Tuesday, April 26, 2011

Andrew Marr comes clean

About time. I touched on this in 2008 and discussed his inconsistency in 2009. Yes, our interest is prurient - "we know-what-you've-been dooo-ing" - but he suddenly refused to be paid in his own coin. Now he should be in a stronger position to deal with oblique threats from deranged Campbell types.

Why didn't Ian Hislop blow the gaffe before? For all his moral judginess, Hislop was reportedly chosen as a safe pair of hands by those who had got to the age where they needed Private Eye to be their pension fund. In his heyday, Ingrams would have gone for the story and blow the consequences. By the way, how many people were interviewed for the PE editorship when Ingrams stood down? Can't wait for an in-depth on that story.

Still, prudence is the better part of valour. The former editor of Spiked magazine met with a fatal accident in Cyprus shortly after an edition of his publication that included explosive allegations about a then Tory cabinet minister's private activities in a North African hotel.

Mind how you go.

Banks still under pressure?

The banks are supposed to get lending again, and simultaneously rebuild their cash reserves. But Bank of England statistics show that reserves are actually falling, instead.

Figures for last month show that year-on-year, notes and coins in circulation increased by nearly 4%, but reserves held in bank accounts dropped by over 11%.

I reproduce the BoE's table below (interesting that they present it in a bashful pale grey on white - the visual equivalent of the civil servant's polite, embarrassed cough?) - click to enlarge.

INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Monday, April 25, 2011

In a nutshell

You can get a headache thinking about inflation and deflation - but either way you stand to end up broke. Either you'll be rolling in worthless money or you won't have any money.

James Kunstler

New site launch: Orphans of Liberty

A new site is starting today, run by a (mostly) right of centre blogging collective. Give it a go: Orphans of Liberty.

Sunday, April 24, 2011

Will the government really help us against inflation?

Inflation-proof, government-backed savings will soon be back on sale - or will they?

On 19 July 2010, National Savings & Investments (NS&I) abruptly withdrew Index-Linked Savings Certificates from general offer to the public - for the first time ever. These plans were launched in 1975 and were originally available only to pensioners, at a time of high inflation (24.2% for that year).

Yet last July, inflation was only running at 3.1%, so why stop the offer at that time? The Bank of England base rate was at an historic low of 0.5%, therefore inflation was comparatively 6 times higher; but the difference in numerical terms was only 2.6%. In 1975, the BoE rate varied from 9.75% to 12%, with RPI running at more than double that and the rate difference was over 12%.

One reason for the NS&I hiatus will have been the emergency general review of Government borrowing requirements following the General Election. But another may be the kitten-weak condition of the banks, which are trying to fulfil two contrary directives, namely, to lend money again and also to rebuild their cash reserves. Perhaps they are to be spared too much competition. The anticipated rush for NS&I index-linked plans is such that they have set up an email alert system. When offered, the new certificates could sell embarrassingly fast and draw the public's attention to the Government's suspected inability to address worries about growing inflationary pressures.

But how much, exactly, are they going to offer, and when? Like many others, I misunderstood the Press (e.g. the Guardian) as saying that £2 billion would be on sale; but NS&I's release (23.03.2011) merely states that the target for the total funds they manage, spread over all their products, is an increase of £2 billion, which will "allow NS&I to plan the re-introduction of Index-linked Savings Certificates for general sale in due course. Subject to market conditions, NS&I expects to be bringing Savings Certificates back on general sale in 2011/12."

"... in due course", "... subject to market conditions"; one could hardly call that a blast on the post-horn.

Going back to the Government's own Budget plan as stated in the "Red Book" (Annex B, page 90), the guidance is merely that "National Savings and Investments (NS&I) is expected to make a contribution to net finance of £2 billion", without even a hint that any of this must be from inflation-linked plans.

By contrast, the same page sets a target of £38.4 billion of index-linked gilts. That sounds interesting, except most if not all of that may be taken up by institutions such as occupational pension funds in order to underpin their guarantees to retired members.

What about general savers? Few commercial outfits, if any, can offer guaranteed inflation-proofing and anything like 100% security, let alone exemption from income tax and CGT. This recent article from the Daily Mail details some options, but they are either taxable or risky.

So in some ways, even though inflation is still far from what it was in the mid-1970s, we may be worse off today. Theft by devaluation may have become official, if unstated policy.

INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Friday, April 22, 2011

Things I don't know about Libya

Who is the legitimate ruler, or what is the legitimate government, of Libya? Is is Gaddafi, or Zaid Hamid, or who?

Is there a legitimate government at all? If so, why has 40% of its ground forces been destroyed? If not, why has the situation not been resolved in 40 years?

How do we decide who should rule? Does any outsider have the right to decide?

Who(m) are we "helping"? In what way are they "better"? What will they do if they win?

At what point does the destruction of the "government's" forces constitute an attempt at "regime change"? Is this legitimate, or not (there seems to have been considerable wobbling about this in HM Government recently)?

Is this whole thing like Italy's (Mussolini's) campaign in Ethiopia in the 1930s?

Should the UK have declared war on Mussolini as soon as we perceived that he was a ruthless dictator?

What happens if we stop now?

What happens if we don't stop?

How do other African and Arab nations view our actions?

Is this going to imperil us at home?

How did these Arab rebellions really start? Did Western secret services have anything to do with it?

When will we get some in-depth, non-partisan discussion on the mainstream media about these issues?

When will I get my State Pension?

What with women's State Pension Age rising from 60 to 65 in stages, and proposed further deferments for both sexes, you may be confused about when you're actually going to get your State Pension.

Click here for the calculator from the Pensions Advisory Service and find the answer! They work in conjunction with the DWP so it should be right.

Please note that legislative changes may change the answer so check again when you hear further news on this topic.

I have also placed this link in the right-hand sidebar under "Other helpful sites".

INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

US credit wobbles; hold cash not bonds

The fuss about S&P's "AAA with negative outlook" for US credit is remarkable mainly for being so far behind the curve.

The Beijing-based Dagong credit rating company gave America a significantly lower "AA" with negative outlook, back in July 2010 (and the UK was one level worse than that). Remember that China is a business partner and needs a clear view of how commercial operations are proceeding; this is not about Oriental mischief-making.

On the other hand, the talk of US Treasury default is wild, and I quite understand how it makes pensions expert Leo Kolivakis decidedly impatient; after all, that "negative outlook" comment is screwed to the side of a continuing AAA rating. But I do rather doubt that current US bonds will be honored in the sense of preserving and slightly increasing your wealth.

Charles Hugh Smith's thesis, on which I commented a few days ago, is that the American plutocracy will consolidate its gains by forcing a bond strike; personally, I think it's unnecessary to postulate a conspiracy in order to agree with him about the consequences. With interest rates at an historic low in the Anglo-American sphere, there's really only one direction in which they can change. Why would you buy now? And more importantly, why would you hold, when a rate rise could savage the tradable value of your holding?

Those who need to keep exports flowing, such as China, may be prepared to pay the price of maintaining the status quo, making on profits what they're losing on bonds, but as I said in February ("Global Credit Warfare"), the language over there is getting rather anxious and aggressive. Dagong's report bluntly states that America is exporting inflation worldwide.

Having said that, inflation in prices is very uneven and unfair. Proportionally to income, the rising costs of food and energy are hitting the poorest worst: I can cut back on brandy and weekend leisure trips, but how does the underclass cut back on hamburger helper? And with a large wad of ready cash, the better-off are in a position to snap up residential property cheaply, and bargain hard for luxuries such as cars, computers and other shiny gewgaws. I should think this is a great time to go to bankruptcy auctions, especially since the taxman isn't much bothered about setting a reserve. So in many ways, inflation hasn't yet really reached the rich.

But invulnerability is an illusion. When the remains of Mayan civilization were discovered, no wealthy Mayans were found sipping mai tais among the half-finished stone carvings.

We're all in this together, and because it's global now, we're mutually involved in a way that hasn't happened before. As Adam Fergusson relates in his chilling book(recently reissued) "When Money Dies", during the 1923 Weimar hyperinflation and the period leading up to it, German export business did very well, so well that the jealous and punitively-minded French wondered who'd won the war. Speculators also prospered, until the currency was reorganised, at which point they "took off for Paris and went to work on the franc, their departure the first signal that stabilisation was a fact." For a long time, reports Fergusson, visitors to Germany would see apparent national prosperity, simply because the cafes and restaurants were full of the winners; they didn't see the middle class exchanging their pianos for a side of ham.

But now, with an increasingly integrated international economy, it's getting more difficult to evade the problems simply by moving to another country. Tensions are rising, and not just in the Arab street.Western governments are deferring the day of reckoning, consuming their own debt like the serpent Ouroboros but without the element of timelessness. The present state of affairs cannot continue indefinitely, as Karl Denninger has been saying since 2007.

What are the possible outcomes?

Outright default? Don't hold bonds.Bond strike, interest rate rise, savage economic retrenchment? Don't hold bonds.Total collapse of the currency? Don't hold bond. High inflation? Don't hold bonds.

The least nuclear of all the options is the last, so unless we have a collective death wish that seems the most likely. Jesse thinks the dollar won't go to zero, but have a few zeroes knocked off it, like the French franc in 1960 (not that that stopped the decline): "I think the reissue of the dollar with a few zeros gone is inevitable. It is the timing of that event that is problematic. It could be one year, or it could be fifty years. There is a big difference there for your investment strategy." Reminds me of the scene in an old Cheech and Chong movie where they offer a peasant dollars and he spits on the money, saying you haven't got Mexican? Except this time he'll want a chicken or a silver necklace, instead, because inflation now respects no national boundaries.

Whether the debt-accelerated system manages to slam on the brakes without hospitalizing the vehicle's occupants, or hits a tree (everyone got airbags?), or simply grinds to a rutted halt in a cornfield, buying into the bond market now without some ulterior motive looks like wanton self-sacrifice.

Don't take it from me; take it from Bill Gross, who "sees no value in U.S. government bonds at current interest rates" and has dumped them altogether.

Meanwhile, let's start a national debate about social cohesion. That or wait for the jungle to recolonise the abandoned temples.

INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Tuesday, April 19, 2011

US university invests heavily in gold

The University of Texas has doubled its holdings of gold in 2010, bringing the total to nearly $1 billion, according to Bloomberg.

INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Monday, April 18, 2011

Hold cash now, buy bonds when interest rates rise?

On Friday, Charles Hugh Smith posted a theory that I can accept as at least plausible: America's rich will consolidate their long-term gains by engineering a bond crisis - a refusal by the Federal Reserve to keep financing government spending.

This will make interest rates soar (collapsing the tradable values of bonds and, I'd have thought, equities); new bond issues will have to offer much higher income; the rich move in with their huge reserves of cash; then comes the demand for serious economic retrenchment; interest rates fall; because of their locked-in high yields, the capital value of new bonds shoots up; hey presto, another killing for the millionaires.

If that's so, the strategy will be to copy the rich (if you have the resources) - hold cash patiently and pile into the bond market when interest rates peak.

Other implications that occur to me: don't owe any more money than you have to, don't overinvest in residential or commercial property, don't be in a business that depends on people's discretionary spending. Reconsider your balance of shares, bonds and cash. It may even be worth thinking about moving somewhere with historically lower crime rates.

What about "inflation-protected" investments, such as NS&I Index-Linked Savings Certificates (due to become available again soon)? Smith observes: "Holders of TIPS [Treasury Inflation-Protected Securities, in the USA] will do OK, unless the government fraudulently sets the rate of inflation well below reality. Hmm, isn't that exactly what's it's already doing?" But presumably there's a limit to how much the government can misrepresent inflation; and besides, Smith's thesis is that we are headed for deflation because inflation robs the rich.

He could be wrong; but if he's right, the word passed down the ranks of cash holders is "Stand fast!"

INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Wednesday, April 13, 2011

Exhausted by outrage

Read this article in Rolling Stone (hat-tip to Robert Wenzel), about how the Federal Reserve gave money to America's foreign competitors, billionaires in tax havens and even the business-inexperienced wives of Wall Street dealers.

Then if you can stand it, read Matt Taibbi's article about how nobody important on Wall Street is going to get prosecuted for the misdeeds that blew up the Global Financial Crisis.

This can't be happening.

Tuesday, April 12, 2011

April News

1. National Savings & Investments has not yet reintroduced Index-Linked Savings Certificates, but watch out for their return as reportedly they have a target (limit) of £2 billion in new issues. I think they will go very fast, bearing in mind continuing concerns about inflation. You can register with NS&I here to receive email updates and be among the first to get in.

2. As we are in a new tax year, you have a fresh ISA allowance. The overall limit per person is £10,680 of which up to £5,340 can be in a cash ISA; any excess must go into a stocks and shares ISA, which can be with the same or a different provider.

3. Investing for children: as you will know, the Child Trust Fund was launched in 2005 and vouchers backdated to include children born after 1 September 2002 - and now the scheme has been shelved. However, plans that have started can continue and contributions can still be made. This autumn (1st November) we expect the introduction of an alternative for under-18s, the Junior ISA. According to the Daily Mail, the allowance will be £3,000 per child and unlike adults ISAs it will be possible to switch from cash to stocks and shares and back again. It's also worth noting that this allowance also applies to children born before 1 September 2002 (who were not eligible for the Child Trust Fund). Please also see this article by Gaynor Pengelly on other options for children's investments.

4. For various reasons, my personal attitude to risk re stocks and shares is still cautious, except possibly for commodities - but even in that sector there are issues of big-boy speculation and market manipulation. If you invest now, I'd suggest you be prepared to take a long-term view. Do please contact me if you'd like a personal discussion of your own portfolio and future plans.

5. Contracting out of SERPS/S2P: from 2012, it will no longer be possible to contract-out through a personal pension, stakeholder or money purchase pension scheme. This is because the Government plans to introduce a more generous flat-rate State Pension for all, from 2015 or 2016. I warmly welcome this, because up to now we've had a terribly complicated scheme of giving with one hand and taking away with the other - Pension Credit, Pension Savings Credit etc. The bizarre result was something like an effective 40% tax rate if you had a small State pension and had a little extra income from savings - Higher Rate Tax for poor people! Here's an intriguing angle: We've yet to get full details, but a possible effect of this change of policy could be that if you are currently contracted-out (or have previously done so) and are due to reach State Pension Age after the new scheme starts, you may get the full new State Pension PLUS extra income from the contracted-out pension, whereas someone who had stayed in SERPS/S2P throughout would get nothing more. Maybe the Government will do something about it (surely their civil servants will have spotted it) - but let's keep our fingers crossed and hope they'll think it's too complicated to adjust now.

INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities. DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Alternative Vote and the Apathy Party

If AV is a controversial step, what about tackling non-participation? The last four UK General Elections have also been the lowest in terms of turnout since World War II, according to this site:

Statistically, there appears to be only a slight negative correlation between the size of turnout and the size of the winner's majority, as witness the 2010 results:

... but the British system is full of idiosyncrasies. A constituency in the Western Isles, or Northern Ireland, or one of the industrial blightlands, is not going to have the same characteristics as one in Hampshire, Slough or Greater London. And apathy can be confused with despair: in a rock-solid safe seat, those who would vote against the incumbent if they had a chance of unseating him/her, may simply not bother to vote at all.

Why not insist that everone must vote - perhaps adding the option "none of the above" to the ballot form?

Australia has a system of compulsory and enforced participation in General Elections, and so does Singapore; among European countries where it is compulsory but not strictly enforced, are Belgium and (for Senate elections) France.

South America (which I think will have a very interesting and possibly bright history over the next century) has many countries where voters must take part. Using the information here, I give below a map of them:

Let's start with AV, and if that doesn't winkle the people out of their sofas, let's go where so many other countries have led the way. Who knows, we may one day have a democracy.

Monday, April 11, 2011

Voting reform: AV = First Past The Post

The above video is no longer available on Youtube but can be watched on the BBC's website here:


This evening I saw the political broadcast for the "No" vote and I think I've rarely seen anything so untrue and misleading.

First we got candidate Alan B'Stard promising everything to get in, then forming a coalition and welching on all the manifesto promises. Ans: No, that is what we got under the present system.

Then we saw a horse race where the third placed was declared the winner. Ans: No, under AV the victor IS ALWAYS the first one past the post, the "winning post" being 50% of all ballots cast, if necessary by taking into account second and third (etc.) preferences.

As opposed to the present system, where the last Labour government got a clear majority of 66 seats on the basis of a minority of the votes. In the 2005 General Election, out of 650 MPs, only 220 won 50% or more of the votes cast in their own constituency (see "Election results for Using and Applying statistics" here.) In over 66% of Parliamentary constituencies, all the horses failed to finish!

Working the figures the same way for the 2010 General Election, only 217 out of 650 MPs jockeyed their way past the post. That's almost exactly the same situation as in 2005; we have a coalition government only because of disillusioned and mistrustful voters switching between parties - using the current voting system.

In 2005, Labour got 35.7% (the largest proportion) of the total national vote; in 2010, the Conservatives got 36.5% (the largest proportion) of the total national vote. The mess we have is, I repeat, under the current voting system and is a result of political breakdown, not (directly) owing to a glitch in the psephological mechanism.

Some might say, why change the system, then?

I'd answer, the breakdown of the relationship between the representatives and the people is (to a significant degree) attributable to an unrepresentative system of voting, one which encourages a party political divide because MPs in "safe" seats needn't bother listening. For 20 years I had no member of any of the major political parties even ask for my vote, because however I voted, I was going to get the Labour stooge. When the constituency boundaries were altered for 2010, suddenly I had both Labour and LibDem candidates on my doorstep.

Needn't bother listening? Needn't bother working, either, in many cases: how is it possible for "hard-working" MPs to write novels, handle handfuls of directorships etc, if not for the cosy calculus of "pairing" and the lazy delegation of most of the constituency work to constituency workers? I am reminded of the eighteenth century Caribbean plantation owners who lived in London and left all the responsibility to their estate managers and overseers.

Oh, and all that guff we're hearing about how very complex AV is? Bollards. Fifty years ago, housewives were completing similar questionnaires in newspaper ads, to win washing machines - "Put these advantages in order of personal preference: price, speed, capacity..."

No-one can foresee exactly how voting will change when all votes count, or at least half of them, anyway. The LibDems needn't assume that it will benefit them most, for if it does, the other parties will adopt a raft of me-too policies. No bad thing, perhaps, to make politicians work for a consensus.

And maybe, just maybe, we'd start to examine the candidates more carefully, rather than simply glance at their rosettes. No wonder there's such resistance to change from the spoiled heirs of the present arrangement. Just who IS funding the "No" propaganda?

Ah, but without (so-called) first-past-the-post we wouldn't have had Thatcher, say the Conservatives. Well, I think a general retrospective reassessment of her achievements is in order, seeing as how we've nearly killed our industrial base and allowed the financial sector to come out in a massive, choking algal bloom. But while we're reviewing her with the crystal hindsight of history, we can look again at the miserable record of the Socialist governments, too. The vaunted advantage of a government enabled to take bold action on the back of a Parliamentary majority founded on a minority of votes, is not such a strong argument, in my view. *

And why should all be decided on red and green benches in the best clubs in London, anyway? We're long past the time when it took days to ride a horse to the capital and every provincial church told its own time; modern communications call into question the antiquated system of remote, unresponsive, not infrequently rather arrogant and sometimes downright corrupt representation.

When it really matters, the people can and will declare a clear opinion, even against the advice and guidance of their leaders, as witness Iceland's referendum on the bailout of the banks. More referendums, say I - provided the arguments to inform them aren't as lying and twisted as what I saw tonight.

*Update (November 28, 2017): Only twice since 1918 has any party garnered more than 50% of votes cast nationally in General Elections - the Conservatives both times, in 1931 and 1935 - see page 12 of "UK Election Statistics: 1918 - 2017" (pdf) on the House of Commons website here:


Saturday, April 09, 2011

In the paper shop

The newsagent was reaching under the shelves with a litter picker, searching for plastic ties and brown paper from the morning's news bundles.

In came the old man who has spent £30,000 on National Lottery tickets since it started.

"You'd better not bend like that in front of me, or you'll get the Golden Rivet. Are you looking for your wallet?"

"A penny."

"A friend of mine once bent down for a penny, and broke his neck. Never bend down for anything less than fifty pee."

Sunday, April 03, 2011

Bill Whittle vs Michael Moore

You don't have to be a right-wing commentator like Bill Whittle to think Michael Moore is a crowd-manipulating phony. But I think Mr Whittle may have proved more - and less - than he intended.

It's clear from what he tells us that seizing the entire income and assets of "the rich" would cover the USA's expenses for only a year. Of itself, this does not exonerate those who benefitted hugely from skewing the economy. What he has shown is that the damage done to Humpty Dumpty is greater than all the king's horses and all the king's men can easily undo.

Eating the rich is revolutionary talk à la française and like Robespierre, Michael Moore might find he'd started a revolution that ate its own children. Reasserting the rule of law is another matter, and it would be part of the corrective process of justice to fine, jail or defenestrate from public office those who had the mens rea in this morass of criminal incompetence and wickedness. This is something for which Karl Denninger himself has often called. Right does not belong to the right, any more than to the left.

What a shame that Mr Whittle has forbidden all responses to his video. I suppose he would consider what I say to be merely part of his "predicted sewer backwash on the intertubes".

Saturday, April 02, 2011

Behind the truth: Pastor Terry Jones and the Koran-burning

It could all be a terrible mistake. Pastor Jones may have thought he was burning his financial records:

"At first, Terry and Sylvia Jones split time between the Cologne and Gainesville churches. Then in 2008 they cut ties with the Cologne church after members accused the couple of financial improprieties connected with their side business, TS and Company, which is owned by Terry and Sylvia Jones. TS and Company sells vintage furniture on eBay and was supposed to help support the churches."