2010 will not be remembered fondly by many - especially those in the financial industry.
Although Stock Markets are ending the year on a high, there is little cheer to be found elsewhere. Bond yields are still way too low in many cases (with a few notable exceptions on the Corporate Bond side of things), deposit rates are effectively zero - and all this is happening as inflation is most definitely raising its ugly head once more.
I am deeply frustrated in that my model derivative portfolio is up 99.4% on the year - I would have sold my first-born into slavery to have got that 100% figure dammit! Interestingly, about 70% of the positions have been quite bearish. It is a testament to volatility that such success was achieved in a rising market.
The cash required to margin these positions was held primarily in Corporate Bonds and Bank "must pay" Preference Shares, with around 30% in cash at any time.
My only stock position of size to be held throughout the year was Indigovision (IND.L), which I still think is going to triple at least from here. In terms of trading, my biggest position was in BP which was bought heavily around 335-360p. as the market reacted to the iniquitous and unfair way in which Obama looked for any way of distracting his fellow morons from his failure. A nice quick 20% turn there.
If anyone wants details, please feel free to ask.
Next year? Avoid the US $ and US investments like the plague. If the debt chickens come home to roost - and China. not the US government has the keys - then we could see a major problem. Not more than a possibility - and one that would possibly take European markets some of the way with it - but one to be VERY cautious over. I fear we have a maximum of 200 points on FTSE to go, and with 500 points of "Noise" (see my thoughts on "Crevasse Investing" in an earlier blog) entirely possible, I will probably continue to play the main derivative element of my model portfolio from the short side.
More likely predictions are that by the early hours of the New Year I will see many Black Swans.
I will also most likely be seeing Pink Elephants, Green Hippos and Flying Pigs.
A Happy and Prosperous New Year to you all
Dum Spiro Spero (for the year ahead Dum Spiro Sperabo)
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Friday 31 December 2010
Wednesday 15 December 2010
Investment horizons and the paradigm for 2011 onwards.
Oh Dear! What a pompous title!
One of the things that upsets me continually is the sort of editorial comment that pushes a particular line as indisputable fact and makes no attempt at balanced debate. Recently I got an advertising supplement for "Money Week" that was well beyond laughable in its doom-laden predictions that we would all be in mud huts by the end of next year. As good fortune would have it, it was so silly and badly written that it would be very unlikely to be taken seriously by anyone and perhaps more likely to lead to cancelled subscriptions than new ones - so perhaps little harm done. This sort of comic and the less creditable discussion fora are being clogged up by extremist bears, which makes rational discussion rarer and rarer. In the interests of fairness however (see - I am trying!) I must add that they do get equally clogged by silly rampers in the good times. Bubble or bust? Didn't anyone point out that investment horizons tend to be between the two and that trend growth is positive in most time scales. Roubini is a clever man, but I think he regards his Black Swans as hybridised Golden Geese that sell books rather than more simple birds. I think the markets have had enough avian flu for one decade in any case.
Time to be concerned when you get this sort of drivel...
http://www.telegraph.co.uk/finance/personalfinance/investing/8202251/Investors-told-forget-savings-accounts-think-of-shares.html
I tend to read the online versions of newspapers, partly because it avoids the inanities that are used to fill in the gaps in "rolling news" and partly because the content is cross-linked more easily. In the case in point, this was the main "story" for about 12 hours overnight. If one reads it, there is little or no attribution of this startling hypothesis other than the usual rent-a-quote stuff from third-line investment firms grateful to get their name printed in The Beano. Just step back and think about this - the nation's one remaining newspaper of record since Murdoch destroyed the Times TELLS YOU - not suggests, not comments - that "Investors told forget savings accounts, think of shares". To add insult to injury we are then told "experts said". Do these "journalists" have an IQ above room temperature? and are there competent editors in place to send them to cover fish prices in Grimsby until they learn their art?
2010 has generally been a year of Central Banks and Governments trying desperately to force interest rates lower, mainly by Quantitative Easing. Many nations, particularly the US, have spectacularly ignored Gresham's Law and tried to beggar their neighbours by devaluing their currencies. In the Antipodes and Far East we have seen the reverse happening, especially where a currency, such as the Australian Dollar is effectively commodity-backed. Towards the end of the year we have seen the Euro-bloc shaken as the inherent contradictions unwind. Much hysteria has been generated, but my feeling is that Germany, France and Benelux - the real core of the EU - have invested too much, and not just financially, to see the project fail. My feeling is that the PIIGS are more likely to be booted out than the core countries secede from the project. I do, however, think it is a close call and I would avoid exposure to this game until things are clearer.
For most of 2010 I have propounded the view that where equity markets are concerned, the "nowhere else to go" argument was the best I could come up with. We have seen layoffs and cost-cutting used to engineer much dubious bottom-line improvement, especially on Wall Street, and a yield of between 3-4% has been achievable in most markets. Compared to falling Bond Yields this was a no-brainer. I suspect things might be different in 2011. QE has planted the seeds of inflation in many economies and the USA, UK and Eurozone are all massaging their figures to try not to show it. Low rates are a key factor in the beggar-my-neighbour policies, but unsustainable in the context of a massive surge in money supply. Rates will undoubtedly rise considerably in 2011 and an outflow from equity markets may take place, particularly if fiscal tightening hits the "consumer" - an indicator I have always had little faith in as a serious economic measure (I think the "producer" is the one to watch!).
For a saver (and an ISA saver in the UK only has a 5 year maturity minimum) or investor, I would think that Corporate Bond yields are going to become very attractive relative to other asset classes.
Currency levels will take an unwontedly important place in the decision-making process. Not only do I think the US market may turn out to be one of the weakest, but with Moodys looking at stripping the US of its AAA+ status and an avowed policy to devalue the dollar, I fear the potential collapse in the US Dollar would more than outweigh yield considerations. I would avoid all US or Dollar-denominated investments in 2011.
I further think that Gold and Silver bugs will be in for a shock in 2011. The two factors driving the bubble - low interest rates and Far Eastern demand could evaporate in a moment as rates move up and India and China tighten even further. Yes - the "survivalists" will always argue for Gold, but those of us with waistcoats whose arms do not fasten behind our backs will, I think, see it otherwise.
As I look forward to 2011 as ever - Dum Spiro Spero
One of the things that upsets me continually is the sort of editorial comment that pushes a particular line as indisputable fact and makes no attempt at balanced debate. Recently I got an advertising supplement for "Money Week" that was well beyond laughable in its doom-laden predictions that we would all be in mud huts by the end of next year. As good fortune would have it, it was so silly and badly written that it would be very unlikely to be taken seriously by anyone and perhaps more likely to lead to cancelled subscriptions than new ones - so perhaps little harm done. This sort of comic and the less creditable discussion fora are being clogged up by extremist bears, which makes rational discussion rarer and rarer. In the interests of fairness however (see - I am trying!) I must add that they do get equally clogged by silly rampers in the good times. Bubble or bust? Didn't anyone point out that investment horizons tend to be between the two and that trend growth is positive in most time scales. Roubini is a clever man, but I think he regards his Black Swans as hybridised Golden Geese that sell books rather than more simple birds. I think the markets have had enough avian flu for one decade in any case.
Time to be concerned when you get this sort of drivel...
http://www.telegraph.co.uk/finance/personalfinance/investing/8202251/Investors-told-forget-savings-accounts-think-of-shares.html
I tend to read the online versions of newspapers, partly because it avoids the inanities that are used to fill in the gaps in "rolling news" and partly because the content is cross-linked more easily. In the case in point, this was the main "story" for about 12 hours overnight. If one reads it, there is little or no attribution of this startling hypothesis other than the usual rent-a-quote stuff from third-line investment firms grateful to get their name printed in The Beano. Just step back and think about this - the nation's one remaining newspaper of record since Murdoch destroyed the Times TELLS YOU - not suggests, not comments - that "Investors told forget savings accounts, think of shares". To add insult to injury we are then told "experts said". Do these "journalists" have an IQ above room temperature? and are there competent editors in place to send them to cover fish prices in Grimsby until they learn their art?
2010 has generally been a year of Central Banks and Governments trying desperately to force interest rates lower, mainly by Quantitative Easing. Many nations, particularly the US, have spectacularly ignored Gresham's Law and tried to beggar their neighbours by devaluing their currencies. In the Antipodes and Far East we have seen the reverse happening, especially where a currency, such as the Australian Dollar is effectively commodity-backed. Towards the end of the year we have seen the Euro-bloc shaken as the inherent contradictions unwind. Much hysteria has been generated, but my feeling is that Germany, France and Benelux - the real core of the EU - have invested too much, and not just financially, to see the project fail. My feeling is that the PIIGS are more likely to be booted out than the core countries secede from the project. I do, however, think it is a close call and I would avoid exposure to this game until things are clearer.
For most of 2010 I have propounded the view that where equity markets are concerned, the "nowhere else to go" argument was the best I could come up with. We have seen layoffs and cost-cutting used to engineer much dubious bottom-line improvement, especially on Wall Street, and a yield of between 3-4% has been achievable in most markets. Compared to falling Bond Yields this was a no-brainer. I suspect things might be different in 2011. QE has planted the seeds of inflation in many economies and the USA, UK and Eurozone are all massaging their figures to try not to show it. Low rates are a key factor in the beggar-my-neighbour policies, but unsustainable in the context of a massive surge in money supply. Rates will undoubtedly rise considerably in 2011 and an outflow from equity markets may take place, particularly if fiscal tightening hits the "consumer" - an indicator I have always had little faith in as a serious economic measure (I think the "producer" is the one to watch!).
For a saver (and an ISA saver in the UK only has a 5 year maturity minimum) or investor, I would think that Corporate Bond yields are going to become very attractive relative to other asset classes.
Currency levels will take an unwontedly important place in the decision-making process. Not only do I think the US market may turn out to be one of the weakest, but with Moodys looking at stripping the US of its AAA+ status and an avowed policy to devalue the dollar, I fear the potential collapse in the US Dollar would more than outweigh yield considerations. I would avoid all US or Dollar-denominated investments in 2011.
I further think that Gold and Silver bugs will be in for a shock in 2011. The two factors driving the bubble - low interest rates and Far Eastern demand could evaporate in a moment as rates move up and India and China tighten even further. Yes - the "survivalists" will always argue for Gold, but those of us with waistcoats whose arms do not fasten behind our backs will, I think, see it otherwise.
As I look forward to 2011 as ever - Dum Spiro Spero
Tuesday 7 December 2010
What a gig! - who needs Glastonbury?? Drugs at Covent Garden!!
I recently pondered as to whether I might be regressing to my (distant) youth or just going through a mid-life crisis. Well here I go again.
I have been far from well for at least two weeks now. One week is more than enough - after two weeks everyone has run out of sympathy, my own feelings of cabin fever and not getting out are equalled only by the frustrations of Beau who turns from cute Springer to a lean, mean, ADHD machine.
So when, on Saturday I was offered a ticket to one of the hottest gigs around - I had to at least try to get out.
There follow a few lines that I might regret in times to come - but there I was sitting and soaking in some of the best music I have ever heard while stoned out of my head. Now, before they come to get me, I ought to offer a quick explanation. The gig was at the Royal Opera House Covent Garden and the pharmacological enhancement was enough Benylin/Strepsil cocktail to anaesthetise a moderately belligerent Ox.
At least I didn't get the giggles. The Opera - Adriana LeCouvreur - is by a follower of Puccini, one Francesco Cilea, whose obscurity is quite undeserved. Covent Garden threw the heavyweights at this one - Mark Elder in the Pit and Angela Gheorghiu opposite Jonas Kaufmann on stage. Uttterly captivating from Gheorghiu and even Kaufmann, who was clearly having throat problems (could he have got my bad chest that quickly from all the way up in the balcony?) towards the end was spell-binding. Why did I mention the giggles? Well it is the plot actually. If one were to ask non-Opera fans why they don't like Opera, one of the reasons commonly given is the utter stupidity of the plots. I can't argue with that in this case. At least we were not asked to believe that a hefty mezzo was an emaciated and tubercular teenager dying in a garret - but the dying, dear God, the dying!!!!
One of the aspects at Covent Garden that I remain unsure about is the surtitles. Having the English words above the stage is quite useful in less familiar cases or where the libretto is far from in sync with what is happening onstage - but can otherwise be distracting. Saturday was the first case where I saw them as an aid to comedic timing. In the last act of Adriana LeCouvreur, I regret to say that every cliche is taken out of the bag, dusted down and re-arranged for the big death scene. One could almost imagine the supporting members of the cast bringing in sandwiches and thermos flasks of hot tea as they settle in for the inevitable. The grouping, like a wicket-keeper, four slips and a gully around the heroine (and the only one who didn't know she had been poisoned) as she informed us she was dying in a significant and ever-more inventive number of ways was necessary so that the cast could indeed confirm that she was and that the process was far from over yet. As this went on ( let me try and be fair - the music and singing were sublime ) and I had got to the point of looking for the telephone number of the printer of the program, the typeface used and the flavours of ice-cream available during the intervals, suddenly there was a dramatic crash of orchestral noise and a stiffening of those on stage.
Unfortunately the critical moment was to have been announced by a baritone recitative "E Morta - She is dead"- instead it was up there above the stage first and a definite titter ran through the room.
I shouldn't be critical - even Beethoven couldn't do Opera - I mean am I alone in thinking I would rather spend a year in Guantanomo than sit through Fidelio?? Cilea's weakness to the cliches is forgiveable and forgiven. Cartoon-caper scenes apart, one hell of a gig!
Dum Spiro Spero
I have been far from well for at least two weeks now. One week is more than enough - after two weeks everyone has run out of sympathy, my own feelings of cabin fever and not getting out are equalled only by the frustrations of Beau who turns from cute Springer to a lean, mean, ADHD machine.
So when, on Saturday I was offered a ticket to one of the hottest gigs around - I had to at least try to get out.
There follow a few lines that I might regret in times to come - but there I was sitting and soaking in some of the best music I have ever heard while stoned out of my head. Now, before they come to get me, I ought to offer a quick explanation. The gig was at the Royal Opera House Covent Garden and the pharmacological enhancement was enough Benylin/Strepsil cocktail to anaesthetise a moderately belligerent Ox.
At least I didn't get the giggles. The Opera - Adriana LeCouvreur - is by a follower of Puccini, one Francesco Cilea, whose obscurity is quite undeserved. Covent Garden threw the heavyweights at this one - Mark Elder in the Pit and Angela Gheorghiu opposite Jonas Kaufmann on stage. Uttterly captivating from Gheorghiu and even Kaufmann, who was clearly having throat problems (could he have got my bad chest that quickly from all the way up in the balcony?) towards the end was spell-binding. Why did I mention the giggles? Well it is the plot actually. If one were to ask non-Opera fans why they don't like Opera, one of the reasons commonly given is the utter stupidity of the plots. I can't argue with that in this case. At least we were not asked to believe that a hefty mezzo was an emaciated and tubercular teenager dying in a garret - but the dying, dear God, the dying!!!!
One of the aspects at Covent Garden that I remain unsure about is the surtitles. Having the English words above the stage is quite useful in less familiar cases or where the libretto is far from in sync with what is happening onstage - but can otherwise be distracting. Saturday was the first case where I saw them as an aid to comedic timing. In the last act of Adriana LeCouvreur, I regret to say that every cliche is taken out of the bag, dusted down and re-arranged for the big death scene. One could almost imagine the supporting members of the cast bringing in sandwiches and thermos flasks of hot tea as they settle in for the inevitable. The grouping, like a wicket-keeper, four slips and a gully around the heroine (and the only one who didn't know she had been poisoned) as she informed us she was dying in a significant and ever-more inventive number of ways was necessary so that the cast could indeed confirm that she was and that the process was far from over yet. As this went on ( let me try and be fair - the music and singing were sublime ) and I had got to the point of looking for the telephone number of the printer of the program, the typeface used and the flavours of ice-cream available during the intervals, suddenly there was a dramatic crash of orchestral noise and a stiffening of those on stage.
Unfortunately the critical moment was to have been announced by a baritone recitative "E Morta - She is dead"- instead it was up there above the stage first and a definite titter ran through the room.
I shouldn't be critical - even Beethoven couldn't do Opera - I mean am I alone in thinking I would rather spend a year in Guantanomo than sit through Fidelio?? Cilea's weakness to the cliches is forgiveable and forgiven. Cartoon-caper scenes apart, one hell of a gig!
Dum Spiro Spero
Friday 3 December 2010
Dinsdale the Urban Warrior!
Sorry to have been off the air whilst suffering from "Man Flu". For those of you not familiar with this ailment - it is illustrated perfectly here.
http://www.youtube.com/watch?v=Hk5wScFGCjk
In the mean time the Wikileaks saga has rumbled on, giving me something else to think about when not clutching my throat or brow and whimpering pathetically like a puppy with a sore paw.
In particular, one thing to rouse me from my torpor today was the realisation that the company that holds the registration for Wikileaks - EveryDNS.net in California - has today cancelled their registration. I am, of course, entirely sure that this was in no way connected with an unprincipled attempt to stifle criticism on the part of the US administration - whose total commitment to honesty, integrity and the rule of law has been made totally clear over the last few days. How can anyone think that?
In my new role, which sits more than a little uneasily with the vision in the mirror of a paunchy middle-aged man, as Urban Warrior (do I have to get a nickname? Will Stampy do? - an in joke for those that know me well) I felt I would do my best to help those wonderful champions of democracy in the White House by doing my bit to undo the damage.
Losing their registration is not the end for Wikileaks - their servers are still going in Sweden with mirrors in other country. What has happened is the equivalent of tearing up the index card in the library - the material is still there - as can be seen here.
http://wikileaks.info/
or try the IP address
88.80.13.160
I am not a fan of what Assange is doing, but on balance I feel that gagging him is the greater evil. To misquote the X-files, "The Truth should be out there"
Dum Spiro Spero
http://www.youtube.com/watch?v=Hk5wScFGCjk
In the mean time the Wikileaks saga has rumbled on, giving me something else to think about when not clutching my throat or brow and whimpering pathetically like a puppy with a sore paw.
In particular, one thing to rouse me from my torpor today was the realisation that the company that holds the registration for Wikileaks - EveryDNS.net in California - has today cancelled their registration. I am, of course, entirely sure that this was in no way connected with an unprincipled attempt to stifle criticism on the part of the US administration - whose total commitment to honesty, integrity and the rule of law has been made totally clear over the last few days. How can anyone think that?
In my new role, which sits more than a little uneasily with the vision in the mirror of a paunchy middle-aged man, as Urban Warrior (do I have to get a nickname? Will Stampy do? - an in joke for those that know me well) I felt I would do my best to help those wonderful champions of democracy in the White House by doing my bit to undo the damage.
Losing their registration is not the end for Wikileaks - their servers are still going in Sweden with mirrors in other country. What has happened is the equivalent of tearing up the index card in the library - the material is still there - as can be seen here.
http://wikileaks.info/
or try the IP address
88.80.13.160
I am not a fan of what Assange is doing, but on balance I feel that gagging him is the greater evil. To misquote the X-files, "The Truth should be out there"
Dum Spiro Spero
Tuesday 30 November 2010
Strange coincidence? Paranoia? - and what are the chances?
Yesterday I expressed my concerns at the serious damage the Wikileaks drip-feed would do to the diplomatic world and, in particular, to future relations with the United States.
Part of my theme was to express tremendous admiration for George Marshall, the man who conceived the Marshall Plan - the US-funded aid that helped rebuild Europe after World War 2. I don't think I pulled my punches about the way that once-great society has lost its way either.
Now comes the paranoia bit!! Within two hours of posting my blog I got an email from this organisation
http://www.marshallfoundation.org/
Who seem to have somewhat turned the Marshall agenda to the military/right's own viewpoint but, nevertheless are promoting a truly great man.
But TWO HOURS LATER? Spooky or what? Am I to assume that I no longer have to express my views here? If I speak directly to the light-fitting, will I save Langley time and effort?
I am a good swimmer and I like the sun - even so, I hope not to be taking a waterboarding holiday in Gunatanamo any time in the near future.
One final bitch - one of the less-publicized Wikileaks was that the Americans didn't like the extradition treaty - you know, the one they have not ratified that means that a British citizen can be deported with no evidence being presented but none of them are subject to - yes, that one.
Oh God!! A knock at the door.............
Dum Spiro Spero
Part of my theme was to express tremendous admiration for George Marshall, the man who conceived the Marshall Plan - the US-funded aid that helped rebuild Europe after World War 2. I don't think I pulled my punches about the way that once-great society has lost its way either.
Now comes the paranoia bit!! Within two hours of posting my blog I got an email from this organisation
http://www.marshallfoundation.org/
Who seem to have somewhat turned the Marshall agenda to the military/right's own viewpoint but, nevertheless are promoting a truly great man.
But TWO HOURS LATER? Spooky or what? Am I to assume that I no longer have to express my views here? If I speak directly to the light-fitting, will I save Langley time and effort?
I am a good swimmer and I like the sun - even so, I hope not to be taking a waterboarding holiday in Gunatanamo any time in the near future.
One final bitch - one of the less-publicized Wikileaks was that the Americans didn't like the extradition treaty - you know, the one they have not ratified that means that a British citizen can be deported with no evidence being presented but none of them are subject to - yes, that one.
Oh God!! A knock at the door.............
Dum Spiro Spero
Monday 29 November 2010
Wiki or Wicked?
Flash back to the year before I was born - 1951. Europe was still substantially in ruins, political unrest was rife, with extreme left or communist regimes springing up as a result of the manifest problems (although interestingly nowhere near as much as in 1917/8) everywhere.
One country above all, and a while before anti-communist paranoia peaked, saw the need for a strong independent Europe. That country, and its erstwhile leader Winston Churchill, realised it did not have the resources to do much more than look on and hope and instead turned its less limited diplomatic resources to slowly persuading the one country that did have the means and which was the only one to emerge stronger from World War Two - the USA - to abandon its initial Versailles-like instincts and to help rebuild Europe via the breathtaking scope of the Marshall Plan.
Critics have pointed out that the USA came out of WW2 stronger because of the scale of commercial activity that conflict presented to it - Lend/Lease was common but little was ever actually given to allies. It is also worth remembering that Germany was still paying reparations (not on the Versailles scale admittedly) until earlier this year. Gold reserves from allied countries were effectively confiscated as security for this help (including those of the UK) and there is therefore an argument that US activity was at least partly mercenary in nature.
Not one more word should leave this keyboard before presenting the other side of the case. WW2 is probably the nearest the world has ever come to a "just" war - and despite the odious right-wing and anti-Semitic views of the Kennedy and Ford clans, the USA did come to generally realise the evils being perpetrated by Germany at that time. Although entry into the war only came when its own self-interest was threatened by Japan, it is incontrovertible that a large number of brave Americans died in foreign theatres of war (what a horrible and misleading phrase that is!!) in pursuit of that conflict.
The problem with victory in any conflict is that it carries with it immense responsibilities towards the vanquished - as both Truman and Marshall nobly realised. Where I suspect they did not think forward enough was the effect on their own national psyche of coming to such power. The Cold War never seriously saw the military supremacy of the US or NATO challenged. The Russian threat had to be nuclear - their technologies and military structures would never have been able to sustain a conventional war and from this a misplaced sense of superiority arose, the ugly truth of which is now being trumpeted all over the world as a result of the Wikileaks fiasco.
Many years ago, in my University days at Oxford, I spent many long hours with friends from US universities, mainly Harvard and Princeton, that were close to tears because they had been unprepared for the much higher standards expected in the European system. Even now, the academic institution I remain associated with takes a much higher proportion of eastern European graduate students than Americans - for a number of reasons, none of which redound to the credit of the US educational system. What hurt my friends at Oxford most was the way they felt lied to - they really had been fed a daily diet of superiority. This is not a side-swipe but an observation about one of many ways that much of what is truly good and great about that country is lost to the need to tell each other daily how great they are, something that can only ultimately be born of insecurity.
One strange phenomenon gives me great hope - something seems to happen once Americans leave their shores. I would be fascinated to know what the democrat/republican split is among expatriates. My feeling is that the liberal/leftish tendency is much more heavily represented. Most also seem to feel that our standard of living in Europe is much higher - in which I concur, but that will inevitably be gainsaid by those deluded into believing it can be measured in mere money.
All of this is merely a background rumbling to my thoughts on the Wikileaks situation. The snake-oil salesman seems to have been revealed for what he is, and if one were to believe the world's press this morning, the borders are about to be shut up and the USA excommunicated from the communion of civilised societies. But is this fair or even reasonable?
Sir Thomas Gresham once defined a diplomat as an honest man sent abroad to lie for his country. Diplomacy is, by definition, a two-faced art. I should be proud the only exam I have ever failed in my life was the diplomatic service exam in that case! Of course the truth, or a version of it, is always going to be partly submerged in the demotic language and thoughts of those involved. In the dealing room of Lehmans in New York, Martin Luther King Day was referred to as "Some ****** died and we get a day off to go skiing" day. Yes the word had an "n" at the front and those responsible were not, to the best of my knowledge racist or bigots - it was the patois of the room, generally decent family men and women. Similarly I can see some of the comments revealed by Wikileaks being in the same vein - totally unacceptable, but only when released to the wider world.
Assange may have done nobody a service by these leaks - where do we go to express an unpopular view, where do we make the bad jokes? It was possible stupid to write some of the things being leaked, undoubtedly stupid not to keep them secure and horrifically stupid not to react with more humility when they did escape. Even so, I do not doubt that other security and diplomatic services have comparable skeletons in their cupboards. Anything that prevents anyone from expressing an honest opinion, no matter how distasteful, is to be deplored - and all the more so if that prevention takes the form of the opinion being expressed in carefully-redacted, politically correct new-speak, without passion or conviction.
Dum Spiro Spero
One country above all, and a while before anti-communist paranoia peaked, saw the need for a strong independent Europe. That country, and its erstwhile leader Winston Churchill, realised it did not have the resources to do much more than look on and hope and instead turned its less limited diplomatic resources to slowly persuading the one country that did have the means and which was the only one to emerge stronger from World War Two - the USA - to abandon its initial Versailles-like instincts and to help rebuild Europe via the breathtaking scope of the Marshall Plan.
Critics have pointed out that the USA came out of WW2 stronger because of the scale of commercial activity that conflict presented to it - Lend/Lease was common but little was ever actually given to allies. It is also worth remembering that Germany was still paying reparations (not on the Versailles scale admittedly) until earlier this year. Gold reserves from allied countries were effectively confiscated as security for this help (including those of the UK) and there is therefore an argument that US activity was at least partly mercenary in nature.
Not one more word should leave this keyboard before presenting the other side of the case. WW2 is probably the nearest the world has ever come to a "just" war - and despite the odious right-wing and anti-Semitic views of the Kennedy and Ford clans, the USA did come to generally realise the evils being perpetrated by Germany at that time. Although entry into the war only came when its own self-interest was threatened by Japan, it is incontrovertible that a large number of brave Americans died in foreign theatres of war (what a horrible and misleading phrase that is!!) in pursuit of that conflict.
The problem with victory in any conflict is that it carries with it immense responsibilities towards the vanquished - as both Truman and Marshall nobly realised. Where I suspect they did not think forward enough was the effect on their own national psyche of coming to such power. The Cold War never seriously saw the military supremacy of the US or NATO challenged. The Russian threat had to be nuclear - their technologies and military structures would never have been able to sustain a conventional war and from this a misplaced sense of superiority arose, the ugly truth of which is now being trumpeted all over the world as a result of the Wikileaks fiasco.
Many years ago, in my University days at Oxford, I spent many long hours with friends from US universities, mainly Harvard and Princeton, that were close to tears because they had been unprepared for the much higher standards expected in the European system. Even now, the academic institution I remain associated with takes a much higher proportion of eastern European graduate students than Americans - for a number of reasons, none of which redound to the credit of the US educational system. What hurt my friends at Oxford most was the way they felt lied to - they really had been fed a daily diet of superiority. This is not a side-swipe but an observation about one of many ways that much of what is truly good and great about that country is lost to the need to tell each other daily how great they are, something that can only ultimately be born of insecurity.
One strange phenomenon gives me great hope - something seems to happen once Americans leave their shores. I would be fascinated to know what the democrat/republican split is among expatriates. My feeling is that the liberal/leftish tendency is much more heavily represented. Most also seem to feel that our standard of living in Europe is much higher - in which I concur, but that will inevitably be gainsaid by those deluded into believing it can be measured in mere money.
All of this is merely a background rumbling to my thoughts on the Wikileaks situation. The snake-oil salesman seems to have been revealed for what he is, and if one were to believe the world's press this morning, the borders are about to be shut up and the USA excommunicated from the communion of civilised societies. But is this fair or even reasonable?
Sir Thomas Gresham once defined a diplomat as an honest man sent abroad to lie for his country. Diplomacy is, by definition, a two-faced art. I should be proud the only exam I have ever failed in my life was the diplomatic service exam in that case! Of course the truth, or a version of it, is always going to be partly submerged in the demotic language and thoughts of those involved. In the dealing room of Lehmans in New York, Martin Luther King Day was referred to as "Some ****** died and we get a day off to go skiing" day. Yes the word had an "n" at the front and those responsible were not, to the best of my knowledge racist or bigots - it was the patois of the room, generally decent family men and women. Similarly I can see some of the comments revealed by Wikileaks being in the same vein - totally unacceptable, but only when released to the wider world.
Assange may have done nobody a service by these leaks - where do we go to express an unpopular view, where do we make the bad jokes? It was possible stupid to write some of the things being leaked, undoubtedly stupid not to keep them secure and horrifically stupid not to react with more humility when they did escape. Even so, I do not doubt that other security and diplomatic services have comparable skeletons in their cupboards. Anything that prevents anyone from expressing an honest opinion, no matter how distasteful, is to be deplored - and all the more so if that prevention takes the form of the opinion being expressed in carefully-redacted, politically correct new-speak, without passion or conviction.
Dum Spiro Spero
Saturday 27 November 2010
A lovely seasonal true story.
In going through my archives, I came across this tale. It brought me close to tears as I originally wrote it - and on re-reading the same thing happened.
For nearly two years now, I have been selling donated stamp collections on behalf of various donors who wanted the proceeds donated to various charities. It is very time-consuming, often frustrating but always rewarding to be able to help. If anyone is interested, there is a little (slightly out of date) more to be found on my website at
http://www.dinsdaleonline.com/page6.html
There is one group that I keep selling (it has now changed hands 13 times) - and I keep being given it back for sale again by very kind donors. Thank you from the bottom of my heart. The story behind it is wonderful.
This is the story of how this item came to us.
As many of you know, since leaving the day-to-day cut and thrust of the City, I have dedicated a lot more of my time to trying to give a little back. To be specific, I am talking about my work with selling old stamp collections for charity as seen on my web site. I will always try to get in a shameless plug - look in your attics you lot!!!! I can always be reached on roy.dinsdale@dinsdaleonline.com
Recently I had an experience that I felt so simultaneously humbled and elated by, so much so that I wanted to share it. I had three meetings scheduled that day to go and look at some old stamp collections. The first was a lovely and caring man who was very typical of the people working with us - white, middle-class, professional; He had dug out three old albums belonging to long-dead Uncles.
"Reading" an old stamp collection can tell you a lot about the original owner. This was a well-presented collection, rich in India and Colonial stuff. No treasures, but a few hundred pounds once sold that will go to support Cancer Research. A thoroughly decent man. Next I visited someone who gave us a small but definitely valuable collection of Queen Victoria material. My problem was that I just could not warm to this man. He knew the value of his donation and was, by any measure I could apply, generous and trying to do good. He was clearly affluent and intelligent, but my intuition could just not get a handle on his motives. Silly, and almost certainly my character flaw rather than his, but it left me in a very pensive mood when I went to my third meeting.
The address gave no clues, but turned out to be a large block of sheltered flats in a huge council estate. I am ashamed to say that I set the alarm on my car carefully as I went in. Just inside the door I was pounced on as I blundered into "Old Ladies Singsong Hour" and only after promising to stop and have a cuppa with them on my way out was I able to escape.
I buzzed the lift intercom to J, my next meeting, and was met as I got out of the lift by a tiny black man of clearly advanced years (87 as it turns out) wearing running shorts and a string vest leaping down the corridor with an outstretched hand and a smile so big it seemed to go before him. Once inside his tiny flat, I got some tea and a life history -which was, in any case, set out in photos on his walls. Born in Ghana, with photos of his induction into being a Chief in his Tribe and shaking hands at Independence with Kwame Nkrumah, he came to England and suffered from the outset - the usual stuff - discrimination at all levels and a refusal to see his obvious good nature and intelligence.
He had two bright daughters that left this septic isle at the first chance and who travelled the world, writing to him and sending a few brightly-coloured stamps from wherever they were and collecting from friends in Ghana. One of his beloved daughters was recently killed in a car smash and J’s thought was to raise a little cash to donate to the appeal from the hospital that cared for her. I left with an envelope of relatively modern stamps that a dealer would call worthless, but for many hours now I have been pondering on that word and rethinking (yet again) a few of my values.
Fortunately I am given some discretion as to which charity by many donors, so I think J. will be delighted at quite how much his stamps will raise :-) I also think I have found a new friend.
It is not for me to lead any of you to conclusions about generosity and motives, but I found the day quite challenging.
Yes - the little old ladies did get the benefit of my fine high Tenor. "Daisy Daisy" and "Tipperary" if I remember correctly.
At times like this I really do mean what I end every blog with
Dum Spiro Spero
For nearly two years now, I have been selling donated stamp collections on behalf of various donors who wanted the proceeds donated to various charities. It is very time-consuming, often frustrating but always rewarding to be able to help. If anyone is interested, there is a little (slightly out of date) more to be found on my website at
http://www.dinsdaleonline.com/page6.html
There is one group that I keep selling (it has now changed hands 13 times) - and I keep being given it back for sale again by very kind donors. Thank you from the bottom of my heart. The story behind it is wonderful.
This is the story of how this item came to us.
As many of you know, since leaving the day-to-day cut and thrust of the City, I have dedicated a lot more of my time to trying to give a little back. To be specific, I am talking about my work with selling old stamp collections for charity as seen on my web site. I will always try to get in a shameless plug - look in your attics you lot!!!! I can always be reached on roy.dinsdale@dinsdaleonline.com
Recently I had an experience that I felt so simultaneously humbled and elated by, so much so that I wanted to share it. I had three meetings scheduled that day to go and look at some old stamp collections. The first was a lovely and caring man who was very typical of the people working with us - white, middle-class, professional; He had dug out three old albums belonging to long-dead Uncles.
"Reading" an old stamp collection can tell you a lot about the original owner. This was a well-presented collection, rich in India and Colonial stuff. No treasures, but a few hundred pounds once sold that will go to support Cancer Research. A thoroughly decent man. Next I visited someone who gave us a small but definitely valuable collection of Queen Victoria material. My problem was that I just could not warm to this man. He knew the value of his donation and was, by any measure I could apply, generous and trying to do good. He was clearly affluent and intelligent, but my intuition could just not get a handle on his motives. Silly, and almost certainly my character flaw rather than his, but it left me in a very pensive mood when I went to my third meeting.
The address gave no clues, but turned out to be a large block of sheltered flats in a huge council estate. I am ashamed to say that I set the alarm on my car carefully as I went in. Just inside the door I was pounced on as I blundered into "Old Ladies Singsong Hour" and only after promising to stop and have a cuppa with them on my way out was I able to escape.
I buzzed the lift intercom to J, my next meeting, and was met as I got out of the lift by a tiny black man of clearly advanced years (87 as it turns out) wearing running shorts and a string vest leaping down the corridor with an outstretched hand and a smile so big it seemed to go before him. Once inside his tiny flat, I got some tea and a life history -which was, in any case, set out in photos on his walls. Born in Ghana, with photos of his induction into being a Chief in his Tribe and shaking hands at Independence with Kwame Nkrumah, he came to England and suffered from the outset - the usual stuff - discrimination at all levels and a refusal to see his obvious good nature and intelligence.
He had two bright daughters that left this septic isle at the first chance and who travelled the world, writing to him and sending a few brightly-coloured stamps from wherever they were and collecting from friends in Ghana. One of his beloved daughters was recently killed in a car smash and J’s thought was to raise a little cash to donate to the appeal from the hospital that cared for her. I left with an envelope of relatively modern stamps that a dealer would call worthless, but for many hours now I have been pondering on that word and rethinking (yet again) a few of my values.
Fortunately I am given some discretion as to which charity by many donors, so I think J. will be delighted at quite how much his stamps will raise :-) I also think I have found a new friend.
It is not for me to lead any of you to conclusions about generosity and motives, but I found the day quite challenging.
Yes - the little old ladies did get the benefit of my fine high Tenor. "Daisy Daisy" and "Tipperary" if I remember correctly.
At times like this I really do mean what I end every blog with
Dum Spiro Spero
Wednesday 24 November 2010
This is not meek - this is courageous and right.
To follow up my post this morning, I did not make clear my implacable opposition to any element of payment for genuine education (and I will follow the herd and single out media studies as the one that irritates me most). I think the coalition are just plain wrong on even having tuition fees, let alone increasing them.
There are beacons of sanity it seems
http://www.telegraph.co.uk/education/universityeducation/8157187/Student-tuition-fees-protest-hero-female-peacemaker-hailed-after-confronting-violent-anarchists.html
Well done - reason rarely triumphs, but in this case Zoe is more likely to be interviewed by the media and able to make the case (she was on the demo after all) than rent-a-thug anarchists.
Dum Spiro Spero
There are beacons of sanity it seems
http://www.telegraph.co.uk/education/universityeducation/8157187/Student-tuition-fees-protest-hero-female-peacemaker-hailed-after-confronting-violent-anarchists.html
Well done - reason rarely triumphs, but in this case Zoe is more likely to be interviewed by the media and able to make the case (she was on the demo after all) than rent-a-thug anarchists.
Dum Spiro Spero
The Meek will inherit the Earth??
I think the phrase really goes something like "The meek shall inherit the earth until they are conned into selling it for nothing to Goldman Sachs who then repackage it and sell it back to them as "Terra Bonds" at twice its real worth".
The meek inheriting the earth is a fascinating concept - and one that presumably stood in the early days of the spread of Christianity as a call that aggression and self-assertion to the exclusion of others were not the way to live in harmony with our fellow-man. An alternative view has also been expressed that it is a way of keeping the masses downtrodden while others really do the inheriting.
Which ever meaning you take from the aphorism, one thing is patently NOT true in the modern world is that being too meek gets you very far. It is only too easy to fade into the background of modern society and contribute or receive little or nothing. The less meek can try to contribute - even if by a simple act of self-assertion such as voting (which around half of the UK population tend not to do!) or writing to the newspapers, There are even those with little of value to say that write blogs to get their views heard. Er... wait a minute, perhaps I should delete that bit? It seems that to shout loudest is to be valued most.
Where public opinion is concerned, the measure is so often quantity not quality.
As a demonstrator against what I saw as excesses and unwanted policies in the very late 60s and early 70's, I saw a point to getting heard and seen. The cosier nature in those distant days of the establishment's relationship with the Fourth Estate meant that a few hundred chanting students were at least reported. Towards the end of that period one did see a few of the same faces under Socialist Workers Party pre-printed placards and it was always these same few that were the ones wanting to turn an expression of disapproval into something more confrontational. They were a major source of the reasons that many of us left this method of self-expression to the loudest - perhaps a major mistake.
As an avowed fan of the coalition government - perhaps even of the idea of coalition itself rather than specifically this one - I like the idea of the debate and tensions within government. There was something frighteningly Nurenberg-ish about Labour under Mandelson. I was expecting them to promote synchronised believing as an Olympic Event had they clung to power. Clegg and the Lib-Dems provide a leavening of common-sense in a time where the hard decisions are being made and prevent any chance of doctrinaire politics swapping from one extreme to the other. What is his reward for this? - A warning not to cycle as he is being targetted by "student extremists". There is also talk that Lib-Dem headquarters are the next target after Millbank.
Lets not be meek here. The agenda is an old one - Trotsky, Goebbels, even Animal Farm if you want it spoon-fed to you. Using democratic rights to destabilise democratic processes is an old trick for which we fall time after time it seems. The "fascist pigs" do have a wonderful weapon in CCTV - an awful lot of silly gullible kids who were carried away and wrecked Millbank will have had shocks when they were tracked down and arrested. What struck me however, in watching the footage, was the way in which the agents provocateurs were always able to blend into the background before the violence started. They are, of course, neither students nor protesters - just wrong-minded but often cunning troublemakers.
If students (or anyone else for that matter) wish to demonstrate against the Lib-Dems then so be it, but I do hope the CCTV is fired up. One of my bitterest regrets is that I did not take to the streets against the Iraq war - but I feared (wrongly as it happened) that the agenda would be hijacked by the extremes of the left and right.
So - will the Meek inherit the Earth? No chance! The Earth will continue to be inherited by the intelligent and the dishonest. Our task as temporary custodians of the social order should be twofold - firstly to ensure that the balance is tilted massively in favour of the intelligent or at least sincere and secondly that the inheritors realise their advantage and support and share with those without the advantages.
By the way, there is no need to panic - I have not suddenly "got religion" - I will not be analysing the Sermon on the Mount line by line. Anyone turning up on the doorstep with loaves and fishes will have the dog set on them.
Dum Spiro Spero
The meek inheriting the earth is a fascinating concept - and one that presumably stood in the early days of the spread of Christianity as a call that aggression and self-assertion to the exclusion of others were not the way to live in harmony with our fellow-man. An alternative view has also been expressed that it is a way of keeping the masses downtrodden while others really do the inheriting.
Which ever meaning you take from the aphorism, one thing is patently NOT true in the modern world is that being too meek gets you very far. It is only too easy to fade into the background of modern society and contribute or receive little or nothing. The less meek can try to contribute - even if by a simple act of self-assertion such as voting (which around half of the UK population tend not to do!) or writing to the newspapers, There are even those with little of value to say that write blogs to get their views heard. Er... wait a minute, perhaps I should delete that bit? It seems that to shout loudest is to be valued most.
Where public opinion is concerned, the measure is so often quantity not quality.
As a demonstrator against what I saw as excesses and unwanted policies in the very late 60s and early 70's, I saw a point to getting heard and seen. The cosier nature in those distant days of the establishment's relationship with the Fourth Estate meant that a few hundred chanting students were at least reported. Towards the end of that period one did see a few of the same faces under Socialist Workers Party pre-printed placards and it was always these same few that were the ones wanting to turn an expression of disapproval into something more confrontational. They were a major source of the reasons that many of us left this method of self-expression to the loudest - perhaps a major mistake.
As an avowed fan of the coalition government - perhaps even of the idea of coalition itself rather than specifically this one - I like the idea of the debate and tensions within government. There was something frighteningly Nurenberg-ish about Labour under Mandelson. I was expecting them to promote synchronised believing as an Olympic Event had they clung to power. Clegg and the Lib-Dems provide a leavening of common-sense in a time where the hard decisions are being made and prevent any chance of doctrinaire politics swapping from one extreme to the other. What is his reward for this? - A warning not to cycle as he is being targetted by "student extremists". There is also talk that Lib-Dem headquarters are the next target after Millbank.
Lets not be meek here. The agenda is an old one - Trotsky, Goebbels, even Animal Farm if you want it spoon-fed to you. Using democratic rights to destabilise democratic processes is an old trick for which we fall time after time it seems. The "fascist pigs" do have a wonderful weapon in CCTV - an awful lot of silly gullible kids who were carried away and wrecked Millbank will have had shocks when they were tracked down and arrested. What struck me however, in watching the footage, was the way in which the agents provocateurs were always able to blend into the background before the violence started. They are, of course, neither students nor protesters - just wrong-minded but often cunning troublemakers.
If students (or anyone else for that matter) wish to demonstrate against the Lib-Dems then so be it, but I do hope the CCTV is fired up. One of my bitterest regrets is that I did not take to the streets against the Iraq war - but I feared (wrongly as it happened) that the agenda would be hijacked by the extremes of the left and right.
So - will the Meek inherit the Earth? No chance! The Earth will continue to be inherited by the intelligent and the dishonest. Our task as temporary custodians of the social order should be twofold - firstly to ensure that the balance is tilted massively in favour of the intelligent or at least sincere and secondly that the inheritors realise their advantage and support and share with those without the advantages.
By the way, there is no need to panic - I have not suddenly "got religion" - I will not be analysing the Sermon on the Mount line by line. Anyone turning up on the doorstep with loaves and fishes will have the dog set on them.
Dum Spiro Spero
Tuesday 23 November 2010
Crevasse Investing and Derivatives - Two followups.
My recent blogs about a nice little derivative transaction and, more recently, my piece about Crevasse Investing have seen the chickens come home to roost (or perhaps even the Black Swans) in a most apposite way.
The last few days have seen the Euro-crisis dominate the news despite the fact that the underlying numbers have been in the public domain for months. Once again the shoal of fish have turned simultaneously. In addition the twin "saviours" of the US economy - Quantitative Easing and currency depreciation have turned from being the darlings of Wall Street to the very Devil incarnate in little over a week.
This morning we hear of the two Koreas at it once again and whoops the crevasse has been struck. Despite the idiotic ramblings of our Dear Leader (Kim rather than Milliband, although they have the same credibility in my mind) it is rather a case of nobody really knowing or possibly caring what goes on over there - possibly one of the few theatres of action where that is true in the modern world. The US will not and dare not take on China, unlike the 1950s, and similarly China has too much of a good (economic) thing going on to do more than help discomfort the US.
So we have our market crevasse and the gloom may well continue while in the real world things are looking rather brighter. The recent Hewlett Packard results bear closer scrutiny as the PC and related technology market have become a good leading indicator for economies over the last few years and while I would not want to be as crass as Lord Young, there is some truth in the benefit low interest rates are currently having at the consumer level. The glacier grinds on - the crevasse will soon present a good investment entry point.
With regard to the derivative investment idea I wrote about a few weeks ago - to update the figures the situation is currently as follows -
Short FTSE @ 5675
Sell 1month (October)5675 Put Option @108
End of month price 5808
Open Loss on FTSE (5808-5675) = 134
Less Premium Received (-134+108) Net Open Loss -26 points (Equating to £260 in real money)
After first option expires
Still Short FTSE @ 5675
Sell another 1month (November) 5675 Put Option @ 64
End of month price 5730
Open loss on FTSE (5730-5675) = 55
Less first Premium Received and second Premium Received (-55+108+64) = Net Open Profit 117 points (£1170).
After second option expires
Still Short FTSE @ 5675
Sell another 1month (December) 5675 Put Option @ 109
Current price 5645
Open profit on FTSE (5645-5675) = 30
Add to first Premium Received and second Premium Received and third Premium Received (+30+108+64+109) = Net Open Profit 281 points (after deducting the open FTSE profit as the option is an equal amount under water) (£2810).
Of course the third option is still in play and to that extent I have simplified the calculations - but potentially a marvellous return on an investment of approximately £5000 over less than three months.
Again I must stress how important it is to understand the risks - but equally do not forget the potential rewards.
Dum Spiro Spero
The last few days have seen the Euro-crisis dominate the news despite the fact that the underlying numbers have been in the public domain for months. Once again the shoal of fish have turned simultaneously. In addition the twin "saviours" of the US economy - Quantitative Easing and currency depreciation have turned from being the darlings of Wall Street to the very Devil incarnate in little over a week.
This morning we hear of the two Koreas at it once again and whoops the crevasse has been struck. Despite the idiotic ramblings of our Dear Leader (Kim rather than Milliband, although they have the same credibility in my mind) it is rather a case of nobody really knowing or possibly caring what goes on over there - possibly one of the few theatres of action where that is true in the modern world. The US will not and dare not take on China, unlike the 1950s, and similarly China has too much of a good (economic) thing going on to do more than help discomfort the US.
So we have our market crevasse and the gloom may well continue while in the real world things are looking rather brighter. The recent Hewlett Packard results bear closer scrutiny as the PC and related technology market have become a good leading indicator for economies over the last few years and while I would not want to be as crass as Lord Young, there is some truth in the benefit low interest rates are currently having at the consumer level. The glacier grinds on - the crevasse will soon present a good investment entry point.
With regard to the derivative investment idea I wrote about a few weeks ago - to update the figures the situation is currently as follows -
Short FTSE @ 5675
Sell 1month (October)5675 Put Option @108
End of month price 5808
Open Loss on FTSE (5808-5675) = 134
Less Premium Received (-134+108) Net Open Loss -26 points (Equating to £260 in real money)
After first option expires
Still Short FTSE @ 5675
Sell another 1month (November) 5675 Put Option @ 64
End of month price 5730
Open loss on FTSE (5730-5675) = 55
Less first Premium Received and second Premium Received (-55+108+64) = Net Open Profit 117 points (£1170).
After second option expires
Still Short FTSE @ 5675
Sell another 1month (December) 5675 Put Option @ 109
Current price 5645
Open profit on FTSE (5645-5675) = 30
Add to first Premium Received and second Premium Received and third Premium Received (+30+108+64+109) = Net Open Profit 281 points (after deducting the open FTSE profit as the option is an equal amount under water) (£2810).
Of course the third option is still in play and to that extent I have simplified the calculations - but potentially a marvellous return on an investment of approximately £5000 over less than three months.
Again I must stress how important it is to understand the risks - but equally do not forget the potential rewards.
Dum Spiro Spero
Monday 22 November 2010
Oh God!! Am I having a mid-life crisis?
Those of you who know me well (and my commiserations to you for bearing that onerous burden!) know that the whole Investment Banker thing is a facade. My love is, was and always will be sung music. From being an angelic (Yeah Right!) choirboy, to the chapel choir during my Oxford days, countless church and secular choirs (none of which I have ever enjoyed as much as CTK in Frankfurt - thank you Kathy for that) - my "real" self has been in search of becoming a halfway-decent Tenor.
Despite the eye-rolling of those who hate "my sort of music" - Tallis, Byrd, Gibbons et al., right the way back to Monteverdi or even Palestrina, I never lost my ability to pick out the gems from my era. Among the three-chord wonders there were often some accomplished musicians hiding among the pop. Sometimes you could just feel the sheer musicality of the less-accomplished trying to burst through. I even spent a few dirty nights on dirty floors being a roadie for my then girlfriend. To this day it is the terror of family and friends when I sing along in the car with the top down. I have oft remarked that the only reason I do not have underwear thrown at me in the manner of Tom Jones is that I am moving too quickly. I am even more often told that I am a sad deluded man going through a mid-life crisis. Ho Hum - perhaps they are right?
Given the widely (or is that wildly) eclectic musical tastes I have developed, I rarely get the "tingle factor" at hearing something new or so well done that it reduces me to tears (Usually Simon Cowell is the only person to do that without fail!), so when I was invited to a gig on Saturday I was prepared to enjoy it, but I was totally unprepared for what I saw and heard.
The band was Gabby Young & other animals - http://gabbyyoungandotheranimals.com I can honestly say that I do not ever remember being so impressed with a band, a singer or an overall presentation.
Gabby herself is a quirky, eccentrically-dressed woman that seems to be totally original in her style and thinking (as her lyrics testify). Her vocal technique is utterly flawless and reminds me so much of a young Annie Lennox, but her style is very much her own. Saturday's gig was to launch their first album. Just go and buy it - do it!! It would be wrong to think of her just having a band behind her - the performance was integrated tightly and the seemingly anarchic onstage antics (sometimes reminding me of Madness) belie a tight musicianship and skill. The brass section in particular are essential to so many of the tracks they performed. In gentle Folk Rock mode I loved the way she fitted with Stephen Ellis ( I think I have that name right) - no mean musician himself.
OK - end of middle-aged-man discovers new band mode for now. I promise to go back to the arcana of investing or ranting about politics again ver y soon.
Buy the album though - utterly briliant - or even better catch a live performance.
Dum Spiro Spero
Despite the eye-rolling of those who hate "my sort of music" - Tallis, Byrd, Gibbons et al., right the way back to Monteverdi or even Palestrina, I never lost my ability to pick out the gems from my era. Among the three-chord wonders there were often some accomplished musicians hiding among the pop. Sometimes you could just feel the sheer musicality of the less-accomplished trying to burst through. I even spent a few dirty nights on dirty floors being a roadie for my then girlfriend. To this day it is the terror of family and friends when I sing along in the car with the top down. I have oft remarked that the only reason I do not have underwear thrown at me in the manner of Tom Jones is that I am moving too quickly. I am even more often told that I am a sad deluded man going through a mid-life crisis. Ho Hum - perhaps they are right?
Given the widely (or is that wildly) eclectic musical tastes I have developed, I rarely get the "tingle factor" at hearing something new or so well done that it reduces me to tears (Usually Simon Cowell is the only person to do that without fail!), so when I was invited to a gig on Saturday I was prepared to enjoy it, but I was totally unprepared for what I saw and heard.
The band was Gabby Young & other animals - http://gabbyyoungandotheranimals.com I can honestly say that I do not ever remember being so impressed with a band, a singer or an overall presentation.
Gabby herself is a quirky, eccentrically-dressed woman that seems to be totally original in her style and thinking (as her lyrics testify). Her vocal technique is utterly flawless and reminds me so much of a young Annie Lennox, but her style is very much her own. Saturday's gig was to launch their first album. Just go and buy it - do it!! It would be wrong to think of her just having a band behind her - the performance was integrated tightly and the seemingly anarchic onstage antics (sometimes reminding me of Madness) belie a tight musicianship and skill. The brass section in particular are essential to so many of the tracks they performed. In gentle Folk Rock mode I loved the way she fitted with Stephen Ellis ( I think I have that name right) - no mean musician himself.
OK - end of middle-aged-man discovers new band mode for now. I promise to go back to the arcana of investing or ranting about politics again ver y soon.
Buy the album though - utterly briliant - or even better catch a live performance.
Dum Spiro Spero
Wednesday 17 November 2010
Glacier Investing - Watch out for the crevasses!
I don't get Switzerland - I never have. My professional life has taken me there more times than I care to remember and I never fail but to be bemused. The languages are the main thing - officially four of them (OK - only 35,000 speak Romansch as their first language, but it does exist). Even that does not bear too much examination. There are pockets on the upper Rhine where villages on opposite sides of the river (and in different countries) speak detectably different dialects! As for the German dialects - Baseldytsch , Bärndütsch (the dialect of Bern) or Züridütsch are enormously different. Interestingly the French and Italian dialects have, while still retaining much variety, much more homogeneity with the "parent" tongue.
I suppose this is not too surprising in a country where communication (in the physical sense ) is often difficult. I feel deeply for the Swiss teenager feeling a natural urge one lonely night who knows that, having exhausted the genetic pool in his own small community, he is only 30 miles from "fresh meat" were it not for the interposed existence of a billion-ton granite condom in the form of an Alp!!
I am also amused at the way the various linguistic groupings often exhibit, in extreme forms, the characteristics stereotypical of their linguistic progenitors. How this country hangs together is beyond me - but it does and very successfully too.
What made me think of Switzerland this morning? I was pondering on one of my last trips there. Three memories stick in my mind - firstly of witnessing an almost ceremonial setting up of a Liechtenstein Anstalt in a dusty lawyers office in Zurich. Not even the discrete brass plate to be found at some private banks and an office straight out of Dickens. I swear the telephone (with a dial!!) looked a modern intrusion as a client happily signed away an enormous sum of money into a system where, in theory at least, he did not even own it. Secondly I am minded to think of the Bank in Lugano that has a vault (far too big and grand to be called a safe) in reception - necessary when the briefcases of clients shuttling backwards and forwards to Chiasso are often stuffed with banknotes (In passing, it is worth pointing out that some 75% of €500 notes are believed to reside in Luxembourg and Swiss Banks - and apparently many test positive for narcotics!). The third memory - and one that brings me in my normal rambling way to my point in this blog - is of sitting in a suburban bungalow near Zug, taking tea with two major investors in a Hedge Fund I was then running, and looking out of the window to an enormous glacier just one or two miles away. A surreal mix of Surbiton and Gstaad.
It was this that gave me my theory of Glacier Investing.
We are currently in an investment environment where the "safest" investments - cash in the bank and government bonds - are quite rightly being questioned in many quarters. Cash in the bank is only as safe as the bank itself and even if you take some comfort from various deposit insurance schemes, then you run into the conundrum facing investors in government bonds - are the abilities of all governments to repay or guarantee to be relied on? Irish or Greek debt anyone?
Given that returns on these "safe" investments run between 0.5% and 2%, it is no surprise that those able to stomach a little risk are happy to go to the stock market. The braver still might go to emerging markets, gold, commodities, rare stamps (my favourite at the moment) or any of a wide range of ever-riskier ventures. Yesterday we had one of those rare "What the ****???" moments when it all went horribly wrong for many people at the higher end of the risk spectrum. Even Gold was down nearly $100 in a few days. Investors in blue-chip indices would typically have lost 2-3% in 24 hours - very close to what they would have made in a year in a "safe" investment.
The psychology of a market turn like this is fascinating to me. I always think of those underwater shots of shoals of anchovies turning exactly together. Rarely are there new facts involved - the so-called Euro crisis has been playing out for nearly two years - and equally rarely are there new interpretations of them. Last week we saw stock markets close to the levels we were at before Messrs. Lehmans and Bear Stearns went belly-up. The market as a whole looked through its rose-tinted specs even at the PIIGS and we were all pink and fluffy. From about 8 pm on Friday night the shoal of anchovies turned at once it seems. The same lego-bricks of facts on which market direction was predicated were dismantled and reassembled in a different order. This morning the combination of sovereign debt issues, China being realistic (and that is all!) about its domestic inflation, and the telegenic nature of the Irish Government acting like headless chickens - all of which were with us last week - are reasons for fear and caution.
Back to the glacier! Rather like the glacier, the world economy is propelled by a continuing deposition of industrial output, individual striving and an effort for betterment among several billion people. Adam Smith's dead hand takes the place of the snow driving the glacier as it slowly adds its weight. Again, like the glacier, the momentum of the world economy carves out new directions - often so slowly we do not see them - and nothing can either prevent it or predict its exact course.
Glaciers do, of course, have crevassses in them - and often they are potentially lethal. The local skating rink (for which read "safe" investments) may not have crevasses, but neither is it travelling anywhere.
Perhaps the analogy is getting stretched now - but my thesis is clear. Equity investment is ultimately ownership of a share of the world's economy and is subject to significant ups and downs. These may be cyclical and of several years duration (and Ars Longa Vita Brevis might be sensibly re-rendered to take this into account), there will also be crevasses - but the glacier will move on.
Was this helpful to those investing decisions? No I thought not. For what it is worth, I must have been admiring that glacier in Zug too much and not paying attention - we never did get the extra $50 Million those investors were thinking about!!
Dum Spiro Spero
I suppose this is not too surprising in a country where communication (in the physical sense ) is often difficult. I feel deeply for the Swiss teenager feeling a natural urge one lonely night who knows that, having exhausted the genetic pool in his own small community, he is only 30 miles from "fresh meat" were it not for the interposed existence of a billion-ton granite condom in the form of an Alp!!
I am also amused at the way the various linguistic groupings often exhibit, in extreme forms, the characteristics stereotypical of their linguistic progenitors. How this country hangs together is beyond me - but it does and very successfully too.
What made me think of Switzerland this morning? I was pondering on one of my last trips there. Three memories stick in my mind - firstly of witnessing an almost ceremonial setting up of a Liechtenstein Anstalt in a dusty lawyers office in Zurich. Not even the discrete brass plate to be found at some private banks and an office straight out of Dickens. I swear the telephone (with a dial!!) looked a modern intrusion as a client happily signed away an enormous sum of money into a system where, in theory at least, he did not even own it. Secondly I am minded to think of the Bank in Lugano that has a vault (far too big and grand to be called a safe) in reception - necessary when the briefcases of clients shuttling backwards and forwards to Chiasso are often stuffed with banknotes (In passing, it is worth pointing out that some 75% of €500 notes are believed to reside in Luxembourg and Swiss Banks - and apparently many test positive for narcotics!). The third memory - and one that brings me in my normal rambling way to my point in this blog - is of sitting in a suburban bungalow near Zug, taking tea with two major investors in a Hedge Fund I was then running, and looking out of the window to an enormous glacier just one or two miles away. A surreal mix of Surbiton and Gstaad.
It was this that gave me my theory of Glacier Investing.
We are currently in an investment environment where the "safest" investments - cash in the bank and government bonds - are quite rightly being questioned in many quarters. Cash in the bank is only as safe as the bank itself and even if you take some comfort from various deposit insurance schemes, then you run into the conundrum facing investors in government bonds - are the abilities of all governments to repay or guarantee to be relied on? Irish or Greek debt anyone?
Given that returns on these "safe" investments run between 0.5% and 2%, it is no surprise that those able to stomach a little risk are happy to go to the stock market. The braver still might go to emerging markets, gold, commodities, rare stamps (my favourite at the moment) or any of a wide range of ever-riskier ventures. Yesterday we had one of those rare "What the ****???" moments when it all went horribly wrong for many people at the higher end of the risk spectrum. Even Gold was down nearly $100 in a few days. Investors in blue-chip indices would typically have lost 2-3% in 24 hours - very close to what they would have made in a year in a "safe" investment.
The psychology of a market turn like this is fascinating to me. I always think of those underwater shots of shoals of anchovies turning exactly together. Rarely are there new facts involved - the so-called Euro crisis has been playing out for nearly two years - and equally rarely are there new interpretations of them. Last week we saw stock markets close to the levels we were at before Messrs. Lehmans and Bear Stearns went belly-up. The market as a whole looked through its rose-tinted specs even at the PIIGS and we were all pink and fluffy. From about 8 pm on Friday night the shoal of anchovies turned at once it seems. The same lego-bricks of facts on which market direction was predicated were dismantled and reassembled in a different order. This morning the combination of sovereign debt issues, China being realistic (and that is all!) about its domestic inflation, and the telegenic nature of the Irish Government acting like headless chickens - all of which were with us last week - are reasons for fear and caution.
Back to the glacier! Rather like the glacier, the world economy is propelled by a continuing deposition of industrial output, individual striving and an effort for betterment among several billion people. Adam Smith's dead hand takes the place of the snow driving the glacier as it slowly adds its weight. Again, like the glacier, the momentum of the world economy carves out new directions - often so slowly we do not see them - and nothing can either prevent it or predict its exact course.
Glaciers do, of course, have crevassses in them - and often they are potentially lethal. The local skating rink (for which read "safe" investments) may not have crevasses, but neither is it travelling anywhere.
Perhaps the analogy is getting stretched now - but my thesis is clear. Equity investment is ultimately ownership of a share of the world's economy and is subject to significant ups and downs. These may be cyclical and of several years duration (and Ars Longa Vita Brevis might be sensibly re-rendered to take this into account), there will also be crevasses - but the glacier will move on.
Was this helpful to those investing decisions? No I thought not. For what it is worth, I must have been admiring that glacier in Zug too much and not paying attention - we never did get the extra $50 Million those investors were thinking about!!
Dum Spiro Spero
Thursday 11 November 2010
Derivatives - Not the spawn of Satan for Investors?? An example
Perhaps it will be necessary to choose my words here with an unaccustomed caution. Why? - Because I am going to think about derivatives and their place in the world of investment. Even more radically, I am going to suggest that they are not out of the reach or understanding of even a small investor.
At the height of the banking crisis it got a little interesting being an investment banker. I seemed to wear a permanent fixed and brittle smile as every cocktail-party pundit and bulletin-board guru delighted in comparing the banking world with the nether regions beyond the Styx. When I ran into the totally delightful rector of my local church here and saw him bearing down upon me, my immediate reaction was to duck into a doorway in case he was going to perform an impromptu exorcism to drive out the demons of derivatives from my soul.
For the sake of clarification, "Derivatives" is a slippery term. It encompasses a number of different worlds. Some of the very complex structures are the exclusive domain of the interbank (or at the very most inter-institutional) market. The highly-geared products based on Debt can range from the relatively secure such as government bonds to the truly terrifying such as US sub-prime mortgages. I don't want to re-open the whole can of worms, but the repackaging of the latter, often into structures so complex as to be not easily or fully understood by even the experts (and often with at least one more level of gearing) was the nightmare that led us to Lehmans & Bear Stearns. On the back of that (always there but the tide went out and the other mistakes were uncovered) we got the same sort of structures in Credit Default Swaps - derivatives on the credit-worthiness of corporates and even governments.
None of these risky derivatives were inherently evil - it is worth bearing in mind that all modern structures of this sort have their roots in an idea first put into action in Osaka in the 1630's - as a form of financial insurance against something going wrong (in that case a failure of the Rice harvest). These more recent structures were a way of lenders being able to protect themselves against their mortgages going wrong by buying insurance or hedging. Similarly Credit Derivatives enabled not just lenders, but even major corporate customers to gain some sort of cover (and incidentally led to a far more flexible view of credit rating than the major agencies were able to supply under pressure). The problem lay in the fact that these products were traded and re-packaged so many times that the underlying risks were multiplied as ever more layers of obfuscation and gearing were added, rather like a game of pass-the-parcel in reverse.
All that is background, however, to the truly vast daily activity that happens in derivatives daily. Rather like an iceberg, the vast majority of activity is submerged and not readily visible. This inter-dealer and inter-bank business is only partly visible on exchanges, as most of it is by private deals - usually described as Over-The-Counter or OTC transactions. Even so, a massive amount of derivative business is transacted every day on regulated exchanges all over the world - in Stocks, Bonds, Equity Indices, Currencies, Energy, Foodstuffs, Metals (both common and precious) and a wide range of seemingly esoteric other markets. Most of these are accessible to the private investor.
When I first came into the financial world the concept of Caveat Emptor was regarded as regulation enough, but with the onset of more formal regulations came the risk warnings that have stifled the growth of some areas. This is not to say that any geared investment should not be regarded as worthy of great caution, but my experience tells me that more so-called experienced investors under-estimate risks than many cautious "amateurs".
I want to illustrate an example of how this might work with a transaction that a close friend recently made. It is all the more interesting because, firstly it was based on a wrong premise - he thought Stock Markets would decline - and secondly because it shows how derivatives (in this case options on a stock index - the FTSE 100 index) can be used to control exposure rather than to increase it.
The FTSE 100 index can be accessed in a number of ways. Tracker Funds such as iShares can be bought for a few pounds. The FTSE futures contract is a bigger bet - at ten times the index, around £59,000 - but the private investor normally only puts up 5% to 10% of that total amount - this is usually called his "margin". The investor gets exposure to £59,000 of index for, say £5000. At an index of 6400 (up 8.4%) he doubles his money. At 5400 he has lost 100% (and is at risk for more if it continues to go down). Simply speculation if you would not normally have bought a £59,000 chunk of stocks - highly efficient investing if you would.
Now to get one level more complex. The trade my chum made (and he is an experienced investor) was just plain wrong. He thought the FTSE would drop in October (a seasonal trade I have never felt comfortable with even if some of the big moves down were made in that month). He sold FTSE futures at 5675 - almost 135 points to the wrong and thus sitting on a loss of £1350. Disaster? Nope - because he simultaneously sold a one month maturity Put Option for 108 points. This option gave the buyer the right (but not the obligation) to any profit from selling at 5675 in return for a one-off payment of the 108 point premium.
Good trade? Well no actually, because when the option expired, although my chum took the 108 point premium, the FTSE had gone up by 150 points. Disaster? Another no - because he sold another option for one month to someone wanting to get the profit if the market collapsed below 5675. This time he only got 64 points as the potential for the buyer was less. Let's do the sums.
Short FTSE @ 5675
Sell 1month 5675 Put Option @108
End of month price 5808
Open Loss on FTSE (5808-5675) = 134
Less Premium Received (-134+108) Net Open Loss -26 points (Equating to £260 in real money)
After first option expires
Still Short FTSE @ 5675
Sell another 1month 5675 Put Option @ 64
Current price 5806
Open loss on FTSE (5806-5675) = 131
Less first Premium Received and second Premium Received (-131+108+64) = Net Open Profit 41 points (£410).
I will not insult anyone's intelligence by iterating further - but I think it become obvious that a bad call initially seem to be turning into a good trade.
If the market is at or below 5675 at any option expiry then he gives away any profit on his FTSE short to the lucky buyer of the put option but gets to keep all Option premia obtained in the first two and any subsequent monthly cycle. In the case above he would have got 108+64 points in total, equating to £1720 - a return of 2.91% on the full index and 34.4% if a deposit of £5,000 was made. Not bad for two months. To look at the worst-case scenario, the FTSE could continue to rise and the the loss on the short position with it. Each month a further sale of a 5675 Put would mitigate that however and if, as my chum fervently believes (I really am not sure I agree with him) the market reaches 5675 again he will be sitting on a tidy profit.. The idea is that the option premia rack up each month until the 5675 level is hit again - if it ever is.
There are complexities such as rollover costs (the futures are on a 3-monthly cycle) and commissions - but these are not significant.
So - there is an example of a derivative trade that does not involve a little old lady being evicted from her home due to the failure of her sub-prime mortgage bank, does not involve Gordon Brown loading debt on our children and grandchildren. Instead it is a rather interesting way of taking a view on the market going down - which might be seen as insurance against the Pension Pot in some quarters?
I will update regularly on this one
Dum Spiro Spero
At the height of the banking crisis it got a little interesting being an investment banker. I seemed to wear a permanent fixed and brittle smile as every cocktail-party pundit and bulletin-board guru delighted in comparing the banking world with the nether regions beyond the Styx. When I ran into the totally delightful rector of my local church here and saw him bearing down upon me, my immediate reaction was to duck into a doorway in case he was going to perform an impromptu exorcism to drive out the demons of derivatives from my soul.
For the sake of clarification, "Derivatives" is a slippery term. It encompasses a number of different worlds. Some of the very complex structures are the exclusive domain of the interbank (or at the very most inter-institutional) market. The highly-geared products based on Debt can range from the relatively secure such as government bonds to the truly terrifying such as US sub-prime mortgages. I don't want to re-open the whole can of worms, but the repackaging of the latter, often into structures so complex as to be not easily or fully understood by even the experts (and often with at least one more level of gearing) was the nightmare that led us to Lehmans & Bear Stearns. On the back of that (always there but the tide went out and the other mistakes were uncovered) we got the same sort of structures in Credit Default Swaps - derivatives on the credit-worthiness of corporates and even governments.
None of these risky derivatives were inherently evil - it is worth bearing in mind that all modern structures of this sort have their roots in an idea first put into action in Osaka in the 1630's - as a form of financial insurance against something going wrong (in that case a failure of the Rice harvest). These more recent structures were a way of lenders being able to protect themselves against their mortgages going wrong by buying insurance or hedging. Similarly Credit Derivatives enabled not just lenders, but even major corporate customers to gain some sort of cover (and incidentally led to a far more flexible view of credit rating than the major agencies were able to supply under pressure). The problem lay in the fact that these products were traded and re-packaged so many times that the underlying risks were multiplied as ever more layers of obfuscation and gearing were added, rather like a game of pass-the-parcel in reverse.
All that is background, however, to the truly vast daily activity that happens in derivatives daily. Rather like an iceberg, the vast majority of activity is submerged and not readily visible. This inter-dealer and inter-bank business is only partly visible on exchanges, as most of it is by private deals - usually described as Over-The-Counter or OTC transactions. Even so, a massive amount of derivative business is transacted every day on regulated exchanges all over the world - in Stocks, Bonds, Equity Indices, Currencies, Energy, Foodstuffs, Metals (both common and precious) and a wide range of seemingly esoteric other markets. Most of these are accessible to the private investor.
When I first came into the financial world the concept of Caveat Emptor was regarded as regulation enough, but with the onset of more formal regulations came the risk warnings that have stifled the growth of some areas. This is not to say that any geared investment should not be regarded as worthy of great caution, but my experience tells me that more so-called experienced investors under-estimate risks than many cautious "amateurs".
I want to illustrate an example of how this might work with a transaction that a close friend recently made. It is all the more interesting because, firstly it was based on a wrong premise - he thought Stock Markets would decline - and secondly because it shows how derivatives (in this case options on a stock index - the FTSE 100 index) can be used to control exposure rather than to increase it.
The FTSE 100 index can be accessed in a number of ways. Tracker Funds such as iShares can be bought for a few pounds. The FTSE futures contract is a bigger bet - at ten times the index, around £59,000 - but the private investor normally only puts up 5% to 10% of that total amount - this is usually called his "margin". The investor gets exposure to £59,000 of index for, say £5000. At an index of 6400 (up 8.4%) he doubles his money. At 5400 he has lost 100% (and is at risk for more if it continues to go down). Simply speculation if you would not normally have bought a £59,000 chunk of stocks - highly efficient investing if you would.
Now to get one level more complex. The trade my chum made (and he is an experienced investor) was just plain wrong. He thought the FTSE would drop in October (a seasonal trade I have never felt comfortable with even if some of the big moves down were made in that month). He sold FTSE futures at 5675 - almost 135 points to the wrong and thus sitting on a loss of £1350. Disaster? Nope - because he simultaneously sold a one month maturity Put Option for 108 points. This option gave the buyer the right (but not the obligation) to any profit from selling at 5675 in return for a one-off payment of the 108 point premium.
Good trade? Well no actually, because when the option expired, although my chum took the 108 point premium, the FTSE had gone up by 150 points. Disaster? Another no - because he sold another option for one month to someone wanting to get the profit if the market collapsed below 5675. This time he only got 64 points as the potential for the buyer was less. Let's do the sums.
Short FTSE @ 5675
Sell 1month 5675 Put Option @108
End of month price 5808
Open Loss on FTSE (5808-5675) = 134
Less Premium Received (-134+108) Net Open Loss -26 points (Equating to £260 in real money)
After first option expires
Still Short FTSE @ 5675
Sell another 1month 5675 Put Option @ 64
Current price 5806
Open loss on FTSE (5806-5675) = 131
Less first Premium Received and second Premium Received (-131+108+64) = Net Open Profit 41 points (£410).
I will not insult anyone's intelligence by iterating further - but I think it become obvious that a bad call initially seem to be turning into a good trade.
If the market is at or below 5675 at any option expiry then he gives away any profit on his FTSE short to the lucky buyer of the put option but gets to keep all Option premia obtained in the first two and any subsequent monthly cycle. In the case above he would have got 108+64 points in total, equating to £1720 - a return of 2.91% on the full index and 34.4% if a deposit of £5,000 was made. Not bad for two months. To look at the worst-case scenario, the FTSE could continue to rise and the the loss on the short position with it. Each month a further sale of a 5675 Put would mitigate that however and if, as my chum fervently believes (I really am not sure I agree with him) the market reaches 5675 again he will be sitting on a tidy profit.. The idea is that the option premia rack up each month until the 5675 level is hit again - if it ever is.
There are complexities such as rollover costs (the futures are on a 3-monthly cycle) and commissions - but these are not significant.
So - there is an example of a derivative trade that does not involve a little old lady being evicted from her home due to the failure of her sub-prime mortgage bank, does not involve Gordon Brown loading debt on our children and grandchildren. Instead it is a rather interesting way of taking a view on the market going down - which might be seen as insurance against the Pension Pot in some quarters?
I will update regularly on this one
Dum Spiro Spero
Tuesday 9 November 2010
George W Bush, The Law and basic morality
A short one today - if for no other reason than my conviction that some subjects are of such importance and yet simplicity that too much debate can dilute the starkness of the truth.
Today we hear in his new book "Decision Points" - that George W Bush authorised the torture known as waterboarding, as he was advised it was "legal".
"Legal" means within the laws defined by the state - so hanging drawing and quartering could be regarded as such if the law were to be changed. Bush could have made anything "legal" by suitable legislation.
No mention of morality whatever - possibly because he doesn't even know the meaning of the word (together with many other words I suspect he doesn't know the meaning of).
This sort of revelation can only drive the U.S. even further into the pariah state slot it seems to have chosen for itself. Perhaps Cameron will find it difficult to discuss Human Rights in Beijing without first apologising for the UK's slavish involvement in this evil.
Dum Spiro Spero
Today we hear in his new book "Decision Points" - that George W Bush authorised the torture known as waterboarding, as he was advised it was "legal".
"Legal" means within the laws defined by the state - so hanging drawing and quartering could be regarded as such if the law were to be changed. Bush could have made anything "legal" by suitable legislation.
No mention of morality whatever - possibly because he doesn't even know the meaning of the word (together with many other words I suspect he doesn't know the meaning of).
This sort of revelation can only drive the U.S. even further into the pariah state slot it seems to have chosen for itself. Perhaps Cameron will find it difficult to discuss Human Rights in Beijing without first apologising for the UK's slavish involvement in this evil.
Dum Spiro Spero
Monday 8 November 2010
Investing in Gold - the ultimate Ponzi scheme?
Two very interesting articles today should have all "investors" in Gold thinking hard about their strategy.
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8116117/New-commodity-funds-may-be-next-financial-bubble-FSA-warned.html
http://www.marketwatch.com/story/jp-morgan-hsbc-sued-for-silver-manipulation-2010-10-27
The first article is a timely warning that the current desperate search for any investment that is better than holding cash is potentially leading to bubbles in some very unlikely places. The second is a great illustration of the risks of playing with the big boys.
There is something about Gold and Silver - just live with the fact that 10,000 years of acknowledged fascination with these metals is an incontrovertible fact. My personal disclaimer or health warning is that I fail to understand why this should still be the case.
To my mind Gold is a text-book example of a Ponzi scheme - There is a limited and definable supply, the "investment" has little or no intrinsic value (albeit that the electronics industry is a reasonably significant consumer), the "investment" is never consumed but can be recyled infinitely and - the real clincher - holders can only get out at a profit if new mugs are hooked on the scam.
I hear all the arguments about the third world, particularly China and India, where the rising tide of their respective economies are enabling the quasi-mystic regard in which Gold and Silver are held to be turned into real buying as opposed to aspiration - but the gold is still there, doing nothing and earning nothing. That is another element to the ticking time-bomb. They are not involved in some gollum-like love affair with this gold - they don't take it to bed and make love to it!!! When the time is right (or historically when the time is wrong) it will be sold to the next lucky player at this particular casino.
I give especial weight to the current desperate search for absolute return. Precious metals are diametrically in opposition to this objective. As inflation (which Uncle Ben and his cronies seek so enthusiastically) picks up "investments" without yield will be the first to go.
The "survivalist" argument actually makes me angry. In the post-apocalyptic world the anthropogenic changes would make holding a few sovereigns or krugers a great idea for a while. The most probable apocalypse, however, is a financial one and nearly all "investment" precious metals are held as paper issued by or in the vaults of the very institutions likely to collapse.
Sorry gold-bugs, but I am off to buy some tulip bulbs instead.
Dum Spiro Spero
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8116117/New-commodity-funds-may-be-next-financial-bubble-FSA-warned.html
http://www.marketwatch.com/story/jp-morgan-hsbc-sued-for-silver-manipulation-2010-10-27
The first article is a timely warning that the current desperate search for any investment that is better than holding cash is potentially leading to bubbles in some very unlikely places. The second is a great illustration of the risks of playing with the big boys.
There is something about Gold and Silver - just live with the fact that 10,000 years of acknowledged fascination with these metals is an incontrovertible fact. My personal disclaimer or health warning is that I fail to understand why this should still be the case.
To my mind Gold is a text-book example of a Ponzi scheme - There is a limited and definable supply, the "investment" has little or no intrinsic value (albeit that the electronics industry is a reasonably significant consumer), the "investment" is never consumed but can be recyled infinitely and - the real clincher - holders can only get out at a profit if new mugs are hooked on the scam.
I hear all the arguments about the third world, particularly China and India, where the rising tide of their respective economies are enabling the quasi-mystic regard in which Gold and Silver are held to be turned into real buying as opposed to aspiration - but the gold is still there, doing nothing and earning nothing. That is another element to the ticking time-bomb. They are not involved in some gollum-like love affair with this gold - they don't take it to bed and make love to it!!! When the time is right (or historically when the time is wrong) it will be sold to the next lucky player at this particular casino.
I give especial weight to the current desperate search for absolute return. Precious metals are diametrically in opposition to this objective. As inflation (which Uncle Ben and his cronies seek so enthusiastically) picks up "investments" without yield will be the first to go.
The "survivalist" argument actually makes me angry. In the post-apocalyptic world the anthropogenic changes would make holding a few sovereigns or krugers a great idea for a while. The most probable apocalypse, however, is a financial one and nearly all "investment" precious metals are held as paper issued by or in the vaults of the very institutions likely to collapse.
Sorry gold-bugs, but I am off to buy some tulip bulbs instead.
Dum Spiro Spero
Friday 5 November 2010
"Journalists" on strike - so the news improves?
I awoke this morning to one of the more spectacular own-goals by a group of strikers that I have ever experienced.
For most of my working life, indeed probably all of that part spent in the UK, I have woken up to the dulcet tones of Radio 4 - the "grown up" part of BBC radio that is not dedicated to pop or classical music and which does not subscribe to the concept of a "breakfast show" - presumably as it does not want to insult our collective intelligences. On balance I have always felt it to be the best of the best.
The "boiled frog" hypothesis states that a frog would jump out if placed in very hot water but would not notice if the temperature of warm water was slowly raised to boiling and would thus die. This morning I realised I had become a boiled frog.
The "news" is often to be found to contain an item stating that "the government will announce later today that...........". Are we so stupid or has the english language become so corrupted that we are not to realise that the announcement is being made there and then? Is this concept dangerously close to having an Orwellian outlet for what is little more than spin? Having heard the "News", we are often subjected to interpretation and comment so closely interwoven that the announcer might just as well have said - and now some bad news. Often a politician with an axe to grind is sitting in the studio with their highly partisan views to spout. These can range from the clever to (regrettably much more common) the downright stupid and even further down, stopping at Harriet Harman a moment before leaving Homo Sapiens completely. To many of these, erudite is a sort of glue!! Some are sincere in their views, some are simply egregious (and once again on the extreme I see Harriet Harman).
This morning I woke up in a strange parallel universe. There was news that told me interesting things that had happened. I won't pretend I always notice the spin that usually comes - I am as much a boiled frog as the next person - but slowly it dawned on me that something had changed. I was fed information and only that. Somewhere in the echoing caverns between my ears, long-disused rusty cogs ground and squeaked slowly into unwonted action. What was this feeling? Good Lord! I was being allowed to think for myself.
The reason for all this? - Many BBC journalists have gone on strike for 48 hours to complain about pension changes. In the wonderful, Peston-free (a tautology if ever there was one) Utopia we have been granted for 48 hours we are, presumably meant to storm the management offices at the Beeb and to join the pickets at their braziers outside the studios?
Great idea! I am all for joining the pickets - to stop them getting back in.
Dum Spiro Spero
For most of my working life, indeed probably all of that part spent in the UK, I have woken up to the dulcet tones of Radio 4 - the "grown up" part of BBC radio that is not dedicated to pop or classical music and which does not subscribe to the concept of a "breakfast show" - presumably as it does not want to insult our collective intelligences. On balance I have always felt it to be the best of the best.
The "boiled frog" hypothesis states that a frog would jump out if placed in very hot water but would not notice if the temperature of warm water was slowly raised to boiling and would thus die. This morning I realised I had become a boiled frog.
The "news" is often to be found to contain an item stating that "the government will announce later today that...........". Are we so stupid or has the english language become so corrupted that we are not to realise that the announcement is being made there and then? Is this concept dangerously close to having an Orwellian outlet for what is little more than spin? Having heard the "News", we are often subjected to interpretation and comment so closely interwoven that the announcer might just as well have said - and now some bad news. Often a politician with an axe to grind is sitting in the studio with their highly partisan views to spout. These can range from the clever to (regrettably much more common) the downright stupid and even further down, stopping at Harriet Harman a moment before leaving Homo Sapiens completely. To many of these, erudite is a sort of glue!! Some are sincere in their views, some are simply egregious (and once again on the extreme I see Harriet Harman).
This morning I woke up in a strange parallel universe. There was news that told me interesting things that had happened. I won't pretend I always notice the spin that usually comes - I am as much a boiled frog as the next person - but slowly it dawned on me that something had changed. I was fed information and only that. Somewhere in the echoing caverns between my ears, long-disused rusty cogs ground and squeaked slowly into unwonted action. What was this feeling? Good Lord! I was being allowed to think for myself.
The reason for all this? - Many BBC journalists have gone on strike for 48 hours to complain about pension changes. In the wonderful, Peston-free (a tautology if ever there was one) Utopia we have been granted for 48 hours we are, presumably meant to storm the management offices at the Beeb and to join the pickets at their braziers outside the studios?
Great idea! I am all for joining the pickets - to stop them getting back in.
Dum Spiro Spero
Thursday 4 November 2010
Pessimism - The certain path to a better Investment Outlook
We hold these truths to be self-evident.....................
One of my fondest memories as a boy was of my old Latin master and his fresh look at anything. If any of you do not recognise the words above, they are the firt words of the preamble to the American Declaration of Independence. It was described by him as "the most arrogant and intellectually weak statement ever to have disgraced an important document". For that matter he was deeply upset (and you did not want to upset a Master in the days of the cane and the slipper) at the use of the word "surely" to preface a sentence. Both phrases automatically exclude argument or debate by shutting out a priori a contrary case.
This mindset has nevertheless become the bane of civilised society at many levels, not least in the investment community, where the ranters, the spouters and the downright lunatic expound their "self-evident" investment views daily. I do not single out the doom-sayers (although they are the prominent nutters) at the moment. Some of the more consistently bullish commentators do have me wondering quite how much Prozac they are on? My issue is with the danger to the innocent.
Were I to be a small private investor approaching the morass of investment "advice" on offer over the last 2-3 years in particular, I would most likely be trembling in my shelter in the woods, surrounded by my shotgun, bottled water and tinned beans. Despite this, both bond and equity markets have steadily pushed up almost from the moment that the bloated corpse of Lehmans was found floating in the lake.
Why? Well the practical aspects of low interest rates and abundant money thanks to QE are the clear ones - and as Dr.B has given us another $600 Billion to play with yesterday the situation is not likely to alter hugely.
All this is far from new - so why the heading of this blog? If one looks at the shape of the bull market of the last few years one sees it characterised by periods of relative quiet, a few panics (and let us be quite honest here - there are lots of things to worry about) and more than a few "surges".
The detailed mechanisms of markets do allow us to analyse these surges. Figures such as cash ratios, fund holdings, open interest changes and literally dozens of indicators give us an idea of where money is coming from and how much is held in reserves. Hedge Fund and derivative numbers also can indicate the size of short interest - a subject of much discussion. Time after time we find surges (the converse is true - I mention this in the interests of clarity) coincide with maximum pessimism and peaks in short holdings. The psychology here is clear (whoops - is that close to self-evident?) to me. Put simply it is the fear of being left behind combined with the perfectly natural fact that investments are generally entered into rationally after some thought but that the "get me outa here" reaction is more visceral and immediate - leading to sharper moves. For most of my professional life this was a downside phenomenon - with the sell-offs indicating the panics. With the advent of readily accessible shorting, I am now inclined to believe that panic short-covering is the key to many of the recent rallies.
Whither now? (That was an entirely gratuitous use of a word I just like the phonetics of by the way!). In the words of the old joke about asking a village idiot for directions - "If I was going there, I wouldn't be starting from here". My view is that equity markets are fully valued in general and that bond markets, especially government bonds, are dangerously overvalued as they are the refuge haven for scared money. The problem is - where else to go? Dividend yields on Blue-Chips are still in the 3-4% range and even outside the government bond markets, similar or greater yields are available on quality corporate bonds. There is a huge BUT here - which I will not belabour, but merely point to BP as a classic "Black Swan" event - even if the utterly shameful behaviour of the US government has led it close to its losing its only remaining true friend. Risk is now evaluated several sigmas further out than ever it was. (Do look up Mandelbrot on the normal or gaussian distribution - hard maths but great reading and original thinking).
My favourite thought at the moment - and not a "widows and orphans" position- is Bank Debt. Some very juicy yields out there and only three questions to ask -
1. Is it going to be a liquid market for me to get out of or is there a fixed maturity?
2. Is the institution at any risk of going broke? (By which I mean will it be bailed out as well?)
3. Is the interest or coupon guaranteed with no risk of suspension or a "haircut"
However, I do not want to run foul of the regulatory thought police and be too specific. I would refer you to the Banking Section of the Motley Fool discussion site. You will find much of value on Bank Debt there.
http://boards.fool.co.uk/banking-sector-50033.aspx?mid=12082725
To leave you with a thought - The confirmation of the QE2 move in the US last night has led to a surge in both markets and bullish concensus. I suspect (note I do not say it is "self-evident") that the good news is in the market and that we are in for a quiet period at best and possibly a sell-off as markets wake up to the fact that QE2 is a direct response to a difficult and uncertain outlook/
Dum Spiro Spero
One of my fondest memories as a boy was of my old Latin master and his fresh look at anything. If any of you do not recognise the words above, they are the firt words of the preamble to the American Declaration of Independence. It was described by him as "the most arrogant and intellectually weak statement ever to have disgraced an important document". For that matter he was deeply upset (and you did not want to upset a Master in the days of the cane and the slipper) at the use of the word "surely" to preface a sentence. Both phrases automatically exclude argument or debate by shutting out a priori a contrary case.
This mindset has nevertheless become the bane of civilised society at many levels, not least in the investment community, where the ranters, the spouters and the downright lunatic expound their "self-evident" investment views daily. I do not single out the doom-sayers (although they are the prominent nutters) at the moment. Some of the more consistently bullish commentators do have me wondering quite how much Prozac they are on? My issue is with the danger to the innocent.
Were I to be a small private investor approaching the morass of investment "advice" on offer over the last 2-3 years in particular, I would most likely be trembling in my shelter in the woods, surrounded by my shotgun, bottled water and tinned beans. Despite this, both bond and equity markets have steadily pushed up almost from the moment that the bloated corpse of Lehmans was found floating in the lake.
Why? Well the practical aspects of low interest rates and abundant money thanks to QE are the clear ones - and as Dr.B has given us another $600 Billion to play with yesterday the situation is not likely to alter hugely.
All this is far from new - so why the heading of this blog? If one looks at the shape of the bull market of the last few years one sees it characterised by periods of relative quiet, a few panics (and let us be quite honest here - there are lots of things to worry about) and more than a few "surges".
The detailed mechanisms of markets do allow us to analyse these surges. Figures such as cash ratios, fund holdings, open interest changes and literally dozens of indicators give us an idea of where money is coming from and how much is held in reserves. Hedge Fund and derivative numbers also can indicate the size of short interest - a subject of much discussion. Time after time we find surges (the converse is true - I mention this in the interests of clarity) coincide with maximum pessimism and peaks in short holdings. The psychology here is clear (whoops - is that close to self-evident?) to me. Put simply it is the fear of being left behind combined with the perfectly natural fact that investments are generally entered into rationally after some thought but that the "get me outa here" reaction is more visceral and immediate - leading to sharper moves. For most of my professional life this was a downside phenomenon - with the sell-offs indicating the panics. With the advent of readily accessible shorting, I am now inclined to believe that panic short-covering is the key to many of the recent rallies.
Whither now? (That was an entirely gratuitous use of a word I just like the phonetics of by the way!). In the words of the old joke about asking a village idiot for directions - "If I was going there, I wouldn't be starting from here". My view is that equity markets are fully valued in general and that bond markets, especially government bonds, are dangerously overvalued as they are the refuge haven for scared money. The problem is - where else to go? Dividend yields on Blue-Chips are still in the 3-4% range and even outside the government bond markets, similar or greater yields are available on quality corporate bonds. There is a huge BUT here - which I will not belabour, but merely point to BP as a classic "Black Swan" event - even if the utterly shameful behaviour of the US government has led it close to its losing its only remaining true friend. Risk is now evaluated several sigmas further out than ever it was. (Do look up Mandelbrot on the normal or gaussian distribution - hard maths but great reading and original thinking).
My favourite thought at the moment - and not a "widows and orphans" position- is Bank Debt. Some very juicy yields out there and only three questions to ask -
1. Is it going to be a liquid market for me to get out of or is there a fixed maturity?
2. Is the institution at any risk of going broke? (By which I mean will it be bailed out as well?)
3. Is the interest or coupon guaranteed with no risk of suspension or a "haircut"
However, I do not want to run foul of the regulatory thought police and be too specific. I would refer you to the Banking Section of the Motley Fool discussion site. You will find much of value on Bank Debt there.
http://boards.fool.co.uk/banking-sector-50033.aspx?mid=12082725
To leave you with a thought - The confirmation of the QE2 move in the US last night has led to a surge in both markets and bullish concensus. I suspect (note I do not say it is "self-evident") that the good news is in the market and that we are in for a quiet period at best and possibly a sell-off as markets wake up to the fact that QE2 is a direct response to a difficult and uncertain outlook/
Dum Spiro Spero
Wednesday 3 November 2010
Pass the poisoned chalice - Currency depreciation to beggar-my--neighbour
We have the good fortune (?) in the developed world to have a well documented history of the causes and solutions for the great depression of the 1930's.
The period also marks the shift from Sterling as the great international reserve currency to the US Dollar fulfilling that role. (1928 is given by many historians as the year in which this happened - open to much discussion but reasonably accurate give or take a year or so).
One of the reasons for this was the policy adopted by the US, usually referred to as a beggar-my-neighbour policy, in which the dollar was allowed to lose value and a highly protectionist stance adopted in order not only to protect the domestic economy but also to knowingly damage other economies that were at least partly reliant on US goods and services, thus creating dependent almost vassal states. It is highly significant that Dr. Ben Bernanke, Chairman of the US Federal Reserve, made his academic reputation in studying this shameful era.
This time around, armed with the power of 20/20 hindsight, the game is being widely played, most notably and successfully by the Chinese - but not only them as many developed economies rush to devalue and inflate (actually the same thing and two sides of the same coin) their currencies faster than their neighbours.
This can only end, ultimately, in tears. The rationale is that stimulus by either conventional Keynesian methods or more directly by Quantitative Easing will somehow restore economic activity without an ultimate cost. For what it is worth, I feel that QE was an unavoidable and necessary evil but certainly not to intended be a permanent feature of the economic landscape. Gresham's Law ("Bad money drives out good") will apply and can not be avoided. The "magic bullet" to reign in the extra money supply (which is, incidentally, not going to the right places in any case) is now perceived to be to keep interest rates artificially low while allowing a slightly above-trend inflation number (not seen as a risk in a a recession) and to allow one's currency to race the others' to the bottom. With the Aussie Dollar at parity to the US Dollar I can't help but wonder if the commodity-backed economies are on a new Gold Standard?
In the the 1930's the US was alone in this sort of sleight of hand - now we are all at it. The bad money that is driving out good is the same money we have in our banks and investments. Equities going up? Well yes - but a share of the producing assets of this planet expressed in a depreciating unit of exchange would be expected to be moving up. Welcome to Weimar!
Now the Zambian Kwacha is backed by Copper isn't it????
Dum Spiro Spero
The period also marks the shift from Sterling as the great international reserve currency to the US Dollar fulfilling that role. (1928 is given by many historians as the year in which this happened - open to much discussion but reasonably accurate give or take a year or so).
One of the reasons for this was the policy adopted by the US, usually referred to as a beggar-my-neighbour policy, in which the dollar was allowed to lose value and a highly protectionist stance adopted in order not only to protect the domestic economy but also to knowingly damage other economies that were at least partly reliant on US goods and services, thus creating dependent almost vassal states. It is highly significant that Dr. Ben Bernanke, Chairman of the US Federal Reserve, made his academic reputation in studying this shameful era.
This time around, armed with the power of 20/20 hindsight, the game is being widely played, most notably and successfully by the Chinese - but not only them as many developed economies rush to devalue and inflate (actually the same thing and two sides of the same coin) their currencies faster than their neighbours.
This can only end, ultimately, in tears. The rationale is that stimulus by either conventional Keynesian methods or more directly by Quantitative Easing will somehow restore economic activity without an ultimate cost. For what it is worth, I feel that QE was an unavoidable and necessary evil but certainly not to intended be a permanent feature of the economic landscape. Gresham's Law ("Bad money drives out good") will apply and can not be avoided. The "magic bullet" to reign in the extra money supply (which is, incidentally, not going to the right places in any case) is now perceived to be to keep interest rates artificially low while allowing a slightly above-trend inflation number (not seen as a risk in a a recession) and to allow one's currency to race the others' to the bottom. With the Aussie Dollar at parity to the US Dollar I can't help but wonder if the commodity-backed economies are on a new Gold Standard?
In the the 1930's the US was alone in this sort of sleight of hand - now we are all at it. The bad money that is driving out good is the same money we have in our banks and investments. Equities going up? Well yes - but a share of the producing assets of this planet expressed in a depreciating unit of exchange would be expected to be moving up. Welcome to Weimar!
Now the Zambian Kwacha is backed by Copper isn't it????
Dum Spiro Spero
Tuesday 2 November 2010
Intermediary or "mid-term" elections - a danger to democracy?
Winston Churchill is once recorded as saying that Democracy is the worst form of government, except for all those other forms that have been tried from time to time.
Regrettably, it seems to me that the trend for "instant democracy" is potentially a threat to the underlying concept. Here in the U.K. we see today opinion polls swinging for the first time back to the Labour Party, less than six months after the General Election. In the United States (surely the home of one of the most deeply flawed democratic models on this planet?) we see elections about to take away the 5-year mandate given to Obama after two years.
The communications revolution, by which of course I mainly mean the internet, has led to the concept of Vox Populi Vox Dei now meaning that if you can get together a group to shout loudly enough they will be given unfiltered and unweighted access to the means of propagation of that view. Take the creationist lobby as an example - they were always there and either ignored or derided by sane-thinking folk (perhaps we should have included educating as a third reaction?) - but now are given credibility in the interests of "democracy".
Dangerous thought this - should everyone get an equal vote on subjects that neither affect them or which (really dangerous) they are not informed enough to have a valid opinion? Obviously the answer is yes - but an honest as opposed to entirely populist answer would reveal some room for debate IMHO.
The real danger we are now seeing is the confusion between voting intelligently and voting for the X-factor. In both major political events outlined above we had months of discussion and debate. Right now we are seeing the simplistic reaction to the pain that present incumbents were mandated to cause for our own goods. One of the inconvenient truths behind the political systems we have adopted in the west is that we historically use our democratic models to elect dictatorships for limited periods and then hope they are benevolent. This has the simple advantage of generally working, with the sure knowledge that, if things go wrong, they only have a limited shelf-life. A stable political system must have some element of "Giving them a chance" after a major election - surely?
I am not at all sure I see a solution to the populism problem in voting patterns other than witholding or limiting the opportunity to vote - but is Churchill right?
Dum Spiro Spero
Sunday 31 October 2010
Housing Benefit, London & a "Fair Society".
When listening to and reading recent comments about the proposed reforms to Housing Benefit, I am forced to reject many much stronger expletives before arriving at the word "Twaddle".
The status quo in the UK is simply unacceptable and unsustainable. The Beveridge/Morrison revolution that led to the establishment of the Welfare State has turned, as most revolutions do, into a nightmare. From the very beginning in the late 40s and early 50's the left in the UK hijacked this wonderful concept - that the weak and needy should be sheltered and supported - as an exercise in extending State control into every element of our lives. In general it has been one-nation Tories that have strengthened the welfare system by dragging it back time after to time to its worthy roots - that of a safety net.
I have little doubt that the reduction of housing benefit to saner levels, both in terms of eligibility and quantum, will have a profound effect on many. We should, however, remember that these proposals are not retrospective and the effect on current beneficiaries will be small to non-existent. For new claimants, however - welcome to the real world!! Why should my children - all working and tax-paying adults now - have to struggle to rent or buy (I will deal with buying a little later gentle reader) a home at rates that reflect the aftermath of the buy-to-let frenzy fuelled by the laxity of monetary policy under the Blair/Brown Labour government?
The soft pink fuzzy warm media industry that lumps together the poor, the underprivileged, the sick, the old, battered teddy bears, puppies with big brown eyes and soft fluffy kittens are, of course, back where they are most comfortable - in opposition and able to make cooing noises of sympathy at the same time as tutting noises of disapproval without for one moment having to give thought (they never have, never do and never will do) to how it is paid for and how we administer such things.
If current benefit reform goes through, it will have little or no effect on the needy. A dry warm home of two bedrooms in Leicester is as valuable as a three-bedroom flat in Central London if you want to keep your children warm and healthy. What about work do I hear those members of the previous government with insufficient shame to keep quiet for a few decades say? Errr.... is that the government's job - or even its business? Within a very few years of the proposed reforms real jobs will arise as the labour pool grows. Then (and I do appreciate this concept is up there with incest and paedophilia for some) those self-same claimants can start paying the government back for their help by way of Income Tax and National Insurance contributions.
Going back to the specifics of housing benefit and property levels - both rental and purchase prices - it seems self-evident (a dangerous phrase) to me that the level of much rental property is set as a matter of course by the levels that will be paid as Housing Benefit. I cannot for one moment believe that the major consequence of a reduction in both the numbers of those receiving this benefit and the amounts involved for those who do will not be a substantial reduction in rent levels that will stabilise either at the new lower benefit level or at a level dictated by "real" renters looking for a home. Inevitably this will hit the private landlord hard and will, I strongly suspect, mean the speculative stock of housing built over the last few years of the Blair/Brown lunacy being sold off and a substantial drop in house prices. Such a fall would ultimately be the salvation of the working classes (by which I mean those that do the work) as both renting and buying become affordable again. The "cult of property" in the UK means that this will be unwelcome in many quarters - but homes are ultimately places in which to live, love and grow. For everything else there are pension funds and savings.
Yet again the UK media are using this as another cudgel with which to bash the coalition government, but I admire the way in which they are making the hard decisions in the glare of public scrutiny and with the internal debate hardly hidden from public view.
It is perhaps the finest single principle of British society that we protect the weak and needy. That must remain sacrosanct. The vast majority of our huge benefit budget goes neither to the weak or the needy however - and that must be stopped and stopped now.
Dum Spiro Spero
The status quo in the UK is simply unacceptable and unsustainable. The Beveridge/Morrison revolution that led to the establishment of the Welfare State has turned, as most revolutions do, into a nightmare. From the very beginning in the late 40s and early 50's the left in the UK hijacked this wonderful concept - that the weak and needy should be sheltered and supported - as an exercise in extending State control into every element of our lives. In general it has been one-nation Tories that have strengthened the welfare system by dragging it back time after to time to its worthy roots - that of a safety net.
I have little doubt that the reduction of housing benefit to saner levels, both in terms of eligibility and quantum, will have a profound effect on many. We should, however, remember that these proposals are not retrospective and the effect on current beneficiaries will be small to non-existent. For new claimants, however - welcome to the real world!! Why should my children - all working and tax-paying adults now - have to struggle to rent or buy (I will deal with buying a little later gentle reader) a home at rates that reflect the aftermath of the buy-to-let frenzy fuelled by the laxity of monetary policy under the Blair/Brown Labour government?
The soft pink fuzzy warm media industry that lumps together the poor, the underprivileged, the sick, the old, battered teddy bears, puppies with big brown eyes and soft fluffy kittens are, of course, back where they are most comfortable - in opposition and able to make cooing noises of sympathy at the same time as tutting noises of disapproval without for one moment having to give thought (they never have, never do and never will do) to how it is paid for and how we administer such things.
If current benefit reform goes through, it will have little or no effect on the needy. A dry warm home of two bedrooms in Leicester is as valuable as a three-bedroom flat in Central London if you want to keep your children warm and healthy. What about work do I hear those members of the previous government with insufficient shame to keep quiet for a few decades say? Errr.... is that the government's job - or even its business? Within a very few years of the proposed reforms real jobs will arise as the labour pool grows. Then (and I do appreciate this concept is up there with incest and paedophilia for some) those self-same claimants can start paying the government back for their help by way of Income Tax and National Insurance contributions.
Going back to the specifics of housing benefit and property levels - both rental and purchase prices - it seems self-evident (a dangerous phrase) to me that the level of much rental property is set as a matter of course by the levels that will be paid as Housing Benefit. I cannot for one moment believe that the major consequence of a reduction in both the numbers of those receiving this benefit and the amounts involved for those who do will not be a substantial reduction in rent levels that will stabilise either at the new lower benefit level or at a level dictated by "real" renters looking for a home. Inevitably this will hit the private landlord hard and will, I strongly suspect, mean the speculative stock of housing built over the last few years of the Blair/Brown lunacy being sold off and a substantial drop in house prices. Such a fall would ultimately be the salvation of the working classes (by which I mean those that do the work) as both renting and buying become affordable again. The "cult of property" in the UK means that this will be unwelcome in many quarters - but homes are ultimately places in which to live, love and grow. For everything else there are pension funds and savings.
Yet again the UK media are using this as another cudgel with which to bash the coalition government, but I admire the way in which they are making the hard decisions in the glare of public scrutiny and with the internal debate hardly hidden from public view.
It is perhaps the finest single principle of British society that we protect the weak and needy. That must remain sacrosanct. The vast majority of our huge benefit budget goes neither to the weak or the needy however - and that must be stopped and stopped now.
Dum Spiro Spero
Saturday 16 October 2010
Coalition Politics - How seeing the other side's point of view outrages journalists.
One of the less edifying spectacles to be found in the press at the moment is the desperate hunting of journalists and "commentators" (a slippery phrase that, and one that seemingly absolves them from fairness, even-handedness or even telling the simple truth!) for yet more reasons to hate our current coalition of concensus.
Clearly it takes away the fun of thundering against the primeval error of an idea or policy if the response is "actually - you are right, we have listened to representations, thought again and made changes" How DARE they do that - or am I missing something and it is the true nature of democracy showing through for once? I suppose the thing that the journos hate most is that by listening, our political masters are no longer absolving the fourth estate of responsibility for their ramblings.
The decision made yesterday to ring-fence education spending is a clear victory for the voices of reason and in particular for the Liberal-Democrat element, and is one that redounds to the great credit of both parties.
Now can we PLEASE apply the same sanity and common-sense to our Universities?
Dum Spiro Spero
Clearly it takes away the fun of thundering against the primeval error of an idea or policy if the response is "actually - you are right, we have listened to representations, thought again and made changes" How DARE they do that - or am I missing something and it is the true nature of democracy showing through for once? I suppose the thing that the journos hate most is that by listening, our political masters are no longer absolving the fourth estate of responsibility for their ramblings.
The decision made yesterday to ring-fence education spending is a clear victory for the voices of reason and in particular for the Liberal-Democrat element, and is one that redounds to the great credit of both parties.
Now can we PLEASE apply the same sanity and common-sense to our Universities?
Dum Spiro Spero
Thursday 14 October 2010
Investment Bubbles or just Burble - Nowhere to hide?
A good friend of mine living the expatriate highlife has been pushing the bear case for western stock markets hard recently - which has proved to be a very expensive mistake for him. Even so, I still read a number of reports pushing the "October Effect" which, as far as I can make out, is far from proven. Despite my reservations, I can't deny that 1929, 1987 and 2008 all saw their roots in an October crash. Illogical to believe that this is a pattern - three times in a century? Yes, very illogical - but who ever said markets were logical?
One similarity between the present and these three events does worry me. For reasons I have often propounded before, I think that equity markets are almost the only home for much of the liquidity sloshing around in the system (and the talk of QE2 promises even more!!). In all of the crash years previously we had not dissimilar situations of momentum. The reasons were different in all three cases, but the result was the same - there was strong momentum caused only partially by good fundamentals, whilst a lot of that momentum was for the reason that it was the only place to be. Investors and Fund Managers have, overall and with some laudable exceptions, a herd mentality.
The crashes in all these cases did take place from a starting point of genuine strength, The dog was wagging the tail - but any crash of serious magnitude can cause a cascade of events - usually concerning liquidity and/or loss of business confidence that can have the tail wagging the dog in the blink of an eye.
My message? Just a counsel of caution. The current run is justified on most econometric measures - but quantitatively is 300-ish points ahead of itself on the FTSE and almost 1000 points on the Dow. Recent sharp reversals have proved great buying opportunities - but a "Black Swan" event is incubated in just these situations.
Dum Spiro Spero.
One similarity between the present and these three events does worry me. For reasons I have often propounded before, I think that equity markets are almost the only home for much of the liquidity sloshing around in the system (and the talk of QE2 promises even more!!). In all of the crash years previously we had not dissimilar situations of momentum. The reasons were different in all three cases, but the result was the same - there was strong momentum caused only partially by good fundamentals, whilst a lot of that momentum was for the reason that it was the only place to be. Investors and Fund Managers have, overall and with some laudable exceptions, a herd mentality.
The crashes in all these cases did take place from a starting point of genuine strength, The dog was wagging the tail - but any crash of serious magnitude can cause a cascade of events - usually concerning liquidity and/or loss of business confidence that can have the tail wagging the dog in the blink of an eye.
My message? Just a counsel of caution. The current run is justified on most econometric measures - but quantitatively is 300-ish points ahead of itself on the FTSE and almost 1000 points on the Dow. Recent sharp reversals have proved great buying opportunities - but a "Black Swan" event is incubated in just these situations.
Dum Spiro Spero.
Wednesday 13 October 2010
QE2 - Going the same way as the Titanic?
Obviously I am not talking about enormous ships here - rather I am referring to the second round of Quantitative Easing currently being openly discussed by, among other Central Banks, the Federal Reserve in the U.S. The QE2 name it has been given seems tragically appropriate.
To nail my colours to the mast (see - another nautical reference), I whole-heartedly supported the first round. There was no choice other than to see the financial system crumble under the twin burdens of uncertainty and ever-dwindling liquidity. Since then we have seen the vast majority of QE go directly into bolstering the balance sheets of commercial banks (a good thing), boosting capital available for Proprietary Investment Banking activities (Do I need to call this a bad thing? Have we already forgotten how we got here?) and very little go into boosting the real economy other than by creating a fantasy world where large corporates with strong balance sheets can borrow more at close to zero interest rates while medium-to-small businesses are unable to pry capital (the very capital provided by our governments) from the banks who have appropriated it.
The recovery is weak - but is in existence. QE2 is not necessary at the moment and would, in any case, be subject to the law of diminishing returns - even if (which I doubt) it were to be modified to avoid the abuses I have just described. We need to keep such a blunt weapon ready against urgent need.
The reaction of markets in the last few weeks has been particularly difficult to fathom. Good news (and there has been some) is a sound foundation on which to base market strength, but the present arguments related to further stimulus frighten the willies out of me.
In essence the argument goes that we are close to flat-lining economically, with growth around 1% in most sectors. Large corporate earnings disguise this as the whole post-QE world skews results in their favour and they make up the major indices. To bolster the majority of the economy that does not have these advantages, yet more money needs to be injected (and remember that so little of it reached the right destinations last time) to "help" them. So we are doing so badly that we need more help - and that is a good reason to be bullish - because we are doing so badly?
The words honest and Corporate America may not sit easily in the same sentence, but this is a magnificent exhibition even by the standards previously set. "Please give us more money to help the economy - we will try to make sure none gets as far as it's intended recipients, but you have to do this."
Without divorcing "Real" Banking from Corporate Banking, this will be a spiral that can only end in tears. Ultimately the money pumped in via QE can only be reclaimed by much higher interest rates or depreciation of fiat currencies.
Dum Spiro Spero.
To nail my colours to the mast (see - another nautical reference), I whole-heartedly supported the first round. There was no choice other than to see the financial system crumble under the twin burdens of uncertainty and ever-dwindling liquidity. Since then we have seen the vast majority of QE go directly into bolstering the balance sheets of commercial banks (a good thing), boosting capital available for Proprietary Investment Banking activities (Do I need to call this a bad thing? Have we already forgotten how we got here?) and very little go into boosting the real economy other than by creating a fantasy world where large corporates with strong balance sheets can borrow more at close to zero interest rates while medium-to-small businesses are unable to pry capital (the very capital provided by our governments) from the banks who have appropriated it.
The recovery is weak - but is in existence. QE2 is not necessary at the moment and would, in any case, be subject to the law of diminishing returns - even if (which I doubt) it were to be modified to avoid the abuses I have just described. We need to keep such a blunt weapon ready against urgent need.
The reaction of markets in the last few weeks has been particularly difficult to fathom. Good news (and there has been some) is a sound foundation on which to base market strength, but the present arguments related to further stimulus frighten the willies out of me.
In essence the argument goes that we are close to flat-lining economically, with growth around 1% in most sectors. Large corporate earnings disguise this as the whole post-QE world skews results in their favour and they make up the major indices. To bolster the majority of the economy that does not have these advantages, yet more money needs to be injected (and remember that so little of it reached the right destinations last time) to "help" them. So we are doing so badly that we need more help - and that is a good reason to be bullish - because we are doing so badly?
The words honest and Corporate America may not sit easily in the same sentence, but this is a magnificent exhibition even by the standards previously set. "Please give us more money to help the economy - we will try to make sure none gets as far as it's intended recipients, but you have to do this."
Without divorcing "Real" Banking from Corporate Banking, this will be a spiral that can only end in tears. Ultimately the money pumped in via QE can only be reclaimed by much higher interest rates or depreciation of fiat currencies.
Dum Spiro Spero.
Tuesday 12 October 2010
Education - a right, not a privilege. Certainly NOT a commodity.
My own educational background is not so different from many others. I attended a tiny private school from an early age and then I was obliged to attend the local state primary school for one year as my parents moved house. It was at that primary school that I became aware of the streaming process that marked out a child's future for life. In the intuitive and irrational way that children have, I became aware that the "D" set were not only abandoned by themselves (and presumably their families) but that they were also allocated significantly inferior resources. At 11+ stage the "sorting hat" - not of Harry Potter, but of the system, would set each and every one of the boys I was with on a largely inescapable path.
I then went to a superb school and onwards to Oxford - all on scholarships, but even without those, with the support of the state. I quite simply could not have afforded to do this without the best education I could get being offered to me by my country as an investment in my future and in anticipation of the millions of pounds I have paid in taxes over the years.
Later in my life I earned the right to call myself a farmer ( a conceit really - I owned the land whilst others did the work ) and learned important lessons about, among other things, preserving seed corn and nurturing a growing crop.
Perhaps the segue into my analogy is fairly obvious - but our children, our youth and even our adult population who wish to learn are our seed corn. Words were cheap to Blair, but how I wish he had meant those three - "Education, Education, Education" - as his priorities. To borrow from a political philosophy I despise much less that Blairism, I can see no greater aspiration for an educational system than "From each according to his abilities, to each according to his needs". The crop must be nurtured to the best of our abilities.
Education is, perforce, a pyramidal structure - with a broad base of nursery and primary education narrowing to a smaller University sector. Throughout this pyramid, inequalities of resources come in all forms. Wealthier parents can not be expected to eschew the opportunity to give their offspring more, but only if this does not mean detracting from the less fortunate, Cultural imperatives play their part - many asian and oriental parents support their children (and why, in this context, is the perjorative term "pushy" used so much? - I admire it) more, it seems, than the great majority of WASP parents. I have known some abysmally dim kids from wealthy families or the ethnic groups mentioned above, just as I have known some to be razor-sharp from the local sink estate. As with any crop, the first growth stages are the most important and all should be fertilised with the manure of knowledge (I do hope you don't think I kept a straight face as I typed that phrase!).
Private eduction benefits greatly from the state - not only via charitable status for tax. Most teachers were trained at the expense of the state and the framework from which private education hangs is in essence that of the national system. Even the inspection and regulation system is that of the nation. It works, so let us not dismantle it, rather let us use it or emulate it in the manner of the traditional Grammar School. At the very least let the state reclaim some of its investment in terms of much higher scholarship or free place levels.
Then the pyramid narrows - and narrows sharply. University education can range from the aethereally academic to the brutally practical, but it must be the tip of the pyramid, rather than a mere extension of presence in a system than real education. Three years of hard work at least (many degrees in Germany can take up to 6 years) are the slope a student faces and his reward is to be at least potentially a more valued and valuable member of society. The corn grows and society reaps it in turns of contribution and even taxes.
I regard the concepts of Tuition Fees and Student Loans as being so ill-conceived as to be positively dangerous. Today's students are the leaders of tomorrow. It is insane to think they might have bought that position rather than earned it.
Education to the highest level deserved and properly used should be totally free to all.
Dum Spiro Spero
I then went to a superb school and onwards to Oxford - all on scholarships, but even without those, with the support of the state. I quite simply could not have afforded to do this without the best education I could get being offered to me by my country as an investment in my future and in anticipation of the millions of pounds I have paid in taxes over the years.
Later in my life I earned the right to call myself a farmer ( a conceit really - I owned the land whilst others did the work ) and learned important lessons about, among other things, preserving seed corn and nurturing a growing crop.
Perhaps the segue into my analogy is fairly obvious - but our children, our youth and even our adult population who wish to learn are our seed corn. Words were cheap to Blair, but how I wish he had meant those three - "Education, Education, Education" - as his priorities. To borrow from a political philosophy I despise much less that Blairism, I can see no greater aspiration for an educational system than "From each according to his abilities, to each according to his needs". The crop must be nurtured to the best of our abilities.
Education is, perforce, a pyramidal structure - with a broad base of nursery and primary education narrowing to a smaller University sector. Throughout this pyramid, inequalities of resources come in all forms. Wealthier parents can not be expected to eschew the opportunity to give their offspring more, but only if this does not mean detracting from the less fortunate, Cultural imperatives play their part - many asian and oriental parents support their children (and why, in this context, is the perjorative term "pushy" used so much? - I admire it) more, it seems, than the great majority of WASP parents. I have known some abysmally dim kids from wealthy families or the ethnic groups mentioned above, just as I have known some to be razor-sharp from the local sink estate. As with any crop, the first growth stages are the most important and all should be fertilised with the manure of knowledge (I do hope you don't think I kept a straight face as I typed that phrase!).
Private eduction benefits greatly from the state - not only via charitable status for tax. Most teachers were trained at the expense of the state and the framework from which private education hangs is in essence that of the national system. Even the inspection and regulation system is that of the nation. It works, so let us not dismantle it, rather let us use it or emulate it in the manner of the traditional Grammar School. At the very least let the state reclaim some of its investment in terms of much higher scholarship or free place levels.
Then the pyramid narrows - and narrows sharply. University education can range from the aethereally academic to the brutally practical, but it must be the tip of the pyramid, rather than a mere extension of presence in a system than real education. Three years of hard work at least (many degrees in Germany can take up to 6 years) are the slope a student faces and his reward is to be at least potentially a more valued and valuable member of society. The corn grows and society reaps it in turns of contribution and even taxes.
I regard the concepts of Tuition Fees and Student Loans as being so ill-conceived as to be positively dangerous. Today's students are the leaders of tomorrow. It is insane to think they might have bought that position rather than earned it.
Education to the highest level deserved and properly used should be totally free to all.
Dum Spiro Spero
Tuesday 5 October 2010
Corporate and Government Bonds - All Risk from now on.
It is possible that a few Trobriand Islanders, some Siberian indigenous natives and even some saffron-robed monks perched high in the Himalayas may have missed the news - but the rest of us are only too painfully aware of the financial troubles of the last three years.
My first observation is the staggeringly comical ability of some "think-tanks" to produce research such as this - http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8040090/UK-tiptoeing-towards-Japan-warn-consultants.html - where the reasoning is exactly that which was eschewed during the boom years. I am reminded of the words printed on rear-view mirrors in the USA (where they are obviously not bright enough to think for themselves) that "Objects seen in the mirror may seem closer than they are". So it is apparently with financial crises. Despite the 4-sigma Black Swans being just that, it seems that all financial commentators are now permanently living in Western Australia. (For the hard of understanding, this will explain my reference - http://en.wikipedia.org/wiki/Coat_of_arms_of_Western_Australia ).
Whilst happily ignoring the "fact" that the metrics recently rediscovered for financial prudence are far from new and that moves were in place - Basel 2, 3, 432 and so forth - to use (while blissfully ignoring) such metrics, it is now so clear to these sages that we are doomed to undercapitalised financial institutions and multiple-dip recession. To quote the greatest sage of all, Frankie Howerd, "Woe Woe and thrice Woe!!"
Our political masters have dealt with the crisis by injecting into the system so much money that interest rates are functionally zero or negative in the wholesale market. I contend this was right and the only course of action. The major banks have accepted this largesse with glee and stuffed their balance sheets with this free money whilst keeping retail rates sky-high and feeding large quantities back into their investment banking activities, what Vince Cable calls "Casino Banks". Almost the only positive side-effect has been to allow larger corporate borrowers to refinance at wholesale (i.e. almost zero) cost. As a result both Government Bonds and Corporate Bonds are trading at record highs.
This situation is unsustainable. The only two end-game scenarios (and they may well be two faces of the same coin) are either to suck back the surplus liquidity once the world economy is adjudged to be "safe" or to attempt (which it seems is covertly happening already) to depreciate a currency enough that the resulting inflation acts as a counterbalance. Timing is everything here - and is it really possible to trust Central Banks or Governments, with a tradition of centuries of acting to late, to get it right. In any case - inflation here we (eventually) come.
Whether one believes that we will all be double-dipped in the brown and smelly stuff or that things are painfully inching back, the time can hardly be more that 2 years away before the punch-bowl is taken away from this party and rates start to rise rapidly. Please note. I make no issue with whatever may befall in the interim.
With the exception of the insane mentality that promotes Gold as an "investment", there are fewer safe havens than Government Bonds and I would even argue that some Corporate Bonds provide more security in that supra-nationals are a spread of risk against sovereign default. Even so, there is really little or no more juice to be sucked from the Orange of yield and my fear is that Mr. Market, with his love of discounting future events, will soon see over the horizon to the gloomily-lit downlands of higher interest rates.
Where does that leave us? Probably the 4%+ yield on major indices (avoiding the risks and rewards of stock-picking - I am talking indices alone here) in equity markets. The fear/greed ratio seems to be so high these days that sell-offs of an illogical nature (or, in the interests of even-handedness, equally silly rallies) and major short-term moves can reasonably be expected. Of course this argument will also be subject to the idea of markets discounting forward events, but historically inflation has been far less destructive of equity than bond markets.
Dum Spiro Spero
My first observation is the staggeringly comical ability of some "think-tanks" to produce research such as this - http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8040090/UK-tiptoeing-towards-Japan-warn-consultants.html - where the reasoning is exactly that which was eschewed during the boom years. I am reminded of the words printed on rear-view mirrors in the USA (where they are obviously not bright enough to think for themselves) that "Objects seen in the mirror may seem closer than they are". So it is apparently with financial crises. Despite the 4-sigma Black Swans being just that, it seems that all financial commentators are now permanently living in Western Australia. (For the hard of understanding, this will explain my reference - http://en.wikipedia.org/wiki/Coat_of_arms_of_Western_Australia ).
Whilst happily ignoring the "fact" that the metrics recently rediscovered for financial prudence are far from new and that moves were in place - Basel 2, 3, 432 and so forth - to use (while blissfully ignoring) such metrics, it is now so clear to these sages that we are doomed to undercapitalised financial institutions and multiple-dip recession. To quote the greatest sage of all, Frankie Howerd, "Woe Woe and thrice Woe!!"
Our political masters have dealt with the crisis by injecting into the system so much money that interest rates are functionally zero or negative in the wholesale market. I contend this was right and the only course of action. The major banks have accepted this largesse with glee and stuffed their balance sheets with this free money whilst keeping retail rates sky-high and feeding large quantities back into their investment banking activities, what Vince Cable calls "Casino Banks". Almost the only positive side-effect has been to allow larger corporate borrowers to refinance at wholesale (i.e. almost zero) cost. As a result both Government Bonds and Corporate Bonds are trading at record highs.
This situation is unsustainable. The only two end-game scenarios (and they may well be two faces of the same coin) are either to suck back the surplus liquidity once the world economy is adjudged to be "safe" or to attempt (which it seems is covertly happening already) to depreciate a currency enough that the resulting inflation acts as a counterbalance. Timing is everything here - and is it really possible to trust Central Banks or Governments, with a tradition of centuries of acting to late, to get it right. In any case - inflation here we (eventually) come.
Whether one believes that we will all be double-dipped in the brown and smelly stuff or that things are painfully inching back, the time can hardly be more that 2 years away before the punch-bowl is taken away from this party and rates start to rise rapidly. Please note. I make no issue with whatever may befall in the interim.
With the exception of the insane mentality that promotes Gold as an "investment", there are fewer safe havens than Government Bonds and I would even argue that some Corporate Bonds provide more security in that supra-nationals are a spread of risk against sovereign default. Even so, there is really little or no more juice to be sucked from the Orange of yield and my fear is that Mr. Market, with his love of discounting future events, will soon see over the horizon to the gloomily-lit downlands of higher interest rates.
Where does that leave us? Probably the 4%+ yield on major indices (avoiding the risks and rewards of stock-picking - I am talking indices alone here) in equity markets. The fear/greed ratio seems to be so high these days that sell-offs of an illogical nature (or, in the interests of even-handedness, equally silly rallies) and major short-term moves can reasonably be expected. Of course this argument will also be subject to the idea of markets discounting forward events, but historically inflation has been far less destructive of equity than bond markets.
Dum Spiro Spero
Wednesday 29 September 2010
Milibands and even more Balls
I often find myself defending my political views as it seems to be assumed that "City Types" are inherently of the right. My tendency is towards the left (as my tailor will confirm) in many ways and I have voted for a Labour candidate more often than a Conservative one.
I regard my enfranchisement as a rare and precious thing and strive with all my heart and (more importantly) mind to decide after as much and as deep contemplation as I can. I have canvassed for local Lib Dem councillors and have been, in my time, Deputy Chairman of my local Conservative Constituency Party. I regard this with pride as rational and not as vacillation. If circumstances change, so do my opinions - to paraphrase John Maynard Keynes.
As a result of this, I find the current tribal nature of British Labour politics all the more galling. In the aftermath of the style-over-substance reign of the image-obsessed Blair and the horrrific incompetence of Gordon Brown, who inherited from Ken Clarke an economy stronger than any time in the 20th Century, I find it inconceivable that anyone could have voted Labour, other than for a significant number (who exist on all sides) of exceptional constituency MPs. With a few shining exceptions, the present Parliamentary Labour Party is so clearly intellectually, morally and financially bankrupt that I found myself angry at the vox pop television interviews with lumpen morons who were proud to say "We are Labour in this family and have been for generations" Do we now have to worry about voting behaviour as a genetic disease?
Strangely enough, this pattern does not seem to be repeated on the right. Despite the lampoons of the percieved stereotype, the affluent (OK - I hate the phrase but let us call it middle class!) voting block seems much more prepared to move its allegiance according to issues. The anti - Iraq War movement was very much a middle-class one for example.
The recent election of a new leader for "New Labour" only serves to illustrate my worries further, The Miliband brothers are the sons of an infamous Marxist academic and although it might be disingenuous to expect the apples to fall too far from the tree,it seems to have been quietly brushed under the carpet in presenting their public images of late.
One can only hope that by the time the new leader of New Labour is old enough to start shaving he might have the maturity to eschew some of his inherited views. With an election process that so heavily involves the Trade Union movement, I will not hold my breath. I was very amused at this piece from The Daily Mash http://www.thedailymash.co.uk/politics/politics-headlines/miliband-to-organise-anti%11apartheid-disco-201009273118/
I was, not entirely out of malice, rather hoping the clever and articulate Ed Balls would become the new leader - if only for the "Balls" headlines in The Sun.
While all this is going on we have a group of capable people running the country whose internal divisions and debate are public and transparent. Vince Cable is my neighbouring MP and a very clever man, with whose opinions on UK Banking I disagree strongly. He can however, while running counter to the message of the ruling coalition, express those views cogently and to the great credit of the open system adopted by (or possibly forced upon) Downing Street by the realpolitik of coalition. The UK Press clearly have a problem with coalition, however. I wonder if the newsworthy attributes of adversarial tribal politics are a lot easier that doing some real thinking for the journos?
One final question. Am I alone in thinking that the order-paper waving, mooing and "hear-hear"ing pantomime that is parliamentary behaviour is odious and as much as an insult to the electorate as even the expenses scandal? I would like to respect our elected representatives and feel they at least respect each other. Perhaps we need to physically remodel the Commons (for God's sake - the lines on the carpet are to keep MPs a sword's length apart!!!) and censure disruptive behaviour.
Above all, can we try to end tribal voting?
Dum Spiro Spero
I regard my enfranchisement as a rare and precious thing and strive with all my heart and (more importantly) mind to decide after as much and as deep contemplation as I can. I have canvassed for local Lib Dem councillors and have been, in my time, Deputy Chairman of my local Conservative Constituency Party. I regard this with pride as rational and not as vacillation. If circumstances change, so do my opinions - to paraphrase John Maynard Keynes.
As a result of this, I find the current tribal nature of British Labour politics all the more galling. In the aftermath of the style-over-substance reign of the image-obsessed Blair and the horrrific incompetence of Gordon Brown, who inherited from Ken Clarke an economy stronger than any time in the 20th Century, I find it inconceivable that anyone could have voted Labour, other than for a significant number (who exist on all sides) of exceptional constituency MPs. With a few shining exceptions, the present Parliamentary Labour Party is so clearly intellectually, morally and financially bankrupt that I found myself angry at the vox pop television interviews with lumpen morons who were proud to say "We are Labour in this family and have been for generations" Do we now have to worry about voting behaviour as a genetic disease?
Strangely enough, this pattern does not seem to be repeated on the right. Despite the lampoons of the percieved stereotype, the affluent (OK - I hate the phrase but let us call it middle class!) voting block seems much more prepared to move its allegiance according to issues. The anti - Iraq War movement was very much a middle-class one for example.
The recent election of a new leader for "New Labour" only serves to illustrate my worries further, The Miliband brothers are the sons of an infamous Marxist academic and although it might be disingenuous to expect the apples to fall too far from the tree,it seems to have been quietly brushed under the carpet in presenting their public images of late.
One can only hope that by the time the new leader of New Labour is old enough to start shaving he might have the maturity to eschew some of his inherited views. With an election process that so heavily involves the Trade Union movement, I will not hold my breath. I was very amused at this piece from The Daily Mash http://www.thedailymash.co.uk/politics/politics-headlines/miliband-to-organise-anti%11apartheid-disco-201009273118/
I was, not entirely out of malice, rather hoping the clever and articulate Ed Balls would become the new leader - if only for the "Balls" headlines in The Sun.
While all this is going on we have a group of capable people running the country whose internal divisions and debate are public and transparent. Vince Cable is my neighbouring MP and a very clever man, with whose opinions on UK Banking I disagree strongly. He can however, while running counter to the message of the ruling coalition, express those views cogently and to the great credit of the open system adopted by (or possibly forced upon) Downing Street by the realpolitik of coalition. The UK Press clearly have a problem with coalition, however. I wonder if the newsworthy attributes of adversarial tribal politics are a lot easier that doing some real thinking for the journos?
One final question. Am I alone in thinking that the order-paper waving, mooing and "hear-hear"ing pantomime that is parliamentary behaviour is odious and as much as an insult to the electorate as even the expenses scandal? I would like to respect our elected representatives and feel they at least respect each other. Perhaps we need to physically remodel the Commons (for God's sake - the lines on the carpet are to keep MPs a sword's length apart!!!) and censure disruptive behaviour.
Above all, can we try to end tribal voting?
Dum Spiro Spero
Tuesday 21 September 2010
Predictions, Crystal Balls and Total Balls
When I first came into the financial world of "The City" in the 1970's, it seemed in that far off time before personal computers and direct market access that the world was ruled by wise old heads whose wisdom was dispensed in bite-sized aphorisms of such blinding clarity and confidence that all I, a mere rookie, had to do was to look and learn from my betters.
It took me a very short period of time to realise that those same venerable grey heads were the ones that were being quietly ignored by the people doing the real work of poring over accounts and financial statements - and yet the equivalent is still the order of the day in the modern financial world. The main financial news services (and especially the full-time ones like Bloomberg and CNBC) would rather have a good story presented by some excitable doomster telling us the world is about to end or (more rarely except in the case of fringe investments, we all know that Gold is going to $10,000 don't we?) that everything is going to triple by thursday. Entertaining it certainly is, valid comment it might be, but a philosophy on which to base one's investments it most certainly isn't.
My post today is inspired by the number of otherwise credible people who have warned me that October is coming (duh? it is September, isn't that a fairly safe bet?) and that everything is going to crash at 2:36 pm on October 19th. 2010. The reason for this? - because 23 years ago on October 19th 1987 the US market plunged 23% in a few hours. The reason for this comparison is ... err ..... sorry, I will have to pass on that as there is clearly no correlation between markets or conditions then and now. I am also warned of the Hindenberg Omen - a wonderful title for a bad spy thriller perhaps, but in this case a pattern on the charts that presages the end of the world. I could go on ( do I hear some of you say that I always do? ) but I am in equal parts amused and quite angry at the total b*lls that I read as serious predictive research. This includes sunspot cycles, the Mayan Calendar, and numerology. To read simple astrological analysis seems quite sane by comparison.
A problem for many of us is that these dark arts do have a sane (well saner at least ) constituency - that of pattern recognition, usually called Chartism. For any historians among you, I would hate Chartists to be confused with the rabble-rousing mob that tried to overturn the social order in 1848 and who nearly brought the country to the same state of chaos that pervaded Europe during that year. Oh no, I would not want that to happen - the modern chartists are far worse and far more dangerous to your wealth.
Every Christmas a broker sends me a thing called the Stock Market Almanack (actually I think it is spelt almanac, but I do think my spelling brings out the occult aspect rather better). It looks at patterns and trends and quite clearly there are some that have validity at times, the famous and most reliable being "Sell in May and go away, don't come back 'til St. Legers day". Unfortunately however, this is far from clear in meaning The Saint's day is in March, the St. Leger race is run in early September. Even more annoyingly, although there is a statistically clear trend (assuming we are talking about the race day in September), the number of years on which this does not happen are so violently counter-trend that there is a significant risk of losing much more than could be made.
In case anything else I say is falling on deaf ears, let me state very clearly that in all my years of experience I HAVE NEVER MET A CHARTIST THAT HAS MADE MONEY - NEVER, NEVER. NEVER. Clear enough? I could go for King Lear's five consecutive "never"s - but even I can sometimes exercise restraint.
Predicting financial markets is a fascinating and frustrating business. There have been many gurus over the years and the only ones that ever seem to be consistent are those that follow money flows and look for value. Research the facts and the fundamentals. Simples!!
Do I hear (I ought to) some say that I should put my money where my mouth is and that it is easy to be negative about others without offering something better. If so, here goes...
My view is that current financial thinking among major economies is to prevent a double dip at all costs. The weapon of choice - a second round of quantitative easing or QE2 - is less effective now that the first shot has been fired, but it will be used even if less profligately that the first round. The objective of major western economies moving forward a little either side of 1.5% GDP growth is all that is required for at least 3-5 years. (I ignore the BRIC economies in this argument). This will mean interest rates staying artificially low for that period and devastating the yield still further on government and corporate bonds. Such stimulus will feather-bed some industries and the current yield of around 4% on equities will, in my opinion , ensure a reasonably firm equity market during this period - there is almost nowhere else to go! At the end of this period there is a clear inflation risk, but one we can address when it arises.
I doubt it will be an easy ride - the worries of the last few years have built a spookiness into the market that is quite remarkable. A few bad figures can spark of falls of 10% or more, but I see these as great buying opportunities. Markets are generally driven by changes in perception and it would be hard to ignore the negative perceptions abounding in some quarters. The bad news is, again in my opinion, overly discounted.
In any case, the Moon is in the 7th. house and the entrails of a freshly disembowelled goat clearly show that when Neptune aligns with a 200 day moving average of the sunspot activity, then the 5th Elliot Wave will likely be shown clearly through the Tarot.
Or am I just talking through Uranus?
Dum Spiro Spero
It took me a very short period of time to realise that those same venerable grey heads were the ones that were being quietly ignored by the people doing the real work of poring over accounts and financial statements - and yet the equivalent is still the order of the day in the modern financial world. The main financial news services (and especially the full-time ones like Bloomberg and CNBC) would rather have a good story presented by some excitable doomster telling us the world is about to end or (more rarely except in the case of fringe investments, we all know that Gold is going to $10,000 don't we?) that everything is going to triple by thursday. Entertaining it certainly is, valid comment it might be, but a philosophy on which to base one's investments it most certainly isn't.
My post today is inspired by the number of otherwise credible people who have warned me that October is coming (duh? it is September, isn't that a fairly safe bet?) and that everything is going to crash at 2:36 pm on October 19th. 2010. The reason for this? - because 23 years ago on October 19th 1987 the US market plunged 23% in a few hours. The reason for this comparison is ... err ..... sorry, I will have to pass on that as there is clearly no correlation between markets or conditions then and now. I am also warned of the Hindenberg Omen - a wonderful title for a bad spy thriller perhaps, but in this case a pattern on the charts that presages the end of the world. I could go on ( do I hear some of you say that I always do? ) but I am in equal parts amused and quite angry at the total b*lls that I read as serious predictive research. This includes sunspot cycles, the Mayan Calendar, and numerology. To read simple astrological analysis seems quite sane by comparison.
A problem for many of us is that these dark arts do have a sane (well saner at least ) constituency - that of pattern recognition, usually called Chartism. For any historians among you, I would hate Chartists to be confused with the rabble-rousing mob that tried to overturn the social order in 1848 and who nearly brought the country to the same state of chaos that pervaded Europe during that year. Oh no, I would not want that to happen - the modern chartists are far worse and far more dangerous to your wealth.
Every Christmas a broker sends me a thing called the Stock Market Almanack (actually I think it is spelt almanac, but I do think my spelling brings out the occult aspect rather better). It looks at patterns and trends and quite clearly there are some that have validity at times, the famous and most reliable being "Sell in May and go away, don't come back 'til St. Legers day". Unfortunately however, this is far from clear in meaning The Saint's day is in March, the St. Leger race is run in early September. Even more annoyingly, although there is a statistically clear trend (assuming we are talking about the race day in September), the number of years on which this does not happen are so violently counter-trend that there is a significant risk of losing much more than could be made.
In case anything else I say is falling on deaf ears, let me state very clearly that in all my years of experience I HAVE NEVER MET A CHARTIST THAT HAS MADE MONEY - NEVER, NEVER. NEVER. Clear enough? I could go for King Lear's five consecutive "never"s - but even I can sometimes exercise restraint.
Predicting financial markets is a fascinating and frustrating business. There have been many gurus over the years and the only ones that ever seem to be consistent are those that follow money flows and look for value. Research the facts and the fundamentals. Simples!!
Do I hear (I ought to) some say that I should put my money where my mouth is and that it is easy to be negative about others without offering something better. If so, here goes...
My view is that current financial thinking among major economies is to prevent a double dip at all costs. The weapon of choice - a second round of quantitative easing or QE2 - is less effective now that the first shot has been fired, but it will be used even if less profligately that the first round. The objective of major western economies moving forward a little either side of 1.5% GDP growth is all that is required for at least 3-5 years. (I ignore the BRIC economies in this argument). This will mean interest rates staying artificially low for that period and devastating the yield still further on government and corporate bonds. Such stimulus will feather-bed some industries and the current yield of around 4% on equities will, in my opinion , ensure a reasonably firm equity market during this period - there is almost nowhere else to go! At the end of this period there is a clear inflation risk, but one we can address when it arises.
I doubt it will be an easy ride - the worries of the last few years have built a spookiness into the market that is quite remarkable. A few bad figures can spark of falls of 10% or more, but I see these as great buying opportunities. Markets are generally driven by changes in perception and it would be hard to ignore the negative perceptions abounding in some quarters. The bad news is, again in my opinion, overly discounted.
In any case, the Moon is in the 7th. house and the entrails of a freshly disembowelled goat clearly show that when Neptune aligns with a 200 day moving average of the sunspot activity, then the 5th Elliot Wave will likely be shown clearly through the Tarot.
Or am I just talking through Uranus?
Dum Spiro Spero
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