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How to Match Science with Finance

 

Pure gold, my Sunday lay ahead with no pressing commitments…. and what better start than good coffee alongside pastries in sufficient size to alert the diabetes police. This is the time my brain gets to defrag, even occasionally managing its level of a Newton moment (akin to looking at the famed apple tree).

SundayRead

I read.  It was an article which reinforced the notion that nothing stays the same.

 

Kilogram measurement, the metric measure normalised as a physical object (called International Prototype Kilogram IPK), is kept in Sevres, France (a replica is in Britain’s National Physical Laboratory) and it is the last SI unit (Systems of Unit) that is defined by an artefact rather than physical constant. So far, so good?  Take the original IPK and six copy IPKs, then leave for 125 years. What do you get? A  reaction, not dissimilar to leaving me with a plate of Danish pastry. The caged kilogram is no longer the same; it, and its clones, increase in mass.

 

 

And, where there is change, there is disruption and where there is disruption, there is opportunity.

By redefining the IPK, theoretically, everyone in the world of science will have access to (if I understand correctly) uncertainty.

The article managed to explain how the change – to something which sounds like performance motor engine oil (Plancks’ universal quantam constant) – would benefit all the other SI units on the outside looking in;  they’ll be certain to join the party of scientists, calibration laboratories, pharmaceutical companies and electrical engineers who’ll have something to celebrate. It also managed, with a swift scientific phrase or two, to take me back to the workings of business: Two ‘methods’ need to agree… at a level to be confident in the results…the moment there is a single point of failure in the system…there isn’t another one. Additional ‘management speak’ endorsed my thinking: ‘define the Volt…elementary charge will have zero uncertainty’.

 

 
 
Weightlifter

Deservedly famed for his observations on weight, motion, gravity, the cosmos (and being a fantasy dinner party guest), Newton was distinctly aware of change and applied opportunity arising from it to his working life.  At a time when the weight of minted money had fallen to half the legal standard, fakes were a-plenty, silver from coins was worth more in Europe than the coins, so those coins were being melted down and their metal shipped abroad, with the proceeds used to buy more coins.

England’s silver currency was in crisis. The economy was in crisis.  ‘Who ya gonna call ?’   The man with a mind that could redefine the way we think about our solar system – that’s who. Newton became Warden of the Royal Mint and turned detective on the massive counterfeiting operations to thousands of pounds, England’s silver was to have re-coinage.

One particular successful counterfeiter had a plan, which, activated, would be sufficient to bring down the currency. He was in a powerful position, so a pamphlet was prepared and, inferring Newton as incompetent, he declared to Parliament that the mint had within it ‘villains’ (you can almost hear the boo! hissing!). The counterfeiter should be permitted to demonstrate his claim, to provide a new counter-proof method of making money (for if anyone knew the workings, he surely did). What he hadn’t expected was that he’d be working with the Warden, who was a meticulous record keeper, keeper of accurate accounts and had methodically started at the bottom of a pile of suspects and worked his way through the gangs (his criminal detection expenses 1696 – 1699 reach over £626 – somewhere in the region of four times the national average  annual salary for the time).  Newton, possibly the greatest mind ever, had, similar to the seasoned entrepreneur, experience of having his ideas quashed. He understood what he was up against and probably, (being a superb scientist) made a mean cup of coffee to add some adrenalin to his genius.

The two ‘methods’ needed to agree. Certain he was confident in the results, because if there was a single point of failure in the system, he wouldn’t have another opportunity. Finance was to meet science.  He acted upon the opportunity that change (no pun intended) had given him.  The counterfeiter was taken to the gallows. Newton secured the lucrative position of Master of the Mint.

 

If I didn’t know I only manage to confuse myself,  I’d try to finish by noting  history repeats itself hence the only constant is change. The problem is that the devil is on one shoulder and angel on the other, both are slugging out the argument that shaming and blaming is counterproductive…. all while I’m reading financial news and eating pastries (plural!).

Pastries

Credit: Newton and the Counterfeiter (Levinson)

Image credits: DonkeyHotey, Joe Goldberg, SUF.

Article credit: Copyright SUF © 2014

It’s anticipated that sometime during October the Government-run British Business Bank will unveil its first deal with a lender.  The scheme offers to share the risk of certain losses on a portfolio of new loans made to small and medium-size businesses. In effect the smaller banks (i.e. challenger banks) could be enabled to lend more ‘easily’.  Over to you, lenders.

If you’ve seen anyone hawking tax disc holders cheaply it’s because the paper tax disc is no more. As from October 1 cameras will be relied upon to detect number plates and DVLA will rely on digital records.  Unless people turn to displaying their nearest and dearest on their windscreens, the space can be officially cleared   as part of the DVLA’s promise to be more efficient for the motor trade and  ‘a better digital platform enabling more self-service’.  Over to you Motor Traders.

The Financial Policy Committee will be publishing it’s response to the Chancellor’s request of advice, on any new Direction powers to guard against risk in the housing market, and it’s annual review of the Help to Buy Mortgage Scheme. Over to you BoE.

New rules for Lettings Agents, who from this month, must be a member of one of three government approved re-dress schemes, similar to the Ombudsman. Members can be expelled for misconduct and compensation awards made to victims as part of the consumer protection measures. Over to you Landlords.

Changes to stamp duty and land tax relating to valid Local Authority codes mean that paper returns with a non-valid code will be rejected. Over to you Solicitors.

Sobriety is being encouraged with a sobering October of no hangovers. Go Sober for October the charity initiative given to this month, along with Stoptober (no smoking). Over to you willpower.

Image and Article credit: Copyright SUF © 2014

I love percentages, they tell you nothing.

Big companies can be found looking to their top line (sales turnover) and reaching to their bottom line via the percentage routes of scale and margins. Whereas the top line for the smaller business is looking to their bottom line: the net profit.

Percentage margins for sales growth aren’t the profit amount; neither is the profit amount a percentage of margins for profit.

Big companies think about their profit margins. When revenue is down, and margins are hit, job cuts are made. The smaller business owner has been known to fail in looking at their margins as a business metric, so the percentages can overtake. Their response? Sometimes it’s to mimic larger companies. They turn to wanting to increase volumes (looking to higher percentages) rather than looking at the percentage (or profit margin) on each unit, sale, or invoice. Or, making staff cuts before looking at what the staff member is capable of as value to the business (percentage of sales turnover).

The measurement tells you everything.

Image and Article credit: Copyright SUF © 2014

Bank Rejects’ Offer

 

When does the one syllable, four-letter words into minute-long sentences, yelled out in single syllable breaths monster surface?

Think about the last time you were on the receiving end of rejection.Finger

Did the ‘it’s- not- fair!’ Monster surface when you were reminded that the world’s not fair, and this time, it’s not fair in your favour?

Deserved and fair or undeserved and unfair, it’s an uncomfortable place to be, with an uncomfortable word placed hanging in the air: Reject.  A powerful word with disrespectful connotations that’s used in high places and, the considered term for those whose bank loan application is turned away: the rejects.  However, any bank rejects may feel slightly more comfortable about their tag when they hear about the proposed forcing for some banks to close the Billy-No-Mates zone and offer their cast-offs to other lenders.

Can you go forcing something if it’s just not right?

Mothership
Apparently ‘tis so, the plans have been confirmed. The Treasury is drawing up their strategy in preparation for legislation and announcements during the Autumn (sometime when leaves are on the line, hay fever has turned to flu, blankets are being brought out because there’s a reluctance to put the heating on, and an Autumn Statement is due).

I can’t even begin to guess how many business groups and trade associations are linked with recent business statistics that show there are 4.9 million UK businesses, of which 4.7 million are categorised with micro status and  (though some are incorporated for deposits) there are somewhere in the region of 181 ‘banks’ (not including Building Societies) listed as active in the UK by the Bank of England. From amongst all those glorious numbers there were a magnificent ‘over 45 responses’ (I’m not certain whether ‘over’ means 46 or whether somebody decided 45 was enough before it was time to put the kettle on) rallying to the call from the consultation, to answer questions on  ‘help to match SMEs rejected for finance with alternative lenders’. WatchOut2

Sounding remarkably similar to the processing of victims in stocks (although it’s an image that might work for some, that would be the wooden pillory variety not the trading type) the proposed linking to ‘alternative lending opportunities’ suggests, for the mandatory process, ‘SME’s will be forwarded on to platforms’, whenceforth by their visibility, be sped to open market (I added that bit).  Similar to how some banks already operate (i.e. Santander and Funding Circle), ‘rejects’ will be asked if their details can be shared on Government designated private sector platforms for exposure to those who have an interest in staking their claim for a lending opportunity.

It wouldn’t surprise me if the mandate wants a `Guide for the Innocent’ creating which would be placed at various points of the youthful open spaces that have replaced privacy discussion areas in banks; no applicant will be left unturned and no applicant will be deemed capable of understanding why (notwithstanding unfavourable times) their business might be viewed by a particular lender as unfavourable. The leaflet’s headings likely something along the lines of How to improve your Chances for a Successful Application, Prepare your Business Plan, Know your Numbers, to a final If Your Application Fails. Then, more Disney than Dragon a simple statement ‘don’t worry, somebody will want you – ubiquitous smiley face’. 

Smiley
Finishing with:  If Your Application Fails:  OK, expect to see the taxi with no brakes waiting, not certain how much fuel will be in the tank. Destination? How should we know?  We want to close the door ASAP, you’re an unwanted guest. No guarantees but, if you’re lucky someone will pick you up, to cosy up over the spreadsheets, won’t (but maybe should) happen.

Despite HM Queen Elizabeth II stating (4 June 2014) ‘The Bill (Enterprise and Employment Bill 2014-2015) will support small businesses by cutting bureaucracy and enabling them to access finance” I humbly ask (not wishing to spend any time in those stocks), am I alone in an ever sceptical viewpoint?

Any bank, with new goals of bigger fish, being forced to share data with other parties about an applicant they deem a reject will definitely cut bureaucracy. But, (and this is the big but, possibly with a double T) to manage a referral system that treats all applicants equally, that is mindful of them falling down open gaps left over from perceptions of ‘non-quality’ custom, that ensures the Guide for the Innocent has all the lines in between read, that clears the applicant’s path of stumbling blocks to avoid a missed opportunity, means managing the difference of enabling them to access finance and enabling finance to access them.

Businesses (and not forgetting that lenders are businesses) are exposed to all manner of risk; market, operational, financial, consumer and pure liabilities; all contributing to continual and continued exposure.

Some businesses will manage to hide from some risks, some are on a hiding to nothing; the risk is, what do you expose and what do you reject?

 Image and Article credits: Copyright SUF © 2014

Some statistics  and studies for September – Make of them what you will…..

56% of a recent Future of England Survey felt public spending in Scotland should be reduced and 66% think Scottish MPs should be prevented from voting on English laws if it decides to remain part of the Union after the Scottish Independence Referendum.

Giving a balance of plus 25, a CBI Survey shows retailers optimistic about sales, with more shop owners with expectations of sales rising over the next three months than expectations of sales falling. The highest figure since May 2002, sales have grown at their fastest pace in six months.

London owes the highest amount in mortgages according to The Royal Mail Postcode 40th Anniversary study. The Royal Mail’s online Postcode Finder is one of the UK’s most used webpages with around 100,000 visits a day – more than 40 million a year.  There are 3,000 postcode districts in the UK. The postcode HD7 5UZ in Huddersfield, West Yorkshire, covers seven streets, more than any other in the UK and Westfield Shopping Centre in Stratford, East London, is so big it has its own postcode, E20, which was previously the fictional location for BBC soap EastEnders.

14% of the 993 of Europe’s largest public companies Accounts showed improved days working capital (DWC) for three consecutive years, shows the European Working Capital Survey.  Businesses are benefiting from an increased focus on working capital but sustaining working capital remains a major challenge.

The results of a study in Australia  (the first country to standardise packaging for cigarettes) suggests there  is ‘no evidence’  behind many of the “fears” proposed by opponents of standardised ‘plain’ packaging of cigarettes and that no evidence was found of small retailers being hurt by the change.

House prices average is now £189,306  according to Nationwide, with a +11% comparable to August rise. Property values were +0.8%, a sixteenth monthly increase and Land Registry figures suggest price increased by +1.7% in July, the biggest monthly upswing in five years, with Merthyr Tydfil beating London as the area with the strongest house price growth at local authority level.

Image and Article credit: Copyright SUF © 2014

For they surely will….

Inflation Report Recap.

  • August 2013 – Forward guidance would use several indicators, mainly based upon unemployment, labour market, working hours and surveys of ‘spare capacity’  in companies. The degree of spare capacity would reflect upon any increase in Bank Rate.

  • 18 additional indicators were added for degrees of space to the projections.

  • The last report (May 2014), a goal setting football analogy, indicated no early rises and there was a general consciousness towards it being after the General Election (2015), when rises would be up to 3% between 2015 and 2017.

The latest Report  states that it expects Interest Rates to rise in line with market expectations, with an emphasis on gradual rate rises. There are suggestions of a Rate Rise around the 0.75% mark during the 4th quarter, followed by increases to 1% by early 2015, with slower increments to reach about 2.5% -3% by 2017 (Mark Carney’s speech  at the Mansion House indicated there might be necessity for an earlier rise).

Supporting indicators of an Inflation Rate jump in June, from 1.5% to 1.9% (the target is 2%), Press giving out  business optimism as being high for economic growth, figures from the ONS showing growth, unemployment figures showing falls (although wages are slowing) blended with opaque measurements, leave the question hanging, “When will Rates start to rise?”

Anyone selling crystal balls might do well over the next few months.

Image and Article credits: Copyright SUF © 2014

InflationReportAugust2014

Know Anywhere I Can Get It Cheaper?

 

Hello – My name is Mike and I’m an addict.

 

I realised I had an addiction when I’d reached for something stronger than face-palm.

And as it seems, rarely does a week go by when I remain ‘sober’, and my head doesn’t take and involuntary rest on the desk because someone always swings by to tell me they’ve done the maths, know the numbers and all they now need to know is…. ‘can it be done cheaper?’

That’s my relapse cue for some surface impact, now being achieved through the namely Headdesk (known to some as BHOD – Bang Head On Desk), an extreme form, which for those who partake be warned – taken too swiftly can almost knock you out.

The root cause for my habit comes from back in the day and some novice landlords: there is no rationale where there is no experience, therefore I shouldn’t have allowed this to be be sufficient reason to start using facepalm and, had I managed to find some form of alert to those coming to me with bad habits, I might not have compromised myself by moving on to double facepalm.DoubleFacePalm

I admit that my drug of choice is a crutch. It gets me through when I’m dealing with  those who don’t want me sharing my impartial knowledge, offering honest feedback or benefit from my working world’s experience. But, although it’s a dependency spurred by people following their own bad habits, doing things they might not want to do but not knowing how (or wanting) to let go, it’s not a vicious habit and only happens when I witness opportunity, strategy and long term thinking being sidelined. For example, when I’m presented with a cost-saving notion because it’s a snapshot to a quick fix or deemed the cheapest option, I take my own quick fix; which doesn’t impair my work performance, and hasn’t caused any short term damage (not certain about the long term!). Except that, now, because I’ve turned to Headdesk, with its giveaway thump, I realise my downfall might be around the corner,  “Hey Mike, is that the sound of you wracking your brain because you didn’t know this already?”

When we want to find the cheapest option and the easiest route, our expectations deflect away from wearisome bureaucracy and finding gateways, it appears easier to spend time with a comparison site. And, when I’m asked to confirm if something can or cannot be done cheaper, there is a bonus for these prospectors because I’m happy to confirm to them the comparison site is indeed a straightforward way of getting information. Comparatively, before any hard surfaces meet my forehead, I’d be focusing on features that mitigate costly blunders, the things which aren’t found on comparison sites and the things which by their very nature aren’t straightforward.  When I notice an equation is missing some numbers which can make a difference in yields, it’s not always received as helpful information: the response lever releases an exit where sheep are separated from goats.

“Those who mind don’t matter, and those who matter don’t mind” (Seuss)

These are confusing times, who to trust and who not to trust is difficult enough without involving one of the most emotive commodities: Money.

That’s the reason you’ll sometimes find me with my head deeply embedded in my desk!

BangHeadHere

Image credits:  Article credit: Copyright SUF © 2014

Difficult to think about December in August however, Saturday 6 December is Small Business Saturday, the celebration day of ‘shop local’ and use independent-owned businesses, an initiative that promotes at all levels the support of small firms and have started their 100 countdown.

Santander apparently had an issue with the ‘moral problem’  of the aptly named Circus Uncertainty (you couldn’t make this stuff up!) when they wanted to set up a business account.  It seems that burlesque-style outfits worn by the showgirls of the 40 strong troupe might have made the bosses backtrack (wonder if that was at risk assessment?), that the bank didn’t want to be associated with. But ‘committed to supporting the local business community’ (and some press coverage) the bank has now re-opened discussion with the circus owner.

Money’s still too tight to mention according to the BoE,  who began collecting data on loans to non-financial small businesses in 2011. Consequently,  there is to be a wide-ranging regulatory probe (their words not ours) into the UK banking sector that will focus on personal and business accounts.  Still with the BoE, new plans have been revealed for Bankers who break rules (following alleged Libor rate-fixing) to face potential bonus clawback, and the prospect of custodial sentencing as part of risk management and regulation. The next MPC meeting  to August 7 will see the next interest rate decision. New Deputy Governor Nemet Shafik, who will join the bank on 1 August, had said the bank was likely to revise down its estimate that spare capacity in the UK economy is equivalent to 1% to 1.5% of GDP in its August update – a sign that the time for a rate rise is moving closer.

The Tax Office is to go on strike because of backlogs, delays and apparently private debt collectors. Strikes will be spread across the country on different days.  Plans are also being introduced by HMRC for new Direct Debit recovery powers under which they will be able to deduct tax owed directly from the accounts of debtors (providing £5,000 remains across all accounts including ISA’s).

HSBC is closing accounts to some Muslim organisations with a reasoning given of the service provided would be outside the bank’s ‘risk appetite’.  The bank has said that it was ‘applying a programme of strategic assessment to all of its businesses’, following a fine over poor money-laundering controls.

With 25% of small businesses still not online, the UK’s largest domain registrar is on campervan tour around the UK to highlight the importance of having a digital presence.  Starting in July (Newcastle) and finishing in London (12 August), they’ll apparently be demystifying the online world.

Image and Article credit: Copyright SUF © 2014

 

 


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