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
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Tuesday 30 November 2010
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
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