Sunday, 30 August 2015

Financial Terms

Excess Liquidity.

Cash held by a bank above the usual requirement for that bank.

How did a bank get this much cash? Two reasons.

1) Basel III [or the Third Basel Accord] dictated that banks in the future should keep more stocks of cash to alleviate the issue of not being able to cover all deposits.

2) Quantitative Easing governed by monetary policy has produced so much cash the banks do not know what to do with it.

Why should we be worried about this? Deflation.

If inflation was our current problem then raising interest rates, having cash in the bank would be a good thing, but deflation is top of the pops at the moment and the central banks do not seem to have an instrument to work for them against this trend.

One enduring constant of the world economy since 2008 is the chorus of sober-sounding people declaring that central banks must act responsibly and raise rates. A few years back, rising commodity prices and a flood of money into emerging markets were proof that low rates were dangerously inflationary and must be hiked. Well we are still waiting for this inflation to hit us and it seems a long time coming.

Now we have plunging commodity prices and a flood of money out of emerging markets; clearly, this shows that central banks must do the right thing, and raise rates. But as we have already said, this is not currently possible, so what next?

Friday, 28 August 2015

Gun control in America

Gun legislation in the United States is constrained by judicial interpretations of the Constitution. In 1789, the United States adopted the Second Amendment, and in 1868 adopted the Fourteenth Amendment. The effect of those two amendments on gun politics was the subject of landmark U.S. Supreme Court decisions in 2008 and 2010, that upheld the right for individuals to possess guns for self-defence [Wiki].

The public policy debates about gun violence include discussions about firearms deaths. Within the gun politics debate, gun control and gun rights advocates disagree over the role that guns play in crime.

Gun control advocates concerned about high levels of gun violence in the United States look to restrictions on gun ownership as a way to stem the violence and say that increased gun ownership leads to higher levels of crime, suicide and other negative outcomes.

Gun rights groups say that a well-armed citizenry prevents crime and that making civilian ownership of firearms illegal would increase the crime rate by making law-abiding citizens vulnerable to those who choose to disregard the law. They say that more people defend themselves with a gun every year than the police arrest for violent crimes and burglary  and that private citizens legally shoot almost as many criminals as public police officers do.

On 16th January, 2013, in response to the Sandy Hook Elementary School shooting and other mass shootings, President Barack Obama announced a plan for reducing gun violence in four parts:

closing background check loopholes
banning assault weapons and large capacity magazines
making schools safer
and increasing access to mental health services

The plan included proposals for new laws to be passed by Congress, and a series of executive actions not requiring Congressional approval. No new federal gun control legislation was passed as a result of these proposals. President Obama later stated in a 2015 interview with the BBC that gun control:

“I feel that I've been most frustrated and most stymied it is the fact that the United States of America is the one advanced nation on earth in which we do not have sufficient common-sense, gun-safety laws. Even in the face of repeated mass killings.”

Americans will never give up their guns.

Thursday, 27 August 2015

Chilcot delaying tactics

The Iraq Inquiry, chaired by Sir John Chilcot, is entangled in the endless process of “Maxwellisation”, as politicians and civil servants named in the draft report battle to protect their reputations.

Chilcot and his team dare not cut short the process until every objection from every lawyer representing any of the named individuals from Tony Blair to some middle-ranking intelligence officer has been answered, but the longer this process goes on, the more it attracts suspicion and ridicule.

Yesterday he posted a statement that will probably allow him another year to take the piss.

Chilcot, suggests that the government and Whitehall were partly to blame, citing delays in requests for classified documents including records of discussions between Tony Blair and George Bush. This also hints at the possibility that Chilcot & the establishment have organised the delays from the beginning. It is not beyond possibility that this report is never published.

The Prime Minister David Cameron said only last month that he and his government were frustrated by the delays but did not constructive to move the process along.

As a career civil servant Sir John Chilcot has lived by several articles of civil service doctrine:-

it takes longer to do things quickly
never look into a problem you do not have too
it is more expensive to do things cheaply
never set up an enquiry unless you know what it's findings will be
it is more democratic to do things in secret

Are we really surprised that this fiasco will drag on forever.

Wednesday, 26 August 2015

Market corrections

If we remember that the world financial collapse happened in 2008 with the fall of Lehman Brothers rather than China's catastrophic 2015, we can see that the world is in the middle of a market correction.

The worry is that a slowdown in China could slow the world economy, and have a much bigger negative effect than anticipated on the world's markets. Of course, we are not in a bear market yet [a bear market is defined as a 20% drop in stock prices].

A recent survey of household finances by the Bank of England suggested that if base rates rose from 0.5 per cent to 2.5 per cent, the proportion of mortgage borrowers judged to be vulnerable [defined as spending more than 40 per cent of their monthly gross income on debt repayments] would double from 4 per cent to about 8 per cent. However, if household incomes also rose 10 per cent, the proportion of vulnerable borrowers would only increase to 6 per cent.

The notion that the Bank has been deliberately keeping rates low in order to subsidise borrowers at the expense of savers has gained some traction, yet it is based on a misunderstanding of the objective of monetary policy. The Bank’s mandate is to keep inflation close to its 2 per cent target over the medium term. This facilitates overall GDP growth in the economy, so getting this balance right is to the ultimate benefit of both savers and borrowers. Their long-term interests are aligned.

Now if the world markets keep dipping the BoE would naturally lower interest rates or devalue the pound  as instruments to correct the situation, but how do you lower 0.5% and how does that affect the required rate rise of the future?

Perhaps we have arrived at the time where the markets should be left alone?

Monday, 24 August 2015

Market Slump

The Footsie is back to levels seen in 2009 at the time of the crash, is this just a natural correction for a high run or something more sustained?

China's economy, the second largest in the world, is not growing anything like as fast as it once was or international exporters had hoped. As a voracious consumer of commodities this has added to the rout and dragged down emerging market currencies.

The price of oil in the U.S. slipped below $40 a barrel on Friday for the first time since 2009 amid a growing consensus that cheap crude is here to stay. Oil investors and forecasters, who predicted early in the year that prices would recover in the second half of 2015, now say a rebound is unlikely before the second half of next year or 2017. U.S. government forecasters last week cut their oil-price estimates and see oil holding below $60 a barrel, on average, through 2016.

Recently there has been a switch to "risk off" trading and a rush to safe havens such as gold. Selling begets selling until something materially changes investors' views. So what is Risk-Off Trading?

Definition: Higher risk is associated with greater probability of higher return and lower risk with a greater probability of smaller return. This trade off which an investor faces between risk and return while considering investment decisions is called the risk return trade off.

When investors take more risk with their investments, they generally have the potential for, but not a guarantee of, a higher average return. For example, stocks which are very volatile in the short term, have historically produced the highest average annual returns of any asset class over the long term. By comparison, cash-equivalent assets, such as money market mutual funds and certificates of deposit, have less risk of loss of principal but generally pay relatively low rates of interest.

And finally Greece, we could not really leave this out. The impact that Greece has had on the markets is now becoming clear and begs the question should they continue to be funded?

Friday, 21 August 2015

Post Office Phones

I recently moved and asked my phone company to move my number. No problem they said as the STD code was the same.

Issue 1) They switched the phone off two days before the move so contacting people was tricky.

Issue 2) The phone did not work at the new location.

When queried I was told a new contract had been created and I had to wait two weeks.

Issue 3) I started using the phone in the new location when it was switched on without realising it was a different number!

When queried they said I could not keep the same number as it was being used by someone else.

Issue 4) The adjoining broadband service was offline.

After the two weeks of no phone and no BB the service was once again up and running allbeit on a different number which I had to inform all the usual services about, bank, utilities, insurance, pension, family & friends.

Issue 5) Three days later BB went offline.

Before I could pick the phone up to complain, a P.O. engineer called me to say the phone number had been successfully reverted - WTF!

Just in case you missed it, this is

Post Office Phones

Machines making machines

It used to be that if a client wanted something done in a week, it was considered a rush job and he would be lucky to get it.

Now with modems, faxes and mobile phones everybody wants everything instantly! Improved technology just increases expectations. This technology does not make life easier, they make it more stressful.

If we wanted more leisure time we should invent machines that do things less efficiently and with the advent of machines making machines, that is hardly likely to happen.

Thursday, 20 August 2015

Financial Times

Lead story today says it all.

"Berlin to accept record 800,000 asylum seekers as crisis mounts".

Now the 3000 asylum seekers in 'village Calais' seems a little trivial.

How long will it take for the government to back down on the current lockdown policy at the White Cliff of Dover gates?

Space exploration

Yesterday Curiosity Rover sent back some selfies from Mars:-

It has always amazed me since 1969 sitting on the sofa @ 4 in the morning watching the first man on the moon and thinking about all the space travel I will do in the future and then 46 years later just how close am I to space travel? Probably none.

However, it also amazes me how these machines that man has made and then sent millions of miles into space just keep on rolling. Wonderful!

Wednesday, 19 August 2015


My driving licence has just dropped through the letter box - huzzah.


It still has the previous address!

I phone DVLC and am greeted by a very pleasant voice and tell them my name and my query [why have you sent back my DL with the previous address on it when I sent it with a completed form for change of address?]

Can I have your driver number she asks, I pass it over.

We do not have you on our records, this is disconcerting. After a few minutes we ascertain she has substituted one of the letters for something else and we get [aah there you are - normal service has been resumed].

The next response is a little stranger, she says we did not know what you wanted. I point out that the little box next to [change of address] had an X in it and why have they sent the licence to address B with address A on it.

We haven't changed it she says, I know that is my question, why not? It is not a new licence she says. !! I appreciate that but why have you not changed the address, we haven't changed the address she says.

I ponder for a moment and put the phone down realising that this will costs a fortune and get me nowhere.

My move

I have recently moved home for several reasons, mainly cost.

I have downsized from one town to another to be in walking distance from work. The job I do now is part time and will take me to retirement with little stress and an extra top-up pension to boot.

I knew the size difference before moving so I arranged to get rid of all large items before the move, I also had a clear out of small stuff that I thought would not have a place in the new location.

The move itself went smoothly but when I started unpacking, I realised that I would have to start throwing out stuff once again. I even had to move the furniture round in the bedroom three times before I got the efficient desired effect.

Now I wonder why I had so much stuff in the first place!

Monday, 17 August 2015

Inflation rate

Why is the government so convinced that 2% is the ideal rate and how long does an interest rate hike take to effect the outcome?

It is now being questioned as to the viability of keeping the historic low rate of 0.5% any longer as it could harm the economic growth of the country.

Last month Mark Carney [Bank of England Governor] said that inflation could start to rise next year and that interest rates could follow, should it not be the other way round?

This begs the question that are higher interest rates are inflationary or is economic growth inflationary?

In the short run, the BoE decision to raise rates is indeed often contractionary, but that is because they typically raise rates by cutting the money supply, which is more contractionary than the higher interest rates are expansionary.

Presumably the BoE work with models, so what does the model say when a 0.5% rate rise takes place now?

Wednesday, 12 August 2015

Airport VAT

This was something that I did not know was happening.

One of the most tiresome rituals of air travel after going through passport control, is shopping, no matter how trivial, it involves a cashier demanding to see your boarding pass. It is an automatic reaction that I have not considered until now. You might want to buy nothing more than a newspaper or a packet of tissues, but having worked your way along the queue, you reach the till to be greeted with the request for your boarding pass.

Today it has been revealed that it is not necessary and more importantly the retailers are using it to boost revenue. It has also been suggested that the public should revolt by refusing to show a boarding pass, this will take time for people to break the habit but it will not produce cheaper goods for the consumer because the retailers will just charge full price.

However, what it would do if everyone started doing it is to force the retailers to pass on the VAT to HMRC and of course we would all benefit from that.

Friday, 7 August 2015

Kids Company

Kids Company are being accused of mishandling serious sexual assault allegations and this line of enquiry should be followed up, however, this is not why the charity collapsed after being given £3,000,000 pounds.

Senior directors at the charity Kids Company repeatedly warned trustees of the need to build up financial reserves or face going to the wall, as an analysis of the accounts show that its funding increased by more than 75% in five years.

Yesterday Camila Batmanghelidjh the Chief Executive of Kids Company acknowledged on the BBC Radio 4 programme Today that they had always spent as they had received and nothing would change that. John Humphries tried to explain that it was obviously not a good business model but Camila Batmanghelidjh insisted that Kids Company was a charity not a business, perhaps this is why she stepped down earlier in the year.

What is more worrying is despite receiving millions of pounds in government funding, it lived hand to mouth, never built up any reserves, and spent almost all its income each year and mostly on salaries, the last £3,000,000 received recently was used mostly for salaries it has been established.

Although lasting for 15 years, was Kids Company just a title for one person's glory?