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Dear friend,

Another week another Lloyd’s syndicate, another gut-busting Cat bond, another collateralised debt obligation.

What a world we live in – what reinvention and what constant revolution — it’s like David Bowie in 1975 — what alter ego or new suit of clothes are we supposed to be assuming this week?

We scarcely have time to pause for breath, let alone inwardly digest what it is all supposed to mean.

We are probably best advised not to even try

— but here goes anyway.

First to the new Lloyd’s syndicate, talk about spot the difference between today and the first half of 2005. Back then, just like now there was perceived overcapacity and rates were coming off like excess garments in a heat wave — and players we giving back capital like they playing pass the parcel at a kids’ party.

If I remember rightly back then Montpelier took a whopping slug of equity off the table in the form of a jumbo-sized special dividend. No Lloyd’s syndicates then — so what gives?

I don’t know — I’ll ask them and tell you what they tell me! I can speculate with the best of them that diversification is the name of the game this time around.

Come to think of it these days everyone is rediscovering the convenience and scalability of the Lloyd’s global platform.

One Bermudian comes to London to access the US – and in the same week another comes to London to access China via Shanghai – they sure as hell didn’t come for the weather!

What a triumph for us Brits — let’s hope we don’t mess it up this time. New syndicate formation in a softening market has heralded disaster in the past – late eighties, mid- to late nineties — just the thought gives me a dizzy feeling.

But let’s try not be negative — maybe it really is different this time.

Similarly there seems to be a mass flowering in the wider financial world — overnight it seems the cat bond market has hit critical mass. It’s a bit like the phenomenal success of social networking sites such as Myspace, YouTube or Facebook – out of almost nowhere it seems that suddenly everyone is at it.

Proof that I am a miserable cynic is that yesterday I was trying to explain to someone in the office what a CDO is and I found myself using the unfortunate analogy of a clown at the circus doing a balancing act with round tubes and planks of wood.

First the clown puts one tube down on the ground and puts a plank of wood on top, like a little seesaw — actually this is not as easy as it looks. Lets’ call this insurance.

Then he puts another layer on, and then another. Soon every wobble from below is amplified and distorted — the poor clown’s looking a bit shaky.

But just as you think that’s it, here comes the pièce de résistance.

The lights dim, the drums roll, the crowd hushes, then gasps — the clown has whipped out a unicycle and is juggling five fireballs on top of the wobbly stack!

Ta-dah! Drum roll and raucous applause.

And that’s a tiny bit what a CDO is like.

But how many balls does the average wobbly stack unicycle juggler have to drop before reaching a professional standard?

The buyer of a CDO bundle has no answers — he’s just having fun after all — and it seems simply everyone has asked for a unicycle this Christmas.

Yes, things are definitely different this time.

On to more history in the making. As Mark Twain said — it doesn’t repeat itself, but it sure does rhyme!

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