Tonight:
5°c
Well, they finally came out with their hands up. After years of fiddling the figures, moving the start of the "cycle", reorganising the Central Statistical Office, redrawing definitions, and ignoring the liabilities they didn't like, our Labour Chancellors can maintain the pretence no longer. Gordon Brown's oft-repeated pledges to keep the national debt below 40% of the value of what we produce, and to borrow only to invest "over the economic cycle" have been consigned to history.
Thus is the last figleaf covering Labour's economic incompetence blown away. As some of us always suspected, Prudence was just his walker, not his partner. The 40% pledge may have lacked any intellectual underpinnings, while "borrow only to invest" was merely Brownian mumbo-jumbo.
It's not obviously better to build more schools than buy more teachers, and like the length of the cycle itself, the divide between investment and spending is entirely arbitrary. Yet both helped cover up for Labour's big spenders. Now only exhortation is left, which we know doesn't work. The credit Chancellor Brown established in his first three years has been exhausted; he pledged his love for Prudence while practising fiscal incontinence. To disguise this, he abandoned an inflation target we could believe in, replacing it with a patently phoney one. He turned official statistics into propaganda, destroying the CSO's reputation. Instead of tackling problems, his administration would rather define them away and hope we don't notice.
When Railtrack was pushed into administration, the Treasury maintained the debt should not count on the public books (although the money would never have been raised without the guarantee). It lost that battle, and is losing a bigger one at Northern Rock. Even before the cost of Brown's 10p tax climbdown, this year's debt was nudging 40% of GDP. Now the figure will be almost 45%, higher than when he came in, pledging "No more boom and bust".
Abandoning the rule is no more than an admission of reality, but it removes the last shreds of credibility from Brown as a Chancellor. It's now clear he wasn't clever, just lucky, to have been in No11 when the Chinese industrial revolution was driving down prices.
Instead of using our good fortune to pay down debt or invest, he fiddled away with pettifogging measures, introduced the long-term disaster of tax credits, and blocked health and education reforms.
Now the bills are coming in. They will be paid by future taxpayers who must service the debt he and his Chancellor are creating; if Alistair Darling survives the next reshuffle, he'll be the first Chancellor to be borrowing £1 billion every week. Those investors who are happily lending for 20 years at little more than 5% should look at history, and find out what inflation can do to their bonds.
Let's junk the Scots and hang on to the Halifax
There are 932 million HBOS shares, give or take a few, available to buy at just over 275p. Since the holders never wanted them, does that make the shares a sell, or does this present an extraordinary buying opportunity?
The rights money is gathered in, however clumsily, and the bravest analyst in the City, James Hamilton at Numis, reckons that when this lousy credit crunch is over the shares could be worth £13 apiece. While his target may be over the horizon, others agree that the worst is already in the price. HBOS shares sell on 60% of stated book value of 440p (after dilution from the rights issue) and if last year's dividend was maintained, they'd yield over 18%.
It won't be. The bank has already said it's going to cheat with the next interim, and pay it in still more shares, a move which might have been designed to irritate small shareholders. Many of them will get stupidly small amounts of stock which they'll be unable to sell efficiently, and more paper to lose. The rights issue presented similar problems. No wonder they turned it down wholesale.
The HBOS board has made fewer mistakes than their colleagues at Bradford & Bingley, but bleating about the short sellers - who turned out to have a much better appreciation of where the shares were going than the directors did - looked foolish at the time, and looks plain silly now.
There is still bad news to come. The creation of HBOS allowed the whiz-kids from the smaller Bank of Scotland to use the solid balance-sheet of the Halifax to back big, exciting commercial projects. Many of these are ultimately property plays, where the write-offs have yet to begin. That 440p is going to take a beating when they do.
The analysts at BNP reckon HBOS is still short of capital even now, but Alex Potter at Collins Stewart thinks that once the share overhang has cleared, there's a well-capitalised bank which can help itself with sell-offs if necessary. It could help itself, too, by getting some banking experience at the top. Neither chairman Lord Stevenson nor chief executive Andy Hornby ever trained in a bank before landing at the top of HBOS.
It's just possible that the worst is indeed past. The rights-issue misery has not damaged the Halifax franchise, with deposits pouring in from nervous savers. Those lenders that survive the crunch will make a lot of money from mortgages, while that exciting commercial business can be pruned. As a good name, Halifax Bank has a fine ring to it.
Those oiligarchs really do need BP
One of Lord Browne's strategic decisions as chief executive of BP was whether to go for Russia or Nigeria, the only two provinces with prospects big enough to make an impact on the company.
Today, the choice seems to be getting shot at in Nigeria or seeing assets confiscated in Russia, where BP is losing the battle for control of TNK-BP, its joint venture with a clutch of Russian oligarchs. This produces a quarter of BP's output, but only one tenth of its profits, so losing control would hardly spell disaster. Moreover, a big dividend seems to be the only thing not in dispute between the two sides, and on that basis alone, the investment has proved to be worthwhile.
BP's position may be less weak than it looks. It's pulling out its experts, and can deploy them elsewhere at a time of acute shortage, while TNK will need them. BP may be reduced to a minority investor, but expect a rapprochement in a year or two - and for those dividends to keep coming.
Time to say thanks for the millions and Dubai
Minerva is a bet that London commercial property has a future. It has a clutch of big developments, ranging from Walbrook and St Botolphs in the City to Park Place in Croydon, and residential projects at Lancaster Gate, the Kensington Odeon cinema and the expensively acquired Ram Brewery site in Wandsworth. Its business is essentially simple, and state-owned Limitless of Dubai (current inflow from oil revenues: £1 billion a day) must find it easier to understand than, say, the balance-sheet of a bank.
In terms of real-estate investment, both in London and Dubai, Minerva's £260 million price tag is little more than option money on recovery. The market is so demoralised that the shares had drifted to 72p even though Minerva disclosed it was in bid talks. In the good old days, they fetched over £4, but that is hardly relevant today. A 160p cash bid should cheer everyone up, and shareholders should take the money and feel grateful. Other property development companies can only hope that this starts a trend before their money runs out.
Sorry Ma'am, the money's gone
We all want Crossrail, and now the Queen has given her assent, just 19 years after it was first proposed. Crossrail is exactly what governments should do during the years of plenty, but now they are over, and we can't afford it. The financing details give the game away: £5.6 billion from the Department of Transport (the taxpayer),£7.7 billion from Transport for London (the taxpayer), £2.3 billion from Network Rail (the taxpayer). Government spending is already too high, and there's the little matter of financing the Olympics. Even the Royal Assent will not make it happen.
