Utilities, Energy and the New Dirigisme

Once upon a time, oil was the only energy-source that enjoyed anything approximating a free market.  Gas and electricity meant monopolies or, if investor-owned, a regulated rate of return, steady but low.

Then came liberalisation, and gas and power took off as traded commodities in competitive market structures.  The sector divided into merchant (unregulated) activities and 'true utility' (wires and pipes, where so-called natural monopolies prevailed).  The trade-off for residual monopoly remained a more-or-less regulated, low-ish rate of return.  Some companies had characteristics of both merchant and utility in their portfolio; others had cleaner business models and were one or the other, with the utilities being conventionally viewed as annuity streams or 'defensive' stocks.

Endless debate ensues as to whether this can all work out as well as the open-market theorists claim: FWIIW, I am squarely in that camp, and the development of a global gas industry is its best evidence.  However, just as things were working out nicely in electricity too, along came the baleful decarbonisation agenda, and with it an avalanche of regulatory meddling.  The EU's Emissions Trading Scheme was an attempt to execute some of the new policy goals via market mechanisms, but as a result of various entirely avoidable errors it hasn't really worked.  So meddling it is.

There is a school of thought that goes: bring back the CEGB ! Advocates of this include those with no memory, who have forgotten just how bloated and wasteful it was; and also those with long and fond memories, who recall exactly how bloated and wasteful it was, and they loved every minute of it.

However, governments no longer have the money for this malarkey and anyway, outright renationalisation is (currently) not allowed in the EU.  So we get dirigisme on an ever more detailed basis, as governments seek to determine exactly what new power plants (and other infrastructure) get built, and where, and by whom.

Which finally brings us round to the challenges for the likely builders of said new kit, and for those who might be considering investing in them.

The energy companies have, over a relatively few years, learned to play the game quite differently to the way they conducted themselves from the 1990s onwards.  Instead of taking a professional view on, for example, forward energy prices and spreads, and making their investment decisions accordingly, they have decided it's easier to demand subsidies, 'capacity payments' and various other featherbedding guarantees before they will invest in, well, pretty much anything these days.

Like governments, many of these companies are short of dosh, and so they demand high rates of guaranteed return.  Like monopolies, governments know exactly who is going to pay for all this in the end: it's us electricity-junkies that have nowhere else to go (until we surrender to death by hypothermia).  So they make the necessary arrangements, via a plethora of subsidies and schemes, for guaranteed high rates of return.

Guaranteed high rates of return - what's not to like ?  Shouldn't investors be flocking to join the game ?  There are several schools of thought, all wrestling with the following polar considerations:

• People will always need electricity, the energy companies have governments over a barrel, and this isn't going to change any time soon; so back up the truck and enjoy it
• This new 'system' is clearly dysfunctional, with regulatory risk abounding, not least because government is taking powers to make the 'utilities' their agents, not only of investment but also every facet of social policy which has an energy angle

It's even possible to synthesize these points and argue, (as does Liberum Capital) that in the medium term these guaranteed returns look so good for the energy companies ("at a perfectly feasible power price, SSE would be seeing 33% annual increases in EPS towards the end of this decade"), they are bound to get slammed mercilessly when the whole game comes unstuck.

I always reckon that those who live by the subsidy, die by the subsidy.  But maybe there is good money to be made in the meantime ... what do we all think ?


This post first appeared on the Capitalists@Work blog


All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Fighting the Government for savers and against inflation (3)

The struggle continues...

No reply to my email of 21 April (see Part 2 of this series) before I sent the following:

Me to MP's researcher, April 27, 2013:

Further to my last email of 6 days ago, perhaps you could spare the time to look at the latest article by Matt Taibbi in Rolling Stone. It may give you some idea of why I now (as a former IFA of 23 years' experience in the financial industry) regard the whole bank and trading shebang as irredeemably systemically corrupt. Any government that wishes to retain its claim to authority needs to protect the life savings of the little people.

http://www.rollingstone.com/politics/news/everything-is-rigged-the-biggest-financial-scandal-yet-20130425

Do please let me know how you are getting on with framing appropriate questions as previously discussed.

Best wishes

 

No reply before the following:

 

Me to MP and his researcher, May 08, 2013:

 

Perhaps the following may show why asking about NS&I Index-Linked Savings is important and topical - and getting some mainstream interest and airing. Is there any reason to delay the debate much further?

http://hitchensblog.mailonsunday.co.uk/2013/05/when-money-dies-the-horrors-of-inflation.html

(I read the book myself some time ago.) As Hitchens says, the 1923 Weimar inflation (which my mother's family lived through) is unlikely to be repeated here - but the damage is great even if it happens a little more slowly. 10% inflation for 7 years will halve the value of money.

Should we really leave Parliamentary comment on inflation to Ed Miliband, thus suggesting by implication that the Coalition is unconcerned?

Best wishes

 

Reply from researcher, with copy to MP, May 08, 2013:

 

Apologies for not processing this in the last two weeks – all questions fell at prorogation in April and after I last emailed you it is not likely we would have had a response in time. We have been in recess for the last week in any event where Questions could not be tabled.

We are now able to table a question with the new session opening today – Last time I looked at this I was wondering if you had a more specific question in mind than the general one I gave you on the 12^th March (Below) Which you responded to on the 21^st April after I emailed you again on the 18^th April.

‘To ask the Chancellor of the exchequer what steps he has taken or plans to undertake to maintain the value of savings against increased inflation and devaluations of the pound’

You’ve sent me the below on May 3^rd, it would be helpful if you could clarify if you are worried about individual or also state ‘savings’ – on the second the financial Savings Guarantee Scheme at present does guarantee savings under £85,000 in the event of systemic banking collapse or other smaller bank failure without penalty to the individual or value of the saved amount but the government will only be able to clarify that it has no intention to bring in a new bank bailout ‘tax’ of any kind for sums under that amount and no future government action is bound by a previous one – the government does not take the view, at present at least, that the Proposed (and rejected) tax on savings under or over a protected amount should be taxed in any way, (although it would consider funds over that sum forfeit in the case of bankruptcy, for example) to the best of my knowledge.

1. How to set aside money and preserve its spending value, without being eroded by inflation and taxes and without being forced to accept any kind of investment risk;

2. How to be sure that no portion of savings below the deposit insurance ceiling will not be seized in some form of bank bail-in or pseudo-tax, but be payable in the form and to the schedule expected by the saver.

As such I might suggest this amended question as a draft off the top of my head and would welcome any comments or amendments you want to make.

‘To ask the Chancellor of the Exchequer what steps he has taken or plans to undertake to maintain the value of savings against increased inflation or devaluations of the pound, if he has given thought to the taxation of savings by the Exchequer in various forms putting off individuals from saving some of their earned income by eroding the investments value, if he shares a concern that efforts to tax the small scale saved income of individuals to rescue financial institutions, such as measures debated by the Cypriot Parliament recently as part of the European Union’s and International Monetary Funds’ bailout terms undermine general confidence and what measures he can or will take to reassure individual savers that their investment will not be used to rescue institutions which have grossly mismanaged their affairs and thus be penalised, via the reduction of the value of their savings, for the mistakes of risk takers on a systemic financial level.’

If we can agree a draft I can get it to the table office as a written question as soon as you are happy and John is comfortable tabling it.

Yours

Me to researcher (copy to MP), May 09, 2013:

Thank you for your response. Again I must say that the issues are sufficiently important to ask orally on the floor of the House, rather than be buried in writing. I have already seen what a written answer from the Treasury is like. Am I mistaken in thinking that oral PMQs and questions to Ministers raise matters in the way that is most likely to result in prompt and effective action?

There are two separate issues and I'd suggest that they be pursued separately. One is inflation, the other is expropriation. The questions need to be pin-sharp specific to prevent wriggle, deflection, partial answers and waffle.

On the first, I think the question should focus on the need to restore NS&I Index-Linked Savings Certificates. Hansard links I gave you earlier showed that protecting the small saver was recognised as a "social obligation" - by both sides of the House - when they were first introduced in 1975.

On the second, you will doubtless know that the first proposal in the Cyprus bank affair was to take money off even those who had less than 100k Euro in their accounts. It doesn't matter whether it's dressed up as a tax, a bail-in or forced conversion to bank shares; up to the insured amount, savers should be able to transfer or extract all their cash. Once that principle is breached, no money in any European bank is safe and that will spell the end of the system as we know it.

A suggestion for (1):

“Is the [Minister/PM] aware that National Savings Index-Linked Savings Certificates were introduced in 1975 as a form of social justice to savers affected by inflation, as is made clear by exchanges in this House on 10 July 1975, and will he now instruct NS&I to make them permanently available again without further delay?”

Hansard reference (10 July 1975):

http://hansard.millbanksystems.com/commons/1975/jul/10/savings-index-linked-schemes

A suggestion for (2):

"Will the [Minister/PM] give a guarantee on behalf of the British Government that savings covered by the terms and limits of the Financial Services Compensation Scheme will be fully protected against ad hoc restrictions of access, bank bail-ins and other forms of expropriation or forced conversion?"

Best wishes

MP to me (copy to researcher), May 09, 2013:

I tend not to do Oral questions. They don't have any real effect on government policy and it is a lottery as to whether you have the opportunity to ask one. Hence we can put in a treasury oral each time treasury come up (about every 3 weeks) and at some point it may be asked (perhaps at the 3rd or 4th time of asking) or we can put in a written question and get a response in just over 5 days.

Me to MP, May 09, 2013:

Thank you. Whatever works, is what matters, to paraphrase Alastair Campbell. I look forward to the response. I can only hope it's better than the patronising drivel I got from Lord Sassoon.

MP to me, May 09, 2013:

I can,of course, go for an adjournment debate to have a longer session. I do think it is an issue to give some attention to. However, we should start with written questions and letters.

Me to MP, May 09, 2013:

Thank you for your response.

We've had Lord Sassoon's letter 10 months ago (25.07.2012) in response to your letter to the Chancellor's office dated 02 July 2012, so presumably we're past that point and into follow-up. And how hard can it be simply to instruct NS&I to resume doing what it had previously done for an unbroken period of 35 years through thick and thin? This is not a new or complex matter, I would submit.

 

MP to me (copy to researcher), May 09, 2013:

 

I am on the train at the moment and would have to get a copy of the letters to hand to comment.

 

Me to MP, May 09, 2013 (6 minutes after the last):

 

I can help, to a degree. I don't have a note of what you wrote to the Chancellor's office, but here is the text of Lord Sassoon's letter:

"Dear Mr Hemming

Thank you for your letter of 2 July to George Osborne regarding correspondence from your constituent [...] about National Savings and Investments (NS&I). I am replying as Minister responsible for this policy area.

I appreciate that your constituent is concerned about savings in the current climate of relatively high inflation and low interest rates and is disappointed that Savings Certificates are no longer on sale. It is important, though, to recognise that inflation has come down from 5.2 per cent in September 2011 to 2.4 per cent in June 2012. The Government continues to give priority to reducing the impact of rising prices on families and businesses including through the recently announced deferral of fuel duty increases, which means that petrol prices will be 10p per litre lower than they would have been under the previous Government's plans.

NS&I provide cost-effective retail debt finance to Government. The money invested in their products contributes to the Government's overall debt financing remit. In doing this, NS&I follow a policy of balancing the interest of savers and the taxpayer with the stability of the financial services market. While doing so they aim to meet the financing objective set each year by HM Treasury.

It might be helpful if I explain the reasons why NS&I withdrew their Savings Certificates.

In July 2010, the popularity of both their index-linked and Fixed-interest Savings Certificates reached unprecedented levels and sales volumes far exceeded those either anticipated or required by NS&I to meet their financing target set by HM Treasury. Because of this, they took the difficult decision to take Certificates off sale on 18 July 2010. This change however did not affect existing customers.

The March 2011 budget confirmed NS&I's Net Financing target for 2011-12 as £2 billion with a range of £0-4 billion. To achieve this, they needed inflows of some £14 billion from sales and reinvestments during the year which gave them the ability to reintroduce one 5-year term of Savings Certificates on 12 May 2011. Their aim was to keep them on sale for a sustained period of time to enable as many savers as possible to invest.

As they expected, the Savings Certificates proved very popular and in just under four months they had received over 500,000 transactions. In order to stay within the Net Financing target range for the year, at this point they had to withdraw the certificates from sale.

Existing NS&I Savings Certificates customers can, on maturity, keep their investment for another term of the same length. Alternatively, they can reinvest into any of the other Savings Certificates terms and issues on offer to existing customers.

In more general terms, the Government wants a saving system based on freedom, fairness and responsibility, which is both affordable and effective.

To support and encourage savers the Government has:

• ensured the amount that people can save tax-free is not eroded by inflation by indexing the amount that can be paid into ISAs each year. This means that the Government has increased ISA limits by £600 this year, including an extra £300 for cash ISAs;
• announced at Budget 2012 that Government will work with industry to improve competitiveness and transparency in the ISA market, particularly by encouraging the industry to work towards faster ISA transfers;
• introduced Junior ISAs, offering parent a clear, simple and tax-free way to save for their child's future;
• confirmed that employees will have a new duty to automatically enrol qualifying employees into a pension scheme from October 2012. This has the potantial to encourage 5 to 8 million more people to start saving or save more into a workplace pension scheme. The Government is also establishing the National Employment Savings Trust (NEST) to provide a low-cost, high-quality pension scheme for individuals not currently served by the market;
• set up the Money Advice Service to offer free and impartial information and advice on all money matters available online at www.moneyadviceservice.org.uk , face-to-face, or by calling its helpline on 0300 500 5000. The Money Advice Service also launched a financial health check to help people proactively manage their money. It also publishes comparative tables of savings accounts and the interest rates offered; and
• given individuals more choice over the use of their pension savings to provide a retirement income by removing the effective requirement to purchase an annuity by age 75.

Please pass on my thanks to Mr Norfolk for taking the trouble to make us aware of these concerns.

Yours sincerely

James Sassoon

LORD SASSOON"

... and here is my reaction:

"Thank you for forwarding Lord Sassoon's letter, which arrived here yesterday. It is not at all up to the standard that I would expect from a Treasury mind; in fact, it is little short of a disgrace.

The first page confirms what I suspected, that the present Government is concerned only with its own funding needs and not at all with what should be its commitment to savers, not to say the currency (which according to the BoE's own website has lost 99% of its value since 1900). As you know, National Savings Index-Linked Certificates were introduced in 1975, a year in which RPI inflation was, as I said to you before, 24.2%. If the government of the day could bring in this product at such a time of crisis and galloping inflation, I cannot see any justification for the present hiatus.

The point about the present level of inflation is useless. Savers need to know for sure that their money retains its spending power over the chosen period, not to be informed from time to time that RPI may have temporarily dipped.

The second page slides further downhill into irrelevant party political nonsense. To be specific about its failures to address the subject, I will take each of Lord Sassoon's points in order:

• The cash ISA limit has nothing whatever to do with maintaining the purchasing power of cash.
• ISA transfers, ditto.
• Junior ISAs, ditto.
• The NEST pension scheme is not a savings vehicle but an investment vehicle, a distinction that surely cannot have escaped someone with Lord Sassoon's background in the financial services industry. The nearest to cash within pension funds is either money market funds (which have a big fat question mark over them at the moment, I can tell you as an IFA) or bank/building society cash funds that (a) usually offer a significantly lower rate than cash ISAs and (b) are (except perhaps for SIPPs) not covered by the FSCS in the way that individually held accounts are (see the Pensions Advisory Service's article here).
• The Money Advice Service is also irrelevant to the purchasing power of cash savings.
• Changes to the requirement to purchase an annuity at age 75, ditto."

Best wishes,

MP to me (copy to researcher), May 09, 2013:

I will ask Martin to draft a letter along the lines of your response.

Me to MP, May 09, 2013:

I would be greatly obliged if we skirted round Lord Sassoon's letter, which is nothing but a large catch of red herrings, and, whether by oral or written question (whichever in your professional opinion and experience is likely to get the more expeditious and effective response) ask the two questions I drafted for your researcher this morning, namely:

“Is the [Minister/PM] aware that National Savings Index-Linked Savings Certificates were introduced in 1975 as a form of social justice to savers affected by inflation, as is made clear by exchanges in this House on 10 July 1975, and will he now instruct NS&I to make them permanently available again without further delay?”

and

"Will the [Minister/PM] give a guarantee on behalf of the British Government that savings covered by the terms and limits of the Financial Services Compensation Scheme will be fully protected against ad hoc restrictions of access, bank bail-ins and other forms of expropriation or forced conversion?"

All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Fighting the Government for savers and against inflation (3)

The struggle continues...

No reply to my email of 21 April (see Part 2 of this series) before I sent the following:

Me to MP's researcher, April 27, 2013:

Further to my last email of 6 days ago, perhaps you could spare the time to look at the latest article by Matt Taibbi in Rolling Stone. It may give you some idea of why I now (as a former IFA of 23 years' experience in the financial industry) regard the whole bank and trading shebang as irredeemably systemically corrupt. Any government that wishes to retain its claim to authority needs to protect the life savings of the little people.

http://www.rollingstone.com/politics/news/everything-is-rigged-the-biggest-financial-scandal-yet-20130425

Do please let me know how you are getting on with framing appropriate questions as previously discussed.

Best wishes

 

No reply before the following:

 

Me to MP and his researcher, May 08, 2013:

 

Perhaps the following may show why asking about NS&I Index-Linked Savings is important and topical - and getting some mainstream interest and airing. Is there any reason to delay the debate much further?

http://hitchensblog.mailonsunday.co.uk/2013/05/when-money-dies-the-horrors-of-inflation.html

(I read the book myself some time ago.) As Hitchens says, the 1923 Weimar inflation (which my mother's family lived through) is unlikely to be repeated here - but the damage is great even if it happens a little more slowly. 10% inflation for 7 years will halve the value of money.

Should we really leave Parliamentary comment on inflation to Ed Miliband, thus suggesting by implication that the Coalition is unconcerned?

Best wishes

 

Reply from researcher, with copy to MP, May 08, 2013:

 

Apologies for not processing this in the last two weeks – all questions fell at prorogation in April and after I last emailed you it is not likely we would have had a response in time. We have been in recess for the last week in any event where Questions could not be tabled.

We are now able to table a question with the new session opening today – Last time I looked at this I was wondering if you had a more specific question in mind than the general one I gave you on the 12^th March (Below) Which you responded to on the 21^st April after I emailed you again on the 18^th April.

'To ask the Chancellor of the exchequer what steps he has taken or plans to undertake to maintain the value of savings against increased inflation and devaluations of the pound.’

You’ve sent me the below on May 3^rd, it would be helpful if you could clarify if you are worried about individual or also state ‘savings’ – on the second the financial Savings Guarantee Scheme at present does guarantee savings under £85,000 in the event of systemic banking collapse or other smaller bank failure without penalty to the individual or value of the saved amount but the government will only be able to clarify that it has no intention to bring in a new bank bailout ‘tax’ of any kind for sums under that amount and no future government action is bound by a previous one – the government does not take the view, at present at least, that the Proposed (and rejected) tax on savings under or over a protected amount should be taxed in any way, (although it would consider funds over that sum forfeit in the case of bankruptcy, for example) to the best of my knowledge.

1. How to set aside money and preserve its spending value, without being eroded by inflation and taxes and without being forced to accept any kind of investment risk;
 

2. How to be sure that no portion of savings below the deposit insurance ceiling will not be seized in some form of bank bail-in or pseudo-tax, but be payable in the form and to the schedule expected by the saver.

As such I might suggest this amended question as a draft off the top of my head and would welcome any comments or amendments you want to make.

'To ask the Chancellor of the Exchequer what steps he has taken or plans to undertake to maintain the value of savings against increased inflation or devaluations of the pound, if he has given thought to the taxation of savings by the Exchequer in various forms putting off individuals from saving some of their earned income by eroding the investments value, if he shares a concern that efforts to tax the small scale saved income of individuals to rescue financial institutions, such as measures debated by the Cypriot Parliament recently as part of the European Union’s and International Monetary Funds’ bailout terms undermine general confidence and what measures he can or will take to reassure individual savers that their investment will not be used to rescue institutions which have grossly mismanaged their affairs and thus be penalised, via the reduction of the value of their savings, for the mistakes of risk takers on a systemic financial level.’

If we can agree a draft I can get it to the table office as a written question as soon as you are happy and John is comfortable tabling it.

Yours

Me to researcher (copy to MP), May 09, 2013:

Thank you for your response. Again I must say that the issues are sufficiently important to ask orally on the floor of the House, rather than be buried in writing. I have already seen what a written answer from the Treasury is like. Am I mistaken in thinking that oral PMQs and questions to Ministers raise matters in the way that is most likely to result in prompt and effective action?

There are two separate issues and I'd suggest that they be pursued separately. One is inflation, the other is expropriation. The questions need to be pin-sharp specific to prevent wriggle, deflection, partial answers and waffle.

On the first, I think the question should focus on the need to restore NS&I Index-Linked Savings Certificates. Hansard links I gave you earlier showed that protecting the small saver was recognised as a "social obligation" - by both sides of the House - when they were first introduced in 1975.

On the second, you will doubtless know that the first proposal in the Cyprus bank affair was to take money off even those who had less than 100k Euro in their accounts. It doesn't matter whether it's dressed up as a tax, a bail-in or forced conversion to bank shares; up to the insured amount, savers should be able to transfer or extract all their cash. Once that principle is breached, no money in any European bank is safe and that will spell the end of the system as we know it.

A suggestion for (1):

"Is the [Minister/PM] aware that National Savings Index-Linked Savings Certificates were introduced in 1975 as a form of social justice to savers affected by inflation, as is made clear by exchanges in this House on 10 July 1975, and will he now instruct NS&I to make them permanently available again without further delay?"

Hansard reference (10 July 1975):

http://hansard.millbanksystems.com/commons/1975/jul/10/savings-index-linked-schemes

A suggestion for (2):

"Will the [Minister/PM] give a guarantee on behalf of the British Government that savings covered by the terms and limits of the Financial Services Compensation Scheme will be fully protected against ad hoc restrictions of access, bank bail-ins and other forms of expropriation or forced conversion?"

Best wishes

MP to me (copy to researcher), May 09, 2013:

I tend not to do Oral questions. They don't have any real effect on government policy and it is a lottery as to whether you have the opportunity to ask one. Hence we can put in a treasury oral each time treasury come up (about every 3 weeks) and at some point it may be asked (perhaps at the 3rd or 4th time of asking) or we can put in a written question and get a response in just over 5 days.

Me to MP, May 09, 2013:

Thank you. Whatever works, is what matters, to paraphrase Alastair Campbell. I look forward to the response. I can only hope it's better than the patronising drivel I got from Lord Sassoon.

MP to me, May 09, 2013:

I can,of course, go for an adjournment debate to have a longer session. I do think it is an issue to give some attention to. However, we should start with written questions and letters.

Me to MP, May 09, 2013:

Thank you for your response.

We've had Lord Sassoon's letter 10 months ago (25.07.2012) in response to your letter to the Chancellor's office dated 02 July 2012, so presumably we're past that point and into follow-up. And how hard can it be simply to instruct NS&I to resume doing what it had previously done for an unbroken period of 35 years through thick and thin? This is not a new or complex matter, I would submit.

MP to me (copy to researcher), May 09, 2013:

I am on the train at the moment and would have to get a copy of the letters to hand to comment.

Me to MP, May 09, 2013 (6 minutes after the last):

I can help, to a degree. I don't have a note of what you wrote to the Chancellor's office, but here is the text of Lord Sassoon's letter:

"Dear Mr Hemming

Thank you for your letter of 2 July to George Osborne regarding correspondence from your constituent [...] about National Savings and Investments (NS&I). I am replying as Minister responsible for this policy area.

I appreciate that your constituent is concerned about savings in the current climate of relatively high inflation and low interest rates and is disappointed that Savings Certificates are no longer on sale. It is important, though, to recognise that inflation has come down from 5.2 per cent in September 2011 to 2.4 per cent in June 2012. The Government continues to give priority to reducing the impact of rising prices on families and businesses including through the recently announced deferral of fuel duty increases, which means that petrol prices will be 10p per litre lower than they would have been under the previous Government's plans.

NS&I provide cost-effective retail debt finance to Government. The money invested in their products contributes to the Government's overall debt financing remit. In doing this, NS&I follow a policy of balancing the interest of savers and the taxpayer with the stability of the financial services market. While doing so they aim to meet the financing objective set each year by HM Treasury.

It might be helpful if I explain the reasons why NS&I withdrew their Savings Certificates.

In July 2010, the popularity of both their index-linked and Fixed-interest Savings Certificates reached unprecedented levels and sales volumes far exceeded those either anticipated or required by NS&I to meet their financing target set by HM Treasury. Because of this, they took the difficult decision to take Certificates off sale on 18 July 2010. This change however did not affect existing customers.

The March 2011 budget confirmed NS&I's Net Financing target for 2011-12 as £2 billion with a range of £0-4 billion. To achieve this, they needed inflows of some £14 billion from sales and reinvestments during the year which gave them the ability to reintroduce one 5-year term of Savings Certificates on 12 May 2011. Their aim was to keep them on sale for a sustained period of time to enable as many savers as possible to invest.

As they expected, the Savings Certificates proved very popular and in just under four months they had received over 500,000 transactions. In order to stay within the Net Financing target range for the year, at this point they had to withdraw the certificates from sale.

Existing NS&I Savings Certificates customers can, on maturity, keep their investment for another term of the same length. Alternatively, they can reinvest into any of the other Savings Certificates terms and issues on offer to existing customers.

In more general terms, the Government wants a saving system based on freedom, fairness and responsibility, which is both affordable and effective.

To support and encourage savers the Government has:

• ensured the amount that people can save tax-free is not eroded by inflation by indexing the amount that can be paid into ISAs each year. This means that the Government has increased ISA limits by £600 this year, including an extra £300 for cash ISAs;
• announced at Budget 2012 that Government will work with industry to improve competitiveness and transparency in the ISA market, particularly by encouraging the industry to work towards faster ISA transfers;
• introduced Junior ISAs, offering parent a clear, simple and tax-free way to save for their child's future;
• confirmed that employees will have a new duty to automatically enrol qualifying employees into a pension scheme from October 2012. This has the potantial to encourage 5 to 8 million more people to start saving or save more into a workplace pension scheme. The Government is also establishing the National Employment Savings Trust (NEST) to provide a low-cost, high-quality pension scheme for individuals not currently served by the market;
• set up the Money Advice Service to offer free and impartial information and advice on all money matters available online at www.moneyadviceservice.org.uk , face-to-face, or by calling its helpline on 0300 500 5000. The Money Advice Service also launched a financial health check to help people proactively manage their money. It also publishes comparative tables of savings accounts and the interest rates offered; and
• given individuals more choice over the use of their pension savings to provide a retirement income by removing the effective requirement to purchase an annuity by age 75.

Please pass on my thanks to Mr Norfolk for taking the trouble to make us aware of these concerns.

Yours sincerely

James Sassoon

LORD SASSOON"

... and here is my reaction:

"Thank you for forwarding Lord Sassoon's letter, which arrived here yesterday. It is not at all up to the standard that I would expect from a Treasury mind; in fact, it is little short of a disgrace.

The first page confirms what I suspected, that the present Government is concerned only with its own funding needs and not at all with what should be its commitment to savers, not to say the currency (which according to the BoE's own website has lost 99% of its value since 1900). As you know, National Savings Index-Linked Certificates were introduced in 1975, a year in which RPI inflation was, as I said to you before, 24.2%. If the government of the day could bring in this product at such a time of crisis and galloping inflation, I cannot see any justification for the present hiatus.

The point about the present level of inflation is useless. Savers need to know for sure that their money retains its spending power over the chosen period, not to be informed from time to time that RPI may have temporarily dipped.

The second page slides further downhill into irrelevant party political nonsense. To be specific about its failures to address the subject, I will take each of Lord Sassoon's points in order:

• The cash ISA limit has nothing whatever to do with maintaining the purchasing power of cash.
• ISA transfers, ditto.
• Junior ISAs, ditto.
• The NEST pension scheme is not a savings vehicle but an investment vehicle, a distinction that surely cannot have escaped someone with Lord Sassoon's background in the financial services industry. The nearest to cash within pension funds is either money market funds (which have a big fat question mark over them at the moment, I can tell you as an IFA) or bank/building society cash funds that (a) usually offer a significantly lower rate than cash ISAs and (b) are (except perhaps for SIPPs) not covered by the FSCS in the way that individually held accounts are (see the Pensions Advisory Service's article here).
• The Money Advice Service is also irrelevant to the purchasing power of cash savings.
• Changes to the requirement to purchase an annuity at age 75, ditto."

Best wishes,

MP to me (copy to researcher), May 09, 2013:

I will ask Martin to draft a letter along the lines of your response.

Me to MP, May 09, 2013:

I would be greatly obliged if we skirted round Lord Sassoon's letter, which is nothing but a large catch of red herrings, and, whether by oral or written question (whichever in your professional opinion and experience is likely to get the more expeditious and effective response) ask the two questions I drafted for your researcher this morning, namely:

"Is the [Minister/PM] aware that National Savings Index-Linked Savings Certificates were introduced in 1975 as a form of social justice to savers affected by inflation, as is made clear by exchanges in this House on 10 July 1975, and will he now instruct NS&I to make them permanently available again without further delay?"

and

"Will the [Minister/PM] give a guarantee on behalf of the British Government that savings covered by the terms and limits of the Financial Services Compensation Scheme will be fully protected against ad hoc restrictions of access, bank bail-ins and other forms of expropriation or forced conversion?"
 

All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Take a bullion pill in case of an inflation "burp", otherwise hold cash?

The following article is reproduced with the kind permission of The Gold Report:

James Dines Follows His Prediction of a Commodity Crash with Another One the Mainstream Media Is Ignoring

Source: JT Long of The Gold Report (5/3/13)

When the metals markets tumbled in mid-April, The Gold Report reached out to "the original investor bug" and author of The Dines Letter, James Dines, for perspective. He predicted a crash in commodity prices two years ago based on his analysis of a weak Chinese economy. Next, he says, will be a bond market bust once interest rates start to climb. This will lead to "a stampede to get out of bonds like a herd of elephants attempting to exit through a revolving door." How can investors protect themselves? That is Dinesism #38.

The Gold Report: What does it mean that leading stock market averages have been in Uptrends, while commodities markets are in Downtrends?

James Dines: Our "Sell" signal on China's economy in The Dines Letter (TDL) of Sept. 16, 2011, is still stubbornly resisted by the mainstream press, which instead persists in calling for 7.5% growth by China Since we perceive China as a barometer for the commodities markets, it followed that there would be a decline in raw-materials prices.

We find it astonishing that we seem to be the only voice in the world's mainstream press calling commodities markets in the last two years "a crash." Cotton down 70% from its high is merely one example. It's not in the world's headlines yet, but we find it remarkable that virtually all commodities are down, worldwide, even including precious metals, oil, uranium and rare earths. How could leading market averages be in Uptrends, presumably forecasting a business upturn, even while commodities have plunged? After all, to market things, they need to be made, with commodities, do they not? China was the biggest consumer of commodities, so we infer China's economy is in trouble, especially its banks and real estate, as predicted in our 2013 Annual Forecast Issue (pages 26-29; also The Dines Letter of Mar 15, 2013, page 7). So our next "Buy" signal on China will be crucial in attempting to discern the cyclical advent of the next raw-materials upturn.

Because of excessive government interference with interest rates, those desperate for income—including pension funds—have pushed prices of virtually all secure sources to nosebleed heights. When the Fed eventually does raise interest rates, the bond bubble will be pricked and the stampede to get out of bonds should be like a herd of elephants attempting to exit through a revolving door. What to do in such a bond market crisis? Aside from TDL's blue-chip recommendations, we always recommend dispersing assets in several "friendly" countries. Also, diversifying in golds and silvers, including Saint-Gaudens double-eagle gold coins, rather than just keeping capital entirely in fiat currencies.

The world is in what we call "The Second Great Depression," comparable with the first one, in the 1930s. As laid out in my final business book, "Goldbug!," doubling the money supply in 1922 to pay for World War I caused a great inflation that after 1929 was corrected by the First Great Depression, in the 1930s. The similar printing of enormous quantities of paper money, not backed by anything except more paper, has also resulted in the current Great Deflation, still deepening, worldwide. The soup kitchens of the 1930s have been replaced by food stamps, but the resemblance is not coincidental.

Realizing that Keynesian economics failed to end unemployment after the 1932 crash, until World War II began around 1940, enabled us to predict with specific clarity that it would not work these days either. Indeed. Historically, large quantities of printing-press money has failed to reduce the downward trend of Americans with jobs in recent years. Few believed our prediction of "The Coming End of the Age of Jobs," or that it would lead to "The Coming New Social Order," but it is already unfolding. Unemployment in Europe already ranges between 20% and 50%, depending.

It is difficult for investors to protect themselves in this situation, but we cover it as best we can. We have recommended blue-chip stocks that have a dividend yield higher than that of U.S. Treasury paper, because they are proxies for institutions seeking to park their cash in areas other than overpriced bonds. That should end when the Federal Reserve finally allows interest rates to rise, but its fanaticism in continuing to suppress rates despite the Keynesian method not working represents a triumph of hope over experience—and will not end well.

Especially shocking is the delusion that adding inflation to a deflation would somehow cancel each other out, but is in fact the futile attempt to cure a problem with its cause. Overprinting paper runs at increasing risk of an eructation of "hyperinflation"—please note it is a word not used anywhere in the mainstream press these days. Predicting a hyperinflation is so daring in today's environment that we might be mistaken, so we will have to get closer toward the end game to be more confident of it. We hope we are mistaken.

TGR: What will be the next big sector?

JD: We refer you to Dinesism #38, of the 65 that guides our methodology: "Rich or poor it's good to have a lot of cash." And you may feel free to quote us on that. Also, parking some long-term capital in gold and silver, especially during pullbacks, would be useful if a hyperinflation eructs.

James Dines is legendary for having made correct forecasts that were in complete contradiction to the rest of the financial community. He is the author of five highly regarded books, including "Goldbug!," in addition to his popular newsletter, The Dines Letter, and videotaped educational series. Dines' highly successful investment strategies have been praised by Barron's, Financial Times, Forbes, Moneyline and The New York Times, among others.

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DISCLOSURE:
1) JT Long conducted this interview for The Gold Report and provides services to The Gold Report as an employee.
2) James Dines: I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions.
3) Streetwise Reports does not make editorial comments or change experts' statements without their consent.
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Arguments for gun control (1)

E-ink phone: I want one!

The problem: mobile phone visuals are terrible when you use them in a mobile way, outdoors or even in some lighting conditions indoors.

The solution: read them with ambient light, using the same sort of technology as Amazon's Kindle.

And like the Kindle, battery power is used only to change what's on the screen, so a full charge should last a week.

See reviews from the Mobile World Congress in February here and here.

All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Climate change: the role of ash, and volcanoes

The excessive zeal of some scientists has made it difficult to discuss climate change (which, amusingly, was first headlined simply as global cooling, then global warming). But it's universally agreed (I think) that the Earth has been a lot hotter, and a lot colder, in past millenia. The question is, what's happening now?

Up in Greenland, they're now growing strawberries and potatoes; and last month the albedo of the ice sheet was lower than in any April in the last dozen years, hinting at an even bigger melt than before.

Yet there is still debate over whether Earth's total ice cover is growing or decreasing, as a Dutch study reported last month. It seems that while the Arctic's is melting, the Antarctic is piling on more.

The network of causes and effects is complex: CO2 and high-altitude water vapour (quite a lot from planes, I think) interrelate with air and sea temperature (which vary around the globe). An explanation as to why ice is melting in one place and melting in another is that particulates from burning forests and fossil fuels are settling on Northern glaciers, absorbing energy from sunlight and conducting extra heat into the ice below.

The ash can also come from volcanic eruptions - but the causal connection goes both ways. Another study, published last December by researchers in Germany and the USA, seems to show that as ice cover decreases and sea levels rise over long periods, tectonic plates are warped by the changes in their burden and volcanic activity increases.

And the causes can sometimes oppose each other. I recall how in 2010, when flights over the UK were banned because of the ash cloud from Iceland's Eyjafjallajökull volcano, we saw not grey, cloudy days but brilliant sunshine and chilly, starry nights. I wonder what is the relative importance of hydrocarbon emissions and water vapour?

Enough brickbats have been thrown at those who forgot their professional scientific objectivity in the debate. It's time for both sides to reexamine evidence and hypotheses with open minds.

All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy.