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IFM Independent Financial Magazine Issue 03 / 24 MARCH 2014

Britain The Budget 5

United States Fed Policy 6

EMEA - Europe, Middle East, Africa South Africa’s path to prosperity? 7

Global Economy Food For Thought 8

Special : Derivatives

Can risk really be tamed? 8 A Beautiful Formula Turned Ugly 9

Finance in Sport The Rangers Football Club PLC 13

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Contents IFM 24 March 2014

5

Britain

6

United States

The Budget Fed Policy

7

EMEA - Europe, Middle East, Africa

South Africa’s path to prosperity? 8

Global Economy

Food For Thought 10 Special : Derivatives

Can risk really be tamed? A Beautiful Formula Turned Ugly

5 10

12 Trader’s Diary

2014- Year of the swingers? 13 Finance In Sport

8

The Financial woes of The Rangers Football Club PLC, 2010-2012 (Part 2)

13 11 2

7

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Editors View What a week it has been in the markets! Whether you look at the FOMC announcement or indeed the chancellor’s controversial budget for UK PLC, there was truly something for every reporter and analyst alike. The new Fed chair made her debut press conference and boy was it swirled with confusion. Imagine walking through a pitch-black forest with no torch and that’s effectively an investor’s view of the path of future interest rates. Amongst other objectives, plugging the gaping holes of the financial system is something the Fed is in the process of doing. The rapid innovation and trading of financial derivatives was a definite contributor to the crisis and AIG were a perfect case study on how not to assume risk for short-term profits. The large-scale sale of credit default swaps, essentially insurance on defaulted assets, in hindsight was beyond irresponsible. Perhaps such derivatives could be used more effectively with a particular model? Enjoy the articles folks and be sure to observe a volatile market reaction. Happy investing!

IMPORTANT IFM magazine publishes information and ideas which are of interest to investors and students. It does not provide advice in relation to investments or any other financial matters. Comments published in IFM magazine must not be relied upon by readers when they make their investment decisions. Investors/Students who require advice should consult a properly qualified independent adviser. IFM magazine, its members do not, under any circumstances, accept liability for losses suffered by readers as a result of their investment decisions. Members of staff of IFM magazine may hold shares in companies mentioned in the magazine. This could create a conflict of interests. Where such a conflict exists it will be disclosed. In keeping with the existing practice, reporters who intend to write about any securities, derivatives or positions with spread betting organisations that they have an interest in should first clear their writing with the editor. If the editor agrees that the reporter can write about the interest, it should be disclosed to readers at the end of the story. Holdings by third parties including families, trusts, self-select pension funds, self select ISAs and PEPs and nominee accounts are included in such interests.

Editor Pete McCarthy ASPAC - Asia-Pacific

Jeremy Kempke EMEA Jeremy Cottingham Special Report

Co-Editor Alan Konopka

Designer Sarah Aoki

EMEA & UK Capital Markets

Jack Laird Global Economy

Tristan Blümli Special Report

Creative Director

Kristopher Connelly Finance in Sport Mohieddine Kaddouri

Trader’s Diary

Independent Financial Magazine

Issue 03 Published 24 March 2014 Front Cover #03

Chicago Board of Trade

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Capital Markets FINANCIAL MARKETS INDICATORS 24/03/2014

Indices Weekly Change: 0.45% 1.38% 0.64% 1.35%

Commodities

Level: 6,557.17 1,866.52 3,004.00 14,484.06 15.00 Price:

Gold 100 oz. Copper Brent Crude

$1,333.00 $2.99 $106.77

-4.00% -0.66% -1.46%

Rate:

Weekly Change:

$ $ ¥ £

0.6066 0.7247 0.0098 1.1944

0.91% 0.79% -1.01% -0.13%

Bonds

Yields (17/03/2014) 2.67% 2.66% 0.63%

Yields 24/03/2014 2.74% 2.76% 0.60%

FTSE 100 S&P 500 EURO STOXX 50 Nikkei 225 VIX

Currencies £ €€ $ €€

per per per per

10Y UK Gov 10Y US Gov 10Y Japan

Source : Bloomberg

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Weekly Change:

Volatility (Std Dev): 15.9778 1.5392 12.5841 192.447


Britain

The Budget

Good news not only for Bingo and Beer fans By Alan Konopka

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n Wednesday, George Osborne delivered his fifth budget speech, and despite being highly anticipated, the chancellor had a few ‘rabbits in the hat’ so to speak. Firstly, there are significant changes coming to the Individual Savings Accounts (ISA). Tax-free saving accounts, which were, previously divided into cash and stocks & shares accounts, will now be merged into one account with the annual tax-free allowance raised to £15,000. This will give savers greater flexibility of savings allocation. Savers will be allowed to decide what portion of their savings should be in cash and which should be in stocks & shares ISA. It addition to that the budget brought new and improved transfer options that will allow savers and investors to transfer from a Cash ISA to a Stock ISA and vice versa. Limits on savings have also been raised on Junior ISA’s to £4000. All of the above will significantly increase usage of ISA accounts by savers and investors. These will take effect from 1st July 2014. The second surprise announcement from Mr. Osborne was a change to the Defined Contribution Pensions (DC). Moreover, there was a removal of the restrictions to the pensioner’s access to the pension ‘pot’, whereby previously pensioners were forced to purchase an annuity (financial product paying income for the rest of the pensioner life) with the money gathered in their pension. Reduction of such restrictions will allow for a lump sum to be taken from the pension pot on which an individual will only pay the marginal tax rate. The implications of this decision will be that insurance and investment companies will have to create new and attractive schemes to capture the liberated funds. It also allows government to access the taxes from those funds earlier. Despite being a popular decision to loosen pension requirements, it might turn out to be a double-edged sword. First of all, it might tempt individuals to liquidate their pension pot at once and simply go on a spending spree. On the contrary, the government estimates that the majority of pensioners will make wise and sensible decisions and not simply liquidate in one fell swoop.

Inevitably, such a decision will cause a stir within the industry. Investment companies such as Hargreaves Lansdown (HL: LSE) or St. James’s Place (STJ: LSE) will see a significant increase in business activities caused by the freedom of investment choice by pensioners. On the other side companies such as Prudential (PRU: LSE) or Standard Life (SL: LSE) will see a sudden drop, not only in business but also in their share prices, unless they structure new products for pensioners aimed to provide genuine benefits. In addition, there will also be a change to pensioner bonds in the form of fixed-rate saving bonds for people aged 65 and over. The proposed plan includes 12 month and 3 year dated bonds with coupons of 2.8% and 4.0% respectively. Other changes include the increase of the personal allowance from £10,000 (2014/15) to £10,500 (2015/16). This change will make the income tax payer £100 better off compared with 2014/15 tax year. Also the rate threshold has been raised to £42,285 from £41,865 (2014/15). Individuals with total annual earnings of less than £15,500 will see their saving income be tax free, unlike the previous 10% rate. Additionally the band will be extended to £5,000. With regards to businesses, George Osborne has proposed generous changes to the Annual Investment Allowance (AIA), which will double from £250,000 to £500,000 before changing to £25,000 the following year. This should not only help small and medium sized businesses write down all capital investments in one year, but will also cause larger businesses to increase capital expenditure, in effect aiding to the strength of the recovery. As the Chancellor outlined, the recovery is still in its infancy as is yet to enter escape velocity. Prudence is the order of the day.

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United States

Fed Policy Clarity or Confusion By Pete McCarthy

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fter having a weekend to digest the FOMC statement of current and future policy, I’m still none the wiser as to what the plan of attack is.

year yields also saw rallies (274bps). Moreover the QE taps slowly closed once again, with a further reduction in the pace of asset purchases.

But the question is, do markets know the answer? The answer is a resounding, no.

So a tighter environment even though the rhetoric is the exact opposite, confusing or what!

The Fed chair, in her first press conference, one would assume aimed to provide upmost clarity and intentions of the banks policy guidance. In an economic nutshell, Mrs Yellen said the Fed Funds Rate (FFR) would remain low for an extended period of time, even after the bond-buying bonanza is wound down. A reporter then asked her to specify this ‘extended period’. Yellen uttered, ‘6 months’. Big mistake.

In the US, the long run unemployment rate is circa 5.4%. The long run FFR is 4%. Now, lets assume the inflation target is met (2% target) in the long run. Yellen outlined that even when the unemployment rate falls to the long run level, the FFR will stay low to encourage spending. That will create a rather large disconnect and policy actions in the future will be more mixed and out of kilter with the past. Yellens successor will have quite a task ahead of them.

If there was any lesson to be learnt from Ben Bernanke’s term, it’s the fact that markets take any slither of information and run with it. Instead of providing clarity on credit conditions, she created rate moves when her intention was exactly the opposite. Given the sensitivity in the short end of the curve, the two-year note shifted up to its highest level in almost three quarters of a year, reaching 42 basis points (bps). Ten-

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However, it’s not often the global economy experiences such a financial meltdown. But when QE comes to an end in the latter part of the year, markets should then price in a rate rise, except they are doing it now. Let’s not kid ourselves. When a rate rise occurs, its not going to be shooting up to 1%. More likely it will gradually rise to say 50bps and steadily increase by 0.25% increments. The

objective of QE is to encourage some healthy inflation. Mr Draghi will agree to this fact. Inflation is good as it raises incomes, makes people feel wealthier via various channels and the economy grows again. If QE is ending in November and we see no real inflationary pressures, then what? Monetary policy can only do so much. The real longterm improvements in productivity stem from crucial reforms in the labour market and other supply side measures (aka fiscal policy). Mr. Abe it appears is the role model for such a method. Instead of the endless bickering on Capitol Hill, debt ceiling debacles and never ending chat on Obama care, the real American people are feeling the squeeze, which is why inflation is simply not there. As for the bond markets, perhaps the vigilantes have jumped the gun too soon. Maybe the fall in prices for shorter dated debt presents a buying opportunity? Escape velocity is not apparent just yet but as far as the Fed is concerned, the conclusion is more of confusion than clarity.


EMEA - Europe, Middle East, Africa

South Africa’s path to prosperity?

By Jeremy Kempke

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n 2001 the former Goldman Sachs Investment Banker Jim O’Neil introduced the ‘BRICs’ acronym in order to be able to group the world’s fastest growing countries together and provide a counterpart to the G8 and G20 nations, which mostly consist of developed countries. However, the 5th country was only added amid concern that no African country was represented. So the ‘s’ became ‘S’ and represented South Africa. South Africa played a key role in the emerging market growth we have experienced over the last decade, but at the same time (similar to many others) is currently experiencing tremendous difficulties. South Africa is widely seen as the driver of the African economy as it currently creates 2/3 of the continent’s Investment Banking fees. The trend is forecasted to continue as Goldman Sachs is predicting the number of Initial Public Offerings to grow even further throughout 2014. The Johannesburg Stock Exchange (JSE) is widely recognised as the major stock exchange in the region attracting corporates from all over the continent. The combined market cap currently sits at around $700bn, approximately 40% of the FTSE 100. Just looking at these statistics, one would certainly imagine that the economy is booming? Until recently, that was certainly the case. However recent events have resulted in investors becoming highly sceptical. Firstly, a large chunk of South African exports are flowing out to China (approximately 15%). With Chinese growth slowing (due to lower demand), one would imagine that this would negatively impact South Africa’s economy. However, the main reason why investors are concerned with South Africa’s development is the fear of an upcoming credit and asset bubble. South Africa is experiencing an economic bubble that shares many similarities to the bubbles that caused the downfall of western economies in 2008. Though South Africa has received a significant amount of attention after its sharp currency depreciation over the past twelve months, there is still very little awareness and understanding of the country’s economic bubble itself and its implications. Record low interest rates

in the developed world, alongside the U.S Federal Reserve multi-trillion dollar QE program, caused several trillion dollars to flow into emerging markets like South Africa. Similarly South Africa has experienced two low interest rate periods in the last 10 years, 2004 – 2006 and the postcrisis period. Alongside ‘QE hot money’, low interest rates are appearing to contribute to an inflating credit and asset bubble. It is noticeable that the stock market boom began approximately at the same time that interest rates first started becoming extremely low. In my opinion it is only obvious what happens when you continuously borrow money at cheap interest rates and suddenly the tap is turned off, the credit bubble will pop. To make matters worse, 150% of South African external currency reserves are required to roll over sovereign debt that matures in 2014. As the Fed’s tapering program continues I would expect South African interest rates to increase in order to prevent further currency depreciations. However, this could lead to asset and property bubbles to pop. It’s certainly a tricky situation that South Africa has found itself in. Do you raise interest rates and potentially pop the bubble, or do you keep them low and face a currency depreciation? Once again, I’m glad not to be in a position having to decide on that. I feel sorry for you Jacob. ABSA House Price Index, Medium-Sized Houses (2000=100)

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Global Economy

Food for thought By Jack Laird

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urvival of the fittest is a phrase coined by the English philosopher Herbert Spencer, and is used as a way of expressing natural selection. Prior to the security of our current civilisation, before food was readily available from the super market and long before the world had more people dying from over eating than from malnourishment, humanity had to work for its food. The most basic instinct for any living organism is to feed and that kind of internal programing is what keeps us all alive. But in today’s day and age, is this redundant urge? Is the “killer instinct” that we can observe in the predators in nature an obsolete notion for the modern human?

When we take on this drive and the urge to win, we will disregard others to meet our own goals. But as a modern society is this acceptable? Is it ok to benefit from the loss of another or to profit from something that will hurt another? There are many vices we can enjoy that damage us. Alcohol, tobacco, drugs, gambling are all massively profitable industries. These are all things we choose to take part in. That said, many have addictive properties, so is it right to profit from these? All offer free will to participate in, but should an addiction take root in the illusion as free will dissipates? The gun trade is multi-billion dollar industry. There are more handguns in the United States than there are people and the death rate due to firearms is through the roof. Unlike the previously mentioned notions, the participation of any weapons related activity more than likely involves an unwilling participant. I ask again, is this ok to gain from a business that is designed to end a human life?

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That is a question in which I have no answer. In distant eras it wouldn’t be unheard of to have to kill just to eat, but times have changed for the better. We are living longer and on average we have a much higher standard of life than those just decades before us. Should we hold our instincts to the same standard that has evolved with our society, or should we carry on to serve our best interests? The predicament we find ourselves in is that for society as a whole it would be beneficial to limit ourselves to the investment and profit of organisations that meet a social agenda and work to make the world better as a whole. However, if we restrict ourselves, are we not censoring a basic human attribute? Is a better society in the long-run worth the prospect of dehumanizing ourselves in the short-term? Arguably yes. Humanity as a macro organism in our current state would be better off if we were to supress our predatory instincts and focus towards a better way of life. We would be better people without greed, spite or jealousy, but again I would stress that is not who we are. I do not think that mankind is ready to make this change, and it is not something that should be rushed. This is something that must happen organically. When we make our choices on how to meet our goals, we make choices, some may choose a method they feel meets a certain ethical code, while others may find that the ends will always justify the means. In times past we had to be perceptive and ready to act with aggression for survival, pit against the predators of the jungle. Today we find that instead of trees and rivers, it is a concrete jungle and the predators we face off against are each other.


Special Report

Derivatives

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Special Report : Derivatives

Can Risk Really Be Tamed? By Tristan Blümli

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erivative instruments have played a significant role in the evolution of the financial markets. These derivative instruments derive their value from an underlying asset, whether it is a commodity, financial assets or even temperature. However, commodities and financial derivatives form the majority of the traded derivatives with the remainder in other areas. The 3 main types of derivatives are options, futures/ forwards, and swaps. Globally, options and futures on interest rates are by far the most widely traded derivatives with the US and European exchanges accounting for around 90% of the total market share by value.

“Derivatives are financial weapons of mass destruction” Warren Buffet took the view that derivatives were a ticking time bomb in the financial system, concluding that “derivatives [are] financial weapons of mass destruction”. Derivatives are highly leveraged financial instruments where the typical good faith deposit or margin is 10%, effectively leveraging the investment to 90%.

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By having this high degree of leverage, it allows large positions to be taken in the market with a relatively small initial investment. Consequently, the returns can be very high from these initial investments but the reverse can also be true. Although derivatives have the potential to cause devastating effects to financial markets when misused, they can bring significant gains through improved risk management. By allowing investors to purchase a derivative contract in the market opposite to the position held in other market, enables a hedge against potential downside market risk. Perfect hedges can be achieved through the use of either options or futures/forwards but are extremely expensive and time consuming. Despite the derivatives benefits in reducing an investor’s risk, these markets do offer large scope for speculators to operate. These speculators may wish to place aggressive positions in the market, taking on substantial risks in order to reap the rewards from profits. However, these positions remain speculations and have the potential to cause significant gains, but also significant losses with the possibility of releasing shockwaves into the markets. As a result, policymakers face a delicate balancing act between encouraging

the “proper” use of derivatives without discouraging financial and market innovation. This involves devising a set of regulations that prevent the excessive risk-taking by market players whilst still encouraging financial innovation and more disclosure of information to improve market asymmetry. Since the beginning of the 21st century, there has been a sharp growth in the size of the derivative markets around the world, in particular the over- the- counter (OTC) markets. After the drop in activity following from the financial crisis, the OTC and exchange markets are seeing their activity almost back to pre-crisis levels. Some people argue that derivatives were at the heart of the recent financial crisis and that their role only exacerbated the financial meltdown. Central to this was the rapid growth in the use of CDS that were sold by institutions such as AIG in the build up to the financial crisis. Following the financial crisis, serious questions have been raised over the role of derivative markets and their regulation. The focus appears to have settled on OTC markets and how to reduce counterparty risk and improve knowledge of counterparty’s financial position. However, no major legislation has been enacted since the financial crisis to address these issues.


Special Report : Derivatives

A Beautiful Formula Turned Ugly

By Jeremy Cottingham

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he Black-Scholes model was a brilliant scientific discovery that no one had ever dreamt of before – a formula that totally eliminated risk itself, or so it was thought. Before the discovery of this revolutionary formula, traders had to guess profitable investments and were massively exposed to the risk and uncertainty in the markets. Their mentality was that if you wanted to make money, you have to take on risk. What positions though could be taken so as to remove risk? The answer, options. If priced correctly, that would in effect mean complete elimination of risk. These obscure contracts are an agreement that gives the investor the right to wait and buy, or sell an asset in the future at an agreed price, but there is no obligation (meaning that you can opt out of the contract before it matures). Therefore, you could only risk losing the cost of the option without affecting the potential upward gains. But how much would someone pay for such a contract? At the time it appeared the price was based on individual judgement and personal confidence of each investor. In 1973, Fisher Black, Robert Merton and Myron Scholes developed the BlackScholes Model that was able to price an option, using the underlying stock or asset, which did not include risk (this was achieved through the process of dynamic hedging). This recipe was the miracle and breakthrough of the formula. In essence,

traders could now hedge their positions with safety, meaning they could take on more risky investments in order to make better returns. By 1975 every trader on the CBOE trading floor was using the formula to determine a mix of option positions and prices so as to hedge their risk. Although the dark side of this beauty was finally uncovered after it was used on such a large scale. The Nobel Prize winning economists set up a hedge fund in 1993 under the name of Long Term Capital Management (LTCM). Given their status it wasn’t hard to attract capital from the biggest institutions and it wasn’t long before they managed to accumulate a tasty $3bn on which to trade. Their main strategy was to undertake convergence trades and gain from the arbitrage opportunity left by mispriced securities. Given the small spread in mispricing LTCM had to be highly levered to make any significant gains. But, the model failed to include the chance of improbable events that were thought could never happen and two of these events occurred in a relatively short space of time. Firstly, property prices plummeted in Thailand and swept throughout Asia and Indonesia and consequently people took to the streets. Next was the Russian debt default in August 1998 that gave way to a widespread risk- off mentality. These events caused the calculations in the model to fail and the fund began to make

huge losses. In the end LTCM was bailed out by the Federal Reserve to prevent an economic meltdown. Despite this, the formula is still used today by those who understand when it should be trusted and when their trading instincts should take precedence. But recently there have been questions raised on whether we even need the formula in the first place. It has been argued that options (especially liquid contracts) are priced by supply and demand conditions and there need not be a model underlying these prices. Also, are these models too risky themselves? And how much dependence should be placed upon them when used in reality? History has shown some of the devastating effects when these models turn ugly.

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Trader’s Diary

Trader’s Diary

2014- Year of the swingers? By Mohieddine Kaddouri

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itting at my desk in November 2013, I envisaged 2014 being a continuation or even an amplification of the mother of all bull-runs seen from 10 months prior. The bulls had taken their stance in support of emerging markets and boy did it pay off. The DAX, FTSE and S&P 500 were testing record highs and I was furiously scribbling mental love letters to the Nikkei and USDJPY for their continual sponsorship of my grossly unhealthy addiction to doner kebabs and Yum-yum pastries. I never thought I’d see the day that I’d turn into a long-term position trader or even heaven forbid... an investor in the Forex markets?! The past three months have made me return to my senses, beginning with that awful Chinese non manufacturing PMI number. I was originally going to write about the lack of significant directional movements in markets but then I remembered: lack of direction in markets only matters if you’re an investor! To a trader that’s called range-trading opportunity and boy can it be profitable. Enter the swing traders. While investors have been buffeted left right and centre from a manic-depressive market that can’t decide whether to power through to all time highs or crash to 2 month lows in the same month, swing traders have been enjoying (and I believe will continue to enjoy) taking positions on each side of a so far significantly swinging range bound market. The shock January Chinese PMI, US February Retail Sales, tapers crushing emerging markets, BOJ monetary easing and now Ukraine. It really brings the “BUY BUY BUY SELL SELL SELL WHAT IS THIS SLEEP THAT YOU SPEAK OF?!” stereotype about traders to reality as one week’s set of data is offset by the next week’s worth of data.

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It is common coming out of cycle bottoms for markets to rally fuelled by improving expectations and monetary stimulus from central banks following the path of least resistance into stocks and commodities. However, this stimulus needs to be removed or central banks run the risk of creating asset bubbles. The removal of stimulus then takes the rocket fuel away and has tended to knock stocks back from overinflated levels as people find it harder to get the cheap loans they are used to and have to repay them. It is wise to remember that major US indices fell by over 10% within three months following the end of both the QE1 and QE2 programs. This contraction in stocks can only go so far however before running into support from an improving economy as overvaluation is reduced by improving sentiment and rising corporate earnings. All these movements tend to offset each other and create sideways range trading opportunities depending on which factors have the upper hand on each other. This was historically seen in 19941995 and 2004-2005;each running over a period of 8-12 months. Over the last week we saw stocks get trampled down on Wednesday on indications that the Fed is likely carry on tapering this year and could start raising rates earlier than expected in mid-2015 to the terrifyingly high levels of 1.00% (to those non-experienced finance enthusiasts, that was sarcasm) by the end of 2015. On Thursday, global stocks rebounded on stronger than expected Philadelphia Fed and leading index, giving indication that the newly meteorology qualified market (again for all you newbies, see excuses cited for the past 3 months’

worth of bad Non-Manufacturing ISM and NFP data) is feeling that the US is coming out of that pesky winter that was causing havoc with NFPs and other economic data. This could inevitably be an indication that a positive environment for corporate earnings and potentially increase demand for more risk from investors. There are also natural factors that could drive this movement. Seasonality may remain a significant influence on trading. Historically, the period between March and May has been strong for markets the period between mid-May and MidOctober has been the weakest time of the year for stocks, with the exception of potential relief rallies in July during earnings season. As we have seen over the past month, political unrest is also a factor in market movements. We are not completely out of the woods as far as the Crimean situation is concerned. Russia seems to be facing sanctions as it annexed the region on Friday. Gold is trading higher again after falling from 1392 to around 1329 in the space of a week with price action eyeing the 1351 level for further indication of movement. China sensitive markets including the Hang Seng, China A shares, copper, AUD, CNH and the S&P/ASX all rebounded sharply on Friday morning last week as selling pressure eased however it will be very interesting to see whether the market has already priced in the all important Chinese Manufacturing PMI on March 24th at 1.45 GMT. As always traders, stay out of unnecessary trouble and for all you investors in emerging markets exposed companies; I hope your tolerance to pain is high.


Finance In Sport

The Financial woes of The Rangers Football Club PLC, 2010-2012 (Part 2) By Kristopher Connelly

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nce Craig Whyte announced that the company was going into administration; a legal battle took place between HMRC and Craig Whyte on who would be appointed as administrators. The court decided Craig Whyte was allowed to choose and Duff and Phelps were announced as the financial consultancy firm to aid The Rangers Football Club PLC. Duff and Phelps appointed Paul Clarke and David Whitehouse as joint administrators of the process. What baffles me the most about their time at Ibrox was that no redundancies were ever made. Sure the players took wage cuts ranging between 25% and 75%; but when the club is making a loss of over £1 million per month significant changes in the cash flow have to be taken to be able to continue trading properly. One also has to argue the motives of Duff & Phelps considering their past relationship with Craig Whyte. Bidders came from all over the world wanting to take control of the club, from Singaporean Shazad Bakhsh to Bill Miller from America. In the end it came down to

two bidders; the Blue Knights consortium and the Green consortium. On the 13th of May 2012; the Green consortium were given preferred bidder status with an unconditional offer accepted by Paul Clarke and David Whitehouse. All that had to be done now was for the Green consortium to make a CVA proposal to the creditors. With the total unsecured creditor’s amount being over £55 million pounds, the Green consortium offered an £8.5 million “pound to the pence” CVA proposal meaning roughly 6p would be given to creditors per pound owed. Two days before the creditors were going to vote; HMRC announced their intention to reject the CVA offer. The reason for this being, they would instead go after those responsible for the unpaid taxes that they felt were owed by the company. On the 14th of June 2012 the CVA proposal was rejected sending The Rangers Football Club PLC into liquidation. Due to the unconditional offer for the control of Rangers FC; the Green consortium bought Rangers FC and moved all of the assets to a new

company called Sevco Scotland Ltd (later renamed The Rangers Football Club Ltd) for £5.5 million. The legitimacy of Rangers being the same club which formed in 1872 has been debated for a while now but a report by Lord Nimmo Smith ended any doubt for Rangers fans. The report confirmed that the club and the former company are two separate legal entities in which Rangers FC was transferred over to the new company. After the new company were granted the old companies membership including certain sanctions. Rangers were placed into the lowest division of the Scottish professional leagues via a vote from the Scottish football member clubs. From when I began writing this series of articles I have only but summarised what has become a story that has gathered global attention. I hope you have learned something from the articles and also I hope to have inspired you to look deeper into the topic. My next article will conclude with the future of “the big tax case”.

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Ifm volume 3 24 03 2014