Stranger In A Strange Land


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 ?

Letter to the Financial Times, 8 June 2017, the day of the UK General Election.

Letter to the Financial Times, 8 June 2017, the day of the UK General Election.

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.

What Are We Going To Do About George?

George Osborne delivers his Autumn Statement to a packed House of Commons

George Osborne delivers his Autumn Statement to a packed House of Commons

The news wires are burning with reports that the Chancellor, George Osborne, has gone completely doolally. In delivering an Autumn Statement that eviscerated house buyers with aspirations of acquiring property worth more than £935,000 he fired a financial exocet directly into the centre of his parties core constituency. The opposition can't believe their luck as they leave the chamber sniggering to each other.

The rate for property at say the £1.5m price point gives the buyer the unwelcome prospect of coughing up £93,750 big ones; that's as near as damn it £190,000 (actually higher), of pre tax income or a 6.25% blended rate of stamp which is scaled through the above levels. Things get interesting further up the ladder with a £3m property attracting a 9.125% blended rate. 

The £2m+ property market ground to a halt months ago because of political uncertainty. Most people though obviously couldn't care less. Apart from that is, those who rely on such transactions to fuel their own removal, decorating, building, plumbing and so on businesses. The point is, as I never tire of saying, these idiots at the Treasury simply cannot or will not focus on freeing up the economy. This is but one example. The overall tax take will anyway, fall.

I'm sure too that distortions will quickly develop in the market which at the higher price points will simply freeze up and that will have a trickle down effect with some properties becoming overvalued while others find a lower point of equilibrium. You'll probably also see a rush of planning applications to split up houses into two or more flats. 

The net beneficiary of this will again be UKIP who I'm quite sure will benefit from additional donations from frustrated property sellers and their votes....... along with those coming from citizens with laughable broadband, bins that are emptied but once a fortnight, commuters who now cough up 5-7 grand annually to get to work, redundant soldiers, (they haven't cut government departments or the civil service by 23% have they?), and so on.

So Tories, keep up the entertainment for your Labour colleagues. Build expensive railways to nowhere through your core voters homes, then start fracking under them and now over-tax them. It's so original, why hasn't it been done before? Even the old class warrior Gordon couldn't have dreamt this lot up.

On reflection, Treasury Officials agreed they might have chosen the Stamp Duty Rise Focus group with more care

Wo ist unser Gold?

Sorry Fritz, it's all been weiterverpfändung'd.

Sorry Fritz, it's all been weiterverpfändung'd.

“Rehypothecation : The practice by banks and brokers of using, for their own purposes, assets that have been posted as collateral by their clients.” Investopedia.

You’ll remember the fuss about the announcement from Germany that it intended to repatriate it’s gold reserves both from the US and Paris. It’s not moving very quickly, probably because it’s not there. Why? The answer again, probably lies in rehypothecation and is explained in this good clip by Glenn Beck. His premise is that Germany’s call to repatriate threatens what he describes as a Ponzi scheme.

We don't need big words like "rehypothecation," to explain why our gold isn't where it should be. We just say, "Gordon bloody Brown."

Unpublished Letter to the Telegraph (2)


I'm in a bit of a letters trough here, not many getting through the net,


While we all wait in weary bemusement for the inevitable hose pipe ban announcement, it may yet dawn on members of Her Majesty's Government that citizens might welcome capital expenditure that protects their life's work and investment in their homes and communities, rather than the planned profligate and wanton expense on a high speed railway which is about as welcome in most counties through which it will travel as is the next flood.

Energy Bills; Who's Fault Did You Say Minister?

Ed Davey, the Energy Secretary, speaks today and apparently will again verbally eviscerate the power companies.  

Just a couple of points to note Mr Davey before you mount the current political hobby horse,

Energy bills are obscenely high, we know that and we've known what's been coming for years.. We also know that a complete intellectual and political vacuum in the field of strategic power planning for twenty five years by successive governments is mostly to blame. The entire political complex is culpable thinking as you did, that you could wave through planning permissions for windmills that don't generate enough electricity to power a train set and that don't work in the cold or high winds in order to tick the green voting box; idiots. The only winners in the windmill game have been property developers, (many of whom have never even seen the land on which these monstrosities have been dumped), and wealthy farmers. All subsidised through the power companies by the beaten up citizen. You're an utter disgrace, the lot of you.

Moreover, creating uncertainty in a sector of shares in which most pension funds are invested for stability and yield is irresponsible and damages the income many of those you purport to want to help by creating an uncertain economic environment for those companies.

Power companies are not perfect but they should not be demonised. We've already seen BP in the oil sector left to the US judicial wolves over the past two years with no political top cover and the current rhetoric does Westminster absolutely no credit. 

Were it only power generation and it's cost then we might be able to muddle through. Actually, Westminster's default reaction to any problem is to go on the offensive and blame everyone else, never themselves. We will see this in other departments in years to come and defence will probably be at the front of the queue when 22 years of sequential defence cuts suddenly mean we are unable to protect our interests.

Switch On and Switch Off

Finally, there is of course an expectation that everyone has a right to a fully centrally heated house all the time. Not so. The elderly and babies need and require minimum temperatures; everyone else can take a leaf out of the Crumble Towers book of winter living; put a fleece on and turn that bloody light out. 

I suspect Michael Gove is probably the only one in government with the stones to say it given he is the only strategic thinker with moral courage in it. 

Is It Our Turn Phil?

the septics "get it." 

A fellow called Jonathan Foreman from the think tank Civitas published an opinion piece in yesterday's  Sunday Times suggesting that we don't in this country look after our veterans as well as they do in the United States. In fact he makes some very good points, most of which have resonance and which deserve to be at least debated.

The general after care for veterans is fast improving in the UK but it remains too easy for cases to slip through whatever nets exist and often, it is the individual ex serviceman's personal pride that stops him from asking for help in the first place meaning that help is only called for when the situation becomes acute. Calling for help is also an increasingly tough call for many in old or middle age who believe they don't qualify for help, "because I didn't do Afghan or anything." No, mate, you just did four tours walking backwards for four and a half months at a time in West Belfast. Actually, anyone who wears a uniform for a day qualifies, they're all members of the same club. Help for Heroes don't particularly help in this regard given they don't help servicemen injured prior to 2001. The sixty year old with the screaming heebie-jeebies in the dark recesses of his mind who can't control his bodily functions in the middle of the night doesn't exactly fit the photo shop chirpy limbless square jawed twenty year old tabbing to the Arctic that the marketing dollies are so fond of. 

There are other never before seen issues now cropping up relating to too much money too fast for some grievously injured but that's a subject for another time. 

Jonathon Foreman though makes a good point about post service education and alludes to the US system where, under the GI Bill, (the Montgomery amendment in fact), US veterans qualify for assistance with further education.

Oddly, and I wrote about here , I went to see Bob Ainsworth when he was Minister of State for the Armed Forces and put just that proposal to him. "Honest Bob" as he was known by insiders, was good enough to see me and opened the meeting with, "right, I've just had the Admiral of the Fleet in here arguing for more ships, what can I do for you?" He was decent enough to give me a hearing which I would summarise thus,

  • work with homeless ex servicemen had convinced me that help with transition was no better than it was when I left the Army years previously. The best way to alleviate homelessness was prevention rather than cure.
  • assistance with further education, (after say a minimum six years service), would help both recruitment and retention and could be employed both for the regular Army and the Reserves. This is all the more pertinent now given problems with reserve recruitment and could be amended further to offer discounted university fees while in reserve service. Incidentally, for the avoidance of doubt, what we're talking here is a no holds 100% discount on a three year university course or, full fee discount on vocational or apprenticeship courses or programmes. There is no "get out clause," for HMG. If people do the time they get the reward.
  • much is written and discussed about the increasing lack of social mobility in our society. For generations, one way to climb the first four rungs of the ladder for young people from poor rural and inner city areas has been to enlist. For many they are simply not mature enough, nor do they have the basic minimum requirements for further education, at 16-18 and so indeed. enlist. After five or more years service however, they tend to be completely different people. Why should they be denied the opportunity to improve themselves and exactly who's politics would stand in the way of this kind of progress?

Sherman's again I'm afraid

All sound stuff, I'm sure you'll agree. So what happened? Well, Mr Ainsworth included the topic in a discussion paper which was to encompass all benefits for veterans and even dispatched some civil servants to the US to look at their programmes. In fact, that paper, and the education proposal, even made it into the Labour governments pre election proposal for the Forces Charter as a statutory right, "our version of the GI Bill."

So what went wrong? We had an election, Labour blew it, which I was admittedly reasonably happy with at the time, but some good things went down with the ship including this little education proposal.  Whatever else, I'll always tip my hat to Mr Ainsworth who kindly took the time to listen to a citizen who virtually wandered in off the street with an idea, and similarly hope that Mr Foreman continues to bang the drum.

It ticks a lot of boxes and just think of all those proud Mum's out there Mr Hammond; just do the right thing. 


Five Years On; Damage Report

Thus, it is crucial to identify the primary causes and implement effective policy to avoid future episodes whose magnitude could exceed even the staggering costs and consequences of the most recent financial crisis.
— Dallas Fed

All politicians, central bankers and regulators should read the above quote three times a day and ask themselves, "have we done everything we can do to prevent a re run of the crisis and to protect our citizens?"

Voters, who mostly know what the answer is, should be asking their politicians the same question. Perhaps though, voters should simply ask themselves "have we done everything we can to stop these idiots dropping the ball again?"

Syria; Not Our Sandpit

Keep Calm..............

Syria has long been a rogue state with no love lost between us and them. It was a location for Provisional IRA training camps and a source of weapons for PIRA and indeed other terrorist organisations. Nonetheless, the logic for British involvement is flaky at best. David Cameron and William Hague cannot grandstand and assume moral ascendancy when we lack the resource to back it up. We don’t have the resource mostly because Cameron’s government followed a well established pattern over the past 22 years of squeezing Defence in favour of other departments. Currently, the UK has amongst its local assets Cyprus, but with no aircraft on it and the HMS Illustrious group.... with no aircraft. Interesting that the most vocal opponents of involvement in a barely understood conflict are current  and former people from the military and intelligence community. The most pro is apparently the Prime Minister’s wife.

That much of the current instability can be traced back to our previous interventions seems lost on our leaders. Those interventions, achieved very little indeed, especially Iraq. It’s also popular to make comparisons with Kosovo which is extremely misleading, given the huge difference in size of the countries and the ferocity of the current civil war in Syria as opposed to the low intensity conflict in the Balkans.


aving avoided involvement so far neither the US or the UK really want to become embroiled in an inter Arab 50 year religious civil war. Based on outrage from the most recent atrocities, (although gas has been in use in limited quantities since March), the “something must be done,” calls don’t take us anywhere beyond lobbing some cruise missiles through the ether to “teach them a lesson,” in some fantasy aspiration that only bad guys will die, (including no doubt a bunch of Russian advisors which could be awkward), and the rest will just give up. Given we haven’t even confirmed the “who,” bit never mind the “what then,” part none of this is credible. Certainly, one question that enquiring minds ought to be asking is “who had most to gain,” by murdering innocents by the foulest of means?” Assad? Really, when he was winning the civil war?

The US of course has plenty of war toys in theatre with another 2 carrier groups on route

Attacks on air defences, military installations, command and control centres and chemical storage and production plants from the air don’t in themselves remove bad regimes. That requires men on the ground. There is no appetite for that either here or in the US, (and with an Army falling to 80,000 we couldn’t do it anyway), both populations being tired of constant war for 20 years. Moreover, the scale of munitions required to destroy and suppress such assets is of a much higher magnitude than was used in Libya. Of passing note of course is that hits on chemical sites are likely to release said chemicals into the atmosphere which would create the collateral damage nightmare of all nightmares. Meanwhile, the largest supporters of the rebels, the Saudi’s, will, along with their allies, be nowhere to be seen. The British Army are not mercenaries to be used to further the geopolitical aims of a bunch of rich sheiks in a country that we don’t know, don’t much care about and have no immediate national interest which actually lies in supporting regional allies, not doing their job for them.

An assumption that we can be involved in an attack on a foreign country with no fear of retaliation is just plain stupid. Syria has always had a sophisticated security network and, potentially with the help of Iran, retaliatory action must be expected, both on the mainland UK and abroad against UK and US assets and individuals. Indeed, rumours to the effect that Hezbollah will begin taking hostages are already circulating in Beirut.

A Reuters/Ipsos poll on August 19-23rd found that only 9% of Americans support US military intervention in Syria, while 90% of British people polled opposed any intervention in Syria. While a re-elected second term US president can afford to ignore public opinion, this is not true of a British prime minister, particularly if a single western weapon goes astray.

Those most opposed to intervention then, could God forbid, end up being casualties of war....... in any of our towns or villages. Do not underestimate the violence which these people are easily capable of perpetrating. A senior figure in the Intelligence community told me three years ago that it was only a matter of time before a European city suffered a significant attack from a rogue state or terrorist group using WMD. He then, was counting the years on the fingers of one hand.

Markets, who are smarter than politicians, have figured all this out and its the uncertain path forward and unknown outcome in the Middle East which is increasing volatility across asset classes. European stress points appearing, Asian contagion and budget issues in the US don’t help an already difficult situation. That any action would likely be propped up by more QE is though, slightly irrelevant at this point. Historically, we do tend to sell off prior to conflict and then rally hard during and in its aftermath but that previously was based on quick and decisive victories. This will be anything but.


HMG; Switched Off and Unplugged

What passes for our self obsessed government these days continues to demonstrate a woeful lack of grip on both themselves and the economy. I've repeatedly written about the pressing requirement to eviscerate government spending and promote growth through lower taxation and smart investment. HMG though, has all but missed the boat. The penny will eventually drop but it will be too late for thousands of businesses and individuals and particularly for the politicians responsible for a lack of purpose and clarity of thinking.

It's a fact that government spending hasn't actually been cut. Simply, the trajectory of spending increases has been slightly lowered. Meanwhile the nonsense alarm is clanging away with hourly updates from Leveson telling us what an incestuous, corrupt and colluding collection of under qualified clowns our political elite have become. We can make a start on both the problems of government spending and political intrigue by jettisoning all special advisors. Don't chuck just the odd one under a bus, do a job lot. That's right, fire them all by 10am and by 12am the country will already feel a better place.

The taxation issue meanwhile is just plain silly. The chancellor has slashed the wrists of the wealth generating and revenue contributing section of society and blood is gushing out of the economic body of UK plc. Here's an example.

I’m told, (anecdotally), that sellers can now negotiate rates with the big estate agents. We can all see that property isn’t shifting up and down the country, (except in central London where the big agents don’t even now bother to work Saturdays. This is a typical market response to stupid tax policies designed to make chippy Liberals feel good when they get together for their sandal wearing, tofu munching sessions.

A stamp rate of 7% on a £2m property means that the buyer must earn £280k pre tax, at 50%, to pay the tax. Now, few of us will lose any sleep at the thought of Justin Fothering-Frampton of Hamptons not being able to upgrade his Aston, but the positive trickle-down effect on removers, plumbers, carpet firms, decorators, furniture retailers, gardeners and the rest clearly completely pass the dreamers at the Treasury by.

I sit in quiet bemused bewilderment and ponder how much economic damage they will be allowed to inflict on us before someone wakes up in a eureka moment and shouts, “I know, let's try the low tax = growth thing.”

In the unlikely event that this selfish, self indulgent preening shower actually switch on and start making some constructive decisions we might find ourselves eventually crawling out of recession just in time for the inflation storm that is coming our way, currently due to hit in late 2013-4 by my reckoning. That's a nice little by product of current central banking printing which will eradicate whatever wealth you may have left at that point.