Month: July 2016

As first reported last night, and following up this morning, in an episode painfully reminiscent of the Bear hedge fund “freezes” that preceded the bank’s 2008 collapse and the great financial crisis , first Standard Life halted trading in its property fund, followed hours later by both Aviva and M&G which likewise announced they are suspending trading in their own portfolio funds. And, as Bloomberg summarizes, three of the U.K.’s largest real estate funds have frozen almost 9.1 billion pounds ($12 billion) of assets after Britain’s shock vote to leave the European Union sparked a flurry of redemptions.

These were the first major dominoes to fall as a result of the confusion resulting from the Brexit vote. M&G Investments, Aviva Investors and Standard Life Investments halted withdrawals because they don’t have enough cash to immediately repay investors. About 24.5 billion pounds is allocated to U.K. real estate funds, according to the Investment Association.

The rush by private investors to withdraw money prompted M&G, which held 7.7% in cash before the vote, to suspend its 4.4 billion-pound Property Portfolio fund and Aviva Investors to freeze its 1.8 billion-pound Property Trust on Tuesday. Standard Life halted trading on its 2.9 billion-pound U.K. real estate fund on Monday. The cash position for Aviva and Standard Life’s funds at the end of May was 9.3% and 13.1% respectively.

The market reaction has been swift and brutal, sending stocks of the property-linked asset managers crashing.

Standard Life is among firms, including Aberdeen Asset Management Plc, Henderson Group Plc, Legal & General Group Plc and M&G to adjust the value of assets in their property funds last week. Holdings in the funds range from an office building in Birmingham, to a mall in Newcastle and retail warehouses in Northampton.

“Investor redemptions in the fund have risen markedly because of the high levels of uncertainty in the U.K. commercial property market since the outcome of the European Union referendum,” M&G said on its website. Outflows “have now reached a point where M&G believes it can best protect the interests of the funds’ shareholders by seeking a temporary suspension.”

“The dominoes are starting to fall in the U.K. commercial property market,” said Laith Khalaf, a senior analyst at Hargreaves Lansdown. “The problem these funds face is that it takes time to sell commercial property to meet withdrawals, and the cash buffers built up by the managers have been eroded by investors heading for the door.”

Cited by Bloomberg, “the drop-off in inflows and then redemptions forces these funds to eat into their liquidity buffer,” much of which is held in real estate investment trust shares, Mike Prew, an analyst at Jefferies LLC, said in a note to clients on Tuesday.

While traders around the globe had been mostly focused on the downstream effects slamming Italian banks in recent weeks, the news of “freezing” UK property funds spooked global markets, and as a result the pound fell to its weakest level in three decades against the dollar Tuesday, surpassing lows reached in the aftermath of the Brexit vote. Bank of England Governor Mark Carney pledged to shore up financial stability on a day when a survey showed a plunge in U.K. business confidence, but has so far failed to achieve that.

The biggest concern prompting the redemptions is that according to industry commentators London office values could fall by as much as 20 percent within three years of the country leaving the EU. During the financial crisis of 2007 and 2008, real estate funds were forced to freeze operations after withdrawals surged, contributing to a property-market slump that saw values drop more than 40% from their peak in the U.K.

As Bloomberg adds, regulators had already planned to meet with the U.K.’s largest asset managers on Tuesday to discuss the effect of Brexit on the industry. The meeting – which could not come fast enough – takes place as the Financial Conduct Authority’s new chief executive officer Andrew Bailey told reporters that while the fund suspensions were not a “panic measure,” the regulator “may need to look at the design” of property funds. Just like the SEC looked at the design of open-ended junk bond funds during the late 2015 blow up in that asset space.

Almost 3 billion pounds has been wiped from the market value of the FTSE 350 Real Estate Investment Trust Index since trading started Monday. Land Securities Group Plc, the U.K.’s largest REIT, tumbled 9.1 percent over the period.

Other funds remain hopeful that redemptions will slow enough to prevent further gating:

A spokesman for Aberdeen said the company has no plans to suspend trading in its funds, saying that redemptions have started to slow and its U.K. property fund holds about 20 percent in cash. Henderson declined to comment, while L&G said its U.K. property fund is “well positioned” in terms of liquidity and asset management.

Good luck, because as Emma Bewley, head of funds at Connection Capital in London told Bloomberg, “the potential impact of a high-profile liquid fund suspending redemptions shouldn’t be underestimated, particularly given the uncertain environment. While asset managers will seek to avoid suspending redemptions, they may have to use additional liquidity facilities” such as lines of bank credit.”

In other words, half a year after the junk bond mutual fund scare, and just months after most central banks unleashed the strongest salvo in the global race to debase yet, the global financial system finds itself in dire straits yet again.

Naturally, all of this assumes that Italian banks will remain perfectly solvent for the duration of the current crisis, something which as Matteo Renzi’s urges to get permission from Europe for a bank bailout suggests will not be the case considering he “hoped to use a liquidity backstop to contain investor panic, which could result in a run on deposits.” Because once the bank runs do start – precipitated of all things by fears that Europe’s brand new bail-in regime will be instituted in one of Europe’s largest economies, then it will really be time to panic.

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Submitted by Cathal Haughian via BeforeTheCollapse.com,

The situation is grave. That’s why I don’t say this light-heartedly, but I think it should be said nevertheless.

George Soros made it clear in “The Alchemy of Finance” (1987) that the debt situation had already become quite unsustainable after 1982, and has been sustained only by a symbiosis of governments, central banks and commercial lenders, acting in a balance-of-fear type of environment. The banking system has been on the brink of collapse since then.

Finding this out must make one slightly depressed, looking at the mountain of debt we have managed to amass mostly after the 1980s. PWC measured UK total debt to be 500% of GDP in 2012, no soul has had the courage required to measure it since.

The problem lies mostly with the human tendency to avoid short-term pain. Any top politician, or central banker, who would come out now would most likely cause a crisis. And proving a counter-factual is very hard, as we know, so this person (or institution) would need to take an unbearable amount of blame. Many still blame the Fed for what happened in the 1930s! Sure, mistakes were made, but mistakes will always be made.

Let’s contemplate the detail, when personal debt started growing at a faster rate than personal income, debt gradually replaced income as a source of demand, and so, it has to end in tears. A boom first, followed by a bust later, as the discrepancy between income and debt growth must mean that the debt burden will, sooner or later, become unserviceable. If much of that debt has been used to purchase property, it will cause a banking crisis, as in 2008.

If left to unravel without state intervention, a financial crisis will crash property prices and bring them in line with incomes once again (not incomes + debt). And we can hope to start all over again.

Unfortunately the myth that non intervention would have caused more pain to the poor than the rich was sold to the public in 2008, debt was jiggled around from one sector (financial) to another (state) as though, by magic, that would alter its overall level. Of course it didn’t, it simply meant that the poor were made to take on the losses and asset prices were protected.

Privately owned banks and enterprises are intended to be fallible, otherwise prices would be pointless and the price mechanism wouldn’t work, and the public sector is intended to be infallible, and so imprudence is hidden but the costs are real. The system has been intentionally constructed that way; it’s not some freak outcome or vestige of truth. The bailout of Wall Street was imprudent, the cost far too great, and so the real reason for printing money was hidden.

Unless it is accepted that demand must be tied to income growth, and not extra debt, we’re never getting out of this one. The concept that higher bank lending – in an era of stagnant incomes – was an encouraging sign for the economy was a ridiculous one. More ridiculous still were Western governments trying to bolster the banks in order to get them to do precisely that, lend more. The current disconnect between high asset prices, stagnant incomes and increasing, overall debt levels, is both economically and politically unsustainable. And what is the ultimate result? Brexit politically and economically there is no housing market for our young workers. The first rung of the property ladder only existed when wage inflation was higher than house price inflation. Those days are gone, well and truly.

Why did the state do this? Because it cannot create growth. The root cause is the inability to create growth in the face of demographic changes. As people age they get wiser with their money and the big purchases in life, such as cars and housing, are made when young. So instead the government synthesized growth. The UK has been experiencing a slow imploding collapse for she has been running at a loss – more imports bought than exports sold – for decades and successive governments have sought to shore up money creation by printing through housing. This point is central to an understanding of the crisis and highlights the enormity of what’s about to happen. The superficial mind presumes that money printing began after The Great Financial Crisis.

In actuality, neo-liberal economies such as the US, UK, Ireland, Australia, etc. were printing money for decades by providing an excess of credit money to purchase property. For example, affordability measurements for mortgage applications used to use the primary income as a benchmark (which was typically the income of the man); but this was changed to total household income. This permitted evermore future income – debt is your future income – to be sucked into the present for the purpose of consumption. This was money printing by sleight of hand. Thus, living standards dropped for the young while the elderly who owned property enjoyed a bonanza.

The UK establishment have been loathe to let supply match demand (as it did in Ireland) as it would have meant the collapse of house prices and the UK (and interconnected) banking systems. I therefore posit that they never wanted to remedy the shortage of affordable housing and therefore rejected all suggestions as to how to fix the problem as meaningless. Alas, the dominant class did not envisage Brexit and the possible geopolitical consequences for asset prices in the UK, in particular, the property market.

This tragedy has several stages. It began with hubris, “The masses won’t understand how we’ve shafted them” with the bank bailouts. Then David Cameron sets the stage for stupidity, “Let’s give the peasants a chance to upset our apple cart!” Followed by madness shouting, “We’ll have full access to the single market, outside the jurisdiction of the European Court, no payments to Brussels AND control of immigration!” It appears the mainstream still cling to denial. Let me explain why our beloved political mainstream and it’s shoddy EU project has lost it’s appeal. It’s because the mainstream is not moderate – and most Britons are moderate. There are real extremists in the political mainstream – they have power and they have abused it mightily.

Allowing the bankers to devastate the public accounts with bailouts and thereafter leaving these culprits completely unscathed was an extremist choice. Engineering the financial suffocation of the entire Greek population so as to crush a popular vote was an extremist choice. Removing elected prime ministers in Italy and Greece and replacing them with unelected functionaries was an extremist choice. Allowing over a million migrants in to Europe was an extremist choice. Wage suppression in Ireland was an extremist choice. Permitting Germany’s excessive trade surpluses whilst punishing everyone else’s budget deficits was an extremist choice. Pension cuts were an extremist choice. Mass unemployment was an extremist choice.

The reason these catastrophic choices were made was precisely because mainstream parties have colluded to keep these barbaric policies safe from electoral retribution by making them effectively bi-partisan or sealed off behind a treaty wall. The normal process whereby democracy flushes out bad policy (and bad policymakers) has been terminated. The mainstream deliberately locked the voter out.

“But all of this is just the price of globalisation,” sigh the well shod insiders. The masses were disrobed of agency to combat the ‘manifest destiny’ of the EU and globalisation. Now the insiders stand aside and watch in horror. The populists may have been made by the mainstream – but they clearly have no agency to unmake them now.…

Those hoping for a rational and indifferent divorce must have looked on in horror at the tragedy unfolding in the EU parliament – scenes of gloating and ridicule. There shall be no adolescent stage in this tragedy. Laughter that sounded so childish was baptized by a kiss of death. We have witnessed attitudes harden, “The City, which thanks to the EU, was able to handle clearing operations for the eurozone, will not be able to do them,” the French President said. “It can serve as an example for those who seek the end of Europe . . . It can serve as a lesson.” Ambitious people pursue opportunity rather than a place in the status qou. The talent in The City shall have no qualms in moving if income is elsewhere. You can write a contract under English law in Frankfurt or Paris just as well as in London. The immediate goal, it would seem, is to destroy the UK.

So Boris ‘the dog that caught the car’ scampers away. This is now Eastenders on acid … as project fear becomes project reality. And now, the stage is being prepared for the next act, will prices in the property market slump and crater the UK’s financial systems? The cracks have already begun to appear, two UK real estate funds — Aviva and Standard Life — have just halted redemptions as they were running out of cash due to large withdrawal demands. Perhaps regulators should have wondered how an open-ended fund — whereby retail investors can demand their money back at short notice — could work with assets like property that take much time to sell. And so the tragedy unfolds … though perhaps the politicians on the continent, that lust after revenge should first ask themselves, “Why did Britons vote to leave and can the panic be contained?”

That is very doubtful. Europe is in desperate need of moderate policies right now.

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Morgan Stanley’s Adam Parker had a tough year thus far.  Scratch that, a tough five years.  Parker’s portfolio performance in 1H 2016 was “our worst in more than a half decade” and as all good investment managers do, he hopes for a strong 2H.  His hope also has been clearly thought out, as Parker framed his hope parallel to that experienced by desperate golfers who shank the front 9 and hope to bank on the back 9.  We just hope his bet on financials won’t make him the “bulge bracket…counter-indicating idiot” he fears becoming (we don’t expect him to improve on Dick Bove’s performance), which might be tough considering that his “MOST Strategic Portoflio” has underperformed the S&P by 5.3% YTD:

Although we are certain Mr. Parker puts in his hours in the office, it is clear that analyzing the firms’ portfolio and making appropriate investment alterations (something he said he didn’t do in Q2) took to the back-burner relative to generating new quips about how to excuse poor performance at the end of a Fed induced rally.

Some quotes to think about next time you find yourself on the course with a veteran digging in the weeds:

• “We overstayed our welcome” in consumer discretionary names.
• “We have been too cautious on consumer staples“.
• “We worry about being the strategist at the bulge bracket firm who becomes the counter-indicating idiot with this downgrade” of financials to equal-weight.

Finally, in Adam Parkers own words:

Oftentimes when I play golf, I score poorly on the front nine, but the psychological switch to the back nine gives me a new outlook on the round.  Sometimes that even results in a materially better score. Given that our portfolio performance in the first half of 2016 has been our worst in more than a half decade, we are hoping for a strong showing here on the back nine of the 2016 calendar year.
We need some portfolio birdies, so to speak.

Up to now, we had dealt with our lagging performance by lowering our portfolio turnover (we have made zero changes in Q2).   But, we are altering our strategy for the back nine by undertaking a substantial portfolio overhaul in today’s work.  We worry about being wrong in both directions when we throw in the towel on some of our unsuccessful sector recommendations, particularly financials and energy, but we want to make less active and extreme sector bets given the sharp sector reversals we’ve experienced over the last two years.  It seems clear that rates will remain lower than for much of history and that oil is healing, and our financials-over-energy pair trade, which has damaged the portfolio, seems imprudent at this juncture.

The relatively uncertain macro backdrop makes us want to more religiously stick to the quantamental discipline. Our top-down sector judgments have generated reasonable alpha since portfolio initiation in January of 2011, but have failed year-to-date.

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Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

We used to have this saying that if someone asks you to do a job good, fast and cheap, you’d say: pick two. You can have it good and cheap, but then it won’t be fast, etc. As our New Zealand correspondent Dr. Nelson Lebo III explains below, when it comes to our societies we face a similar issue with our climate, energy and the economy.

Not the exact same, but similar, just a bit more complicated. You can’t have your climate nice and ‘moderate’, your energy cheap and clean, and your economy humming along just fine all at the same time. You need to make choices. That’s easy to understand.

Where it gets harder is here: if you pick energy and economy as your focus, the climate suffers (for climate you can equally read ‘the planet’, or ‘the ecosystem’). Focus on climate and energy, and the economy plunges. So far so ‘good’.

But when you emphasize climate and economy, you get stuck. There is no way the two can be ‘saved’ with our present use of fossil fuels, and our highly complex economic systems cannot run on renewables (for one thing, the EROEI is not nearly good enough).

It therefore looks like focusing on climate and economy is a dead end. It’s either/or. Something will have to give, and moreover, many things already have. Better be ahead of the game if you don’t want to be surprised by these things. Be resilient.

But this is Nelson’s piece, not mine. The core of his argument is worth remembering: 

“Everything that is not resilient to high energy prices and extreme weather events will become economically unviable…

 

…and approach worthlessness. On the other hand,…

 

Investments of time, energy, and money in resilience will become more economically valuable…"

Here’s Nelson:

Nelson Lebo: There appear to be increasing levels of anxiety among environmental activists around the world and in my own community in New Zealand. After all, temperature records are being set at a pace equal only to that of Stephen Curry and LeBron James in the NBA Finals. A recent Google news headline said it all: “May is the 8th consecutive month to break global temperature records.”

In other words, October of last year set a record for the highest recorded global monthly temperature, and then it was bettered by November, which was bettered by December, January, and on through May. The hot streak is like that of Lance Armstrong’s Tour De France dominance, but we all know how that turned out in the end.

Making history – like the Irish rugby side in South Africa recently – is usually a time to celebrate. Setting a world record would normally mean jubilation – not so when it comes to climate.

Responses to temperature records range from sorrow, despair, anger, and even fury. Anyone with children or grandchildren (and even the childless) who believes in peer review and an overwhelming scientific consensus has every right to feel these emotions. So why do I feel only resignation?

We are so far down the track at this point that we are damned if we do and damned if we don’t. Remember the warnings 30 years ago that we needed 30 years to make the transition to a low carbon economy or else there would be dire consequences? Well, in case you weren’t paying attention, it didn’t happen.

While these warnings were being issued by scientists much of the world doubled down – Trump-like – on Ford Rangers, Toyota Tacomas, and other sport utility vehicles. The same appears to be happening now, with the added element that we are experiencing the dire consequences as scientists issue even more warnings and drivers buy even more ‘light trucks’. Forget Paris, the writing was on the wall at Copenhagen.

The bottom line is that most people will (and currently do) experience climate change as a quality of life issue, and quality of life is related to a certain extent to disposable income. Acting or not acting proactively or reactively on climate change is expensive and gets more expensive every day.

If the international community ever takes collective action on climate change it will make individuals poorer because the cost of energy will rise significantly. If the international community fails to act, individuals will be made poorer because of the devastating effects of extreme weather events – like last year’s historic floods where I live as well as in northern England, etc – shown to be on the increase over the last 40 years in hundreds of peer-reviewed papers with verifiable data.

And here is the worst part: most economies around the world rely on some combination of moderate climate and cheap fossil fuels. For example, our local economy is heavily dependent on agriculture and tourism, making it exceptionally vulnerable to both acting AND not acting on climate change.

Drought hurts rural economies and extreme winds and rainfall can cost millions in crop damage as well as repairs to fencing, tracks and roads. As a result, both farmers and ratepayers have fewer dollars in their pockets to spend on new shoes, a night out, or a family trip. This is alongside living in a degraded environment post-disaster. The net result is a negative impact on quality of life: damned if we don’t.

On the other hand, tourism relies on inexpensive jet fuel and petrol to get the sightseers and thrill seekers to and around the world with enough dollars left over to slosh around local economies. Think about all of the service sector jobs that rely on tourism that in turn depend entirely on a continuous supply of cheap fuel. (This is not to mention peak oil and the lack of finance available to fund any long and expensive transition to an alternative energy world.) I’m told 70% of US jobs are in the service sector, most of which rely on inexpensive commuting and/or a highly mobile customer base.

Any significant approach to curbing carbon emissions in the short term will result in drastic increases to energy prices. The higher the cost of a trip from A to Z the less likely it is to be made. As a result, business owners and ratepayers at Z will have fewer dollars in their pockets to spend on new shoes, a night out, or a family vacation of their own. The net result is a negative impact on their quality of life: damned if we do.

I suppose it deserves repeating: most OECD economies and the quality of life they bring rely on both moderate climate and cheap fossil fuels, but these are mutually exclusive. Furthermore, regardless of emissions decisions made by the international community, we are already on track for decades of temperature records and extreme weather events that will cost billions if not trillions of dollars.

The response in many parts of the world has been to protest. That’s cool, but you can’t protest a drought – the drought does not care. You can’t protest a flood – the flood does not care. And even if the protests are successful at influencing government policies – which I hope long-term they are – we are still on track for decades of climatic volatility and the massive price tags for clean up and repair.

Go ahead and protest, people, but you better get your house in order at the same time, and that means build resilience in every way, shape and form.

Resilience is the name of the game, and I was impressed with Kyrie Irving’s post NBA game seven remarks that the Cleveland Cavaliers demonstrated great resilience as a team.

As I wrote here at TAE over a year ago, Resilience Is The New Black. If you don’t get it you’re not paying attention.

This article received a wide range of responses from those with incomplete understandings of the situation as well as those in denial – both positions dangerous for their owners as well as friends and neighbours.

The double bind we find ourselves in by failing to address the issue three decades ago is a challenge to put it mildly. Smart communities recognize challenges and respond accordingly. The best response is to develop resilience in the following areas: ecological, equity, energy and economic.

The first two of these I call the “Pope Index” because Francis has identified climate change and wealth inequality as the greatest challenges facing humanity. Applying the Pope Index to decision making is easy – simply ask yourself if decisions made in your community aggravate climate change and wealth inequality or alleviate them.

For the next two – energy and economics – I take more of a Last Hours of Ancient Sunlight (credit, Thom Hartmann) perspective that I think is embraced by many practicing permaculturists. Ancient sunlight (fossil fuels) is on its way out and if we do not use some to build resilient infrastructure on our properties and in our communities it will all be burned by NASCAR, which in my opinion would be a shame.

As time passes, everything that is not resilient to high energy prices and extreme weather events will become economically unviable and approach worthlessness.

On the other hand, investments of time, energy, and money in resilience will become more economically valuable as the years pass.

Additionally, the knowledge, skills and experience gained while developing resilience are the ultimate in ‘job security’ for an increasingly volatile future.

If you know it and can do it and can teach it you’ll be sweet. If not, get onto it before it’s too late.

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Having collapsed 99.7% from its July 2007 highs at EUR93, Banca Monte dei Paschi Siena – Italy’s 3rd largest bank – is in dire straits. And in confirmation that the fecal matter is about to strike a rotating object, Italian regulators just ‘temporarily’ banned short-selling of BMPS stock. Of course, with various other derivatives available to ‘hedgers’ or those dastardly speculators (note – 5Y Sub CDS at 1633bps, record highs), the pressure is anything but lifted. In fact, this likely puts more pressure on its peers.

Statement via Consob:

Consob adopts a temporary ban on short selling on Banca Monte dei Paschi di Siena spa shares. The ban shall apply for the entire trading day of Wednesday  6 July 2016

 

Consob decided to temporary prohibit short sales on Banca Monte dei Paschi di Siena shares – BMPS (ISIN code IT0005092165).

 

The ban will be enforce for the entire trading session of tomorrow, Wednesday 6 July 2016, on the MTA market of Borsa Italiana.

 

The prohibition was adopted pursuant to Article 23 of the EU Regulation on short selling, considering the negative price change recorded by the share.

 

The prohibition applies to short sales backed by stock lending. This extends the scope of the prohibition of naked short selling, already in force for all shares from 1st November 2012  in accordance with the abovementioned EU Regulation.

 

The text of the Resolution 19653 of 5 July 2016 is available on the websitehttp://ift.tt/1BVatmo.

Rome, 5 July 2016

So that explains why everyone piled into CDS today…

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Moments ago, UK Home Secretary Theresa May largely as expected, topped the first ballot of Conservative members of Parliament in the contest to replace David Cameron as party leader and prime minister. Former Defence Secretary Liam Fox came last, meaning he is eliminated from the race. The votes cast for each candidate were as follows:

• Theresa May: 165
• Andrea Leadsom: 66
• Michael Gove: 48
• Stephen Crabb: 34
• Liam Fox: 16

A BLoomberg adds, tory lawmakers will vote again on July 7 and July 12. Party members will then choose between the two remaining candidates in a postal vote, with the winner due to be announced by Sept. 9.

Why is this important? Because while some may assume that May ultimately winning the race for next UK leader and PM could result in some or all unwinding of Brexit, today the UK Standard reported that contrary to her prevailing image, Theresa May “squared up to Brussels boss Jean-Claude Juncker by demanding early talks on Britain’s exit from the European Union.”

In an exclusive interview with the Evening Standard, the frontrunner to become Prime Minister showed a flash of steel by insisting on informal discussions first – something that the other 27 EU leaders have refused. “In the European negotiations I have been involved in, you often have preliminary talks before you actually reach the formal position,” pointed out Mrs May, adding: “This will be a point of discussion.”

Speaking to editor Sarah Sands, Mrs May set out a series of tough messages to Europe – and joked about her dour image. With Conservative MPs gathering for their first round in the ballot to choose David Cameron’s successor, the Home Secretary revealed: 

• France will be warned that it would be against its interests to attempt to move the border from Calais to Dover, a move that threatens to increase the number of desperate migrants trying to cross the Channel.
• A May government would keep David Cameron’s goal of slashing immigration in the long term to “tens of thousands”, a level she said was “sustainable”.
• Talks to defend passporting rights allowing the City of London to trade freely in the EU would be a priority in Brexit negotiations.
• Boris Johnson and Michael Gove might both serve in a unity Cabinet. She said: “I think it is hugely important as a party that we come together … We are not Leavers or Remainers now, we are Conservatives in Government with a job to do.”

The Standard adds that May’s resolve to make major EU leaders sit down and discuss Britain’s exit terms in a “sensible” way comes a week after David Cameron was set home early from a summit in Brussels while the other 27 leaders talked about the impact of Brexit without him.

Juncker, the president of the Brussels commission, imposed a “presidential ban” to stop commissioners from talking to UK government officials until a formal two-year exit timetable is triggered by the British Prime Minister moving Article 50.  Juncker told MEPs he would not even allow informal talks before Article 50, saying: “There can be no preliminary discussions. “No notification, no negotiation. I don’t think we should condone shadow boxing or cat and mouse games.”

But May said: “I would hope that we would see that everybody recognises it is not just for the UK’s benefit but actually for the benefit of the EU that we have sensible discussions that are undertaken in a good spirit of willingness to get a deal that is right for us but also a sensible deal for the EU.”

Responding to a threat by Alain Juppé, the frontrunner to win the French presidential election next year, to end the Le Touquet deal that allows Britain to maintain border controls in Calais, she was confident that she could persuade France to back off.

On the critical issue of immigration, May cautioned people not to expect immediate falls in numbers because there was no “silver bullet”. Asked what sort of levels would be sustainable, she said: “We’ve consistently said that sustainable level is the tens of thousands. But obviously this does take time and you’re dealing on the situation where regardless of the rules you put in place, there are other factors that come into play. We were getting net migration down – and then the economy started doing better than many other economies and we saw it going up again.” 

On the searing row over whether EU nationals will be allowed to stay in the UK after Brexit – which has seen critics accuse Mrs May of using them as a “bargaining chip” – the Home Secretary said she would only give a guarantee if British ex-pats in the EU were offered the same rights. All four of Mrs May’s rivals – Michael Gove, Liam Fox, Andrea Leadsom and Stephen Crabb – say they would guarantee residency the three million EU citizens in Britain.

Asked if she would give a Cabinet job to Boris Johnson, with whom she has clashed over his anti-riot water cannon and over Europe, she appeared to hint he could be allowed in her tent, saying: “I’m not speculating about individuals … other than that I would want to bring Leavers and Remainers together.” That said, she flatly ruled out any role for Ukip’s outgoing leader Nigel Farage:  “Absolutely not, no. There will be no deals with Ukip or anybody around Ukip.”

Then again, all of this is simply “politics” where as the FBI today showed, anything goes, and it would be perfectly acceptable for May to change her mind a few dozen times before Article 50 is (or isn’t) finally implemented.

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