has to pay it all back eventually? The children, and their children and inevitably, even their children. What great parents you all turn out to be.You voted for yourselves a comfortable life without having created the means to pay for it but, just like your household bills, they have to be paid eventually.

Sure, some people get it. While M. Hollande may have been victorious, yet the margin was not as large as it could have been, and he only received a little over half the votes which doesn't suggest a landslide, because almost the other half didn't want him! But look at the poll results for the far left. A huge success for them.That should worry Europe!

And has Europe given up worrying about Greece? I saw today that the leader of their far left says Europe would not dare throw Greece out of the Euro. Really? Alexis Tsipras might regret such a bold statement. But once again, did you notice in Greece the rise in popularity of a neo-Nazi party in the polls. Be wary Europe. It does not look good from where I am sitting.

"B" in the Blog title is for Bankers and Brides. Actually, I was originally only going to talk about brides under "B" - and at a safe distance from my daughter who could suffer sense of humour failure if I write this incorrectly, but it was in relation to austerity! My extremely talented and beautiful daughter (what do you mean I'm biased - well of course I am - but she is!), is about to get married - in a couple of months actually. Made a wise choice - Scottish accountant; they don't come much more careful than that - (but good luck son)! I was merely going to say that for weddings, austerity is not a word on the lips of many! But it's worth it - and I am NOT spending more than I saved for the day!

But then my thoughts on brides got neatly hijacked by Mr Dimon and his J P Morgan Chase colleagues, with yet another example of the excesses that continue to give banks and bankers a bad name, reinforcing the view that the profession is run by a bunch of banksters.

One of the greatest critics of new regulations, claiming they stifle business, Mr. Dimon has quickly been "up front" in saying that they got it badly wrong. USD2bn wrong at the last published count, (which is already a lot) although there were some rumours on the street I hang out on that the amount was actually quite a bit higher. Nice of Mr. Dimon though to be so refreshingly honest, and for senior people in his firm to accept responsibility and leave already. But in an honourable house, the buck stops with the boss who should take full responsibility. But then perhaps like the now standard "Murdoch defense", Mr. Dimon was not aware of what was going on!

And as for "C", well yes, China. For the second time in a month I find myself in the Middle East at the request of people there, to go and talk about China. Talk about a region which has strong historical links with the Middle East and Eastern Europe. Links that were put on the back burner during the last couple of hundred years with the rise (and subsequent decline) of British naval and trading dominance, the subsequent rise generally of the West, and then the growth of nationalism in China which effectively closed off the country for decades. The Middle East has the oil and gas and the money. China has money and a work force for hire. Both want to invest, but the trade links are nothing new. It is just a restoration of an old pattern.

As far back as 745 AD, or whatever the politically correct term is now, a census determined that as many as 5,000 foreigners were living in Xi'an, the so-called "eastern terminus" of the trade route from the Middle East. In terms of the difficulties of travel in those days, it represents a large community.

And today, in the North Western provinces of China, written out in this Blog in a six part series starting in July 2009 by younger son Paul entitled "Travels in China", there is still strong evidence of the Turkic minority in China known as the Uyghers. But the links have gone, so I find it fascinating that business people in the Middle East are once again looking eastwards. Wanting to re-establish ties with an emerging China - and othercountries in the region. Deciding that the future is in the East, and in what my colleagues in the PwC bit of my current working life have dubbed SAAAME. (South America, Africa, Asia and the Middle East).

And if you look at the West today, can you blame them for heading this way?

And The REAL Winner Is .....?

On the one hand - Hong Kong, but on the other?? I really must stop sounding like an economist ...

Talk about fluctuations. The early favourite losing almost all momentum from the outset, and even though the gap narrowed towards the end, the clear winner based on strength, skill and tenacity was .... definitely Fiji!

Oh! You thought I was talking about that other event - the annointing of Hong Kong's next Chief Executive? (Well, you can't really call it an election can you, when hardly anybody votes). More about that in a minute.

But over the weekend, Hong Kong was at its best. As a tolerant host of the Cathay Pacific/HSBC Rugby Sevens, welcoming hordes of overseas visitors, some of whose behaviour and habits would seem outlandish but which was all pretty good natured. I have not seen the attendance figures, but I would be surprised if they were not a record. And - yes I am biased - but so good to see the "auld alliance" back together of Cathay Pacific and HSBC - and even better to see helping to present some of the prizes, HSBC's former Chairman Sir Willie Purves whose early involvement in the Sevens set Hong Kong off on the track of creating what surely must be adjudged one of the best Sevens tournaments in the world. No, THE best Sevens!! Hong Kong does it very well, and although our police force were at full stretch on Sunday with the various events going on - they were unobtrusive. Good for them! Good for us!

And for the other event? What was apparently pre-ordained, was not to be.

But after all the shenanigans at least we were spared the ignominy of having re-runs and second votes. And if the outcome was not what you wanted - sorry, that's life. But you know what - having got it over can we just now get on with it? 

That of course is unlikely to happen. Already we have the analysts, the re-analysts, the commentators who commentate on the comments made by the analysts all trying to give their definitive opinions on what happened, what went wrong, what went right, who is to blame. Is it really any surprise that the first four letters of the word analyst are so wonderfully descriptive?

I thought Henry Tang's description of why he didn't get the position were the most sensible of the whole campaign - "I didn't get enough votes". Well said Henry. I think it is a shame that whoever was advising you did such a bad job, and it is also a pity if the powers that be decided to hang you out to dry, in the interests of - well - themselves really.

The facts seem simple:

a)    CY Leung has received the mandate to be CE of Hong Kong for the next five years.

b)    For whoever is paying attention to us - China in particular, the rest of the world, our trading partners, our competitors (think Singapore, think Shanghai) - we need to demonstrate that Hong Kong is somewhere to be taken seriously, and that we have a lot to offer.

c)    We have had an acrimonious and debilitating run up to the events of this last weekend, making us look rather juvenile. We have some ground to recover.

If we want to drive Hong Kong further into "backwater" status, then let's just carry on as we are, but if we have any pride left in our city - and the Rugby events of the last weekend have left a very positive impression in the minds of many well-placed visitors - then now, right now, is the time to move on.

That includes trying to ensure that C Y Leung is willing to fulfill many of his statements, recognising that the "Occupy Hong Kong" movement under the HSBC Building in Central has made its point (apparently - because I never did see the point of it) and it is time to pack up and move "because you are achieving nothing other than making our city look untidy", and learning from the experiences we have just gone through in how to mismanage public relations.

There is much to be done, and as usual - it is up to us! The "blame" games shouldn't even start. What's done is done - get over it. Wouldn't it be nice if for once we could all try and pull in the one direction and to do what is right for Hong Kong? Then we will know the identity of the REAL winner.

 

Meanwhile ... Back In The Real World

As Hong Kong waits with breathless anticipation for further raunchy revelations or alleged underground illegalities to emerge, aimed at besmirching the candidates in the race for election as the city's next Chief Executive, the world around us meanwhile has been witnessing some rather more serious issues that should be commanding greater attention from our somewhat parochial media. 

Elections, for want of a better or more accurate description, have taken place in both Russia and Iran during the last few days. The North Koreans meantime have, once again, successfully pulled the wool over the eyes of a number of countries by offering to talk about the cessation of their own nuclear ambitions in return, as usual, for food to feed their starving masses. And the odious Assad continues to kill his Syrian countrymen, women and children without conscience or any regard for humanity. Like father like son, I guess.

In the case of Russia, the election result which gave back Mr Putin the Presidency he had temporarily had to give up, came as no surprise. Well, maybe not entirely true. While the result was never in doubt in the minds of the foreign community, it surprised the people inside Russia who had been protesting en masse against his "leadership". Perceived to have had a tear in his eye when acknowledging the cheers of his supporters (he said it was the cold wind that caused the damp eyes), maybe he was crying about the fact that he had to pay people to stand and wave their flags in his support.

 But although this was supposed to have been a fair and democratic process, there are certainly not many (actually, not any) people I have spoken to who believe it to have been the case. Allegations of fraud are rife, amid concerns that this marks a reversion to the bad old days of dictatorship. We can but hope not.

On the face of it, better news from Iran - but is it? 

In the 2 March elections for the legislature, a high turnout of voters saw a great amount of support for those allied to Supreme Leader Ali Khamenei against President Mahmoud Ahmadinejad. Almost ensuring that Ahmadinejad will not be re-elected President next year. And while the Supreme Leader is not exactly a fan of the West, he is potentially less volatile than the current President.

But how will the President react to this result - given his history? Probably quite badly, but maybe not immediately. There has been much talk in defence circles recently about the heightened level of concern surrounding Iran's nuclear capability and its attitude towards Israel. There is also concern being expressed by the same circles about Israel's potential action - rather than its reaction. The major question being "who strikes first". Not, you will notice, an "if" - but almost a foregone conclusion that a pre-emptive strike is more probable than possible. That surely is worrying.

And still in the Middle East - what about Syria? A matter for the Arab League to sort out -  Western forces really should not intervene, but this is getting to be too much. Whilst I can understand the comment made by a former British Ambassador to Syria who said that even if Assad goes the same way as Gaddafi and Mubarak - hopefully the former in my view - there is no guarantee as to what we might get by way of replacement. A regime not so cold blooded as Assad surely, but then again and regrettably, when the first wave of euphoria at the toppling of Assad is over there will be many scores to settle. Acting under orders or not, you won't get much sympathy from a mob baying for retribution. 

Yes, North Korea has pulled it off once again. How many times is this?  "If you give us some food we will be happy to talk about not proceeding with our nuclear capability"  At least feeding some of the people is the right thing to do from a humanitarian perspective, but come on people - been there, done that, or prove me wrong - Please!! And by the way - nothing on the discussion table about stopping nuclear supplies to Iran?

But, you say, why should any of this bother Hong Kong? We have no political strife, only political satire. We are economically okay. What does a Russian election, a bit of North Korean kabuki which we have all seen before, and the actions of some mad people in the Middle East have to do with us?

Well, potentially quite a lot actually.

If Russia reverts to its old ways, repression, communism, "four legs good, two legs better", markets around the world will get nervous, and China is a little close in proximity to Russia.

North Korea will remain quiet for a little while, as it has done in the past while it consumes its food (not sure who gets it, but looking at the size of the new leader I can make a guess). But then it will start to get a little belligerent again, as it has done in the past. Let's think about this. The "boy", to remain in power, needs the support of some octogenarian generals who will see, at last, an opportunity to do something they have wanted to do for a long time. Something dramatic. They won't care, but China is a little too close for comfort.

If Ahmadinejad wants to make a point to the Supreme Leader that he still has power and, like a cornered snake, decides to attack first then any semblance of stability in the Middle East goes out of the window. This will of course impact the developed world, in the midst of its fragile recovery, and it will impact China. 

And if China is impacted, so too will Hong Kong be, because most of our eggs have been invested in the land mass to the north of us!

It is not a comfortable situation in which we find ourselves, while we hide our sniggers behind our hands at the discomfort being felt by at least one of the candidates for Chief Executive. But if the global situation is not enough to concern us - or at least make us aware that there is a real world out there - also give some thought to the reaction of Beijing to our Hong Kong blues! Could they by now be fed up with their potential poster child? Will they now say enough is enough? They had their chance, but now Shanghai is going to be positioned as the financial centre for China while we really do become what others have predicted - just another city in China.

Our fate, I would argue, is clearly in our own hands.

To Be Or Not To Be ... Hong Kong Elections!

To be, or not to be: that is the question: 

Whether 'tis nobler in the mind to suffer 

The slings and arrows of outrageous fortune, 

Or to take arms against a sea of troubles, 

And by opposing end them? 

Wm Shakespeare (Hamlet) 

 Shakespeare had a much greater talent than most of us for expressing ideas succinctly – and asking questions the same way. But while the meaning in this speech by Hamlet was whether it is better to live or die, it is not my intention to go quite that far! 

By freely expressing your thoughts on politics or religion, no matter how well intentioned, you stand to lose more friends than you might expect, which is one reason I rarely get involved publicly, preferring to remain blissfully ignorant on the side lines of the machinations being undertaken - over which I have absolutely no control; not a good situation if you're a bit of a control freak! 

But first, let me take a step back.

Although it might have been the best deal on the table at the time, the return of Hong Kong to China in 1997 left Hong Kong with a somewhat unwieldy or even "unworkable" political structure.

In simplistic terms, the recipe was:

a) Take a Civil Service (and a very good one at that), and call it Government. It was unelected, unable to be voted out of "power", yet it was to be held accountable for whatever decisions it took.

b) Elect 30 representatives by a process of universal suffrage out of geographical constituencies, and 30 representatives from a series of “functional constituencies", generally representing business interests.

c) Create a Legislative Council (Legco), put all 60 representatives inside and call it - for want of a better word - opposition, who are actually accountable for very little.

Although there is provision in Hong Kong's Basic Law for full universal suffrage, this is unlikely to happen for some time yet and therefore political parties in Legco (represented largely by the 30 geographical constituencies) will be waiting a while before they might be in position to form a Government. So they tend to say whatever they think will get them re-elected even perhaps if they think the "Government" is probably correct. But agreeing with the Government does not appeal to most of the 45% (2008 figures; last Legco election) of eligible voters who bother to exercise that right. Apathy reigns with the remainder.

The election of Hong Kong's Chief Executive follows another system. It is an "election" decided by an Electoral Committee that represents around 0.01% of Hong Kong's population

Traditionally it appears to be done on a nod and a wink from Beijing, with their candidate then endorsed by the Committee after, of course, long and serious debate on the merits - or otherwise - of the candidates before them. In the past, the process has been reasonably clear-cut, and so it looked this time round until recently.

The favoured candidate, according to the people who should know, was Henry Tang, until recently the Chief Secretary of Hong Kong - he stepped down to concentrate on running for Chief Executive role. In the background was the seemingly less likely C Y Leung. Former Convener of Hong Kong's Executive Council, and widely reported to be unpopular.

But then the wheels started to come off Mr. Tang's train. First there was his admission last year of infidelity, but his wife stood squarely behind him and all was forgiven apparently. After all, he would not be the first among a list of leaders who have strayed - and undoubtedly will not be the last.

But perhaps strangely, a little before that admission was made came a flurry of views in the Chinese press that were suddenly supportive of Mr. Leung. No particular reason seemed to be forthcoming - but it was as if the media had suddenly woken to the qualities of the candidate in second-place. Being of cynical mind, I don't suppose this would have been anything to do with people in high places becoming aware of the announcement about to be made, and deciding to "float" the idea of a credible new candidate?

And so it has continued. In the best traditions of politicking, little gossipy things were hitting the media on and about both camps - and then came the bombshell. Or should that be bomb shelter!

The "discovery" of an illegal structure having been built under a home owned by Mrs. Tang. Not, of course, the first time that illegal structures have featured in Hong Kong, some belonging to senior people in both private and public sectors, but once found usually dealt with quickly and removed. It is harder though, to remove a 2,300 sq ft (214 sq m) illegal construction built under a property.

The suggestion that it could have been an oversight was hastily dismissed, and then the previously supportive Mrs. Tang was made to tearfully confess that it was all her idea.

If the people who make the decisions about who should, or should not, be elected were worried about the earlier admissions - they must be positively stressed out by this one. But what happens next is beyond the knowledge of a non-Chinese foreigner. We shall have to wait and see, although the question Henry Tang must be asking himself is "To be ... or not to be"?

If the polls are anything to go by, the public view is that Mr. Tang should not stand for election. I can only suggest another quotation, while he thinks about it:

To lead people, walk beside them ... As for the best leaders, the people do not notice their existence. The next best, the people honor and praise. The next, the people fear; and the next, the people hate. 

Lao-tzu - Chinese philosopher - 6th Century BC 

 

Syria - No Excuse For China!

 

I know that through my Blog I have sometimes been described as an apologist for China. If it is the impression I give, so be it, even if I do not agree with the "label". But I do admit to having been conscious for a long time that many in the West fear China without understanding it. They want nothing more than to see China fall flat on its face, so they can continue to do as they have always done without having to face the inevitable economic competition that China brings. They do not want to acknowledge the progress made by China, certainly economically, and at a somewhat slower pace – socially.

My Blogs have therefore, where appropriate – and generally avoiding the “politics” of it all on which I am less qualified to comment – been an attempt to maintain a balance and keep matters in some sort of perspective. This does not make me blind to the faults of China, of which there are many, and accept that anything China does is okay.  Syria is a case in point.

The United Nations may not be the most effective body in the world, but in matters of global security it is the best we have got. If there were serious alternatives I guess they would have found them by now. It is a forum for the nations of the world to express their views on issues of the day, and there can be no more pressing issue than that of the murderous Assad regime in Syria. Frankly, as I have said before, this is an issue that the Arab nations themselves should deal with, and indeed the Arab League has been active for once, following its remarkable absence in the case of Libya where it basically hid behind the Western forces and used them as their shield to defeat Gaddafi.

Surely, the wanton murder – for there is no other word to describe it – of civilians under a brutal and despotic regime should be a cause for concern of any nation of right minded people. How can it be that China (and Russia of course), in full consciousness, does not share in the condemnation of such acts? The view expressed by the Russians (and presumably shared by China) – that approval of the UN resolution might lead to a Western-driven attempt to overthrow another Arab regime - is frankly ludicrous. The Arabs themselves want to overthrow the regime. The majority of the people in Syria, it would seem, want to overthrow their Dictator. But are currently powerless to do so. 

So with China’s veto of the resolution, the killings continue indiscriminately. 

I honestly cannot believe that the vast majority of the Chinese I know, if not all – were they able to express their views in something as simple as a referendum for example – think they should allow this situation to continue unchecked. 

One final thought. In the late 1970’s China started to emerge into the world rather like a newborn baby. It was huge in size, but unsophisticated in thought.  A rather gangly ungainly “teenager” was how I described it. Fast-forward 35 years, and there is no doubt the country has made huge positive strides in so many areas. But China is now looking outside its boundaries for future supplies of food, raw materials - and oil, of course. Its reserves and wealth have made it a major part of the global economy, with aspirations perhaps to run world bodies like the IMF for example. But if it is not prepared to be a part of the world, a humanitarian world, then the shutters will inevitably start to fall.

Russia is already falling backwards. I sincerely hope that China does not follow suit.

Isn't It Time To Bite The Bullet?

Back to Europe yet again for this Blog because, whether we like it or not, what happens there is ultimately going to affect us here in Asia. It is all very well for us to continue to pat ourselves on the back and say we are in good shape in places like Hong Kong, but I think we would do well to remind ourselves of the Boy Scout motto “Be Prepared". 

But before I spread more gloom and despondency, as in recent writing, I remarked to a good friend a day or so ago that after all this prevarication, on and off discussions, no decisions, and “will they won’t they” diplomacy, it was probably time that the major players took a deep breath and decided to bite the bullet

Talented man that he is, I got this by return.

 

An original, no less.

But he doesn’t stop at creating cartoons. We were discussing the European events in September or October in the wake of a stock market up-turn, - “a frenzy of blind optimism”, he said, "rather flimsily based on rumours that European leaders were suddenly ready to act”. “Where did that come from" he added "they hadn’t taken any action in the previous 18 months, so “sudden” was rather unlikely”. And so it has been proved.

Clearly one cannot take a snap decision over something as complex as this, but by the same token one cannot delay forever. There is certainly no shortage of advice out there from the media, the professionals, the laymen and the politicians, but little consensus beyween them. Suggestions run the gamut of reverting to the original Eurozone members and letting the "new" joiners either sink or swim in another pond. That, to me as a non-expert, seems to be a reasonable suggestion, but it leaves the big question of what do you do with the remaining 21 members? Anarchy in their own countries perhaps, spreading into the rest of Europe? It would seem there are enough people out there who are ready for a fight.

Or let Germany move out from the Eurozone and do its own thing. There appears to be a growing swell of public opinion in that country which runs along the lines of "how much longer are we expected to bail out people who cannot balance their own books?" The trouble for Germany would be that going it alone would see an appreciation of their currency that would have an immediate impact on its ability to export and earn revenues, bringing Germany to its knees.

There are more variations on a theme than those written by Elgar. But the time has come for real leadership from a group of politicians whose re-election hopes must be made secondary to the main role of resolving the crisis. They would work together with organisations including the IMF, and the financial community and the European Governments with a view to coming to a decision - and then implementing it! (I saw an article today that said the IMF should not get involved – or at least the non-European members should speak up against a bail out coming from the Fund. A short sighted view, I think, because this is a global problem).

It is important to get this resolved because the longer it drags through the winter months, and the uncertainty lingers, the more chance there is of matters turning ugly – and they will not just be economic issues but social ones. “Occupy Wall Street” will become focused on real issues and develop a sense of purpose. It will spread. We can do without that .

And for us in Asia, we are not immune. China is going through a leadership change that will take months to settle down, and the current level of inactivity will continue. We have our own – and rather ridiculous – “Occupy the space under the Bank because it is covered, but protest about the property developers” movement in Hong Kong, and also a leadership election. Korea is moving into an election year in 2012, while Japan seems to be having trouble keeping a Government at all. And that’s just the politics. Economically in Asia we are beginning to feel the effects of reduced orders, and rising inflation. Unemployment too, is an issue amongst the “young” populations particularly in South East Asia – which will lead to a testosterone imbalance, and add more anger and fuel to the fires of unrest that are already bubbling under the surface.

And from a crisis that had its origins in the USA – an economy that itself is still not out of the woods – and has spread with alarming and amplified effect vengeance into Europe, we need a resolution before it gathers more potency and hits us.

There is no “soft” option really – and measures that will actually resolve the problem are likely to be painful – but something has to happen, and be followed through.

Now is the time to bite that bullet.

 

What's That Smell?

Here's the scene.

You go into a bathroom on a plane. It smells really really bad but you're desperate to go. You finish, wash your hands but the smell is still there when you leave. The person outside wanting to get in after you, enters, looks back at you as if you were the one who had made the smell, and clearly thinks you need to see a doctor to check on whatever is wrong with you - and you feel guilty, despite the fact you were not the originator.

The parallel? The investment banking community in particular, but together with commercial banks, regulators, rating agencies, politicians et al create a bad smell - especially over matters like bonuses and pay - right minded and some sensible commentators and practitioners go in to try and bring some semblance of order, perspective and reality to such payments, but the original greedy culprits are still out there shovelling in the bonuses, totally oblivious it seems to public opinion.

 

This is going to end in tears, eventually.

I have just travelled from Canada (some semblance of order, I thought) through London. I had an early evening business meeting to attend with a colleague I had not previously met, and with the West End of London being mutually reachable territory we agreed to a lobby lounge in a location that neither of us knew much about. The lounge was full and we had not booked, so we went to find a seat in the bar. Mistake. You couldn't move comfortably because of the crowd - none of whom were going to allow you any space - and all you could hear amongst the popping of champagne corks were Hooray Henrys (and Henriettas) braying about their latest financial triumph.

It is clearly not enough that some European Governments (isn't it interesting that they all seem to be in the "sunshine belt" - except Ireland which at least looks as if it is making some good progress) are in dire straits because they are spending more than they "earn". And that their attempts to rein in the excesses are leading to riots.

You know what? There is going to come a time when the disadvantaged (in their eyes), are going to take seriously the fact that they are no better off than they were 10 years ago. Fact! New jobs are still hard to come by, there is rising inflation and a lack of income on their deposits, if they have any. But by contract there are still members of the community out there who are not affected. And they are getting richer. The gap widens. And as it widens, I suspect patience will narrow.

If patience narrows, intolerance grows. The nice cars on the streets - whoever they belong to, will indiscriminately be targeted for damage. The nice second homes that are left empty might gather unwanted occupants, who have the force of the law with them - not with the absentee owner. The places where "smart" people go will become targets for protests. Not a pretty scene, is it?

I must reiterate my views on bonuses and pay. I am not against them, as long as they relate to genuine value added and a job well done, using money that has been entrusted to you by investors or indeed using your own money. But not if you have been bailed out by Government and are now sticking your thumb to your nose because it hasn't affected you. You are then "playing" with other peoples money - and even if you lose, you still seem to get paid, or you move elsewhere equally lucrative.

People working in financial markets particularly have, over recent years, been receiving payments that the majority of people can only stare at and maybe dream about 10% of the amounts paid. It reached levels beyond anything linked to inflation and general increases in living standards - and if it is just left to continue unchecked - then don't be surprised if the world turns on you. Adapt to your surroundings and take notice of what public opinion is saying.

If you don't, then you might just end up with the contents of the bathroom being tipped over your own head - and instead of wondering what the smell is, you'll be sitting in it!

The Pot and the Kettle.

Communist China is destined for the ash heap of history because they are not a country of virtues.

Republican Presidential hopeful Rick Perry.

For those unfamiliar with the expression "The pot calling the kettle black", it is an idiom used to accuse a person of being guilty of the very thing of which they accuse another.

I have been accused of anti-American sentiment in these columns before which, happily, American friends willingly deny on my behalf, but I have never (yet) been accused of being totally stupid. (And I am equally critical of other nations too, when warranted).

But I just wonder what Mr Perry had in mind by referring to China lacking virtue, and which country was he using as a benchmark - the USA? Does he really believe that the "American example" is the one that everyone else should follow? Does he seriously believe that the country that brought us the origins of the latest global financial crisis (not being well handled by European political leaders, in my view) is one whose greed is to be admired? There are surely, if one but reads or listens to the news, cases of rights abuses, fraud, shootings, and many other defects in the USA - in some cases many more than elsewhere.

Or is this "merely" electioneering rhetoric, not to be taken seriously? Let's face it "Destined for the ash heap of history" is pretty strong, but I don't think the Chinese leadership are going to be quaking in their shoes at Mr Perry's pronouncement.

I suspect, instead, that China is more inclined to the Kissinger view of US influence in China, when he said words to the effect  "China managed to get through 5,000 years of history without significant advice from the United States. That is why they do not take as self evident that their domestic affairs should be prescribed by the United States." I have seen this written in a variety of ways, all attributed to Mr. Kissinger, but all say the same thing.

Don't get me wrong. I am not defending China from the comment made about virtue. Is China a country of virtues? Of course it's not, but I believe that it is making progress, which is slow at times, and it is determined to do more. But with a population four times the size of the USA it is going to inevitably be a long process. The USA has been trying to "get it right" since 1776; China, only really from it's re-entry into the modern world in the late 1970s. It is far from ideal - particularly from a Western perspective - and anyway frankly, is there a country anywhere that could truly describe itself as virtuous? Which one is the role model? Mr Mugabe's Zimbabwe doesn't seem to be criticised much these days - but then I suppose it is too insignificant to be considered a threat to America.

And why the China bashing anyway, are you really that scared of China's return to influence? Its return, if you like, to the prominent position it once held globally and long before a young America came onto the scene.

Actually, I wouldn't worry too much about it. China, along with much of the rest of Asia is much more likely to link up with South America, Australasia, Africa and the Middle East over the next century or two and will leave the USA and Europe to go and figure out the future for themselves.

It does worry me though that in this world of ours we are becoming increasingly nationalistic and protectionist. Although I do understand that when we have the sort of levels of debt and unemployment we are facing today, particularly in the West, that this is perhaps a natural reaction. But when you add inflammatory comments to the equation from politicians who, frankly, should know better - in the long run it will come back and bite us.

Oh, and by the way, isn't this the same Mr. Perry who just been accused of hypocrisy for an investment in America's largest pornography distributor? The pot calling the kettle black - perhaps?

It's going to be a long winter!!

PEP Talk ... Two

Now, where was I? I think my intended short Blog of 17 November started to grow legs once I got into it - and if you have come into this Blog "cold" as it were, PEP stands for People, Economics and Politics!

It started off by saying that you should never judge a person's intelligence by the way they dress and look, and then I was suggesting that our global Economic woes were largely caused by People. We have to a large extent brought this current crisis on ourselves, (but of course are quick to blame everyone and anything else!). I then started down the "Economics" path - busily distancing myself from any specialist knowledge on the subject, but just speculating (oops, that word again!) on what might happen next, in particular in the Eurozone. And it is this Eurozone region, to me anyway, that is currently at the heart of what is likely to happen next.

We all know Greece has a problem. Unless they are prepared to accept tough measures that will undoubtedly impact their lifestyle, they will go bankrupt. Why will anyone want to lend more to a Government that cannot repay its debts because they cannot raise enough money to do so? This is serious enough, but it has other implications too.

For example a similar story might now be emerging in Italy. This is a country that has to re-negotiate approximately Euros 350 billion of debt next year. That is, renegotiate or repay. It cannot do the latter. But if you borrow - you pay interest. As a "sovereign" borrower, previously they might have had to pay 3 or 4% interest annually but the most recent issue of Italian Government 10 year bonds had an interest rate of around 6.8% per annum; expensive - very! If that trend continues, then next year's re-negotiations could be at historic highs making it hard for Italy to even service the interest repayment! The same story is repeated in Spain and Portugal.

But if you are still with me - it gets even worse. Banks who make these loans to Governments have in the past not had to put any capital reserves to one side against this sovereign debt, because Governments always repay!! But Greece has now asked its lenders to take a 50% reduction in the amounts it will repay, which means that Government debt can no longer be considered "risk-free". Therefore, in future banks will probably be asked to provide some capital cover for this type of lending. Maybe it will be 50%, maybe it will be 20%. I don't know the answer, but what it will mean is that banks will have to raise more capital in the market - and how much is available for them to borrow to increase their balance sheets? Already one Italian bank has started the process, others will have to follow and the French and German banks will not be immune at all. The two major French banks are already showing signs of strain.

And I'm not finished yet. With the gloom already in the markets, add to that the fact it is becoming clear in Asia that shipments out of the region to the West particularly, USA and the Eurozone - are sharply down as people spend less in those econmies and you can see that there is going to be a ripple effect into the markets here, in Asia.

As matters stand today, we have problems. And they are not being tackled well. In fact the structure of the Eurozone doesn't help. Too many countries are involved when it comes to making a decision, which renders the process to make decisions neither easy nor quick. And each month's delay in taking action compounds the problem.

 So, we have thought about the People. We have done a little about the Economics - and which is the last part of the piece - the true villains, perhaps? The Politicians. That breed of people who bear a strong resemblance to analysts and rating agencies.

Like analysts because they have short time horizons. The next election is their key target. How to maximise their people-popularity - which by the way is not usually achieved by taking strong measures that affect lifestyles even if their reluctance is likely to shove the country deeper in debt. (Of the "bad" economies in Europe at present perhaps Ireland is the stand out success. They know something has to be done, and they do seem to be doing it).

Like rating agencies because they have a CYA mentality (with apologies to readers of a gentle disposition). 

Thus the dilemma. Most people I speak to believe that the economic reality of all this mess at present can only be resolved by firm and swift action. If letting Greece go is the answer - let them go. If re-designing the Eurozone, even putting it back to the original founding members (with or without Italy?) is the answer - then do it. BUT - the politicians have an eye on their own futures, their jobs, their pensions ... and not losing face by having created, and then having to disband a concept that has grown out of control. So we have "Economic Reality vs Political Expediency". 

Is this a game to win or lose - or will it more likely end up as just another "muddle through" - with compromises all round.

Oh, I almost forgot. If you want China or anyone else like them to help do not think they will do so through Europe directly. They won't. There is no upside for them. But keep an eye on the IMF instead - and there, maybe, you will find an answer.

A PEP Talk

Really - a pep talk? You mean one of those rah rah things to get everyone jumping up and down to happy clappy music and pretending to feel good about life in general afterwards? About life in a world that seems to be full of mostly bad news? 

Umm, well no, actually! I mean PEP as in People, Economics and Politics. I have, of course in previous Blogs admitted to knowing not a lot about Economics, and I have never been particularly Political - so this could be mercifully short! 

The initial inspiration for this Blog actually came from a musically related piece I read recently, together with some discussions I have been a part of during the last week concerning Europe in particular.

Look at the picture below and before reading on, see if you can identify the person - and consider the impression you get from the picture.

Identity? Anyone?

If of course you said it was probably an early and previously unpublished picture of me in an earlier life - wrong!!

But if you said it was obviously Gene Simmons, the frontman of the hugely successful rock group Kiss, congratulations, although I suspect that few of the people who I believe read this Blog would have been terribly sure! But whether you knew or not, I suspect the image in your mind created by the picture would have led you to stereotypical thoughts about someone who dresses and looks like that - musically talented probably, but not terribly articulate or capable of original intellectual thought or business sense, and definitely someone you hoped your daughter didn't fancy! If that was your view of Mr. Simmons you would be ... mostly wrong.

Kiss is one the world's most talented and awarded rock bands, and have maintained their appeal for over three decades. But what is perhaps less well known is that frontman Simmons is also a successful businessman who recently made a speech at the London Business School where amongst other lines were things like:

 - Countries are businesses — they have imports and exports and you want your exports to be higher than your imports so you can have a profit.

 - Government makes money by taxing and spending. It's so simple. If you spend more than you tax, you're out of business. MPs don't know what they're talking about.

 - And we created this miserable economic state. It's like fat people who think it's the bakery's fault they got fat. No, you kept going in there and you kept eating cake. It's not the bakery's responsibility to tell you not to eat so much.

 - (In the same way that) banks shouldn't have to tell you not to borrow so much. They're banks — they're supposed to lend you money. If you can't afford to take out £100,000, don't take out a £400,000 mortgage.

And I particularly like the last one

 - It's your responsibility to be a grown-up and take care of yourself.

This all sounds remarkably like common sense to me. For too long have some people believed in the theory that the world owes them a living. In some countries it seems to be worse than others. When they have worked for a few years, they believe they now have earned the right to put their feet up aged 50, and take a full pension - to which they have not contributed nearly enough - for the rest of their lives (Greece). Or they have been politicians whether for 30 years or 30 days, they are also entitled to a full pension (Italy).

You know what? When Chancellor Bismarck first thought, back in the days when life expectancy was around the late 40s, that it would be fair to let someone be looked after by the State if they worked beyond a certain age, he came up with the idea of a retirement age of 65. Given today's longevity tables, I am told that to qualify for a pension now on the same terms, you would need to live to be 112.

So, that's something about "people". Don't judge people by the way they look, for a start. And wake up to the idea that we need to fend for ourselves more. If you are in debt, is it because the banks have forced money on you ... or because you were undisciplined in your spending? Our society - at least some of it in parts of Europe (and elsewhere I am sure) - needs to temper its expectations. Do these people who want to "occupy" things (like Wall Street, St Pauls) really think they are hard done by, or is it just rent a crowd becasue it's something to do?

And so, as we move to the "E", I now realize this is getting to be longer than I had intended. Let me attempt some brevity.

You are not paying attention to the world around you if you are unaware that Europe is in an economic mess. But it will all be sorted out soon, won't it?

Actually ...... it doesn't look like it any time soon! And to add more depressing news to fuel the fires of uncertainty, there are not going to be (m)any places anywhere in the world unaffected to some degree or another. The American Financial Crisis has now hit Europe hard. There is more to follow.

According to Gene Simmons, you cannot spend money when you don't collect enough to spend. You certainly can't run your household like that can you? If you do not have enough money to pay the butcher, you don't eat meat. If you live in Greece, where people do not seem to pay their taxes, for example, then the country does not have enough money to pay for pensions or their other obligations - like loan repayments.

Already some banks are in as much trouble as the countries themselves, and a continuation of this situation will spill over into business and growth. This will lead to a slow down in their economies and unemployment. I wonder how many people have grasped this yet, because judging by many media articles the potential seriousness of this has not got through.

But in the interests of space and time, let's keep that for the next Blog.