Sunday, 29 March 2015

"Now a good time to buy euro?"

Asks Random here.

I have absolutely no idea, if in doubt, look at a longer term chart and ask yourself whether EUR really has bottomed out yet…

Friday, 27 March 2015

"Julia Roberts given Ebola all-clear after experimental drug treatment at Royal Free"

Click picture for more.

This is what you want, this is what you get.

From yesterday's City AM:

On 30 March when parliament is dissolved, as the majority of MPs will gear up to embark on the toughest part of their election campaigns, some will bid farewell to the Commons for the last time as they step down from public life.

But among the 77 MPs leaving office, many will be left with a valuable memento of their time in office - a second home part-subsidised by taxpayers.

Now research by City A.M. and online estate agent Emoov estimates that between them, MPs stepping down at the end of this parliament could stand to make more than £9m of gains on properties previously funded by taxpayers.

It is quite surprising that two of the biggest cheerleaders for Home-Owner-Ism, City AM and the TaxPayers Alliance (or more accurately, the financial backers of those two), who are always pushing for more direct and indirect subsidies to landowners and ideally a tax exemption for all land based profits, are taking the line that maybe massive windfall gains on London homes are not so hard-earned after all.

There's no honour among thieves is there? Without these hard working MPs, nobly nodding through Help To Buy, bravely blocking Council Tax revaluations and heroically hiking VAT and NIC to finance a Council Tax freeze, the backers of City AM and the TPA would be well out of pocket.

Thursday, 26 March 2015

Sterling: still not overvalued

Here's a chart of GBP vs a basket of other major currencies from 2009 onwards.

Clearly, it fell rather dramatically for three years from late 2007 to late 2010, then it scraped along the bottom for two years, but inevitably it has now climbed back a bit to be six per cent lower than its long run average*; there's no reason it wouldn't go back to that long run average over the next year or two.

That all depends on whether the other countries' economic policies are more or less stupid than ours, chances are they will all be equally stupid.

* Because of of subtle difference between harmonic and mathematical averages, the long run average for GBP is actually 0.96, not 1.0.

Changing the rules of football. Slightly.

From City AM:

England's leading football clubs have left their loss-making ways behind and entered a new era of profitability after mustering record-breaking pre-tax profits last season...

The profit was the result of a 29 per cent rise in revenues across the division to £3.3bn, driven by booming broadcast contracts and commercial growth, allied to the impact of cost-control measures such as the financial fair play (FFP) rules initiated by European body Uefa.

Clubs’ return to profitability heralds the end of the so-called prune juice effect, which repeatedly saw uplifts in television rights income largely swallowed up by instant wage inflation. Player salary costs rose just six per cent in 2013-14, while the Pre­mier League’s wages-to-turnover ratio – a key indicator of financial health among clubs – fell from a record high of 71 per cent in 2012-13 to 58 per cent*, its lowest level since last century.

It appears that the football clubs have finally worked out how to prevent any increase in revenues going straight into higher players' wages, so well done them!

* To cut a long story short, out of the £800 million extra revenues, they spent 'only' £100 million on higher salaries and an extra £200 million on other stuff, meaning that last year's overall pre-tax loss of £300 million turned into a very slim net profit of £200 million.

What is it with the 'Rich'?

On R4 Today yesterday there was an item on Virgin's launch of an Entrepreneur Prize.  They had Branson talking about it / indulging in more self-promotion. Then they asked him about UK and Europe. He replied with something on the lines of:-

"Well, I won't be popular for saying this, but I think it would be a very bad for business for the UK to leave the EU.  Because 50 years ago when I started in business and was trying to sell records to Europe [he probably meant France] the added a 38% import duty on the records made it impossible for me to export".

Leaving aside that I read somewhere 'allegedly' that RB was involved in a tax fraud, which involved pretending to export record albums, he has as you would expect got the economics exactly the wrong way round.

His business did not 'lose sales' by being unable to export to Europe low priced records. It was the citizens of Europe that lost out by being denied the opportunity by their governments from saving by buying at low prices.

Europe has about 350m people. The global population is about 8Bn.  That leaves about 7.65Bn that Branson could still sell to.

The main lesson from this is that Branson might want private enterprise but he sure does not want free enterprise.

Wednesday, 25 March 2015

Reader's Letter Of The Day

Emailed in by David H, from yesterday's Evening Standard:

Has anyone really looked at house prices and run any decent comparisons?

In the Standard yesterday there was an advert for one/two bedroom flats in Eltham starting at £300,000. On traditional metrics of 3.5 times salary, a couple would have to earn a combined £85,000 a year to afford one.

In most circumstances you would have to say they were well off, yet they could only afford a one-bed in Eltham. Bizarre.

Jason Merritt.

George Osborne talks sense: shock.

From City AM:

BRITAIN’S lenders face having to pay the bank levy forever, as the chancellor yesterday revealed that the crisis-era tax was here to stay...

“I think the bank levy is going to be here to stay. It is perfectly reasonable as a society to ask the banking sector to make a contribution,” the chancellor told MPs on the treasury select committee.


“I was very clear in 2010 when I replaced the bonus tax with the bank levy, that the bank levy was a more effective way of getting the banking sector to make contributions.”

It is and it does.

Osborne hiked the levy for the ninth time in his Budget last week, increasing it to 0.21 per cent of UK banks’ global balance sheets. The initial plan was to set it at just 0.05 per cent of the balance sheet.

Osborne had targeted revenues of £2.5bn from the tax, hiking the rate as banks shrank in order to maintain that level of revenue. But under the latest plan, it will increase to take £3.7bn per year.

That's part of the point; to get banks to "shrink their balance sheets"; in other words to stop making the very low margin but high risk loans to land price speculators. So to keep revenues constant, the headline rate has to increase.

It's still only a paltry 0.21% though, which barely nibbles into banks' overall lending margin of 2% (i.e. mortgage interest average 3%, deposit interest average 1%, or whatever).

Analysts fear that such a large loss from the banking system will have larger ramifications for the wider economy.

"Large loss"? Get a grip. Banks hand out £10 billion a year in bonuses; the financial sector boasts that it pays over £50 billion a year in tax (mainly PAYE plus corporation tax and other bits and pieces). UK gross bank balance sheets are in the many trillions; if you net off inter-bank lending and other pure accounting entries, they are about £1,800 billion. Check: £1,800 billion x 0.21% = £3.8 billion.

“If that £3.7bn was capital that banks levered up into lending, that is easily £75bn of lending that could have been provided to the economy,” said analyst Joseph Dickerson from Jefferies. “I’m not sure it makes a lot of economic sense. It is like a sin tax, like on cigarettes, and governments usually like to have more taxes.”


Loans create deposits (especially in a land price fuelled bubble system). The constraint is what people are willing to borrow; once they've 'borrowed' that freshly printed money, it goes straight back into the banking system as a deposit.

The mechanism by which the bank asset tax depresses lending volumes is because the very, very low margin loans are no longer profitable; hence and why the sensible medium term policy would be to hike the bank asset tax to 1% or even 2% of assets (there are plenty of other bad taxes we could get rid of, like Stamp Duty or the 45% income tax rate, just to make it fair all round and fiscally neutral).
Dinero adds: "Bank capital is paid in capital. Its not derived from lending. See the document. Basel III capital"

1. Where did I say that "bank capital" was derived from lending? I didn't, that is an irrelevance and not central to this debate. I said that "loans create deposits". A well run bank doesn't actually need any share capital (Basel notwithstanding), and strictly speaking, building societies do not have any share capital at all.

2. If bank capital is issued in exchange for cash, then what does that cash represent? Ultimately it represents somebody else's debt. If different people have some spare cash, they can either give it to the bank as a deposit, or give it to the bank in exchange for new shares (or half-way house, give it to the bank for bonds). It's a legal distinction rather than an economic one.
Dinero again: "and so the statement "If that £3.7bn was capital that banks levered up into lending, that is easily £75bn of lending that could have been provided to the economy," is broadly correct."

No it's broadly complete and utter bollocks, this is special pleading put out by the banksters. The total amount they can lend is restricted only by the amount that people are prepared to borrow. Whatever they lend out comes straight back in again, as deposits, as bonds or as share capital. If they want people to put the money back in as share capital rather than deposits, they will just reduce interest on deposits and increase dividends on shares.

"Capital adequacy requirement is to be 10%
Mortgages have a risk weighting of 1/2
3.7 bn times 10 = 37
37 times 2 = £74 Bn
the £3.7 Billion goes from retained earnings, bank capital and so is no longer available for the capital adequacy criteria."

Read the post! That £3.7 bn is only a very modest increase in their current overall tax bills and only one-third of the bonuses they award themselves.

And finally... lending to land speculators (akak "mortgages") is not lending to "the economy", is it? It's just an increase in debts for some people and deposits for other people.
Dinero: "" If they want people to put the money back in as share capital rather than deposits, they will just reduce interest on deposits and increase dividends on shares."

That would only work if people were happy to convert their no risk deposit at the bank to an at risk capital at the bank. That would satisfy capital adequacy, but its not very likely to happen."

Again, nope.

Apply common sense or read my earlier post "Economic Myths: Gearing reduces the cost of capital".

The total 'risk' of borrower defaults etc. faced by 'the bank' is the same however it is funded. And that 'risk' is ultimately borne by its funders (be they depositors, bondholders or shareholders).

From a depositor's point of view, the more share capital there is, the safer he is.

But the same applies to shareholders. The more share capital there is, the safer each individual one is.

Imagine a bank that was ONLY funded by share capital. The shares would be very, very safe indeed. Even Northern Rock only managed to lose about 5% of the money it had lent out on reckless mortgages.

Or imagine a bank that was ONLY funded by deposits, i.e. a building society in the good old days. Putting your money in a building society is technically slightly riskier than in a bank, but the difference is negligible and nobody ever gave it a second thought.

(The £85,000 deposit guarantee clouds this picture, but then the government always does.)
Dinero: "People would not want to convert their deposits to share capital..."

Yes they would, I just explained that. If a mortgage bank were 100% funded by share capital, then its shares would trade at close to par and be easily buy-able and sellable; banks would redeem them when they had spare cash, pay very modest dividends that are only slightly more than normal deposit interest, and worst case in really bad years, you'd not get any dividends. They would be so close to being 'cash' as makes no difference.

"... and so that is not a route by which the retained earnings that are transferr5ed to the HM Treasury's custody by the levy could be replaced. So the amount of assets allowed to be held in line the capital adequacy regulation is reduced by the bank levy. "

A tax is a tax is a tax. Banks already claim that they pay £50 billion a year in tax, what's another £3.7bn?

That tax can be paid out of retained profits (i.e. share capital); or it can be paid by reducing deposit interest, or the banks could reduce bankers' bonuses by one-third. Or downsize their palatial head offices a bit etc etc etc.

The quoted bankster is talking shit, you can bend and twist it any way you like. If you follow that fucker's logic, banks should not pay any tax at all.

Tuesday, 24 March 2015

Fixed term Parliaments - they didn't think it through properly.

Before everybody drifts off topic in the comments, as a general rule, I'm all in favour of fixed term governments, most other civilised countries seem to have them. That's not the point here.
If you ask me, the reason that the current government decided to have five-year fixed term parliaments is because the elections to the European Parliament are held every five years and have been since 1979. In 1979, Jim Callaghan had to call a General Election because their five years were up, but since then no UK Prime Minister has called a General Election in the same year as a European election*.

They have switched between calling an election after four years (if things were going well for them) or hanging on for five years (if things were looking bad for them), but carefully avoided having a General Election in the year that a European election was due to happen (starting, ironically, in 1983 with Thatcher, thus avoiding a clash in 1984).

UK political parties spend a lot of money and effort on their election campaigns, so having a European election and a General Election in the same year would completely exhaust them, so over time, an unspoken agreement has been reached whereby they use the European elections as a dry run for the General Election, in other words, they hold the General Election the year after the European election (which happened in 2004/2005; 2009/2010 and 2014/2015). Having been through this mill, it's a good way of doing things.

This all came to a head in 2010. There was a European election in 2009 (so the next one is due 2014) and the Lib-Cons won the General Election in 2010 (so the next General Election could have been in 2014 or 2015). As the two coalition parties and the Labour opposition are pro-EU and do not countenance leaving it in their wildest dreams, they declared an armistice and agreed in advance that the next General Election definitely would definitely not be held in 2014; it would be postponed until the year after the next European elections i.e. in 2015.

So the next European elections will be in 2019 and the next General Election will be in 2020, everybody knows what they are doing.
So far so good.

What they forgot was the four-year cycle of the elections for the Scottish and Welsh Assemblies**, which were held the first time in 1999 in Scotland and in Wales. So far there hasn't been a clash between those and the UK General Election.

But of course, sooner or later the pre-existing four-year cycle and the new five-year cycle have to coincide, which happens to be this year 2015. And the parties don't want that either. So the Scots and Welsh duly agreed to defer their elections until 2016, a year after the General Election.
Again, so far so good - but here's the fun part...

If the Scottish and Welsh Assemblies have elections in 2016 and then want to have them four years later in 2020, that will clash with the General Election due to be held in 2020, so they'll have to defer until 2021 and so on until the end of time.

They might as well have just decided to extend the lifetime of the Scottish and Welsh Assemblies elected in 2011 by a year and gone straight over to five-year elections.

The same applies to the Greater London Assembly, which has had a four year cycle so far (2000, 2004, 2008, 2012) none of which clashed with the General Election, but that is going to happen in 2020, so the 2020 GLA election will no doubt be postponed until 2021.

* This is a complete misnomer, but I will use it for convenience.

** The Scottish Assembly has started calling itself the Scottish Parliament, I don't know how that happened.

"Methadone programme 'is a black hole', says drug misuse professor"

From the BBC:

The methadone programme in Scotland is "out of control", an expert has warned.

Prof Neil McKeganey, from the Centre for Drug Misuse Research, said "it is literally a mathematically defined region of spacetime exhibiting such a strong gravitational pull that no particle or electromagnetic radiation can escape from it, into which people are disappearing".

Prof McKeganey has earned praise from English literature professors and scientists at the CERN large hadron collider in Switzerland for his excellent use of English and deep understanding of astrophysics.