Lifted directly from http://ec.europa.eu/trade/policy/

2. Open up markets with key partner countries

We seek to create growth and jobs for Europeans by increasing their opportunities to trade with the world. This is particularly important in the context of current economic conditions.

One way of opening markets is to negotiate better access and conditions for trade and investment through free trade agreements.

The EU has concluded a number of Free Trade Agreements and is continuing negotiations with others.
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I'm struggling here, stated EU policy appears to be in favour of FTAs, but where does it say "except with the United Kingdom of Great Britain and Northern Ireland"?

It's also well worthwhile following the first link to "trade and investment through free trade agreements", all good stuff but it doesn't exclude the UK there either.

Bremoaners and Brexiteers shooting each other in the foot.

Going back to that BRC letter...

Falling back on to WTO rules would also increase the cost of sourcing from beyond the EU. The import cost of women’s clothing from Bangladesh would be 12% higher, while Chilean wine would be 14% dearer for importers.

Yes, we would expect the UK to remain a member of the WTO which is an advisory/co-ordinating body rather than a supra-national quasi-government. The obvious point is that the WTO has no rule stipulating minimum or default tariffs.

(Nobody questioned why the BRC specifically mentioned Bangladeshi clothes or Chilean wine. It turns out that they were cherry picking:

Bangladesh has been a WTO member since 1995 and, as a least developed country, benefits from the EU's "Everything but Arms" arrangement, which grants duty free, quota free access for all exports, except arms and ammunition.

The EU and Chile concluded an Association Agreement in 2002, which included a comprehensive Free Trade Agreement that entered into force in February 2003. The EU-Chile Free Trade Agreement is broad and comprehensive and covers all the areas of EU-Chile trade relations.)

Daniel Hannan, who is good on principles but useless on facts fell for it, as gleefully reported by The Daily Mirror, and tweeted thusly:

This is idiotic. Chilean wine 14% more expensive? It's currently subject to a 32% EU tariff, which we can now scrap.

Haha! cry the Bremoaners, he didn't know that there was an EU-Chile FTA! Others pointed out that the EU default tarrif on wine is 8p per bottle (although some official sources did incorrectly give the figure as 32%, which is about par for the course for EU tariffs on food, so a forgivable mistake on Hannan's part). So, they argue, Hannan's lack of grasp of finer detail undermines his general point! No it doesn't. His general point was and is sound.

And so bloody what? The BRC were clearly cherry picking examples, thus making their whole letter questionable, and they still haven't explained where it says that WTO members must impose a minimum tariff of 14% on imported wine. Because it simply doesn't, I've checked.

The final point is the general principle of continuity of international treaties, so if the UK leaves the EU, we are then almost automatically in a UK-Bangladesh FTA and a UK-Chile FTA on the same terms and conditions as the EU-Bangladesh FTA or the EU-Chile FTA, and so on, until and unless one party abrogates it.

The 'bond proxies' - love 'em or hate 'em?

Whilst supermarket shareholders took a bath in 2013/2014, investors in branded consumable goods maker Unilever have doubled their money in the last five years.  Depressed margins from fierce competition have been widely blamed for the poor performance of the likes of Tesco.  Yet blue chip consumer non-cyclical companies - investments people are calling "bond proxies" in a word of 0% rates - just don't appear to be affected.  Unilever, and companies like it, trade on 25 times gross earnings, much like 'bricks and mortar' in London.

Given that the Lidl and Aldi sell very little branded produce, and consumers are switching to them in droves, it always struck me branded goods companys' margins would be next in line for a haircut.  So it comes as little surprise that troubled retailer Tesco have fallen out with the maker of Marmite:

"Reports suggest that Unilever ... has demanded steep price increases of around 10 per cent to offset the increased costs [from the fall in sterling] ... Products have disappeared from Tesco's website after the supermarket chain refused to accept the price increase ..."

Now if everyone refuses to accept the new price, and simply substitutes Colman's with a supermarket English mustard on their shelves - on sale at a third of the cost or less - how does this help Unilever?

Of course another reason the likes of Unilever became a darling stock of the big fund managers was the fall in the price of oil. If consumers are spending less at the pumps they can afford more branded ice creams went the thesis. With petrol prices in pounds on the up again the reverse must be true surely?

So do we dare sell short the 'bond proxies' or are they really going to the moon in a world of negative interest rates and fed up savers?

NOTE: This is a not financial advice or a solicitation to buy or sell securities but an article for academic interest and discussion.

Financial Contagion (2)

I offered an explanation as to why falling house prices end up harming the real economy (despite logic saying they ought to help it) recently, nobody came up with anything better so it'll have to do for now.

To cut a long story short, when house prices fall, people want to withdraw money from banks which are overweight in mortgage lending (which is most of them) because the banks' collateral value is falling. Most banks have about 80% of their lending on mortgages and 20% to the real economy (business loans, overdrafts, credit cards, HP deals/personal loans etc).

It is impossible to make mortgage borrowers repay any faster than under the terms of their mortgage, so the quickest source of cash is to call in business loans, cancel overdrafts, cut credit card limits and stop offering HP deals/personal loans. So the real economy is starved of credit/finance, things which oil the wheels, and it grinds to a halt.

TBH emailed me an article about new revelations on the most extreme real life example of this i.e. the RBS Global Recovery Group which operated on a slash and burn basis. It upped fees and charges, deliberately bankrupted businesses and then a different RBS department acquired their land and buildings at undervalue 'off the market' (can't have forced sales depressing open market prices!). This is a very short term thing and must harm RBS profitability in the long run, but that's not how bankers think; it's only this year's bonus that matters.

I thought that everybody knew this, but apparently not - the BBC re-ran the story (giving due credit to Buzzfeed who uncovered it).

There's no point me summarising, it makes for very interesting reading if you have time.

The point being that without the house price falls, depositors wouldn't have demanded cash, RBS wouldn't have done the slash and burn, and had other banks been expanding their business loans or offered easy remortgages, RBS borrowers would have simply taken their business elsewhere. As things stood, RBS had them by the throat.

Fun Online Polls: Hard Brexit

The results to last week's Fun Online Poll were as follows:

Which kind of Brexit would you like?

Hard - 63%
Soft - 4%
Runny - 3%
Scrambled - 10%
Poached - 1%
Fried - 4%
Burned - 8%
The vegetarian option please - 8%

That's conclusive, a good turnout of 120 and thank you to everybody who took part. Other suggestions included "Burned bridges", "Over easy", "Scorched earth", "We knead to make dough with a Bistro Brexit", "Fully blitzed like a smoothie" and "Quick". I'm sure that most of those aren't egg recipes, but hey.
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What is interesting though is that we are now seeing exactly the same response as we had to Project Fear; if TPTB over egg the pudding, then people just go the other way out of sheer bloody mindedness.

So while the Three Brexiteers and UKIP are merrily banging on about Hard Brexit (whatever that means), it's not the UK as a whole who is pushing for this. As far as I can see, it is Merkel, Hollande, Juncker et al who are doing political grandstanding and saying they can't and won't make compromises, it's all or nothing etc.

As a moderate Leaver i.e. pretty much representative of UK mainstream opinion (for once), it seems inevitable that if the EU leaders are going to try and bully us and ignore the possible cost to their own economies, this will merely provoke the response in the UK that the EU can go f--- themselves, which is not really an optimal outcome for anybody.

So that's this week's Fun Online Poll.

"Which is more likely to push the UK into a 'Hard Brexit'?"

Vote HERE or use the widget in the sidebar.

Can anybody understand that British Retail Consortium letter?

From the related BRC press release (I can't find the letter itself):

While UK retailers have been very successful in insulating consumers from the cost of rising business rates and labour, the recent devaluation of the pound in relation to our most important trading currencies is compounding economic headwinds, while years of deflation have left little margin to absorb added cost from import tariffs and administrative burdens.

There is of course a huge cushion to absorb these extra costs, it is called "rent". As long as rents go down in line with the extra costs, retailers in general will be just fine (successful tenants will replace inefficient owner-occupiers). But that's not the weird part:

Moreover, failure to strike a good Brexit deal by 2019 would have a disproportionately severe impact on retailers and their customers, because if the UK fell back on to World Trade Organisation rules the new tariff rates that the UK would apply to imports from the EU would be highest for consumer staples like food and clothing.

For example, the average duty on meat imports could be as high as 27%, while clothing and footwear would attract tariffs of 11-16% versus the current zero-rating for all EU imports.

Falling back on to WTO rules would also increase the cost of sourcing from beyond the EU. The import cost of women’s clothing from Bangladesh would be 12% higher, while Chilean wine would be 14% dearer for importers. This contrasts with duty rates that would apply to raw materials and semi-finished products, many of which would be zero-rated or attract rates of duty of below 10%.

Hang about, I thought that the WTO has a system of maximum import tariffs which a country can impose (subject to loads of silly exceptions), not minimum tariffs?

They way they say it, the UK would have to impose higher tariffs on certain things. Can this possibly be correct? Can't WTO members just unilaterally abandon import tariffs?

"Rosemary Jones's Baby"

From Wiki and Wiki:

Rosemary Jones’s Baby is a romantic psychological comedy horror film set in modern day London, England in 1965. Rosemary, a bright but somewhat naive young housewife, and Guy Jones, her husband, a struggling actor, move into the Bramford, an opulent but antiquated New York City apartment building in London, where Rosemary works as a television producer.

On her 43rd birthday, Rosemary is awoken by Mrs. Gardenia, an elderly woman who had seemingly gone senile who reminds her that her time to have children is running out. Their friend Hutch tries to dissuade them from taking the apartment, informing them of some of the Bramford's rather unseemly history but, undeterred, Rosemary and Guy move into the building.

Three months later,Rosemary attends the funeral of Hutch, who is presumed dead after a plane crash. He leaves Rosemary a book about witchcraft and it is delivered to her at his funeral along with the cryptic message: "The name is an anagram". While there she sees her ex, Mark Darcy, and his new wife. They bump into one another somewhat awkwardly and then go their separate ways.

On the night she plans to conceive, Rosemary accepts Shazza's offer to take her away for the weekend. They go to a music festival where a drunk Rosemary crawls into a yurt she thinks belongs to her and Shazza, but actually belongs to a handsome stranger she met earlier. The two have sex and in the morning Rosemary tries to not be disappointed when she wakes up alone.

Returning home Rosemary goes to the christening of Jude's youngest child where she is the godmother and Mark has been asked to be the godfather. Mark tells her that his wife has thrown herself to her death from the window of the Castevets' seventh-floor apartment and Rosemary has sex with him.

Rosemary suffers severe abdominal pains, loses weight again, becomes unusually pale, and craves raw meat and chicken liver. Shazza suggests that Rosemary might be pregnant, especially when she realises that Rosemary used old, expired condoms when having sex. Dr Sapirstein insists the pain will subside soon, and assures her she has nothing to worry about.

Rosemary realises that she does not know who the father is and doesn't even have a way of contacting Jack, the handsome stranger, Guy, her husband or Mark Darcy. However, the abdominal pain suddenly disappears. Rosemary's health and appearance also improves quickly, and she, Jack, Guy and Mark are finally happy once again.

During labour Jack, Guy and Mark try to help Rosemary. However during labour she accidentally punches Jack in the nose. After Rosemary comes round from sedation, it is remarked upon that the baby, a boy, has "his father's eyes", to which Rosemary protests that the baby's eyes are nothing like Jack's, Guy's or Mark's.

It is then explained to Rosemary that child's real father is actually Satan. Rosemary sheepishly admits that she was so embarrassed about her one-night stand with Beezlebub that she didn't enter it into her diary. As the film was based on her diary entries, the audience finally realises why the film was so full of plot holes and missing explanations.

Possibly the worst case of NIMBYism I've seen yet...

Villiers launches campaign to save Arkley’s green belt

Theresa Villiers MP is throwing her weight behind local NIMBYs who - wait for it - object to a graveyard being built on the Green Belt. I can't even find the words.

Oh Great. Just Bloody Great.

Hammond hires HSBC 'economist'...

http://mobile.reuters.com/article/idUSKCN1280TT

http://uk.businessinsider.com/hsbc-eu-referendum-analysis-brexit-precarious-calm-before-storm-2016-6

"It's again a story of managing to keep the recovery hobbling along but due to much more stimulus both from the ECB and government spending. Less private sector expansion, more public sector expansion, and all the while we're just muddling through. We're not solving some of the key underlying problems, such as income inequality, high unemployment, and a disenfranchised youth — which is what is fuelling support for populist parties around Europe. And as we've seen with the UK last week those risks can materialise — so this remains a very precarious calm."

What about your role in all that?  The total failure to reform banks? The massive credit expansion?  The eye-watering rent seeking?  The taxes on production and subsidies to landowners and banks?  The total screwing of the poor and the prudent for the benefit of the already rich and parasitical speculators?

Another remainer or at the very least anti-leaver 'economist' from the same serial inflationist home-owner-ist club as all the rest of them.

Update  h/t DBCR

Seems that I have been a little (not a lot) unfair to La Ward.  Seems that she had spotted some issues in 2008 - somewhat after we did, may I add.

http://www.telegraph.co.uk/finance/newsbysector/constructionandproperty/2787692/UK-housing-bubble-is-bursting-and-its-serious.html

The Independent gets it wrong but also right

In an article spotted by Lola, the Indie tries to get to the bottom of what is causing Britain's "housing crisis".

However, setting on one side that fact that there is no housing crisis, there is just a lack of cheap housing in expensive places, they do a good job of bringing up all the usual suspects as the the cause of high house prices: I'd recommend you read the article, but if you've not got time, the defendants in the dock are Maggie Thatcher, foreigners, BTL landlords, NIMBYs, CPRE, house builders (by which I think they mean developers aka speculators), banks, George Osborne, the law and councils. The Indie puts the finger on councils, CPRE and NIMBYs.

So that's a double fail, firstly for ignoring the effect of 500 year low interest rates and secondly for subscribing to the land-bankers' myth that building more houses will make them cheaper. So, just the usual mainstream media output you might think, until you get onto the section "Solutions".

Again, all the widely touted solutions are here: rent controls, mansion tax, confiscate land from house builders (by which they mean the speculators once again), relax the planning laws, protect tenants, then at No 6, impose LVT, which is a bit of a surprise. They then round off with ban multiple home ownership, subsidise mortgages, help housing associations to borrow more and build more houses. Full marks to the Indie for awarding five stars to LVT, but minus points for awarding the same to "build more houses".

Still, for something written in 2014, it's pretty refreshing.