REG - Caledonian Trust PLC - Final Results <Origin Href="QuoteRef">CNN.L</Origin> - Part 2

Caledonian TrustAnnouncement

23/12/2015 16:11

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the parent's
strength and the other large institutional funds normally providing cash
refused to accept Bear's collateral, forcing it within a week to run down its
own cash and liquid reserves from $18bn to $2bn. 
 
Without cash Bear could not survive.   Bear's CEO appealed to the Fed for
support over the head of its regulator, the Securities and Exchange
Commission, which had recently "signed off" Bear's account and whose Chairman,
on hearing of Bear's appeal to the Fed, assured the US Administration that
Bear was "sound and would find a buyer in a matter of weeks".    The Fed
reacted quickly, disregarding any moral hazard, and relying on powers at the
extreme margin of the authorities' mandate under Section 13(b) of the 1932
Federal Reserve Act for action under "unusual and exigent" conditions.   The
emergency support action and the use of such powers engendered fierce
criticism, especially from the Liquidationists, so powerful in the 1930s,
typified by President Hoover's Treasury Secretary, Andrew Mellon's, statement
then that failure was necessary to "purge the rottenness out of the system"
and " 
 
liquidate Labour, liquidate Stocks, liquidate the Farmers, liquidate Real
Estate ... … … . High costs of living and high living will come down. People
will work harder, live a more moral life. Values will be adjusted, and
enterprising people will pick up the wrecks from less competent people." 
 
Criticism of the Fed came from other sources, too, notably the Republican
Party hostile to government intervention6 and on the grounds of "moral
hazard", so emphasised by the Bank.    The meltdown of the "nuclear reactor"
overrode all principle, all academic debate and, notably, all fine points of
"moral hazard". 
 
Bernanke and the Fed supported the US "wider" financial sector at, or even
beyond, the strict limit of their mandate.   They negotiated a long
point-to-point course until Lehman's long jump was followed by a political
wall. In contrast the Bank ran out at the first fence. In April 2007 Northern
Rock approached the Bank for assistance and the plea was rejected as a
"business matter".   On 12 September 2007 the Bank wrote to the House of
Commons affirming their belief that the banking system was capable of handling
its own problems. Next day, 13 September 2007, the Bank approved a long-sought
"liquidity support facility" to be formally announced the following Monday.
However, the story was leaked and panicked investors immediately withdrew
£1bn, 5% of retail deposits, queues formed, servers crashed and tellers
barricaded themselves in for safety. The Governor and the Chancellor, Alistair
Darling are reputed to have been reduced to watching events unfold on
television in Oporto. 
 
The Bank's philosophy contrasts starkly  with the Fed's "hands-on" approach
as, to take an extreme view for emphasis, it represented an amalgam of
stand-off, moral hazard, blinkered focus on price stability, or inflation
targeting, and an insensitivity to the practical realities of finance coupled
with an inherent antipathy to the commercial banking sector.  For example,
David Blanchflower, a former member of the MPC noted that, as late as summer
2008, King did not even see the financial crisis coming.      Subsequently
when the Bank started reducing interest rates as late as October 2008, it took
five months to reach the still current level of 0.5%. 
 
The Central Banks, the regulatory authorities and the governments all operated
within, and were to a greater or lesser extent constrained by, systems
designed subsequent to and in consideration of the earlier Great Depression.  
The vast technological changes and the new financial engineering developed
since then, coupled with a political move towards and a perception of a robust
self-regulating, self-correcting and self-equilibrating system,  a capitalist
"Holy Grail" rendered them insufficient, but also unnecessary.   Some
regulators, notably Bernanke, at times managed to implement policy outside
these now inappropriate confines before being brought to heel.   The UK
economic policy, so long a prisoner of political expediency, granted it an MPC
watchdog, but bought an inappropriate breed, put it on a short chain and set
it to guard the gunpowder factory rather than the nuclear reactor containing a
super-heating financial sector. 
 
The meltdown occasioned by Lehman's failure overrode all principles, all
academic debate and all finer points of "moral hazard", as the overriding
change occurring on 10 October 2008 when the G7 Finance Ministers, during a
meeting of the IMF and World Bank, decided to "use all available tools to
support systemically important financial institutions 
 
and prevent their failure. 
 
" 
 
The equivalent value of the undertakings given was unprecedented:  18% of
Eurozone GDP, 73% of US GDP and 74% of UK GDP, and 25% of world GDP taken
altogether.    The support raised the fiscal deficit in 2007 in the US from 7%
to 13% in 2009, in the UK from 3% to 11% and in Japan from 2% to 10%.   These
fiscal deficits were equivalent to those previously experienced only in wars. 
 For the UK the rise in public debt relative to GDP was the fourth largest in
history, exceeded only in the Napoleonic and the First and Second World Wars. 
 
This massive, decisive action saved the day.   Such crisis policies were
endorsed by the leaders of the G20 countries in 2008 and again in 2009, saying
on 25 September 2009:  "We pledge today to sustain our strong policy response
until a durable recovery is secured.   We will act to ensure that, when growth
returns, jobs do too.   We will avoid any premature withdrawal of stimulus".  
 However, less than a year later, after the Toronto summit,  in June 2010,
when all the G7 economies were still operating below the pre-crisis level, the
UK and Eurozone being only at 94% of the pre-crisis level,  the G7 announced: 
"Recent events highlight the importance of sustainable finances and the need
for our countries to put in place credible, properly-phased and
growth-friendly plans to deliver fiscal sustainability, differentiated for and
tailored to national circumstances";  and: "Advanced countries have committed
to fiscal plans that will at least halve deficits by 2013 and stabilise or
reduce government debt-to-GDP ratios by 2016".   A reversal of fiscal policy
from counter-cyclical action to austerity was announced, even although
aggregate demand was low and expansionary monetary policies were near their
effective limit. 
 
In practice, the 2010 G20 announcement acknowledged actions already being
taken by most governments for varying reasons.   In May 2010 the UK incoming
coalition government introduced an austerity budget saying:  "We are going to
ensure, like every solvent household, that we buy what we can afford;  that
the bills we incur, we have the income to meet;  and that we do not saddle our
children with the interest on the interest (sic!) of the debts we were not
ourselves prepared to pay".   The Chancellor evokes echoes of Thatcherism and
the classic allusions of Micawber and Polonius, but economic management is
neither morality nor abhorrence of fecklessness, but an assessment of net
balance.   Colourfully put, Samuel Brittan observes:  "the Deficit should be a
policy variable rather than targeted to meet a dim accountant's idea of
balance".   This variable has averaged 112% over the last 324 years and is
forecasted by the OBR to be 83% in the current year dropping steadily to 68.5%
by 2020-21.   There is no statistically valid analysis that shows an inverse
relationship between the % debt and growth of GDP, at least within the
"normal" range of debt. 
 
The 2010 volte face had many political origins, most obviously the inflation
obsession in Germany, but it had a timely but ill-founded economic prop in
Reinhart and Rogoff's paper: 237 "Growth in the Time of Debt", published
unfortunately un-reviewed, which contended that at debt levels above 90%, GDP
growth was "roughly cut in half".   The Chancellor, George Osborne, speaking
in 2010 said: "As Rogoff and Reinhart demonstrate convincingly, all financial
crises ultimately have their origin in one thing  ....... debt"."  
Unfortunately subsequent analysis of their results showed statistical,
methodological and mathematical error and evinced this criticism:  "When
properly calculated, the average GDP growth rate [when debt is] over 90% is
actually 2.2%, not - 0.1%, as published in Reinhart and Rogoff ....."   Oh
dear! 
 
Nobel Prize-winning Princeton economist Paul Krugman criticised the use of
this analysis to support economic policy as follows:-  "What the
Reinhart-Rogoff affair shows is the extent to which austerity has been sold on
false pretences.   For three years, the turn to austerity has been presented
not as a choice but as a necessity.   Economic research, austerity advocates
insisted, showed that terrible things happen once debt exceeds 90 per cent of
GDP.   But "economic research" showed no such thing;  a couple of economists
made that assertion, while many others disagreed.   Policymakers .......
turned to austerity because they wanted to, not because they had to." 
 
Importantly, even if Reinhart and Rogoff's inverse relationship had been
accurate, it never clearly established causation - perhaps a low growth in GDP
engendered a high growth in debt and not vice versa. 
 
The UK fiscal consolidation, 5% of GDP between 2009 and 2012, was the most
severe undertaken by any of the large, advanced economies.   After the
recession growth had recovered to 1% of GDP in the first quarter of 2010
before its effects were felt.   Q4 2010 showed no growth, although the economy
grew 2.0% in 2011 before dropping to 1.2% in 2012.   The OBR estimated that
the austerity policies reduced growth by 1.0%, 0.7% and 0.3% in the years up
to 2013, when the initial impact of these earlier restrictive policies began
to fade. 
 
UK economic growth since the start of the Great Recession has been poor
gaining less than 5% in seven-and-a-half years and the recovery, compared with
previous recessions, particularly slow.   On this occasion there has been a
very small change in output per hour since the onset of the recession in Q2
2008 which, after falling 5% at the trough of the recession, has only very
recently regained the pre-recession level.   By contrast, productivity in the
US is 7% above the pre-recession level.   The "Productivity Puzzle", as the
Bank terms it, is that, whereas 24 quarters after the recessions starting Q2
1990, Q2 1961, Q4 1979 and Q2 1973 productivity had grown by 18% following the
1990 and 1961 recessions and by c 11% following the other two, the
productivity post-Q1 2008 was still 4% below its pre-crisis level. 
 
As shown earlier, the Bank argues that productivity is pro-cyclical, ie in an
expanding economy there is less "wasted time" and everyone and everything
works harder, productivity is higher, the reverse of what occurs when the
economy contracts.   Its first hypothesis is that as the cycle peaks the
economy recovers its trend level of productivity.   Unfortunately, contrary to
experiences in earlier recessions, this has not happened on this occasion and
even in the Bank's inflation report (November 2015 p32) productivity growth is
only expected to be 1%, rising to 1¾% in 2018, far short of the 1998 - 2007
average of 2¼%.   Thus there is no projected catch-up.   The Bank also
projects a lower level of productivity growth in the future than historically.
  The result is that not only has the UK lost the spurt in the growth in
productivity normally expected since  the recession but the UK economy is also
now expected to experience a lower increase in future productivity:  a double
whammy! 
 
Explanations for so significant a downward shift in productivity abound and
some have been illustrated earlier, but there is no convincing comprehensive
hypothesis.   However, such a hypothesis should include the following.   An
overriding characteristic of this recession is that it is a "financial"
recession, and, but partly in consequence of this, has been exceptionally long
- longer than the 1929-1933 Great Depression - and on both counts, and
compounded, more far-reaching.   More damage has been done to the productive
potential of the UK economy, to nascent industries, to entrepreneurship, to
the motivation to change to take risks to train for the future, to move on and
to accept job restructuring than in previous recessions.   A mentality to
avoid risk, to give up, to retire and to accept defeat by increasing
bureaucracy is all pervasive.   An aura of fear of everything and of excessive
back-covering and unnecessary buck-passing appears prevalent.   My neighbours'
house purchaser's mortgage was delayed over an assessment of how much per
month it cost to feed the cat .... really!  In many parts of the UK the 
animal "spirits" seem quiescent, exhausted perhaps by a long pursuit of debt
recovery with perhaps some of those surviving the long recession finally
driven off by the effects of the 2010 policy of expansionary fiscal
contraction.   From this flowed increased taxes, lower investment in
productive assets and a continuing restriction of credit.   A particular folly
was to insist on the banks increasing their capital ratios at the expense of
reducing their credit loan books.   The worst of the 1929 - 1933 mistakes were
avoided but, because that was so, the expansionary measures of 1929 - 1933
were not undertaken and an earlier fuller recovery was lost.   Mervyn King
said:  "Policymakers prevented another Great Depression", but instead we
experienced a Great Recession about which Eichengreen says policymakers "
..... could have done more.  And their failure to do so largely explains why
the recovery continues to disappoint."   And, indeed, the great mistakes
political and economic, of this period will continue to weigh on the UK
economy. 
 
Fortunately some external factors are benefiting the UK economy.   There has
been a dramatic fall in oil prices since the peak of c$115 for Brent Crude in
June 2014 and the UK remains as a significant producer of oil, the current
domestic supply is only 0.9% of 2014 world output but its consumption is 1.6%.
  The fall in prices is accompanied by a fall in most commodity prices
benefiting the commodity-importing nations, such as the UK, at the expense of
the commodity-exporting countries.      The Economist's Industrial Index has
fallen 24.8% in the last year, following a fall of 7.9% in 2014.  Price falls
in specific other important commodities, particularly iron ore and copper,
have been very significant but have been eclipsed by spectacular falls in oil
prices where, for instance, the Economist West Texas Intermediate Oil Index
has fallen 38.0% and then 40.5% in the last two years. 
 
Interestingly, even after these falls, commodity prices are still above the
real long-term price trend which, apart from three bubbles up and one
"anti-bubble" down, has been within 20% or so percent of the same real average
since 1680.    A small bubble raised the index 50% in the 1920s and larger
bubbles just after the 1970s oil shock and the recent boom raised the index by
two and two-and-a-half times.   A return to the historic trend line would
require further price falls equivalent to an oil price of c $30, a figure that
does not seem so far away as when I first drafted this statement! 
 
The reduction in the industrial commodity prices is not due to a recession or
a contraction in the growth of world GDP which the EIU expects to grow by 2.4%
this year and 2.6% in 2016, but due to a greater marginal increase of supply
over demand.   In 2014 , oil production increased by 2.3% but consumption by
only 0.8%, a marginal increase in supply of (88673 - 96579) 2.0m barrels per
day as opposed to a marginal increase in consumption of 992086 - 91234) 0.852m
barrels per day. 
 
The Economist describes the build-up of the commodity "super cycle" very
colourfully:  a decade or so ago "Scotland was hit by the Great Drain Robbery,
the disappearance of fifty manhole covers in Fife.   This evidenced very
starkly the beginning of a new era in commodity markets, spread by an
insatiable demand from China ....... scrap metal prices and so thefts soared; 
Africa was overrun by Chinese engineers;  Australia elected a
Mandarin-speaking Prime Minister;  and emerging markets from Argentina to
Zambia relished the rising value of their farmland and mines."   Such rising
demand increased Bloomberg index prices by 60% in the five years before the
Great Depression and generated expansion plans that now appear grandiose,
which, because of the long cycle times between a decision to expand production
and output, are only now in production, with the result that most major raw
materials are over-supplied.   The continued investment over the years was
assisted by an over-estimation of the rate of the continuing expansion of
Chinese demand, which consumes half the world's metals such as iron, aluminium
and zinc;  the reduced extraction cost for mining; the exuberance and ambition
of the miners;  and the availability of low-cost capital:  a heady mix!  
Amongst other extravagances this mix permitted Gina Reinhart, named as the
world's wealthiest woman, to open the $13bn Roy Hill iron ore mines in October
2015, funded with an $8bn loan, to ship ore to China.   The mine has a nominal
output of 55m tonnes a year, equivalent to the current US output. 
 
The change in the balance between supply and demand in the oil market was not
evident until later in the economic cycle after recovery from a sharp fall in
average price in the 2009 recession to $16.67 rising to $79.50 in 2010,
$111.26 in 2011, $108.66 in 2013 and $98.95 in 2014, an average including a
high of $115 in June 2014 to a low of $50 in December 2014.   In the five
years since the 2009 recession world output of oil increased by 5,484 thousand
b/d but consumption only increased by 4,219 thousand b/d and of the increased
production 4,088 thousand b/d was largely accounted for  by increased US
exploitation of tight reserves in shale. 
 
The oil market has been surreal, like "Alice through the Looking Glass" being
distorted by the operation of OPEC, the cartel controlling 41.0% of world
production which since 1973 has operated to give a back-to-front, upside-down
mirror image.   In a competitive market the lowest cost producers would
maximise output and higher-cost suppliers enter the market as and when the
price was commercially attractive.   Thus the highest cost producers are the
marginal suppliers.   In the oil market the mirror image applies as by
contractual agreement or convention the lowest-cost producers, the OPEC
cartel, are the marginal suppliers, led currently by Saudi Arabia whose 2014
output was 11,505 b/d or 12.9% of world production.   In 2013 Saudi declared
that it no longer intended to increase its oil capacity beyond its current
level of 12,500 b/d before 2040 because of the growth of supplies elsewhere
and indicated that it was no longer prepared to adjust its output to stabilise
prices.   That Saudi decision reinforced by what the FT reports as "rancorous"
meetings of OPEC recently demolished what was the effective keystone in the
oil edifice, a decision that must not have been taken lightly, but one which
is consistent with market realities. 
 
In previous downturns in the oil market which OPEC manipulated Saudi had made
large and disproportionate production cuts.   In the 1980s downturn Saudi
reduced output from 17.6% of world output in 1981 to 6.3% of output in 1985
resulting in an output of 3,388 thousand bpd in 1985 compared with 9,900 bpd
in 1980. 
 
Similarly in the late 1990s it reduced its share of world output from 13.1% to
11.7%.   In both cases equivalent cuts were not usually made by other OPEC
partners.   The cost of manipulating the market by Saudi with whatever small
assistance could be gained from other OPEC countries probably appeared very
high.   The benefit from manipulating the market may also have appeared very
much smaller, as the present value of the oil reserve maintained by
restricting production was likely to be much lower given increased reserves.  
In 1978 the ratio of global reserves to annual production, the 'R/P' ratio,
was below 30 but by 1996, about twenty years later, although oil production
had risen considerably the R/P ratio was over 40 and in 2014 in spite of a
rise of about 25% in production the R/P ratio was 53:  without further finds
there is enough oil for over half a century at current production! 
 
The concept of oil supply stretching so far into the future undermined
theories of shortage, finite supply, ever-rising prices and "peak oil", a
theory already disproved in the second major energy source, coal, supplying
30.03% of world energy in 2014, just below oil's 32.57% .   Significantly
there are over 100 years of "proved" coal reserves (R/P 110) at the current
consumption rate.   The UK has significant coal reserves whose mining under
existing technical and economic conditions seems less and less likely.   In
June 2000 Ahmed Zaki "Sheikh" Yamani, the Saudi Oil Minister in OPEC for 25
years said:  "The Stone Age came to an end, not because we had a lack of
stones, and the oil age will come to an end not because we have a lack of oil.
  Thirty years from now there will be a huge amount of oil - and no buyers.  
Oil will be left in the ground." 
 
The collapse in prices is reducing Saudi revenues very substantially but lower
prices now,  coupled with the perception of continuing lower prices, will
eventually restrict supplies with higher-cost oil being uneconomic.   The cost
of this long-term gain is being shared by all OPEC members and all other
producers and may represent a victory, a rather hollow one, for Saudi.   A
better option, but one presumably not possible, would have been to obtain
production cuts from all OPEC producers as I suspect a carefully-judged
production system might have permitted a "Goldilocks" position of slightly
lower prices (cf c $40 now), slightly lower outputs but a market price
sufficient to exclude high-cost oil such as Arctic, Alaskan tar sands and
small depleted marginal fields. 
 
Unfortunately for OPEC the required conditions for a cartel to operate, which
existed in the second half of last century, no longer prevail.   Then the OPEC
cartel was endowed with the three necessary qualities for an effective cartel:
 strong discipline; a dominant market share; and high barriers against entry
by outsiders which patently no longer apply.   Discipline within the disparate
OPEC group, an eclectic group of unlucky thirteen countries including enemies
such as Iran and Iraq, lacking cultural, religious or social coherence, is
absent;  the market share has been severely attenuated since the heady days of
the 1970s;  and the technological revolution brought about by "fracking" has
allowed new entrants to the market for a tiny investment compared with all
other new oil sources. 
 
New entrants can have a cataclysmic effect on the market, given its economic
characteristics, as "Dad" Joiner demonstrated nearly 100 years ago, very
colourfully, as would be expected in 1930s Texas.   "Dad" Joiner, a 72
year-old, out-of-luck wildcatter, drilled for three years using third-hand
equipment, subject to frequent breakdown, in a remote pine wood with crews
often paid with "royalty rights".   And he did this in an area knowledgeable
geologists considered devoid of oil, guided by a fake prospectus prepared by
Doc Lloyd, the vendor of Dr Alonzo Durham's patent medicine.   On 3 October
1930 it blew!   The field was 45 miles long by seven-and-half miles wide,
unlike anything ever previously known.   Within months 1,000 wells had been
completed, producing over 500,000 bpd, a large amount even today.   When the
oil from the "Black Giant", as it became known, hit the market, prices
collapsed from an average of $1 ($13.65 in 2015 prices) in 1930 to 15 cents a
barrel with distressed sales at 6 cents or lower.   "Dad" Joiner epitomised
the criterion for success enunciated by Daniel Day Lewis in "There will be
Blood":  "Rise early, work hard, strike oil".   "Dad" sold his interests to
escape the myriad of claims on the royalties he had given, sometimes eleven
times over on the same ground, to keep the "Black Giant" rig working.   He
wildcatted for another fifteen years, and, as his biography reports: 
"Romancing his secretary and other young women" until he died aged 86.   But
he never "hit" again - on the oil! 
 
Black Giant's output rose rapidly reaching 1m bpd in August 1931, equivalent
to half the total American demand;  and the price fell to 13 cents a barrel!  
The early production at Black Giant created unheard of wealth in rural Texas
selling for $1 and costing about 80 cents, the profit on the first, say,
100,000 barrels per day was $100m per year, but at 13 cents ......! 
 
Over the next ten years a range of overlapping State and Federal laws and
voluntary arrangements and later import controls on Venezuelan oil were used
to stabilise the oil price at $1.00 to $1.18 per barrel from 1934 to 1940.  
The US measures were in pursuit of a mix of economic, political and military
objectives.   The current fall in the oil price is not as dramatic as that
resulting from the Black Giant but it is dramatic:  from $115 in June 2014 to
$38 in early December 2015 is a 67% fall ..... so far! 
 
The outcome of the current collapse in prices will be quite different from
that which "rescued" and preserved the strategic US oil industry and it is
likely to take years to consummate.   No one country has the incentive to
effect the necessary production controls, the OPEC cartel is currently more
antagonistic than ever and Saudi's economic advantage lies in forcing
production cuts elsewhere.   A political reconciliation and/or an assessment
that, whereas OPEC members (and possibly outsiders) continue to "hate" each
other, they "hate" the cost of non-collaboration even more, a common source of
political settlement - the lesser of two evils - and would lead to the
re-establishment of output controls. 
 
A contraction in supplies takes time, longer than some OPEC suppliers are
thought to have expected.   Estimates of the future oil price have curtailed
the prospective future supply and some high-cost sites, notably the Shell
Alaskan drilling site and its Canadian oil sands site, have been abandoned
after spending $8bn.   Shell is reducing investment elsewhere by $7bn and most
producers have announced similar capex cuts, the vast majority in drilling. 
Significantly, only in the Middle East is an increase of 15% in capex
expected, presumably because it is a low-cost reserve.   Such investment cuts
have no measurable effect on present or near-future prices. 
 
In contrast the effect of current prices on current production is much
greater, but modulated by the cost pattern and by the expectation of future
prices;  because the oil price today is $38, wells with costs of more than $38
will not automatically be shut.   If the price is going to rise above $38,
then currently unprofitable wells will become profitable again and to close
them because of a short-term blip would be the wrong decision.   Similar sums
can be done on the costs of temporary shut-downs when that is technically
possible. 
 
Importantly, the cost of the output from a well does not determine whether it
should be shut down, as an extreme example for the Canadian tar sands
illustrates.   Prices there for the very heavy oil are currently $23 and the
cost of oil from such sands, one of the very highest cost sources, is
estimated to be $60 to $90, well above the $23 selling price.   However, the
operating costs of the Kearl Oil sands in Western Canada are only $11, well
below the selling price.   The high cost of the project lies in the spent
capital costs and while there is a cash surplus after financing costs the
plant will continue to run, possibly for another fifty years.   The company
lost c $405m in the second quarter! 
 
UK operating costs are high, more than double the world average cost.   The
average is $29 with presumably a wide dispersion around this mean and for some
fields will already be over $38.   These operating costs do not take account
of finance costs, on-going capital costs such as replacements and renewals of
capital equipment, and the running costs, the overheads, of an oil business.  
In August when Brent Oil was about $50 consultants Hannon Westwood reported
that up to forty North Sea platforms were likely to be closed and in Scotland
Wood Mackenzie predicted that 140 of the existing 330 fields in the UK North
Sea would close within five years even if the price returned to $85.  Even in
February this year, before the current price fall, Oil and Gas UK reported
cash losses in the North Sea were £5bn and that most of the 126 oil
exploration and production companies on the LSE were loss-making.   Clearly,
even with a major rise in prices, much of the North Sea oil province will
close and if current prices continue I suspect almost all of it will be
closed. 
 
Fracking differs from all other means of oil extraction because of the very
short cyclic time.   Unlike deep-water wells which require years of expensive
investment and produce for nearly 50 years like the Brent Field the fracking
production cycle is very short.   Drilling takes only three to five months and
as the rate of depletion is very high, with most of the oil recovered within
two years the full overall costs of the well and the profit from it over the
cycle time can be accurately determined:  effectively production can be turned
on and off! 
 
Until recently fracking was considered to be profitable at $80 - $100, but
productivity of shale oil production (initial production per rig) has been
rising at over 30% pa since 2007 increasing the initial output from under
40bpd to around 400 bpd contributing to a substantial reduction in cost, and
most shale oil is profitable at $50 to $60, the full cost  including finance
over the production cycle.   In Economist's terms the supply response to
change in price is much quicker and greater than the giant off-shore,
deep-water, Arctic or tar sands resources.   Average break-even costs for
fracking were estimated by Rystad earlier this year to be $60  $12 for 75% of
wells, a cost similar to most other sources except the cheaper offshore shelf
reserves at $45 and onshore Middle East at $30  $10. 
 
If OPEC does not restrict supplies prices will continue at the current low
levels until the market clears.   Futures prices are for Brent to return to
$50 in mid-2017 and to $60 in 2020, five years' time. In such a price regime
few new high-cost schemes will be undertaken and high-cost producers, such as
many in the North Sea, will abandon production.   High-cost shale will also be
inhibited.   However, as soon as prices edge up the rapid response of shale
producers will result in an increase in production.   In consequence the oil
market will become conventional - the lowest-cost producers would maximise
output and the highest-cost supplies would enter the market as and when the
price was commercially attractive.   Previously under OPEC control the reverse
was the case:  OPEC, the lowest-cost producers, particularly Saudi, acted as
"swing producer".   I repeat what I said in 2013:  "The increasing supply from
fracking, coupled with other higher-cost sources such as oil sands and Arctic
oil and the increasing competition from gas, where supply is likely to benefit
even more from fracking, seem likely to outweigh the continuing but differing
supply interruptions as exemplified by the "Arab Spring".   Prices will fall
from the present $100, but on present technology a limit of $60 to $80 seems
likely as that is currently the cost below which most oil from most
unconventional sources, including fracking, becomes uneconomic" with a
modification, due to the subsequent technical changes in fracking which have
reduced costs and lowered the limit by $5 - $10.   Politically, as Alan
Greenspan writes: "OPEC has ceded to America its power over the price of
oil". 
 
The UK economy as a whole will gain as oil price falls of $10 transfer roughly
½% of world economic output from oil producers to consumers who, having a
higher propensity to spend than producers, would boost demand.   Lower oil
prices yield significantly lower inflation as immediately evident in fuel
prices but also in lower production and distribution costs in the economy, and
will encourage manufacturing, particularly high-energy manufacturing, and
create import substitution.   The economy will expand recouping increased
taxes. 
 
Unfortunately the UK oil and gas industry is predominantly Scottish, an
industry that was predicted just before the 2014 referendum to produce and
sell oil at $115 and to be worth some £15bn each year in UK taxes.   Because
of the quite astonishing reduction in profitability this industry is now
likely to contribute only £100m in taxes. 
 
The cuts in investment and in employment in the UK oil industry will be felt
largely in Scotland and within Scotland in the North East, particularly
Aberdeen.   The oil industry "supports" 375,000 jobs and until recently
expected to shed only 35,000 over the next five years.   In the year to
September 2015, before the recent price falls, Scottish unemployment rose only
in Aberdeenshire and Aberdeen by 38.8% and 30.2% respectively.  A more rapid
contraction of the sector will result in greatly increased job losses. 
 
The Scottish economy has two other minor restrictions to its growth compared
with the UK.   The financial crisis affected the Scottish financial sector
disproportionately badly and significant Scottish jobs were lost or relocated,
a continuing process.   This is particularly disappointing as employment in
this sector was one of the prime growth areas prior to the crisis.  
Politically it is felt by most businesses that the continuing uncertainty
about Independence, reinforced by the undoubted strength and political flair
of the SNP is adversely affecting business.   The ITEM Club report says: 
"Surveys for the Scottish economy paint a relatively, but not universally,
downbeat picture".   In spite of this, growth is still expected to be
satisfactory with 1.9% in the year to Q2 as opposed to 2.4% for the UK. 
 
The main determinant of Scottish economic growth in 2016 will be that of the
UK where prospects continue to be favourable and the OBR report UK growth to
be 2.4% in 2016 and to continue at that approximate level until 2020, figures
broadly in line with other forecasters.   Such steady growth appears
satisfactory but it emphasises that the UK economy has had seven thin years
during the depression with no subsequent fat years:  unlike previous
recessions there has been no accelerated "catch up", what it lost in terms of
growth and productivity gain has been lost forever, and, like Billy Bunter, we
are finding that a meal missed is a meal lost forever.   If the Government had
read their economic cook books in a different way, then we would have escaped
the effects of such forced austerity. 
 
Property Prospects 
 
In the previous property investment cycle the CBRE All Property Yield Index
peaked at 7.4% in November 2001, then fell steadily to a trough of 4.8% in May
2007, before rising in this cycle to a peak of 7.8% in February 2009, a yield
surpassed only twice since 1970, on brief occasions when the Bank Rate was
over 10%. Since then yields fell to 6.1% in 2011, rose by 0.2 percentage
points in 2012 and fell steadily since then. This year it has fallen further
from 5.6% to 5.4%. 
 
The yields have fallen in all components of the Index, as occurred last year,
except the All Retail Warehouse Index which is unchanged after falling from
6.1% to 5.2% last year.   As last year yields fell most rapidly in the All
Industrial sector from 6.4% to 6.0% and this year there was a similar fall in
the All Shopping Centre Index to 4.7% with small changes of 0.26% and 0.34% in
the All Shops and All Office sectors to 5.10% and 5.20% respectively. 
 
For the last two years I have noted that within each component of the All
Property Index the largest fall in yields took place in the London area but
this year that pattern has been reversed apart from Central London shops which
fell by 0.45 percentage points to an astonishing low of 2.86%, representing a
large capital gain of 15.7%.   Within the All Office sector falls of about 0.5
percentage points occurred in Southbank, South West, Yorkshire and Humberside
and the North East regions.   Falls of over 0.5 percentage points also
occurred in all UK Industrials outside London, South East and East with even
larger falls in the South West, Yorkshire and Humberside, Scotland and in the
North East, of almost 1.0 percentage points with the largest fall of any
sub-sector. 
 
Apart from the falls in yields for both Central London shops and offices,
falls in yields have been greater in many classes of property elsewhere,
indicating that the high spread in yields between the South East and other
areas of the UK is at last narrowing, or "compressing".   Perhaps the
improvement in the UK economy is at last extending beyond the South East. 
 
The peak yield of 7.8% in February 2009 was 4.6 percentage points higher than
the 10 year Gilt, then the widest "yield gap" since the series began in 1972
and 1.4 percentage points wider than the previous record yield gap in February
1999. The 2012 yield of 6.3% represented a record yield gap of 4.8 percentage
points, due largely to the exceptionally low 1.5% Gilt. The yield gap in 2013
increased to 3.7% as the 10 year gilt yield rose to 2.4%, or 0.9 percentage
points, and outweighed the 0.2% fall in the All Property Index to 6.1%. In
2014 the gilt yield was unchanged but the fall in the All Property Yield of
0.4 percentage points to 5.7% narrowed the yield gap to 3.3 percentage points 
 This year the small fall in yields to 5.4%, offset by the fall in Gilts to
1.8%, has widened the yield gap to 3.6 percentage points. 
 
The All Property Rent Index, which apart from the brief fall in 2003, had
risen consistently since 1994, fell 0.1 in the quarter to August 2008 and then
fell by 12.3% in the year to August 2009.   Since 2009 there have been small
increases of only 0.9%, 0.1% and 0.6% in the years to August 2012, but since
then rental growth has improved slightly by 2.6% and 2.9% in the two years to
2014 and has risen by 5.0% this year.   The Rent Index, 304 currently at 186,
is still below the June 2008 peak of 190.   The All Property Rent Index rise
of 5.0% comprised rises of 8.0% in All Offices and in All Industrials, a  more
modest rise of 3.0% in All Shops, and smaller rises of 1.6% in All Shopping
Centres and 0.6% in All Retail Warehouses.   City and Southbank office rents
rose 12.0% and all other South East area rents rose by 7.0% to 10.0%, rises
unequalled in outlying areas apart, surprisingly, from Yorkshire where rents
rose 9.8%.   West Midland rents had the lowest increase of only 1.0%, but
Scotland and the South West were only slightly improved at 2.0%. 
 
Industrial rents rose by 12.2% in London and by 10.3% in the South East.   In
contrast, rents are unchanged in the North East and, improved only by 1.0%,
2.4% and 3.0% in Yorkshire, the North West and in Scotland respectively.  
Rental growth in the "South" continues to exceed that in the "North".   In
shops the difference in rental growth between Central London shops and the
rest of the UK is exceptional.   London shop rents rose 11.4% and have risen
at 9.2% compound for the last five years.  Elsewhere the highest growth rate
is of 1.6% in suburban London with many areas having rental falls, as much as
3.8% in East Midlands.   The average shop rent, excluding London, the South
East and Eastern regions, has fallen 2.1% compound for five years.   All
Shopping Centres and All Retail Warehouses have had rental growths of 1.6% and
0.6% respectively this year and of only 1.3% and -0.5% compound for the last
five years.   Since the depression began seven years ago the All Property Rent
Index has fallen by 2%, as All Shops have fallen 5% and All Retail Warehouses
have fallen 17%, falls offset by small rises of 3% and 5% in Industrials and
Offices.   Since the market peak of 1990/91 the CBRE rent indices, as adjusted
by RPI for inflation, have all fallen:  All Property 30%; All Office 34%; All
Shops 23%;  and All Industrials 34%. 
 
Property Investment, as measured by the IPD All Property Index, returned 14.7%
in the year to 31 October 2015 of which the income return was 5.6% and the
capital return, 9.1%.   Office and Industrial property returned 19.9% and
18.8% respectively but Retail Property returned only 9.1%.   This time last
year the All Property Index return was 20.1% of which the income return was
7.0% and the net capital return 13.1%.   Previous returns in the years to 31
October were 7.4%% (2013), 3.1% (2012), 8.7% (2011), 20.4 (2010) and minus
14.0% (2009), and minus 22.5% in the calendar year 2008 when in December alone
the index fell a record 5.3%.   In the year to 31 October 2015 the All
Property Index return of 14.7% and the Property Equities return of 18.6% were
significantly more than the 4.4% return from Bonds and the very poor return of
0.1% from Equities, the second year in which Equities returned less than
1.0%. 
 
Property Investment returns for 2015 are forecast at about 14.0% 310-3,
slightly less than the high 17.8% IPD Index return to December 2014 which
included a large 12.0% increase in capital values.   Last year's forecasts for
2015 were for a return of about 11% as almost all forecasters then expected
lower capital returns of 5% rather than the over 8% for 2015 now likely.   All
forecasters expect total returns for 2016 to moderate as capital growth is
expected to be much lower than in the previous two years and rental growth is
also expected to slow slightly.   Capital growth gave high returns of 11.9% in
2014 and is expected to return 8.3% in 2015 and to reduce further to 4.1% in
2016.   Rental growth of 3.0% in 2014 is likely to be 3.8% this year but to
fall back to 3.3% in 2016.   Retail rental growth in 2016 is expected to be
less than 2%, far below the 4% and 5% expected for Industrials and Offices. 
 
The IPF August Survey Report forecasts overall returns of 9.2% in 2016, well
above the forecast of 6.6% made for 2016 last year.   Colliers, who consider
the Retail Sector will have much lower returns than the IPF, forecast that the
total returns in 2016 will be 7.8%, but CBRE predict higher returns and expect
a total return in 2016 of 10.1%.   The IPF forecast return  for 2017 drops to
4.9% and to below 4.5% for 2018 and 2019, implying that, as the assumed rental
return is expected to be over 5.0%, capital values will fall as a result of
rising yields. 
 
I suggest this long-term forecast is slightly pessimistic. Interest rate swaps
rise only 1 percentage point to 2% between six months and ten years,
reflecting a growing economy and rising inflation, factors likely to cause
increased rents, sufficient to offset any change in yields.  Also, agents make
a strong case for continuing growth in the value of commercial property.  
CBRE suggest that: "There is a wall of capital out there that wants to be
invested in real estate ....." contributing to the current and prospective low
yields and "...... we think it  pricing  can stay high".   Cushman and
Wakefield report that the "... availability of financing is at a post-crisis
 2008  high ........... banks are becoming active in the market and debt fund
insurers and private equity are very active at the prime end of the market
and, increasingly, in the secondary market .....".   They also report
increased interest in the "regions".   These trends seem likely to persist
and, if so, the returns to 2019 will be higher than the IPF forecast. 
 
This time last year forecasters for house prices in 2015 were optimistic.  
HMT's "Average of Forecasts" was for a rise of 5.8%  and the OBR forecasted 6%
in 2015, figures in line with current estimates of 6.6% by the HMT survey and
5.5% by the OBR.   Increases in house prices in the twelve months to the end
of November 2015 are reported as 9.0% Halifax, 3.7% Nationwide, and 6.0%
Acadata.   The average annual figures mark a wide disparity in performance
between regions.    In November 2014 prices in England and Wales were rising
at 10.1% per annum, but, excluding London, only at 7.9%.   In the summer of
2015 the average England and Wales price rose by 4.7%, but, excluding London
by 5.2% as areas outside London rose more quickly although that reversal is
now less marked.   In the autumn the greatest annual rises in house prices
were in the South East, 7.1%, and East Anglia and East Midlands, 6.1%.   The
North and Wales had the lowest annual rise of 2.3% and 1.2% respectively.  
Within the South East there were large variations as Reading prices rose 18.3%
closely followed by Luton at 17.3%, such rises possibly indicating a "ripple
out" from London.   The cooling of some high London prices, together with the
higher stamp duty, may be reflected in the relative performance of the
individual London boroughs.   The average price in the two most expensive
boroughs, Kensington and Chelsea and City of Westminster, fell 17.6% and 6.2%
respectively in the year to October 2014, but the four lowest-priced boroughs
rose by an average of 14.7%.   Of the 33 London boroughs, the top eleven by
price rose by 4.6% last year, the middle eleven by 10.2% and the bottom 
eleven by 12.0%, possibly evidence of the "rippling out" hypothesis. 
 
Outside London, higher-priced properties continued to rise more rapidly.   In
the last twelve months houses in the top quartile by price - above £260,189
rose by 7.0% but those in the bottom (first) quartile - below £158,170 - rose
only by 1.3% with the second and third quartiles rising by 3.1% and 5.5%
respectively. 
 
A continuing anomaly in the reporting of house prices is the disparity between
Halifax and Nationwide indices as Halifax consistently reports much higher
figures than Nationwide.   This disparity is particularly apparent in Scotland
where, for the year to November 2015, Halifax reported an increase of 9.0% and
Nationwide 3.7%.   This disparity is particularly noteworthy as both mortgage
providers exclude cash sales and calculate their indices on the 'price of an
average house', a conceptual house, rather than on the actual average prices
paid for houses.   However, the Halifax price for its "average house" is
£204,552, higher than Nationwide's "average house", suggests that it is
concentrating on houses in the higher price bracket where price rises have
been greater. 
 
In Scotland, Acadata average house prices have only risen 1.6% to £168,843 in
the twelve months to October 2015, much more slowly than all the English
regions.  In the north of England, with the lowest average price of £154,625,
prices rose by a very modest 2.3%.   The market for houses in "poorer"
economic regions seems poorer than in better regions, provided they are
outside London. 
 
The Scottish housing market has been distorted by the introduction of the new
tax thresholds and rates in Scotland on 1 April 2015 under the LBTT.   The tax
rate is 10% on value above £325,000 and 12% above £750,000.   The volume of
higher-priced houses rose sharply just before the 1 April deadline and in
March the average house was £215,000 compared with c £170,000 over the
previous and subsequent months.   In March 2015 ninety houses valued over £1m
were sold and none in April 2015, compared with an average of 132 per year in
the two previous years.   A £1m house now costs £78,350 in LBTT in Scotland
and £43,750 in England and Wales, a difference in tax of £34,600.   Per contra
tax will be less onerous on lower-priced houses in Scotland compared with
Stamp Duty in England and Wales.   According to the Finance Secretary the
increase in the threshold to £145,000 takes 50% of Scottish transactions out
of the tax altogether. 
 
Over the last few months the one-off distortion caused by the LBTT changes has
largely worn off except that prices in August and September of detached
houses, averaging at about £250,000, have dropped in price by 2% year on year,
presumably an adjustment to the increased tax on the purchaser.   Sales of all
properties have increased 6% in the July - September period but there was no
change in the number of detached houses sold. Overall, the market has improved
over the last few months with monthly increases in value of 0.8%, 0.5% and
1.0% and the annual increase rising in October to 1.6% 
 
The OBR expect house prices to rise by about 5.0% in 2016 and by 28.4% over
the next five years.   HMT expect prices to rise 6.1% in 2016 and then by
about 5.0% each year for the following three years.   Forecasts of around 5.0%
for 2016 are also given by Countrywide, JLL, RICS, Savills and Strutt and
Parker.   A lower figure of 4.0% is given by Halifax and Knight Frank and
Capital Economics forecast only 2%! 
 
Savills provide forecasts for second-hand houses for up to five years for both
Prime and Mainstream markets.   In general the forecasts are slightly more
conservative than this time last year, probably due to increased taxes, the
slowdown in Central London, the controls being placed on mortgage lending such
as the MM Review and the prospect of higher interest rates sooner rather than
later, an assumption that may not take into account the economic effects of
the continuing fall in oil prices.   The mainstream UK market is forecast to
grow by 5.0%, the same as last year, but the five-year forecast is for 17.0%,
less than the 19.3% last year.   Scottish prices are expected to rise by 3.0%
in 2016 and by 14.2% over five years, but the forecast last year was for 4% in
2016 and for 17.6% over five years.   The highest growth in value over the
next five years is forecast to be over 20.0% in the South East and East of
England, presumably a ripple effect from London.   Prime market growth
prospects for 2016 are generally poorer than those made last year, the
Scottish market for instance is only expected to rise 2.0% in 2016, down from
a forecast rise of 4.0% made last year.   The five year forecast for Scotland
is for an 18.8% rise, slightly less than the price rises forecast at the
beginning of 2015. 
 
The prospective continuing rise in housing prices will narrow the gap between
the real value of houses and the cash price which is still below the peak
prices before the recession as adjusted for inflation.   The Halifax index
peaked at the £199,600 recorded in August 2007.   The equivalent
inflation-adjusted price in October 2015 would have been 25.33% higher, or
£250,150, but the current October 2015 Halifax index price is £205,240 - a
long way to go!   If house prices rise at just over 4.0% and inflation is 2.0%
then ten more years will elapse before the August 2007 peak is regained in
real terms.   House prices are difficult to predict and historically errors
are large, especially around the timings of reversals or shocks.   As I said
last year:  " ..... the key determinant of the long-term housing market will
be a shortage in supply, resulting in high prices.". 
 
The marginal supply of houses is relatively fixed, or inelastic, responding
slowly to demand due to the long production cycle time which includes site
acquisition, securing planning consents, so often delayed for years, and the
actual construction.   Thus any increase in demand will increase prices.   The
short-term demand for houses changes relatively quickly, or is elastic, being
greatly influenced by mortgage costs and availability.   Over the past year
mortgage costs have continued to fall as interest rates continue unchanged but
lending margins have declined slightly as competition between mortgage
providers has increased.  However, the criteria for lending, including the
Mortgage Market Review and other controls being placed on lenders, has
somewhat curtailed availability of credit especially on higher value
properties.   Demand in the first-time buyer market has been considerably
assisted by the Help-to-Buy and other government schemes, operating primarily
on lower -priced houses.   I see no change in short-term demand until interest
rates rise appreciably, a prospect that continues to recede in the UK and now
seems unlikely to be substantially different until 2017 at the earliest. 
 
The increase in short-term demand will be reinforced by an increase in the
long-term demand for houses, due to a higher population and a smaller
household size.   The Office of National Statistics estimates that there will
be a further 3.7m households by 2030, 13.6% more than at present.   Over the
next five years there will be 1.3m new households.   For Scotland 92,281 (very
exact!) new households are expected by 2020.   Current house building levels
in Great Britain are considerably lower than the expected increase in
households, more so in Scotland than in any other area, where only 30,560 new
house starts, or 33% of the projected household increase, are expected by
2020. 
 
The increase in long-term demand over supply will increase prices unless
supply is much increased, a change which over the next five years - a single
production cycle - is most unlikely.   In addition, increased incomes will
also increase demand where time, convenience, amenity and quality and status
of location all become more valued.   The long-term prospects for the housing
market are very good. 
 
Future Progress 
 
The Group has positioned itself to take advantage of a housing market which is
stable and which I expect to improve over the next few years.   We have
successfully completed major investments in long planning processes and are
initiating the further promotion of our largest proposal in the forthcoming
Local Development Plan.   Our emphasis is on the completion and realisation of
development opportunities that have been postponed which can be marketed
shortly whenever market conditions allow.   We will seek to develop our major
sites whenever practicable.   As these sales progress other existing
developments will be brought forward to provide replacements for these
realisations. 
 
While we require a stable and liquid market we do not depend on a significant
recovery in prices for the successful development of most of our sites as
almost all of these sites were purchased unconditionally, i.e. without
planning permission, for prices not far above their existing use value, and
before the 2007 house price peak.   A major component of the Group land
development value lies in the grant of planning permission, and in its extent,
and it is relatively independent of changes in house values.   For development
or trading properties, unlike investment properties, no change is made to the
Group's balance sheet even when improved development values have been
obtained.   Naturally, however, the balance sheet will reflect such enhanced
value when the properties are developed or sold. 
 
The policy of the Group will continue to be considered and conservative, but
responsive to market conditions and opportunistic.   The mid-market share
price on 21 December 2015 was 130p, a discount to the NAV of 151.99p as at 30
June 2015.   The Board does not recommend a final dividend, but intends to
restore dividends when profitability and consideration for other opportunities
and obligations permit. 
 
Conclusion 
 
The UK has emerged from the longest depression since 1873-96 and growth has
recommenced but without the normal rebound.   Policy interventions by
Governments have alleviated the worst possible outcomes, especially for
unemployment and social conditions, as the measures in the New Deal did for
the US in the 1930s.   In the UK the restrictive fiscal policies delayed a
return to the pre-recession level and the long depression and credit controls
have damaged the economy's long-term supply capability and reduced the output
level significantly below the pre-recession trend.   The opportunity to expand
demand and to invest in capital projects during the depression at low interest
cost has been lost and the UK economy's resulting poor productivity will not
allow demand to be boosted without threatening inflation.   As there has been
no economic rebound from the depression, the UK is destined to operate for the
foreseeable future at a lower rate of economic activity than could otherwise
have been achievable. 
 
The "Help-to-Buy" housing programmes continue to provide a major boost to the
new house market and to the economy.   However, the flow of credit to
companies continues to be a major restriction on growth because of the
requirement to increase the banks' capital bases which still suffer from
penalties for inappropriate practices.   The restoration of a competitive
market in banking and credit to replace the long-established oligopoly, is
highly desirable, and the establishment of a new range of banks and the
emergence of crowd funding and of retail bonds are favourable trends.  
Perhaps it is for these and many other reasons that Mervyn King, the previous
Governor, said:  "Of all the banking systems, ours is the worst"! 
 
The economic advantages the UK enjoys from controlling its monetary system and
from an independent currency are being palpably demonstrated by the continuing
unresolved underlying crisis in the Eurozone where political ambition battles
economic reality and the practical challenges faced by impractical policies.  
The Eurozone may yet pay a big price for these political ambitions.   The
European ideal, particularly the creation of the Eurozone, was a triumph of
hope and ideology over economic reality.   That ideal will be tested in the
referendum.   The economic case for continued membership depends on the future
strategy of the Eurozone members of which the UK is not part.   The political
achievement of the EZ continues to exact a heavy economic price being
centralist, protectionist and economically conservative.   The economic price
that the UK would pay from leaving the EU is generally highly exaggerated, as
the economic arguments are no more understood by most advocates of the EU than
they were understood by the advocates of the Euro, an error from which they
were fortunately saved.   The net cost, if any, would depend on the
arrangements made with the EU, a known unknown.   The choice ultimately is
political. 
 
The large reduction in oil price and other commodities represents a huge boom
to the UK economy, giving a much-needed boost to consumers but prices at
current levels will accelerate the natural rundown of the Scottish oil
industry, particularly in the North East.   The effects, radiating throughout
the Scottish economy, will be widespread and long lived.   Scotland's oil has
a future, as prices will recover somewhat modestly, and the much neglected
shale deposits represent a new opportunity.   The contraction of this
extractive industry will undermine the extensive and highly-regarded
supporting service industries, as closure of other Scottish industries has
withdrawn their supporting industries.   All commodity-based economies suffer
from the volatility of commodity prices and an entrepreneurial innovative
service-based society should be encouraged if economic growth and higher
living standards are to be achieved.   A larger cake will provide larger
shares for all sections of society. 
 
Unlike many other property companies, the Group has successfully negotiated
the worst economic crisis for 

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