Italy (sort of) taxes high frequency trading

http://www.capitalbay.com/latest-news/297010-new-principal-suspended-2-days-after-showing-students-scary-terminator-spoof-video-he-made-to-introduce-himself-to-school.html

Italy has today put into effect a tax on high frequency trading (HFT). Aside from raising some desperately-needed revenue, it may help make the financial markets a little less unstable. For as firms develop ever faster computer-based share trading systems, we risk something like the financial version of a "Terminator"-style Skynet catastrophe - except that the machines are merely following the rules shoved into them. "Garbage in, garbage out", as a college friend repeatedly told me 40 years ago. It can certainly be terminal for some:

"In 2003, a US trading firm became insolvent in 16 seconds when an employee inadvertently turned an algorithm [automatic trading program] on. It took the company 47 minutes to realise it had gone bust," said Andrew Haldane of the Bank of England in a speech given in Beijing two years ago (pdf). He also noted that for a brief moment during the "Flash Crash" of 6 May 2010, "Accenture shares traded at 1 cent, and Sotheby’s at $99,999.99. [...] The Flash Crash was a near miss. It taught us something important, if uncomfortable, about our state of knowledge of modern financial markets. Not just that it was imperfect, but that these imperfections may magnify, sending systemic shockwaves. [...] Flash Crashes, like car crashes, may be more severe the greater the velocity."

Zero Hedge had been advocating a "Tobin Tax" on HFT before the Flash Crash happened (Keynes had mooted the same in 1936!) to put what Haldane calls "grit in the wheels." A few months after the crash, financial expert Martin Hutchinson also called for it, and he repeated the call a year later, with a proposed refinement that would see one rate for shares, a smaller one for bonds and a higher one on derivatives.

Mike "Mish" Shedlock, writing in January, disliked the idea altogether, citing the experience of Sweden and claiming that such a tax would merely drive trade away from exchanges where it was introduced. But that may not be so simple: big trading firms pay big money to site their own computers right next to the exchange (it's known as "co-location") and given the incredible speed of cyber-trading, this huddling up confers a microtime gunslinger's advantage that may make the tax worth paying - after all, the co-location rent is a tax they're already more than happy to fork out.

"Mish" also objects that the tax will reduce liquidity and make the market more volatile - but Hutchinson counters: "In periods of turbulence, the liquidity that HFT supplies is quickly withdrawn, as the institutions operating the trading systems shut them off for fear of large and destabilizing losses. Indeed, liquidity that switches off when it is most needed is of no use at all. To the contrary, it destabilizes the market rather than stabilizing it." He adds that HFT is all about trading on unfair terms anyway; it "should qualify as inside information, and thus be illegal."

According to the FT today, Italy has plumped for a mixture of charges focusing on HFT and "side bet" derivatives - but exempting transactions by certain kinds of intermediaries. Tyler Durden at Zero Hedge notes that this is a horse-and-cart-sized hole in the rules and traders will scramble to redefine themselves. But according to Hutchinson, "a Tobin tax could severely hamper [the] trading revenue" of some major banks (Goldman Sachs, Citigroup, Morgan Stanley) as "these banks already are in bad shape"; so the market-maker exemption may not be about favoritism.

All original material is copyright of its author. Fair use permitted. Contact via comment. 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; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Shale: Another Nail in Osborne's Coffin

Balcombe Blame Rests Here

Or rather, the coffin of his reputation as a strategist.

Oh yes, it's been dead awhile, stone dead.  But by my reckoning, his screw-up on shale is almost up there with the fatal boundary-change abortion.

In both cases, Master George the master-strategist seems to have identified clearly enough the paramount significance of a particular issue.  But instead of following through, of giving it the undivided attention and planning and execution it merits (being An Issue Of Paramount Significance, yeah ?), he farts in its general direction and assumes that plaudits are in order for his spotting, and farting at, the obvious.  But a real strategist understands that strategic insight is empty without genuine, unremitting, practical application to the task of figuring out everything that follows, in grinding, boring detail - and actual implementation of the needful.  Whatever it takes.  With no loose ends.  Because, hey, it's of Paramount Significance.

We know how the boundary changes ended: so what happened with shale ?  When the initial Cuadrilla discovery was announced, we wrote here: This Is The Big One.   Others (e.g. Mr Worstall) followed our lead, and soon it was recognised by all and sundry. See, George, it is really obvious (& let me quickly add that C@W was by no means alone in trumpeting the matter).  George duly cottoned on too and started running his own energy policy - hatching tax breaks (unnecessary) and a streamlined permitting regime (stupid, at least in the way it's been done), with a bit of gratuitous green-baiting (Juvenile George's stock-in-trade).

But what else obviously follows from the obvious significance of shale ?  Why yes: every Green and Red and general unwashed malcontent and transgressionist across Europe would realise that shale gas (if actually found here) could be the death-knell of their various stone-age / statist dreams.  Accordingly, they would be out in force to try to prevent drilling, with a lot more chance of drawing the crowds than (say) the rather recondite NoDashForGas sit-in at West Burton.  Oh yes, this too was entirely obvious - we predicted it here last year - and is a major vulnerability of the whole UK shale gas prospect.

With the Battle of Balcombe rumbling on, there is no need to rehearse just how far short of a strategy we are: and I unhesitatingly blame Osborne.  There is nothing good to be had from going abut the job clumsily and pissing off conservative Middle England in the process.

Is all lost ?  Well, if this were Germany we'd be in really big trouble, because their greens (and the old superannuated Atomkraft-Nein-Danke brigade, now in well-heeled retirement with time on their hands and misty recollections of their glory-days to perpetuate) have serious stamina, as witness the very long-running Battle of Stuttgart Station.

But our homegrown greens are a little less committed.  I maintain that the UK shale programme is vulnerable to the antis, but there is certainly an optimistic scenario.  Those with long memories will recall the massive pro-coal-mining demonstrations in the early 1990's, when Michael Heseltine (sic) was at the DTI and allowing large-scale pit closures to take place.  A short moratorium, a general return to the sofa to watch whatever was the compelling soap of the day; and after a couple of months all was forgotten and the pits closed as planned.  Likewise in the first year of the NuLab government, some more pit closures were announced: cue massive popular hostility to the Dash For Gas (yes, even then - and that was technically the second D-F-G; the current one is the third).  And what did young Peter Mandelson do then ? (yep, he was at the DTI in 1997).  Why - another moratorium ! - this time on new gas-fired power plant permits.  And after the usual short interval ... well, you know the rest.

So there's at least a chance the great unwashed just pack up and go home**.  Therefore, if there is a decent strategist somewhere in Whitehall (and I very much think there is) there is at least the possibility of getting this show back on the road.  There is, after all, no great rush.

If a real strategist takes charge, there is one final optimistic precedent worth noting.  In the first Thatcher government a truly strategic attack on the NUM was being hatched under a properly thought-out, comprehensive plan (which embraced such details as building coal stocks to unprecedented levels, uprating Felixstowe for coal imports, building the A14 to get them to the Midlands by road, and installing an infrastructure for coordinating the Police nationally.  See, George, that's what a real strategy looks like.)  In 1981, before all this was complete the NUM went on strike for a pay rise.  So Thatcher ordered a tactical retreat - looked like a horrible climb-down at the time - reculer pour mieux sauter, until things were good and ready.  Well, you know the rest.

So all is not lost.  But Osborne ... his failings are inexcusable.  Is there really not a better candidate for Chancellor on the coalition benches ?  That's another job where strategy is at a premium, n'est-ce pas ?


** having a few spare hours last week, I monitored the tweeting on events at Balcombe.  Somewhat to my surprise, having been at frenetic and very high-volume levels all week, it fell off dramatically after lunchtime on Friday.  Does this mean all these tossers are tweeting from work ? Watching the cricket ?  


This post first appeared on the Capitalists@Work blog


All original material is copyright of its author. Fair use permitted. Contact via comment. 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; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

A question for Ayn Rand followers

What is the point of "rational self-interest"? Everything you do for yourself is lost when you die.

Perhaps it's an observation rather than a precept.

But it needs unpacking - what's the self? What are the drives that count as "happiness"? Are you exercising your freedom by obeying your impulses?

Reminds me of what little I understand of Sartre. Having proved to his satisfaction that man is a futile passion, he then tries to build on the void - you should be brave, honest. Why? When you're gone, you won't be able to applaud yourself or stick any trophies on your ethereal shelf.

The "selfish gene", that I can understand. But that implies that the organism lives for the next generation and for others that share its genes, not itself alone.

We share about half our genes with bananas, I'm told.

All original material is copyright of its author. Fair use permitted. Contact via comment. 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; or for unintentional error and inaccuracy.

Haunting

http://xkcd.com/1259/

All original material is copyright of its author. Fair use permitted. Contact via comment. 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; or for unintentional error and inaccuracy.

Delingpole in love

https://www.youtube.com/watch?v=1ooKsv_SX4Y

Professional contrarian James Delingpole has taken a look into the mad, staring eyes of Ayn Rand and fallen head over heels:

I’m now half way through Atlas Shrugged and I’m loving almost every moment. But Ayn Rand isn’t someone you read for pleasure, I’m beginning to realise. She’s someone you read so you can underline sentences and scrawl in the margins ‘Yes’, ‘God that is so TRUE!’ and ‘YES!!!’

It's a coup de foudre: as he admits, he's only halfway through the book. The intemperate marginalia suggest a loss of balance.

Discounting for a moment the possibility that he's gushing annoyingly because it might increase his chances of another booking for Any Questions?, I have to wonder why it's necessary to counter one extreme with another. Is the only answer to Communism, Objectivism? If all that matters is opposites, would Mein Kampf do just as well? After all, Rand appears to have been very taken with the triumph of the superior person's will.

I recall a Conservative election advert - was it as early as 1979, or would it have been in the Eighties? - where the voter's choice was represented as being either Tory or Labour, and nothing in between: the Liberals were symbolised by a contemptible little boneshaker of a car rattling down the centre line and meeting a noisy end round the corner, with only a hubcap rolling back into view. On the other hand, I also remember the first time I tried punting: you head towards a holly bush on the left, correct hard and find yourself making straight for some thicket on the right. Very clever of the ad firm (the Saatchis?) to persuade us that dualism is the only way.

Words, phrases, images can be intoxicating and misleading. We translate reality into our code system and then stick to the translation -  think of our false memories of places and events, and Alistair Campbell's subordination of fact to "narrative".

One has to distrust stirring prose that divides us into camps: shale frackers vs "hard-left, deep-green pressure groups", "wealth creators" vs "looters". One can see that fracking may give us a few years' opportunity to reform the ergonomics of our economy, without either believing that the boom will last for a century or that we will all be poisoned and our homes disappear into sinkholes. Similarly, one can value the contribution of entrepreneurs without seeing everyone else as a bloodsucker.

But maybe Delingpole is just doing a Matt Ridley. Maybe he's not really nuts, just crazy like a fox, dressing up in whatever meretricious opinion will scandalise. After all, as Wilde said, the only thing worse than being talked about is not being talked about.

On the other hand, instead of throwing sticks of TNT around in the attempt to get attention, you could try taking your coat off and work up a sweat, digging for the truth.
 
All original material is copyright of its author. Fair use permitted. Contact via comment. 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; or for unintentional error and inaccuracy.

Defending savers: an email to Peter Hitchens

Dear Mr Hitchens

I'm glad you're taking up the cudgels for savers. You may (I hope) be interested to know that when NS&I ILSC were first introduced in 1975, both the Government and the Opposition explicitly accepted that there was a moral obligation to savers to protect them from inflation, and with your and the Mail's resources you may be able to get more of the back story.

Here are two relevant Hansard extracts:

________________________________

Hansard record of House of Commons debate, 10 July 1975:

http://hansard.millbanksystems.com/commons/1975/jul/10/savings-index-linked-schemes

Mr. Neubert

Does the Minister accept that the opportunity to invest in inflation-proof schemes is an act of belated social justice to millions of people who have seen their savings irreversibly damaged during the recent rapid rise in the rate of inflation? Will he make recompense to many of them by easing up on his vindictive attacks on the principle of savings embodied in the capital transfer tax and the wealth tax?§Mr. Barnett

The hon. Gentleman has put his supplementary question at the wrong time, because National Savings are rising very well at present. I am sure he will be delighted to hear that. As to what he called "belated social justice", I am sure he will pay due attention to the fact that the scheme was introduced by a Labour Government and not by a Conservative Government.Mr. Nott

Is the Chief Secretary confident that a further extension of index-linked schemes—which are welcome to savers—will not cause a diversion of funds away from deposits with building societies, leading to a rise in the mortgage interest rate?§Mr. Barnett

We are, indeed, aware of those problems. That is precisely why we introduced the scheme in this limited way.

Hansard record of House of Lords debate, 4 November 1975:

http://hansard.millbanksystems.com/lords/1975/nov/04/national-savings-schemes

Lord LEE of NEWTON

My Lords, does my noble friend agree that while the index-linked schemes are extremely good value for money, it would be a good idea—as inflation has been rather rampant—to increase the maximum amount that can be invested in them?§Lord JACQUES

My Lords, the Government have two conflicting obligations. One is an obligation to the taxpayer to buy goods and services as economically as possible, and secondly there are certain social obligations. The Government believe that by the action they have taken they have got the right balance.

_______________________________________

I have been trying for 447 days so far to get my MP (John Hemming) onside and so far I've sensed a definite reluctance to consider this issue important. When I gave him the above extracts (for the third time - I suspect he doesn't read his correspondence with sufficient attention) he very grudgingly said (by email, 22.07.2013) "I will ask [my researcher] to put these points to the minister with the suggestion that a small number of index linked bonds should be made available with a limit as to how much any one person can hold."

__________________________________

A further point:

You may have seen that on 9 August the Treasury announced retrospective changes to NS&I savings products held by savers, some of whom will now be very old and may even depend on them for funding care. The date of the announcement is suspicious, coming as it does in mid-holiday silly-season time. But the date that these changes are due to take effect is even more suspicious: Armistice Day 2013 - a good day to bury bad news?

It occurs to me that this apparently cynical choice of date could be effectively turned against the pocket-robbing spivs of the Government, since it may be possible to track down WW2 survivors who now hold NS&I products - do you think this could be worth a try?

_____________________________________

If you'd care to glance through my attempts to get heard - and read the stupid, guff-filled and irrelevant responses from various Treasury ministers - please see below for the links to my humble amateur blog/magazine:

Part1 - http://broadoakblog.blogspot.co.uk/2013/03/fighting-government-for-savers-and.html

Part 2 - http://broadoakblog.blogspot.co.uk/2013/04/fighting-government-for-savers-and.html

Part 3 - http://broadoakblog.blogspot.co.uk/2013/05/fighting-government-for-savers-and.html

Part 4 - http://broadoakblog.blogspot.co.uk/2013/07/fighting-government-for-savers-and.html

Part 5 - http://broadoakblog.blogspot.co.uk/2013/07/fighting-government-for-savers-and_25.html

NS&I retrospective changes - http://broadoakblog.blogspot.co.uk/2013/08/ns-to-hit-pensioners-on-armistice-day.html
 

Very best wishes

All original material is copyright of its author. Fair use permitted. Contact via comment. 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; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Media bias? Syria, chemical weapons and napalm

There is some confusion in media reporting on Syria, and I wonder whether it is deliberate. BBC News at Ten talked about chemical weapons a couple of nights ago, and then screened an on-the-ground report (no longer available on BBC iPlayer) showing the burn victims of an air attack on a school:

http://www.bbc.co.uk/iplayer/episode/b038zlbl/BBC_News_at_Ten_29_08_2013/

Trouble is, the wounds look like the effects of napalm, a mixture of petrol and gel that sticks to you as it burns. As it was invented in 1943 it was obviously not proscribed by the Geneva Protocol of 1925, nor is it banned by the Chemical Weapons Convention, which took effect in 1997.

Wikipedia says its "use against civilian populations was banned by the United Nations Convention on Certain Conventional Weapons (CCW) in 1980" but, sorry as I am that anyone at all should suffer, I have to wonder what these "schoolchildren" were doing that might have prompted an air strike. If a teenager is firing bullets and RPGs, is he a civilian?

And although the horrible injuries seem perfectly genuine, there was a slightly stagey feel to the BBC clip, as I have noted before. As with those Middle Eastern demonstrators who hold up placards written in English, one gets the impression that people there are learning how to play to the Western cameras; they're far from stupid, and propaganda is an important element in modern warfare.

By the way, the same Wiki article notes that although Protocol III to the CCW restricts the use of all incendiary weapons, the US itself has not signed that part. The US made enthusiastic and terrible use of napalm in Vietnam, sometimes adding white phosphorus to the mixture so that it continued to burn to the bone even if the victim dived into water.

So, is it merely age-related daftness that made me conflate the banned use of "chemical weapons" with a possibly legal possible napalm attack on possibly innocent civilians, or was the BBC "nudging" us into support for military action against the Syrian government? The news media have form in angling coverage - remember the 1992 pic of Bosnian Muslims apparently caged behind barbed wire? There were real atrocities in that conflict, but surely the news media, who are our ears and eyes on the wider world, have for that reason a special duty to be carefully truthful, unbiased and critical, and to give us context as well as image; I don't feel we've had that.

All original material is copyright of its author. Fair use permitted. Contact via comment. 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; or for unintentional error and inaccuracy.