Tuesday, February 28, 2012

Equitable Life: climbing back up?

Equitable Life, the British mutual insurance company that burned its fingers very badly by offering high guaranteed annuity rates (in the period 1956 - 1988) as a marketing incentive to prospective pension investors, has announced a deal that will help it off the hook.

Canada Life will be offering annuities for maturing EL pensions in future (though EL will remind customers that they have the open market option also). This follows the 2006 deal in which Canada Life took over £4.6 billion-worth of existing EL annuity business.

It's not clear what Canada Life has paid or will pay EL for this linkup, or how.

EL's "intention is to stop writing Equitable Life annuities where possible" (PDF). Over time this arrangement will further reduce EL's outstanding annuity commitments and some of the freed capital is to be used to increase payouts by 12.5% on maturities and transfers.

INVESTMENT DISCLOSURE: None. Still in cash (and index-linked National Savings Certificates), and missing all those day-trading opportunities.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content.

Occupy St Paul's finally evicted, life to return to normal


Leave those poor bankers alone; haven't they suffered enough? Harry Mount seems to think so, at any rate: those oiks fair spoiled the view, so they did.

Of course, the modern thing is for the bankers to scourge the protestors. And since they're on the Board controlling St Paul's, they can. And a jolly good thing, too.

Sunday, February 26, 2012

The news media: the cock crows on the dunghill


I think it was William Morris who said that the first step in literacy was being able to read a newspaper, and the second was not to read one.

Liz Jones gives cause why in the Mail on Sunday: fashion "journalists" at London Fashion Week are given seats of honour, or pent-up "some several hundred feet above the action", according to their willingness to toady; but a vengeful article by the victim gets results: "I was couriered a fabulous gift of perfume, shower gel, body lotion and chocolates (vegan, hopefully), and a handwritten note from Stella herself. Was this an apology? Or a bribe so I would play nicely next time?" (Both, obviously.) Sir Philip Greed gives her a light touch of the whip, saying he would have sent her a lovely olive coat for her review of TopShop - until he read the last para. Designer houses mark coverage by the glossies on a points system - nil for blacks and fatties - and so on, in a litany of bribery, schmoozing, banning and sacking. I think Jones is one to watch: when she finally tears her gaze away from her navel in the back pages of You magazine (there is a hopeful reticence about her human relationships this week), she might yet prove a Samson and bring the whole unholy edifice crashing down.

Meanwhile, Toby Young has taken the Murdoch shilling - as he boasts in the Spectator - and dutifully produced some wallpaperese in the new Sun on Sunday. His bet's on education sec Gove for PM, the free-schooler opines, entirely without any consideration of how (one of) his interests might in any way be congruent with Gove's (or Rupe's). Like so many of our modern celebs, Young has recognized the power of brazenness, adopting "@toadmeister" as his Twitter ID. And like former transport minister Stephen Byers, he's a "bit like a sort of cab for hire", only it's more acceptable in journalism, or so he seems to think: "(Go on Private Eye, stick me in Order of the Brown Nose. See if I care)", sez 'e in the Speccie, a magazine I now read principally because of Jeremy Clarke's luminous column (shame they let go Christopher Fildes and Mark Steyn, among other talent).

Young's is the authentic voice of the new Fourth Estate establishment: offensively triumphalist. Like the bankers who've ruined us, the yacht-visiting politicians who've sold us out, the rich who've looted us. These have learned how to manage news and opinion: dining with, leaking to, treating, flattering and employing the writers who (like the ancient bards) can foster or wither reputation. By and large, the newshounds have been luxuriously tamed, their necks enclosed in velvet collars with silver chains. There are exceptions, like Peter Hitchens, serving but to prove the rule; as "Anastasia" in his latest piece on Russia says, "The only rational conclusion is despair."

Sunday, February 19, 2012

Tyler Durden, Greek bonds and "odious debt"

Here, Tyler Durden discusses at length issues around the process of restructuring Greek debt.

It seems that we have to take into account the difference between bonds issued under Greek law and those issued under don-domestic law. One of the technical points is whether all holders of the debt have to agree to a new deal, and whether or not a minority can hold the majority to ransom by refusing to agree.

If, in desperation, Greece is driven to outright default whatever its creditors might think, this tears up the rule book and anything could happen. Other European nations are also severely distressed by debt and might try to follow suit. The very rule of international law would be challenged.

But there is an angle that Durden has not explored in his essay: the principle of "odious debt". There is precedent for a country repudiating damaging obligations, e.g. Mexico after the fall of the Emperor Maximilian, and the USA itself in relation to Cuban debt incurred under the previous Spanish regime.

Could Greeks be justified in arguing that bailouts imposed by their new, undemocratic government are not binding on the people? Could this argument also apply to debts incurred previously, directly and indirectly and consequently, in the process of acquiring EU membership, which it now transpires was based on fraud, assisted by bent accounting by Goldman Sachs and quite possibly connived at by the other EU states?

INVESTMENT DISCLOSURE: None. Still in cash (and index-linked National Savings Certificates), and missing all those day-trading opportunities.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content.

The sound of Sunday

Newspaper pages being rapidly turned.

Wednesday, February 15, 2012

Greek debt: talks continue


Hercules slaying Augeas for non-payment of debt - the promised fee for cleaning the Augean stables. The statue, by Lorenzo Mattielli, stands outside the Hofburg Palace in Vienna.

At least Hercules had an excuse, having done some honest work, though to my eyes this particular depiction makes him seem simply a violent fat thug. What, by contrast, have the EU, international banking and the lucrative intermediation of Goldman Sachs done for Greece, aside from shoehorn the country into a club it should never have been allowed to join?

Euro MP and UKIP leader Nigel Farage has just told it straight yet again, to a parliament in which notable figures pointedly chat to each other while he berates them: the EU has driven poor Hellas to desperation and worse is to follow.

This chaos was foreseeable; my wife and I were in Corfu in May 2010 - the month in which three innocent Athenian bank employees were burned to death - and the goldsmith at Roda told us there would be a revolution within a year. Now, a whole government has been removed by outsiders and democracy is, apparently, merely an optional extra for peripheral nations.

Anyone who know the Greeks knows they have a historical memory like the Irish. This will go deep and will not be forgiven.

Saturday, February 11, 2012

Loathing corner


The Daily Mail reports its libel victory over the Lizard People. But looking at them, why are our politicians and financiers so unimpressive?

There is Oleg Deripaska, reminiscent of a toxic marmot, flanked (left) by millionaire Nat Rothschild looking like one of the people who stand behind John McCririck on Channel 4 Racing and seemingly nerving himself up to raise his thumb at the camera, and (right) by Peter Mandelson, rigidly relaxed and posing as a wannabe extra for a Blue Oyster club scene from "Police Academy".

If you must be star-struck, boys, at least don't worship a dark star.

I'm holding out for the Hollywood version, it'll be so much more credible. To quote Sir Philip Sidney, these people's "world is brazen, the poets only [i.e. only artists] deliver a golden".

International debt, in context

Data gets turned to the commentator's angle on it. Discussion of debt too often focuses on what government owes and ignores private liabilities, hence the crisis (which most professional economists failed to anticipate) that faces us now.

In its turn, debt is only a part of the picture. Watching the Greek economy implode, it's easy to run around panicking like Chicken Little about our own situation.

So let's look at the net international investment position of the PIIGS, USA and UK to see the problem through a wider-angle lens:



Yes, even in this wider definition of net obligations, we're all debtors; but the ratio of debt to GDP varies greatly, and if there is to be a domino effect, remember that one of the dominoes in the top graph is more like a skyscraper and much less easy to tip over.

Everything that makes up the above data is subject to change: what will bonds and equities be worth next year? How much could GDP change? How is the structure of the largest economies different from that of the small ones? Are we comparing whales and jellyfish?

And how much could the big help out the small? I'm reminded of the story of two men at their place of worship, praying for cash to get them out of a jam. "I need fifty thousand, Lord, or I'm going to lose this deal," begs a blue-suit, but keeps being interrupted by his ill-dressed neighbour calling "A hundred, Lord, a hundred for my family's rent and food". Finally, the businessman reaches into his pocket, pulls out $100 and gives it to the other, saying "Here, now shut up, he's listening to me."

INVESTMENT DISCLOSURE: None. Still in cash (and index-linked National Savings Certificates), and missing all those day-trading opportunities.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content.

Friday, February 03, 2012

UK back into slump

Since my previous post, the UK M4 bank lending figures in the quarter to end December have finally come in: negative 6.7% annualised, following on from negative 8.7% ending September.

Since the start of the credit crunch in 2007, UK M4 has done this:


That's 5 negative quarters out of the last 7 - the five lowest (and the only five negatives) since 1963.

This thing isn't over, and the air of normality and control is, I fear, fake.

INVESTMENT DISCLOSURE: None. Still in cash (and index-linked National Savings Certificates), and missing all those day-trading opportunities.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content.

Sunday, January 29, 2012

Is money-lending approaching its tipping point?


Chartists are always trying to scry a pattern in markets. Here's one that doesn't seem too difficult to discern: the long-term deceleration in bank lending to the UK private sector.

It looks like a cycle of around 18 years, but rather than simply repeating, the pattern is progressive: lower peaks each time, and lower lows. And for the first time since 1963 (which is as far as the online BoE data goes), we are in negative territory. Previous highs of  c. 35%, 25% and 15% suggest that the next peak will be more of a hillock, at 5%.

Or maybe there will be a phase shift, into some disorderly deflation. Australian Economist Steve Keen has attempted to model macroeconomic change as debt increases, and one curious feature is that the model predicts an apparent tendency towards a moderate point, followed by a catastrophic breakdown in wages and profits - see for example the graphs on pages 43 and 44 of his paper entitled "Are we 'It' Yet?".

The economy is not a machine, of course. It is more like a game played with ever-varying rules, like Calvinball. But the value of Keen's observations is in showing that there must, in fact, be a change in the rules at some point, simply because without it the game breaks down altogether. 

Currently, our counters are cash notes, bank deposit statements, share certificates, bonds, Treasury promises and property deeds - plus the derivative contracts that outweigh everything else. Whether they will be freely accepted by all players in the next version of the game remains to be seen; perhaps they will suffer the fate of Continental and Confederate currency.

No wonder that many thinking persons are converting to tangible assets of various types, even if they seem overpriced according to the present system of reckoning.

INVESTMENT DISCLOSURE: None. Still in cash (and index-linked National Savings Certificates), and missing all those day-trading opportunities.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content.

Wednesday, January 25, 2012

Libertarians should consider commercial tyranny as well as political

I've just happened on a documentary screened on Russia TV (Freeview here in the UK), about the battle between a small Canadian farmer and Monsanto.

I think the fight for freedom is no longer solely against Big Brother. Libertarians should consider Big MD/Big CEO as a major threat, especially since multinational corporations are more powerful than many governments.

And I don't think I'm alone in feeling that patenting life itself is in some way an outrage.

Sunday, January 22, 2012

The Royal Yacht and the pig-ignorant commentariat

Even Sunday Times journalists can be stunningly ignorant and stupid, it seems. Camilla Long ("never 'eard of 'er", as Harry Hill would say) opines - well, no, read the crap yourself, if you can stand it. The arch title is pretty much a précis of the whole article: "A yacht? Wouldn’t the Queen prefer a really nice soap?"

Perhaps it's the Murdoch connection, I don't know. But this anti-monarchical drivel is of a piece with the sniggering on Radio 4's News Quiz, which I heard driving home yesterday. The panel are usually OK making funnies about animals and human foibles, but when it comes to politics and economics they don't know sh*t.

Has it not occurred to all the pseudo-sophisticates in the media that

(a) The Queen is the Head of State (something Tony Blair was liable to forget).

(b) Show matters. If you don't understand the importance of symbol and pageantry, get out of the commenting game. The soi-disant Labourites understand, all right - why else would TB attempt to get himself a "Blair Force One", and Brown find a way to refuse it him?

(c) When the Royal Yacht was operational, before the Inglorious Revolution of 1997, it was not only a status symbol for our country, but a roving, floating venue for discreet diplomacy and business dealing - and may I suggest, rather less demimondaine than Oleg Deripaska's (the Queen K). Or Murdoch's own Rosehearty.

F****** idiots.

Saturday, January 07, 2012

Sack all teachers who can't answer this

"Supergravity theories are often said to be the only consistent theories of interacting massless spin 3/2 fields.

Discuss."

There. That should sort out those baaaaad teachers. Did you know only 17 were struck off for "professional incompetence" in 10 years? (Shame about the Lord Charles-like pic of Michael Gove in that article.)

Erm, how many bad teachers SHOULD there be, then?

Or is this really about the naughty larrikins not wanting a second scything of their pension rights, "at a time when the whole country is suffering"? In prosperous times, they could've switched to a different career, if they were any good, which by definition they're not; in bad times, we simply can't afford to treat them decently.

Much easier to make them keep their heads down with a steady fusillade of criticism, threats and insults. Serve them right, they forgot they were below stairs people.

Fred Goodwin is 53.

Pip pip!

Tuesday, January 03, 2012

Steve Keen: Dow to drop 35%, housing 40%?

Australian economist Steve Keen has previously argued that it is far more beneficial to bail out consumers than the banks, and now has made it part of a manifesto for avoiding a worse-than-the-1930s economic depression.

As part of his analysis, he looks at the Dow:

... and the US housing market:


If his exponential trend lines are correct, stocks will have to fall by a further 35% and houses 40%, ignoring overshoot.

If that seems overly pessimistic, consider James Howard Kunstler, who revisits his "Dow 4,000" mantra and modifies it to 1,000 by 2014. Unbelievable? Only if you think tomorrow will be no worse than yesterday, and ignore how freakish the whole period from the mid-1980s has been. I had a go at reading the patterns back in February 2011 and the next Dow low looked around 4,500 - adjusted for CPI, in view of our inflation-happy leaders.

What would I know about it, you may say. Well, what does anybody know, and more pertinently, what do they know?

I have to say that I may soon need to modify my investment disclosure, as it may be prudent to begin buying physical gold in regular small quantities, against the possibility of a serious market breakdown and savaging of the value of cash. The gold price is still rather rich for my taste, but what's the alternative?

Do you really think our politicians, bankers and economists have a credible plan to sort out the problems? I like Keen's, but I'll give you long odds against it ever happening. Still, better noble failure than dishonourable compromise, I think the Japanese would agree: 判官贔屓.

INVESTMENT DISCLOSURE: None. Still in cash (and index-linked National Savings Certificates), and missing all those day-trading opportunities.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content.

Steve Keen: Dow to drop 35%, housing 40%?

Australian economist Steve Keen has previously argued that it is far more beneficial to bail out consumers than the banks, and now has made it part of a manifesto for avoiding a worse-than-the-1930s economic depression.

As part of his analysis, he looks at the Dow:

... and the US housing market:


If his exponential trend lines are correct, stocks will have to fall by a further 35% and houses 40%, ignoring overshoot.

If that seems overly pessimistic, consider James Howard Kunstler, who revisits his "Dow 4,000" mantra and modifies it to 1,000 by 2014. Unbelievable? Only if you think tomorrow will be no worse than yesterday, and ignore how freakish the whole period from the mid-1980s has been. I had a go at reading the patterns back in February 2011 and the next Dow low looked around 4,500 - adjusted for CPI, in view of our inflation-happy leaders.

What would I know about it, you may say. Well, what does anybody know, and more pertinently, what do they know?

I have to say that I may soon need to modify my investment disclosure, as it may be prudent to begin buying physical gold in regular small quantities, against the possibility of a serious market breakdown and savaging of the value of cash. The gold price is still rather rich for my taste, but what's the alternative?

Do you really think our politicians, bankers and economists have a credible plan to sort out the problems? I like Keen's, but I'll give you long odds against it ever happening. Still, better noble failure than dishonourable compromise, I think the Japanese would agree: 判官贔屓.

INVESTMENT DISCLOSURE: None. Still in cash (and index-linked National Savings Certificates), and missing all those day-trading opportunities.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content.

The poisoned environment, the EU and the need for a more radical revision of democracy

"Endocrine disruptors can accentuate or inhibit the response to hormonal signals. They have been
implicated as one of the potential causes of the significant drop in male fertility observed in Europe over the last 50 years and as having negative impacts on the environment."



I'm not fond of being bossed-about, but clearly there are some matters that have to be addressed at a collective level and it seems that the EU has added this to the 2012 agenda (htp: Ian Parker-Joseph). If the science is right, then yes, I support action.

And while I also support those (especially UKIP) who resist our regional tryout of the New World Order, has anyone considered that if we did successfully disconnect from the EU political machine, we'd be left with the domestic dictators of Westminster and Whitehall, freshly energized and unshackled?

The democracy project has a lot more to do than tweak Rompuy's nose.

UPDATE: Coincidentally, Alastair Smith has just published an article in The Economist, explaining why those in power are never acting in our best interest. After an amusingly cynical analysis, he concludes:

It’s not possible to reform a system by imploring people to do the right thing. You have to know how it works. Dictators already know how to be dictators—they are very good at it. We want to point out how they do it so that it’s possible to think about reforms that can actually have meaningful consequences.

A mild defense of Dawkins

This is in response to Sackerson’s piece on Richard Dawkins. It is probably not my best work, given my lack of sleep.

I have read ‘The God Delusion’, and Anthony Flew’s review of it. Most of the former is concerned with the science of why religion appears to exist, based on the scientific evidence available. In his first major point, Flew chooses to focus on Dawkins’ discussion of Einstein, in which he says:

“But (I find it hard to write with restraint about this obscurantist refusal on the part of Dawkins) he makes no mention of Einstein’s most relevant report: namely, that the integrated complexity of the world of physics has led him to believe that there must be a Divine Intelligence behind it.”

The problem for Flew is that I have read Einstein’s writings and comments on the subject. The latter explicitly said that he did not believe in a deity, and that the most that could be said is to deify the structure of the Universe itself. This is not quite what Flew implies. The rest of his review does not address the science presented.

That being dealt with, I have far more interest in the reasons for the outspoken anti-religious tactics of Richard Dawkins, Sam Harris, P.Z. Myers and Christopher Hitchens.

It is my claim that they are a product of the current social forces.
Since I moved to the US in 1978, I have seen a rise in the loudness and power of the Religious Right, who have supplanted the fiscal conservatives as the core of the Republican Party. These people are not the pleasant vicars and church-goers of my youth. For my UK readers, I note that Ian Paisley was educated at Bob Jones University, a font of wisdom for the fundamentalist community. His style is representative of many in the movement.

This rise in power can be explained in part by the political and economic uncertainty from the gradual decline in the power of the US, and from the many scientific discoveries which show that emotionally-charged deeply-held beliefs (especially ‘no evolution’) are simply not supported by reality. As any psychologist will tell you, this conflict between the frontal lobe and amygdala results in anger, directed firmly at anyone who rejects their ‘correct’ beliefs. Some have coined this the Ameritaliban.

A few people, such as Pope John Paul II and Stephen Jay Gould, tried to make peace, by showing that religion and science could live in harmony. This has also been tried by the Templeton Foundation. These efforts were roundly rejected by the anti-science crowd, who continue to vilify the former two after death, and use every tactic possible to neuter science education and research.

Faced with a call of ‘no quarter’, is it any wonder that voices like these arose on the pro-science side?

Sunday, January 01, 2012

Foreign demand to support the price of gold?

I start with an entertaining and informative investor newsletter: David Collum's annual personal investment report, which is worth reading in full. The prose is very sparky and the scorn and indignation laid on good and thick.

For the impatient, I can report that he begins by describing his own asset allocation:

With rebalancing achieved only by directing my savings, I changed nothing in my portfolio year over year. The total portfolio as of 12/31/11 is as follows:

Precious Metals et al.: 53%
Energy: 14%
Cash Equiv (short duration): 30%
Other: 3%


... which tells you where he stands in the bull/bear debate.

Now, here's a sweet little piece of possible future villainy:

[The Chinese] are rumored to have 1,000 tons of gold with a target of 8,000 tons. How do they buy 7,000 tons? They bid for it like everybody else. Chinese citizens have been encouraged to save using gold (a defacto gold standard and covert accumulation). Although the gold bugs in the US occasionally discuss confiscation, I think the Chinese proletariat are the ones being set up. 

That is so nasty and cynical that it seems almost inevitable.

And easy:

7,000 metric tonnes of gold at current prices ($50,290.84 per kilo at time of writing) is worth a shade over $352 billion.

This IMF report from 2010 (fig. 3, p. 27) estimates Chinese household net savings at some 15% of GDP, and  World Bank data estimates GDP in 2010 to be the equivalent of US $5.88 trillion. So the dollar equivalent of Chinese net household savings is around $882 billion.

So if Chinese convert merely 40% of their personal cash to gold (which David Collum seems to have done already), the target will be met. Theoretically, it's doable today. Meanwhile I still see not just one, but a number of shops offering to buy gold in my neighbourhood. Perhaps the gold is heading East, like the copper wiring from our railway signals and the wrought iron manhole covers from our streets.

It's not just China that's importing gold, of course; Indians (for example) save a third of their income in gold.

So it seems to me that the gold price won't crash back to the levels of some years ago.

INVESTMENT DISCLOSURE: None. Still in cash (and index-linked National Savings Certificates), and missing all those day-trading opportunities.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content.