When Bitcoin broke through $10,000 the other day I said, 'it could even tag $20,000.' I didn't expect it to happen in a week. Happy days for some but there will be broken hearts and bank accounts for the unwary innocents being sucked in. Tempted? Go and lie down until the feeling goes away.
“All men dream: but not equally. Those who dream by night in the dusty recesses of their minds wake up in the day to find it was vanity, but the dreamers of the day are dangerous men, for they may act their dreams with open eyes, to make it possible." T.E. Lawrence; Seven Pillars of Wisdom
Many will simply shake their head while muttering, 'the world has gone mad.' I know I did. We are where we are though. Westminster is trying to figure out how to make a seized up situation work while the rest of the country is going about its business with an air of, 'well that showed them.' The chickens though, whole squadrons of them, will at some point in the future be coming home to roost. In the piece that follows, my friend Tim Price of PriceValue Partners offers his take on events, past, present and future.
“If you have been voting for politicians who promise to give you goodies at someone else’s expense, then you have no right to complain when they take your money and give it to someone else, including themselves.” - Thomas Sowell.
It is difficult to know where to begin. That 262 British parliamentary seats fell to a party led by a self-confessed Socialist is bad enough. That said leader lacks the support of 172 of his own MPs is troubling. But that someone who has publicly supported the IRA, Hizbollah and Hamas could attract 12.9 million votes while the United Kingdom is under attack by terrorists simply beggars belief. Sir Richard Dearlove, the former head of MI6, the British Secret Intelligence Service, points out that Jeremy Corbyn – who seeks the office of Prime Minister – would not be cleared to join either his former agency, or GCHQ, or MI5; and indeed would, 2 in the past, have been actively investigated by the latter. It is said that you get the politicians you deserve. So what on earth did we do to deserve this ?
Nor are we making a narrow party political point. As Clive Crook points out for Bloomberg, while Jeremy Corbyn offered the UK electorate the sort of swivel-eyed Trotskyism that ought to have died out in the 1970s along with flares and safari jackets, Theresa May was making her own lurch towards the left:
..instead of championing a solidly pro-market centrism, May adopted a semi-skimmed leftism heavy on industrial-policy meddling and other piecemeal dirigisme.
So a plague on both your houses.
Many investors today were forged in the crucible of the Global Financial Crisis. This was, no two ways about it, a crisis originating in debt. The plain numbers are stark. Simon Mikhailovich of Tocqueville Bullion Reserve reminds us of those numbers with a sobering tweet:
A bit of math. With the global debt / GDP ratio at 320% and the cost of average debt service at 2%, it takes 6.4% growth per annum just to service the debt. Not happening.
Our politics have gone mad, and our markets have gone mad with them. As Ronni Stoeferle and Mark Valek point out in their latest, magisterial study of the yellow metal, In Gold We Trust,
We live in an age of advanced monetary surrealism. In Q1 2017 alone, the largest central banks created the equivalent of almost $1,000 billion worth of central bank money ex nihilo. Naturally the fresh currency was not used to fund philanthropic projects but to purchase financial securities*. Although this ongoing liquidity supernova has temporarily created an uneasy calm in financial markets, we are strongly convinced that the real costs of this monetary madness will reveal themselves down the line.
*With that amount of money, one could purchase 20 Big Macs for every person on the planet. Notably in Switzerland – according to the Big Mac Index – the most expensive jurisdiction worldwide. Alternatively, one could also buy one 1/10th oz. gold coin for every person on the planet. We would recommend the latter.
Faced with universally expensive bonds and predominantly expensive stocks, there seems to be little point in low cost index tracking – at present, at least. This is an investment ‘strategy’ that Jim Mellon describes as “pass the parcel for investment morons”. The only sensible and credible responses to the investment challenge of our times can be to diversify broadly, and then invest selectively, and defensively. (Longstanding readers, along with our clients, will know that we put particular emphasis on Benjamin Graham-style value stocks, systematic trend-following funds, and gold.)
This is also a crisis of education. How, aside from craven bribery, could so many young Britons flock to the sirens of socialism ? How did so many millions manage to avoid any grasp of history (or choose to ignore it) ? Eamonn Butler of the Adam Smith Institute, however, is not defeatist. He quotes from the master, Hayek:
We must make the building of a free society once more an intellectual adventure, a deed of courage. What we lack is.. a truly liberal radicalism which does not spare the susceptibilities of the mighty.. and which does not confine itself to what appears today as politically possible. We need intellectual leaders who are willing to work for an ideal.. They must be.. willing to stick to principles and to fight for their full realisation, however remote.
There is otherwise the very real likelihood of nasty intergenerational conflict. The Baby Boomers already ate most of the pies. The millennials and Generation Z are right to be angry. But last week this anger manifested itself in the form of some Corbyn supporters burning newspapers. To anyone with a sense of history, the UK today feels like a very strange, and disturbing, place.
So, the general election campaign starts today. You could have fooled me. Most of us reached the point of maximum saturation eight weeks ago and now are at the point of maximum irritation. Lies and inexactitudes piled on myth and fantasy; they breeze along making things up on the hoof and are stupid enough to believe that people take what they say seriously. Politicians are in their own game of tag with themselves and the media. When will they realise, the rest of us simply aren’t playing their silly little games?
Today’s “here’s another let’s pretend it’s a well thought up strategy,” comes from Labour, through Gordon Brown, recycling the old chestnut of taxing bankers bonus’s to pay for a long shopping list of things, in this instance to the benefit of Scotland. The irony of course is that it was the two principal Scottish banks that blew up in the crisis. Not to worry, because the politicians don’t, that the vast majority of bonus’s, on the rare occasions that they are paid, are done so with a minimal cash element, are paid in equity over a number of years with strict claw back provisions. As I wrote on this blog five years ago, the banks are way ahead of the Labour party, they long ago roofed basic salaries in anticipation of bonus’s becoming a political plaything.
What anyway are “bankers?” Is that anyone who works for a bank in any capacity? Is it all employees of all banks in the UK or just the British owned and listed ones? Is it legal to segregate a small portion of the working population? What about the law firms, the accountancy firms and all the other associated companies where in many, average earnings are higher than in banks.
Many people are slowly concluding that the personal compliance and reputational risk of working for a bank is simply not worth it. It is certainly becoming harder to recruit quality at board level and disenchantment is pushing further down the chain. The nonsense about much of this is that the very politicians chucking stones, like Brown, were complicit in creating the conditions that caused banks to founder in encouraging regulation lite leverage when they were in power.
I'm no friend of banks but all of these badly thought out so called policies are delusional, deceptive and downright dangerous.
I have just one question for every politician. Instead of telling us how you would spend money the country doesn't have or how you would move the counters around the board; how would you create wealth?
Budget Day today. In the unlikely event you needed convincing that nothing ever really changes, I give you Mr Asquith presenting his Budget in 1909, "It's never pleasant to pay taxes..." you got that right Herbert.
The philandering coke-head know-it-all Russell Brand has come under attack from Joe Average following his bizarre protest at RBS last Friday. Looking like he'd arrived having clung to the side of the Eurostar for three hours, Brand accosted a guy working in RBS's office who was returning from picking up lunch.
Well worth a read and the sooner Brand pushes off to join the rest of his celebrity C listers on a foreign beach the better. He looks like he sleeps in a bus shelter every night and is as funny as anthrax. Whats more, he really should stop cutting his own hair and get a professional on the job.
An open letter to Russell Brand.
Hi. I'm Jo. You may remember me. You may even have filmed me. On Friday, you staged a publicity stunt at an RBS office, inconveniencing a hundred or so people. I was the lanky slouched guy with a lot less hair than you but (I flatter myself) a slightly better beard who complained to you that you, a multimillionaire, had caused my lunch to get cold. You started going on at me about public money and bankers' bonuses, but look, Russell, anyone who knows me will tell you that my food is important to me, and I hadn't had breakfast that morning, and I'd been standing in the freezing cold for half an hour on your whim. What mattered to me at the time wasn't bonuses; it was my lunch, so I said so.
Which is a great shame, because I'd usually be well up for a proper barney with you, and the points you made do actually deserve answers. Although not — and I really can't emphasise this enough, Russell — not as much as I deserve lunch.
Before I go any further, I should stress that I don't speak for RBS. I'm not even an RBS employee, though I do currently work for them. What follows is not any sort of official statement from RBS, or even from the wider banking industry. It is merely the voice of a man whose lunch on Friday was unfairly delayed and too damn cold.
So, firstly, for the people who weren't there, let's describe the kerfuffle. I didn't see your arrival; I just got back from buying my lunch to discover the building's doors were locked, a film crew were racing around outside trying to find a good angle to point their camera through the windows, and you were in reception, poncing around like you were Russell bleeding Brand. From what I can gather, you'd gone in and security had locked the doors to stop your film crew following you. Which left us — the people who were supposed to be in the building, who had work to do — standing around in the cold.
My first question is, what were you hoping to achieve? Did you think a pack of traders might gallop through reception, laughing maniacally as they threw burning banknotes in the air, quaffing champagne, and brutally thrashing the ornamental paupers that they keep on diamante leashes — and you, Russell, would damningly catch them in the act? But that's on Tuesdays. I get it, Russell, I do: footage of being asked to leave by security is good footage. It looks like you're challenging the system and the powers that be want your voice suppressed. Or something. But all it really means, behind the manipulative media bullshit, is that you don't have an appointment.
Of course, Russell, I have no idea whether you could get an appointment. Maybe RBS top brass would rather not talk to you. That's their call — and, you know, some of your behaviour might make them a tad wary. Reputations are very important in banking, and, reputation-wise, hanging out with a guy who was once fired for broadcasting hardcore pornography while off his head on crack is not ideal. But surely a man who can get invited onto Question Time to discuss the issues of the day with our Lords & Masters is establishment enough to talk to a mere banker. And it would be great if you could. Have you tried, Russell? Maybe you could do an interview with one of them. An expert could answer your questions and rebut your points, and you could rebut right back at them. I might even watch that. (By the way, Russell, if you do, and it makes money, I would like a cut for the idea, please. And I'm sure it would. Most things you do make money.)
But instead of doing something potentially educational, Russell, you staged a completely futile publicity stunt. You turned up and weren't allowed in. Big wow. You know what would have happened if a rabid capitalist had just turned up unannounced? They wouldn't have been allowed in either. You know what I have in my pocket? A security pass. Unauthorised people aren't allowed in. Obviously. That's not a global conspiracy, Russell; it's basic security. Breweries have security too, and that's not because they're conspiring to steal beer from the poor. And security really matters: banks are simply crawling with highly sensitive information. Letting you in because you're a celebrity and You Demand Answers could in fact see the bank hauled in front of the FCA. That would be a scandal. Turning you away is not. I'm sorry, Russell, but it's just not.
Your response to my complaint that a multimillionaire was causing my lunch to get cold was... well, frankly, it was to completely miss the point, choosing to talk about your millions instead of addressing the real issue, namely my fucking lunch. But that's a forgivable mistake. We all have our priorities, Russell, and I can understand why a man as obsessed with money as I am with food would assume that's what every conversation is about. Anyway, you said that all your money has been made privately, not through taxation. Now, that, Russell, is actually a fair point. Well done.
Although I can't help but notice that you have no qualms about appearing on the BBC in return for money raised through one of the most regressive taxes in the country, a tax which leads to crippling fines and even jail time for thousands of poor people and zero rich people. But never mind. I appreciate that it's difficult for a celeb to avoid the BBC, even if they're already a multimillionaire and can totally afford to turn the work down. Ah, the sacrifices we make to our principles for filthy lucre, eh, Russell? The condoms and hairspray won't buy themselves. Or, in my case, the pasta.
And then there is that film you're working on, isn't there, for which I understand your production company is benefitting from the Enterprise Investment Scheme, allowing the City investors funding your film to avoid tax. Was that the film you were making on Friday, Russell, when you indignantly pointed out to me that none of your money comes from the taxpayer? Perhaps it had slipped your mind.
And, of course, you've been in a few Hollywood films now, haven't you, Russell? I take it you've heard of Hollywood Accounting? Of course you have, Russell; you produced Arthur. So you are well aware that Hollywood studios routinely cook their books to make sure their films never go into taxable profit — for instance, Return Of The Jedi has never, on paper, made a profit. Return Of The fuckingJedi, Russell. As an actor, and even more so as the producer of a (officially) loss-making film, you've taken part in that, you've benefitted from it. (While we're on the subject, I hear great things about Hollywood's catering. I hope you enjoyed it. Expensive, delicious, and served (at least when I dream about it) nice and hot.)
But still, you're broadly right. Leaving aside the money you make from one of the most regressive of the UK's taxes, and the tax exemptions your company uses to encourage rich City investors to give you more money, and the huge fees you've accepted from one of the planet's most notorious and successful tax avoidance schemes, you, Russell, have come by your riches without any effect on taxpayers. Whereas RBS got bailed out. Fair point.
Here's the thing about the bailout of RBS, Russell: it's temporary. The plan was never to bail out a bank so that it could then go bust anyway. That would be too asinine even for Gordon Brown. The idea was to buy the bank with public money, wait until it became profitable again, then resell it, as Alastair Darling clearly explained at the time. And that is still the plan, and it does appear to be on course. Not only that, but it looks as if the government will eventually sell RBS for more than they bought it for. In other words, the taxpayer will make a profit on this deal.
Of all the profligate pissing away of public money that goes on in this country, the only instance where the public are actually going to get their money back seems an odd target for your ire. What other government spending can you say that about, Russell? What other schemes do they sink taxpayers' money into and get it all back, with interest? And how many people have you met who have actually been right in the middle of working to make a profit for the taxpayer when you've interrupted them to cause their lunch to get cold?
As for bonuses, well, I'll be honest: I get an annual bonus. I'm not allowed to tell you exactly how much it is, but I will say it's four or five orders of magnitude smaller than the ones that make the headlines. It's very nice — helps pay off a bit of credit card debt (remember debt, Russell?) — but, to put it in terms you can understand, I'd need to work for several tens of thousands of years before my bonuses added up to close to what you're worth.
But here's the key thing you need to know about bonuses, Russell: they come with conditions attached. My salary is mine to do with as I will (I like to spend a chunk of it on good hot food). My bonus my employer can take back off me under certain conditions. Again, I do not speak for RBS, so cannot say anything about the recent FX trading scandal or PPI or any of that shit. But, in general terms, bonuses have conditions attached, such as "And we'll claw back every penny if we discover you were breaking the rules." And yes, it does happen. The only bonuses that make the news are the ones that get paid. But, every year, bonuses either don't get paid or are even taken back off staff for various reasons, including misconduct. I'd've thought, Russell, that anyone who wanted bankers to be accountable would approve of the scheme.
And now, if I may, a word about your manner.
Much as I disagree with most of your politics, I've always rather liked you. You do a good job of coming across as someone who might be fun to be around. Turns out, that's an illusion.
Because, you see, Russell, when you accosted me, you started speaking to me with your nose about two inches from mine. That's pretty fucking aggressive, Russell. I'm sure you're aware of the effect. Putting one's face that close to someone else's and staring into their eyes is how primates square off for a fight. Regardless of our veneer of civilisation, when someone does that to us, it causes instinctive physical responses: adrenaline, nervousness... back down or lash out. (Or, apparently, in the case of the celebrity bikes you like to hang out with, swoon.) I'm sure that, like turning up with a megaphone instead of an appointment, such an aggressive invasion of personal space makes for great footage: you keep talking to someone in that chatty reasonable affable tone of yours, and they react with anger. Makes them look unreasonable. Makes it look like they're the aggressive ones. Makes it look like people get flustered in the face of your incisive argument. When in fact they're just getting flustered in the face of your face.
I've been thinking about this the last couple of days, Russell, and I can honestly say that the only other people ever to talk to me the way you did were school bullies. It's been nearly a quarter of a century since I had to deal with such bastards, so I was caught quite off my guard. Nice company you're keeping. Now I think about it, they used to ruin my lunchtimes too.
One last thing, Russell. Who did you inconvenience on Friday? Let's say that you're right, and that the likes of Fred Goodwin need to pay. OK, so how much trouble do you think Fred faced last Friday as a result of your antics? Do you think any of his food got cold, Russell? Even just his tea? I somehow doubt it. How about some of the millionaire traders you despise so much (some of whom are nearly as rich as you, Russell)? Well, no, because you got the wrong fucking building. (Might want to have a word with your researchers about that.) Which brings us back to where we came in: a bunch of admittedly fairly well paid but still quite ordinary working people, admin staff mostly, having their lives inconvenienced and, in at least one case, their lunches quite disastrously cooled, in order to accommodate the puerile self-aggrandising antics of a prancing multimillionaire. If you had any self-awareness beyond agonising over how often to straighten your fucking chest-hair, you'd be ashamed.
It was paella, by the way. From Fernando's in Devonshire Row. I highly recommend them: their food is frankly just fantastic.
When it's hot.
The Scottish independence debate has so far been characterised by a poverty of original clear thinking. The paper below by Paul Marsh, Emeritus Professor of Finance at the London Business School and Scott Evans of Walbrook Economics, about the merits of Scottish independence from a stock market perspective, changes the tone somewhat. In it, they soberly de-construct how Scotland would have fared since 1955 with its own stock exchange and how it would fare as an independent country.
With the clock running down we urgently need more input of similar calibre. One could be forgiven for thinking that the actuality of the situation is that Salmond & Co are dreading the "Oh bugger, that wasn't supposed to happen, what now?" moment if they actually do win while one might be left to think that Cameron & his playmates, latterly supplemented with a squadron of clickty-clack heeled media friendly thirty-something women junior ministers, won't shed a tear because the embedded Labour majority at Westminster will be gone forever.
Hull City Council have announced a scheme to create their own crypto currency with which citizens may be paid for doing jobs that benefit the community and which may then be used to pay for local services such as public transport, food banks or even council tax. At last, a council that is thinking and doing.
Notwithstanding it may be an April Foll story, (although the story was circulating yesterday), this is a great piece of mutually supporting creative planning. Designed to tackle local poverty, without knowing it they've just drawn the blueprint for what a Big Society really is. They probably also don't realise that I proposed a similar Community Credit scheme three years ago in a piece called, oddly enough, "Creating the Big Society," But hey, this isn't about trying to catch some airtime for a good idea that someone's else has also come up with! The important thing is that they're doing something about it.
The elegant enhancement in my scheme though is that citizens could also be fined credits / Hull Coins / widgets for minor offences and be forced to earn them through community work, or use those already earned, to pay the fines off.
Anyway, I take my hat off to Hull, salute their innovation and applaud the can-do and will-do attitude. As an aside, what a great thing to do to bring a community together some 100 years after the same community stepped forward to help their countrymen and raised four Pals Battalions, the 10th Easy Yorks (Hull Commercials), 11th East Yorks (Hull Tradesmen), the 12th East Yorks (the Hull Sportsmen) and the 13th East Yorks, (T'Others) .......... only in Yorkshire.
Have we just been given a warning by Emerging Markets, similar to the one we woke up to on June 22nd 2007 from Bear Stearns?
Max Keiser always sounds as if he's pumped up with a mixture of 17lbs of blue smarties and three pipes of crystal meth. He does though, in amongst the ranty delivery, have some salient points to make. He is right in large part about the economic distortions of the housing market, mostly engineered for political gain, (which is about to backfire on the Coalition at just the wrong time before the election), and he is accurate in some of his observations about the banking sector, particularly in the "mark to myth," problem with assets and a dependency on government subsidy be it direct or indirect. In short, many of the distortions which created the crisis five years ago remain unresolved because the political and moral courage, to do so is absent.
I am a very right wing individual but by the Gods in Heaven these inept and self interested fools in Westminster are day by day, turning me into a raging socialist. Why, because to use the old phrase they are socialising losses but privatising the upside for the benefit of a microcosm of society. In doing so, they are shaming the City, (many in its ranks are arch critics of policy and have been for many years), and mortgaging future generations by spending today even more of what we don't have.
Anyway, I'll leave it there for the moment before I become completely unglued. Keisers rant is worth a listen to, especially the last few minutes.
Ray Dalio runs Bridgewater Associates, a very large and successful hedge fund. He is one of the most respected practitioners of his craft in the world. His 30 minute video above on how the economy works, which is currently doing the rounds, is well worth taking the time to watch by any student of economics. (The paper may be found here).
The burden of paying for the financial crisis pretty much lies squarely on the shoulders of the middle class. The uber wealthy are too smart, too well advised and too mobile to get caught up in the mundane business of paying for the mistakes of politicians, regulators and rogue banks. They also have the resources to exploit the uplift offered by QE. Generally speaking, and this is very general, the poor mostly have a safety net. It's not a great safety net but in terms of the fall in living standards it's the middle class who are taking it on the chin. Unfortunately, in tough times doors also slam shut on the opportunity of the poor to climb out and up into prosperity.
It's generally thought though, that the baby boomer generation was given everything on a plate and enjoyed a fantastic one way street to prosperity and rises in living standards, asset prices and are now reaping the benefit of gilt edged final salary pensions. Not quite true...... this was the most read story on Bloomberg yesterday and actually, apart from being profoundly depressing from a pension funding perspective, (thanks for nothing Mr Brown), it is quite uplifting. Step forward Mr Palome,