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Spot Markets Live Transcript: 05/12/22

Screenshot 2022-12-05 at 13.04.43
Izabella Kaminska 10:58

Good morning! Happy nearly St. Nicholas day. Hope you’ve all got your advent calendars on the go.

This, of course, is Spot Markets Live, the daily tour around the markets. Today I’m joined by my trusty partner in pixel crime, Anjuli Davies.

Hello Anjuli.

Anjuli Davies 11:00

Greetings

 Festive nearly St Nick day.

Izabella Kaminska 11:01

St Nicholas day is actually Dec 6. In Poland we call it Mikolajki.

It was all very confusing for expatriate children like me, because it used to be the day Polish kids got their presents.

But then western influence changed it all, so Dec 6 turned into a bit of a foreshadower of what would happen on Christmas Eve.

If you were in line to be on the “Nice List” you would probably wake up on the morning of Dec 6 with a little soft toy or micro present as an incentive to keep being good.

If you were on course to be on the “naughty list” you might wake up with an indicator of that.

In my case, I always woke up on Dec 6 with a clearcut hedged position. A small toy and some sort of twig or stick (back in the day it was seen as ok to scare children with the prospect of being beaten with something picked up on a forest walk).

Anjuli Davies 11:02

How times have changed. It’s all about Elf on the Shelf now

Izabella Kaminska 11:02

Indeed. But it’s always nice to revisit the way things used to be done. So I thought it might be fun to use the Dec 6 concept as a predictor of The Blind Spot’s naughty and nice list.

Anjuli Davies 11:02

Should we consider some contenders?

Izabella Kaminska 11:02

Yeah.

This is mainly to compete with all the “Person of the Year” stuff. Which is quite nauseating at this point.

The FT has nominated Zelensky. No big surprise there.

Overall I don’t disagree. But life is complex and nuanced. So personally I would award Zelensky as follows:

????????????????????????????

???

Anjuli Davies 11:04

Interesting choice of emojis. What are the plungers for? And also the presents?

Izabella Kaminska 11:04

The presents are what you get if you are in line for a good crop of “nice” gifts from Santa. It is an indicator of your niceness. There are no emoji twigs or other symbolic representations of naughty behaviour so we have to settle for a plunger ?for the naughty side of things 🙂

In this case I’ve awarded Zelensky three plungers. One for being a bit too over the top with the PR, especially the vogue shoot. Another plunger for concerns about his own predisposition to opaque financial arrangements. And the final one is awarded for creating that silly blacklist of Ukraine critics, which really in the grand scheme did not help.

Anjuli Davies 11:04

Should we steer the naughty and nice list more into the financial and business direction to avoid being trolled about the obvious contender for the Naughty List.

Izabella Kaminska 11:04

I think so.

But before we go ahead, we would like to hear your submissions in the group chat.

While wait to get those in, let’s check in on what’s moving the market:

European markets are mostly flat at the last pixel time check (10.40am)

Top Gainers on the FTSE (last I looked):

Prudential, Fresnillo and Rio Tinto (miners in general)

Top Losers:

LSE, GSK and Burberry.

GSK may be down on selling on the fact that a promising new GSK cancer drug has passed a key trial (according to the Times)

Anjuli Davies 11:06

Vodafone CEO Nick Read is to step down in an abrupt departure. Seems to have come as a bit of a surprise.

He’s been CEO for 4 years now but will stand down on Dec 31 after the share price has fallen 40 per cent since he took the role in 2018.

Vodafone is also in talks with Three about merging their UK mobile divisions. French telecoms billionaire Xavier Niel bought a 2.5 pct stake in Vodafone earlier this year, so waiting to see what he does with that. Shares are up slightly this morning.

Izabella Kaminska 11:07

Ouch

but there’s also some REIT news

GC is here to discuss a note by Boatman Research on Home REIT this morning.

Hello GC

I know nothing about this, do give us the download.

G C 11:09

Hi all

Home REIT is a UK REIT investing in social housing – technically into EXEMPT SOCIAL HOUSING for homeless, which allows for much higher rents to be claimed from the Department for Work and Pensions.

The following is a quick timeline of what has happened in the last few days

Wed 23 Nov – Viceroy Research published a note on Home Reit raising a number of questions including about:

– 3 charities (tenants of Home Reit) run by the same people.

– possible inflation of valuations of some properties by millions (this was later refuted – see below).

– round-tripping of monies.

– some charities not having a web presence or history of social housing.

Home REIT responded with a ‘rebuttal’ on Wed 30 Nov:

– turned out the uplift in land registry filings of some terrace housings by millions was a technical issue (packages of property filings for mortgages were attached to a single property in the land registry record).

Home REIT also had two investor calls on 30 Nov and 1 Dec:

– between the calls and the rebuttal, the position of Home REIT was that there is no round-tripping as they do not pay lease incentives to the charities.

Izabella Kaminska 11:11

So what are Boatman saying now?

G C 11:11

Boatman are saying..

(1) That Home REIT spent last week saying that it does not pay any lease incentives because the developer pays them to the charity so nothing to do with Home Reit (even though Home Reit won’t buy the property unless the developer donates to the charity a year’s rent)

But Boatman have found something in the accounts suggesting that Home REIT does give incentive payments or something undisclosed (this is para 3 about NIY vs topped up NIY)

(2) The original roundtripping defence is flaky anyway and should have been disclosed (if a property is worth £100 and I pay £105 on the basis the seller then pays £5 to the tenant to cover the first year’s rent then surely that indirect payment is still a lease incentive)

(3) The company should have disclosed the 12-week grace period

(4) Boatman have noticed that Home Reit are also talking about a sinking fund for the charities. But where is it and is it legally ring fenced

(5) And then they rip the argument that 3 charities controlled by the same people are independent by pointing out that that still risks bad actors. I think there is some mention of geography here and I suppose three charities run by the same people are also likely to have geographic concentration.

(6) And then they point out that the auditor for the 3 charities above is ‘interesting’ and has a 7-year directorship ban himself.

(7) Then that the charities seem to have 46:1 or 82:1 bed-to-staff ratio which is a bit odd as exempt housing benefit is meant to come with lots of support and care for vulnerable people.

(Incidentally, a charity with 7 people managing 571 beds sounds a bit odd anyway)

(8) And then does the manager really assess each of the 11,000 tenants to see that they are receiving the required care and support.

Izabella Kaminska 11:12

Ok – as someone who has no idea what this is about.

Can you give us the very basics on why is this important

How much money is at stake here? How big a REIT is it?

G C 11:14

The HOME REIT is currently about £418M market cap – that is after about halfing in the last few weeks

So it was about £800 – 900M – ie $1bn

Izabella Kaminska11:15
Let me get a chart.

is that the right chart?

Boatman 11:15

Hello, this is the Boatman.

Izabella Kaminska11:16

So things started to turn around August right?

Izabella Kaminska11:16

Hi Boatman…

(Sounds like a Top Gun callsign)

Give us the context, and what’s the latest?

G C 11:17

BOATMAN = FERRYMAN = CHARON – who carried people to the Underworld!

Boatman 11:17

Markets are the Stix.

Obviously, Home’s share price has been hammered by the Viceroy attack. The company’s rebuttal has not given the market any confidence.

We think the only way this mess gets cleaned up is a clean slate.

We don’t see the Board getting this ship righted.

Time for a clearout.

And then we can figure out what this thing is actually worth.

Izabella Kaminska11:19

Ok, so basically it’s a wait-and-see situation?

Boatman 11:19

Well. We don’t think investors should wait. We think the board needs to go now.

There are serious governance issues that have been uncovered. These need to be addressed.

But this Board has overseen those problems and seems blind to them.

Izabella Kaminska1 1:20

This was by Viceroy, right? For those not in the know, do you have a link to the original attack piece?

Izabella Kaminska11:20

Ok great.

Boatman 11:21

Yes, Viceroy’s research identified a number of issues. Our letter addresses those and others.

Izabella Kaminska11:21

Ok got it.

GC 11:22

So what was interesting in the original Viceroy report was that based on company filings it looked like some houses were bought for £120k say and then marked up to £5M or something. It turns out that was a technical issue in the land registry but then the company’s rebuttal raised further issues.

Izabella Kaminska 11:22

Oh wow

Boatman 11:22

The property portfolio valuation is very questionable.

Izabella Kaminska 11:22
That’s quite a mismark.
Boatman 11:22

In our letter, we suggest that properties could be 39%-51% overvalued.

That’s based on our rough estimate. We need to see the full portfolio to get a better idea.

GC 11:22

Yes – the original thing was that packages of properties were being marked to just one property filing so was confusing. But in the process, it transpired that the company is valuing according to a model.

Izabella Kaminska 11:23

Ok, and are you likely to get to see the whole portfolio?

GC 11:24

There are over 2,200 properties / 11,000 beds.

Boatman 11:24

Home pays developers a huge premium to renovate properties. Plus all sorts of other bonuses. Plus payments to tenants. As a result, the development ends up with a margin of up to 41%!

This seems like a Board very comfortable spraying shareholder funds around.

Izabella Kaminska 11:25

And what about the personalities here? Who is the board? Are any people of significant notoriety or legacy interest?

GC 11:25

Should explain – there are 3 parties to this – Home REIT as landlord / investor; a developer (often undisclosed) who aggregates the properties and refurbishes them and a charity that is the legal tenant and houses the homeless residents.

Izabella Kaminska 11:25

OK – and what about geographic distribution? To what degree are local councils involved?

Because I have a personal gripe with opaque council decisions on matters of town planning and building permission! ?

Boatman 11:26

The local council’s contract with the charity/tenants who then pay the REIT.

Izabella Kaminska11:26

So the councils wouldn’t be in the know about any valuation issues.

Boatman 11:26

But the contract with the LA is typically one year. Home’s contract with the charity is 25 years. This is not a stable relationship.

GC 11:26

You have touched on an important issue – three charities are run by overlapping trustees including one who is / was a councillor.

The prospectus has clear rules on client and geographic concentration – if the three charities were run as one then those rules might be broken.

Boatman 11:26

Councils wouldn’t know about valuation but there is a ton of money sloshing around.

The payments are to charity/tenants that have sometimes been set up specifically to get grants it seems.

And there are numerous conflicts of interest.

Izabella Kaminska 11:28

I really think there is not enough journalistic scrutiny of local authority shenanigans in building affairs.

GC 11:28 

As these are EXEMPT housing payments – the council gets reimbursed by the govt – and the payments could be unlimited.

Boatman 11:28

I know Viceroy thinks they have evidence of corruption and have taken that to the police.

But as the report reveals there is massive parliamentary questioning about the whole area – and from established charities and even councils.

Izabella Kaminska 11:29

As an aside, there was a big expose about Thurrock council last week.

A Tory-led council has admitted a series of disastrous investments in risky commercial projects caused it to run up an unprecedented deficit of nearly £500m and brought it to the brink of bankruptcy.

The staggering scale of the catastrophe at Thurrock council in Essex – one of the biggest ever financial disasters in local government – is contained in a report made to the council’s cabinet, which reveals it has lost £275m on investments it made in solar energy and other businesses, and has set aside a further £130m this year to pay back investment debts.

Boatman 11:29

Yes. Almost zero scrutiny of local councils. One of the problems with the collapse of local journalism. Nobody covers council meetings anymore.

Izabella Kaminska 11:29

And the Thurrock case got little to no traction with wider media.

Very strange, as seems quite a scandal, and I’m sure not the only council to fall prey to such things.

Boatman 11:30

Was it Nottingham that went bust after dodgy property deals?

Izabella Kaminska 11:30

Guys… This has been a great flyby. Why don’t you hang around in the comments below to answer specific questions from other rabble members, while Anjuli and I wrap the rest of the market news in the remaining half hour. Reminder, if you want access to the live sessions you can sign up here.

Boatman 11:31

Great, thank you.

Sure – and worth reading the report and watching the Panorama program that the report has a link to.


Izabella Kaminska11:31

So Anjuli, you’ve been looking at an old Diamond.. 🙂

Anjuli Davies 11:31

It appears Bob Diamond is staging a big comeback with Credit Suisse… here’s the long read in The Sunday Times:

And from the WSJ:

Investors including Saudi Arabia’s crown prince and a U.S. private-equity firm run by a former Barclays CEO have shown interest in investing $1 billion or more in Credit Suisse’s new investment banking unit, the Wall Street Journal reported on Sunday.

But I should shout out to Global Capital even though i can’t read the article as I don’t have a subscription for mooting Diamond’s interest five days ago

So, remember when Bob Diamond got forced out of Barclays over the Libor rigging scandal? He became the face of the financial crisis.

As the Sunday Times has well remembered “Lord Mandelson dubbed Diamond “the unacceptable face of capitalism” but later retracted it.

Even his daughter got dragged into it with the Daily Mail treatment:

But before that, he was of course a financial genius. He engineered the “deal of the century” when, as Barclays CEO in 2008,  he swooped on the Lehman brothers after it went bust.

That put the staid British bank firmly on Wall Street’s Map (some have since argued that it needs to get rid of its American investment bank – a bit like Credit Suisse is doing with First Boston).

And guess who advised him on that deal? None other than Michael Klein, the Dealmaking genius who set up his own advisory boutique but who is now going to take over the reins at Credit Suisse’s spun-out investment bank CS First Boston.

Diamond, now 71 ( where do these people get the energy?), is running his own investment vehicle called Atlas Merchant banking. So far, it’s been a bit of small fry with a majority stake in stockbroker Panmure Gordon, which is being run by his other old mate Rich Ricci.

https://www.ft.com/content/83e3c5e4-407a-40f0-8e8d-79a23fca9a61

He’s CEO of Panmure Gordon and former head of Barclays investment bank. Ricci – pronounced RICHY  (you can not make these names up).

Izabella Kaminska 11:34

Hehe

Izabella Kaminska 11:34

Is Atlas a ref to Atlas Shrugged I wonder?

Or just a coincidence?

Anjuli Davies 11:34

Or global domination? Do they have time to read Ayn Rand?

I wonder if their other old pal Jerry del Missier, co-head with Ricci of the investment bank at Barclays, will get involved at any point. Missier, Ricci and Diamond were dubbed “The Three Musketeers” of banking back in the day. Missier is now running an investment firm called Copper Street Capital.

I’m not really sure how much Atlas Merchant Capital can put into CS First Boston. I mean it bought Panmure Gordon for a mere £15.5.mln with help from Qatar’s QInvest.

Izabella Kaminska 11:36

Well, it does surprise me that some people can just keep getting the deals irrespective of their background. And others struggle for years and years with no bad record but get nowhere.

What else have we got?

Worth mentioning Tom Hayes in connection to Libor.

He has joined forces with four other traders to challenge their legacy Libor convictions.

The Times has the “scoop”:

Four former City traders who were prosecuted for rigging financial benchmarks are hoping to join Tom Hayes in his attempt to have his conviction for Libor manipulation overturned.

Carlo Palombo, Philippe Moryoussef, Jay Merchant and Christian Bittar have instructed Ben Rose, co-founding partner of Hickman & Rose, a law firm, to explore ways of quashing their UK convictions, The Times has learnt.

I’m not sure what happens in a quashing if you’ve already served time?

Presume there would have to be a financial compensation award.

But hopefully, Tom and I will do a “leaked lunch” session soon, so I can get ahead of the story.

I met with him the other week and have to say, am very much convinced by the miscarriage of justice here.

Didn’t know his dad was the former editor of World In Action.

Not that the media connection did him much good, but apparently still wasn’t able to turn the tide on media opinion when things were most hysterical.

Moving on…


Anjuli, did you get swept up in the Elon/Taibbi Twitter files over the weekend?

Anjuli Davies 11:40

No, I managed to switch off Twitter

Izabella Kaminska 11:40

Probably a good idea. It was sleeping time I will never get back and turned me into a zombie all of Saturday.

But yeah, Elon chose late Friday night to drop the big news that he had passed on all the Twitter “corruption” info to Matt Taibbi to review with respect to the company’s alleged intervention on matters political and more.

Taibbi then engaged in a multi-tweet thread sharing snippets of evidence, including an email that accidentally revealed Jack Dorsey’s private email address.

It all felt a bit like a Live Action Role Play situation… but with everyone playing their real-world profiles.

We won’t dwell on this, but I got cornered into doing live commentary with my podcast partner Junseth, so if you want to get a feel of how it went down, do check out the audio from about 28 mins in I would say.

You can check it out here:

@David – I think the big reveal was that both sides were trying to influence Twitter, albeit the democrats may have had more impact due to the leanings of Twitter staff, and that there was an active dark market in getting stuff deleted.

But also that it wasn’t so much the government or the DNC or intel agencies that pressed Twitter to censor the Hunter Biden story, as much as Twitter itself.

Also, Elon is getting very cosy with the likes of Kim Dotcom it seems. He’s also just run a poll asking whether Julian Assange and Edward Snowden should be pardoned.

I think it was overwhelmingly in favour of Assange and Snowden.

But…

We’re interested in the naughty and nice list.

We have a few submissions.

So please give us your feedback by awarding either Present emojis for niceness or Plunger emojis for naughtiness.

Let’s go through some of the candidates.

Candidate number 1: Liz Truss

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???

Anjuli Davies 11:46

What are they for?

Izabella Kaminska 11:47

The presents are for basically being a countercyclical force and for changing my impression about who really rules the country. Also for “It’s done” (allegedly).

Anjuli Davies 11:48

I think that’s quite generous of you Izzy

Izabella Kaminska 11:48

Candidate Number 2: Andrew Bailey

???????????????

?

I actually am going to withdraw my present.

I clearly pre-emptively overreacted to the upside.

As opposed to ANDREW BAILEY who pre-emptively UNDER reacted to the downside.

Candidate Number 3: SBF

Anjuli Davies 11:50

had to be done

?????????

No prezzies.

Izabella Kaminska 11:50

Speaking on behalf of the MSM:

????????????????????????????

No plungers.

ok enough of that. Feel free to continue awarding below and we’re still in the market for more contenders.


In the last 10 min – let’s look at what’s happening in Geneva

I promise there is a markets angle here.

Richard Guthrie at CBW Events is still tracking daily events at this year’s Biological Weapons convention – largely being ignored by the MSM.

Key developments include the US moving closer towards accepting a verification mechanism for the convention’s enforcement.

But there have also been a lot of gender-related discussions. (Not sure why gender is an important factor in the BWC but apparently it is).

There have also been some important breaks from conventional procedures.

The convention, for those who don’t know, has no enforcement or verification mechanism.

Instead, signatories meet every few years to review the text of the convention and argue for amendments if needed. They also operate around the concept of confidence-building measures.

This year has been fairly contentious because of Russia’s ongoing accusations of biological warfare shenanigans by the Ukrainians and Americans, dismissed as disinfo by the Western bloc.

But Guthrie is noting some interesting breaks from procedure this year. He’s dubbed one of the key review committees “Shrodinger’s Committee” as a result:

Very clear signals were given that this was not the Drafting Committee, even though the session was being chaired by the Chair of the Drafting Committee and considering the business that had been allocated to the Drafting Committee.  In summary, it was both not the Drafting Committee and the Drafting Committee at the same time, hence ‘Schrödinger’s Committee’ was born.  A consequence of the compromise was that everyone who was not a member of a state party delegation was required to leave the room and the proceedings continued behind closed doors, notwithstanding that there have been many informal plenaries that had been held in open session in earlier Review Conferences.  That these proceedings were held in a closed box that was unopened to the world only strengthened the Schrödinger analogy

Anjuli Davies 11:54

What’s this got to do with markets?

Izabella Kaminska 11:54

Well, the last time the US agreed to mutual inspections/verifications was in the early 90s.

In exchange for allowing the Americans and Brits to visit Russian facilities (which they did – the inspection delegation was led by none other than the late David Kelly and he discovered a major secret biological warfare programme called Biopreparat) the Russians insisted on seeing Pfizer facilities in the US (and another Liverpool-based private facility in the UK, alongside Fort Detrick sites).

The Russians had always claimed that Nixon didn’t really suspend US biological weapons programs as promised in 1971, but merely outsourced them to the private sector.

Pfizer agreed to the visits under pressure from Bill Clinton but was appalled when the Russians twisted everything they saw and accused them of all sorts of nefarious activities.

In the noughties, when a formal verification and inspection mechanism was being proposed by Convention signatories, the US blocked it – largely due to pressure from the private sector and concerns that this could be abused by the likes of Russia to steal commercially sensitive information.

Therefore, if there is any progress on a verification mechanism, it is worth watching how the US pharma sector might react. They have stood opposed to this for a long time.

As Guthrie summed up last week’s proceedings:

There seems to be significantly greater convergence of perspectives around a number of previously difficult issue areas such as verification and the enhancement of Article X than there has been at other recent Review Conferences.  It would be a tragedy if such convergence could not be used as the foundation for substantive progress for the BWC.  Even with a greater convergence of perspectives, there are still many details to be fleshed out.  There will be numerous challenges for delegations who have to reach judgements on whether the advantages they get from advances in the issues they want to pursue outweigh the disadvantages in accepting those parts they are less in favour of.  Nevertheless, the majority of states parties seem to be agreeing on a core set of substantive issues and on where some of the trade-offs may be.

Perhaps the most unpredictable element at this stage within the Review Conference is that the geo-political tensions are significant and generate uncertainties that raise concerns that consensus will be difficult to reach at the end of the Conference. The ejection from the conference room of the non-governmental organizations and others who were not representing states parties on Friday afternoon was reminiscent of BWC meetings two decades ago. 

 It used to be the United States who would call for meetings to be held in private.  At the time, Iran and Russia, amongst others, would hint that the US was taking that position because it wanted to reduce scrutiny after its rejection of the negotiations for a verification protocol in 2001.  It will be interesting to see how the actions by the latest countries to reduce the openness of BWC meetings are perceived by those at a distance from the Conference.

It was, as a reminder, Iran and Russia asking to eject nonstate parties from the Review Conference this time around (as far as I can make out).

I wrote up proceedings as far as last Thursday here:

More info also available here:


To finish off, I had wanted to check in on the gas situation

Because it’s got cold, and there’s not been a lot of wind power, so fears about blackouts are rising.

Anjuli Davies 11:58

We only have two minutes left…

Izabella Kaminska 11:58

Yeah, so just a couple of links will have to do

France is on a knife edge over possible power cuts

On Thursday, the French government announced possible ‘rotating load shedding’ from January 2023, which would affect 60% of the population.

And buy candlemakers apparently

Last and not least, we want to finish off by testing demand for our own Blind Spot Christmas-themed merch.

Please give us some feedback on which of these virtual designs should be made real, and if you’d be up for buying some of them.

Anjuli Davies 12:00

Maybe make them in candle holders instead of mugs?

Izabella Kaminska 12:00

(good idea)

 

This is one of my faves:

Adjusted Ebitda, Ebitda, Net Income

?

Votes on a postcard in the comments, please.

On that cheery note..

We will wrap it up for now.

So thank you everyone for joining!

See you next week 🙂

Anjuli Davies 12:04

Bye bye

Izabella Kaminska 12:05

Oh and a quick reminder, Blind Spot/ALTIF drinks.

7 pm at the Drayton Arms in South Ken – if you want to come please just RSVP to [email protected] so that we can manage liquidity.

I will be there, and so will Anjuli, so will Ben Harrington, so will Dario and the A long time in Finance team, headed by Jonathan Ford.

If you can make it, do come along.

See you all bye!

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