Thursday, 25 April 2013

KG51 FYH Driver Reported to the Police.

This incident is an ongoing issue with the Police.

The sheer uselessness of the police never ceases to amaze. First they couldn't find an incident I reported just 3 days ago, because they'd "just yesterday changed the process by which they organise incidents" and couldn't find anything on their system.

Second the "process and collisions department", staffed by useless civilian pond-life have made it absolutely clear that "dangerous/careless driving" requires one to be actually hit before they will take action (but only when the complainant is a cyclist...) and that high-definition video doesn't constitute "evidence". I asked specifically that this incident not be referred to them, because I have absolutely no faith in their ability or desire to secure prosecutions in incidents which don't result in a collision.

The call handler simply ignored my requests.

And they wonder why people have no faith in them any more.

Update. Two traffic cops came round to discuss this. They were clear. If THEY had seen this incident, it would be clearly a case of careless driving and there would be a prosecution. Had the cyclist been a police officer, there would have been a prosecution. However current policies mean that helmet camera evidence isn't "evidence" according to Hertfordshire police's process and collisions department, nor can members of the public generate evidence. Which is ridiculous.

Both officers thought this was an appalling piece of driving, but like the white van thug who beat up a cyclist, their hands are tied by process. Thanks to the Government, now there's someone who can sort this out: the local Police and Crime Commissioner. I will also be writing to my MP and the Chief Constable.

Ultimately Roadsafe or something like it needs to be rolled out nationally. There needs to be a formal way of reporting unsafe driving. This will benefit everyone. Because the kind of ignorant turd who drives that fast and close to a cyclist is almost certainly the kind of ignorant turd who drives six-inches from your bumper on the motorway or thinks speeding in build-up areas is acceptable. He needs a stern word from dibble BEFORE he kills someone.

Wednesday, 24 April 2013

Twitter's first Flash-Crash

Yesterday, some jolly trickster hacked into the Associated Press's twitter account (@AP) and tweeted

"Breaking: Two explosions in the White House and Barak Obama is injured"
Predictably the market collapsed 0.8%, before rallying on the news that it's a hoax.

It would be so easy to earn serious money, with almost no chance of getting caught. You need the password. You need to open a trading account for CFDs or Spread-Betting. You need to establish a pattern of trading. You need to have a situation where a $100 a tick position would be entirely normal. You need to open just such a position, shortly before your associate, working from an internet cafe elsewhere, logs into AP's Twitter and tweets the bogus bomb story.

The fact this happened shortly before the market close suggests the plan was to go long in the final seconds of trading, ensuring another big profit, when the markets open up today on news of the hoax getting around.

As it happened, the hoax was spotted quickly, and the Markets recovered before the close of play. Still, it would be quite possible to make hundreds of thousands of Dollars in a couple of minutes work. This post is of course, an elaborate double bluff.
"Of course I'd do no such thing. Look, I've written about it, yer 'onner." 
Can anyone get me Reuters' twitter password?

Thursday, 18 April 2013

The Hows and Whys of the End of the Commodity Super-Cycle

Some of you may have heard me witter on about oil on Radio 3counties, 4 or most recently 5-live. On Tuesday morning, I managed imperfectly to explain how prices prevent shortages. Oil is actually a pretty good example.

I remember Oil at $14 a barrel back in the early noughties. The conversations I was having then were about the roof in the price due to Canadian tar sands, the world's largest hydrocarbon repository, which became economic to exploit at $40. The Oil Price, in response to shortages, and anticipated shortages caused by rapid Chinese growth, rose rapidly from 2002 or so. In the short run, the supply of oil is fixed. So, for a decade or so ever cheaper money was chasing a short-run fixed supply of oil. One of the effects of the "Greenspan put" was to raise oil prices. The Oil Price spiked in response to the financial crisis in 2008 to its high and has remained persistently over $100 since. Just as it seemed logical back in the 90's, following two decades of sub-$40 oil that this was indeed a ceiling through which Oil prices would not go; people though $100 looked like a floor below which the price wouldn't fall. In markets, the consensus is usually wrong.

This high price led to talk of the "end of the Oil economy". High prices became built in to people's thinking, just as low prices had for the decades before that. Soon, Oil executives started to give the go-ahead to projects in deep water or held in deep rocks which are costly and difficult to reach based on higher returns. The result of this is an increase in supply. North Dakota for example is benefiting from an Oil Boom due to rock-fracturing technology, better known for disrupting the Gas market. New technology was developed to extract oil cheaper and more efficiently from where it had been un-economic to extract previously.

This extra capacity in the Oil industry was matched by a focus by the consumer on demand. People started insulating their homes to use less heating fuel. Cars and Air-conditioners became more efficient. People are driving slower, as cars now show the point fuel consumption and people see how much more fuel they use at 85mph compared to 70mph. Remember how cars on motorways used to drive at 80-90mph in the fast lane, and now there are few people breaking the 70mph limit? Accidents have fallen. In the UK, petrol sales have fallen by over 20% from their peak in 2008 thanks to these effects.

So supply has risen in response to high prices, and use has fallen. What's going to happen to the price? You've got bankrupt oil states who are no longer beholden to OPEC, like Venezuela who will need to sell every drop they can produce if their economy isn't to collapse. So the fall in price may, in the short run lead to MORE production, as desperate producers try to meet forecasts based on higher prices creating a rapid fall in the price, even from here.

Industrial metals are showing the same story. There are no primary smelters of Iron in Europe because we've got all the Iron we need, and simply recycle existing metal. China will develop its car economy based on Aluminium chassis, not steel and will demand less steel than did Europe at the equivalent stage of development. Yet there are vast open-pit Iron-ore mines in Australia with robotic 400-ton trucks pulling ore that few will need. The price of Iron and steel are falling.

The writing was on the wall. The top of the market indicator for Metals is AIM-listed start-ups going after "rare-earth" elements in slag heaps. We had plenty of those. Obvious, really, in hindsight.

The point is that a price mechanism in a free market has worked to ensure that there was never a shortage of  Oil or industrial metals. The price rose, capacity rose to take advantage of the high price, supply rose, consumption fell and eventually the price collapses. This is also why free-market systems don't have famines, as the same thing happens with food. And do you know who prevents famine? The speculator, and most especially the hoarder. As it's his store that keeps everyone alive. And also why anything a government provides, (Schools, Hospital beds, building permission for houses etc..) we will always be short of, because there is no demand/supply mechanism to allocate resources. There's no signal saying "invest here, not there" in a planned system.

So. Are the prices of Oil and Metals going to continue to fall? Yes. Probably. But the confidence interval on that statement is no more than 51%. Are we ever going to run out? No. Of that I am certain. Don't get me started on Gold-Bugs except to say

"Bwahahahahaha. Told you so" 
having been wrong for, um, about a decade.

Friday, 12 April 2013

"The Crisis" was caused by Preventing Recessions.

What's to blame for "the crisis"? 

By "the Crisis" most people mean, when they ask that question, the recession and financial market crash which started in the USA in 2008 and spread like wild-fire round the world's financial systems, and is still smouldering in places like Cyprus and Slovakia to this day.

Most people blame "deregulation" by which they mean shouty, shirty men shouting down phones into screens. Poor regulation did play a part, but the financial markets weren't deregulated, and often the unregulated bits performed best. Certainly much of the 'deregulation' happened post Thatcher, where the (Ed Balls-designed) FSA focused on nit-picking about how quickly banks picked up the phone, thinking this was more important than Bank capital adequacy which the Bank of England used to focus on. This blaming of Capital markets is often just fear of that which is not understood. 

Many blame "greed". It's comforting to have a deadly sin as one of the reasons for discomfort. But we're all "greedy". There's no blame in responding to incentives. Others blame "neo-liberal economics" because anything prefixed with "neo" becomes the devil's work. Of course it's Liberal economics which has brought the world's poor out of poverty in their billions over the last thirty years.

The real reason for the extent and depth of "the crisis" is the "Greenspan Put". A 'put' is a type of option which gives the right to sell at a given price, thus, for a premium, you can use them to insure an underlying asset. During the 1990's & 2000's, following the .com bust, interest rates were repeatedly cut. Every time the housing market wobbled, the markets fell, or GDP growth stalled, the interest rate was cut, aggressively.

The problem with this approach is that by 2007, when the wheel came off the economy, lowering interest rates was, to use a cliché, pushing on string.

So why did the wheel come off the economy in 2007? The reason is that there had been 16 years of uninterrupted growth beforehand. The problem Brown, who'd apparently abolished boom and bust, faced is that recessions are when growth happens. In the run-up to the .com crash, there was an enormous explosion of investment in Internet stocks. Shares would fly out of brokerages because the company announced they were opening a website. Companies in the new .com business were being valued on multiples of 'EBITDAM' (Earnings before interest, tax, depreciation, amortisation and .... marketing...). So sales less wages then? This was pure bubble stuff. And there was a massive over-investment in nonsense websites. The .com crash which came with the millenium hangover and lasted for 3 years however did NOT result in a recession. Why? because interest rates kept being pushed down, from 7% just before the bubble burst to under 4 in 2003. 

As the mal-investment was shaken out of the lastminute.coms, and the share-bubble unwound, another was being stoked up in property and debt. One of the effects of lowering interest rates is an increase in the cost of debt securities. (you can argue about cause and effect...). Thus, it became more efficient as interest rates dropped with shares' Price to earnings ratios, to finance a company through debt rather then equity. This is called "gearing up". Meanwhile, governments responded to the booming property market by... relaxing controls on how much, and to whom banks could lend. "Getting people on the property ladder" became more important than bank capital adequacy. The laws and rules by which this was done on the two sides of the pond differed, but the effect was the same. Banks were actively encouraged to "innovatively" lend more to people backed by less, and less equity in the home, and less and less tier-one capital in the bank.

Risk compensation ruled the day: When banks were ruled by the Governor's eyebrow, and the Old Lady of Threadneedle street kept an eye on the balance sheet, banks were safer. In the days of Basel II captial regime, RBS thought it could get away with a Tier one capital ratio of 5%. Nowadays 10-15% is more normal. This was acceptable because "Value at Risk" was calculated with reference to volatility. As volatility falls, the acceptable level of capital needed fell, leaving the system ever more vulnerable to systemic shocks such as the absolutely unlikely event of .... property prices falling....

Banks, which had got used to their being bailed out by the state by means of an interst rate cut, effectively outsourced risk regulation to the regulatory authorities. Whatever the regulator said was OK was OK. The banks then got on with lending "innovatively" to people with products like 105%, self-certification mortgages. Politicians encouraged this. Homeowners are more likely to vote, and vote for the party they credit with their "investment" in housing.

So. One bubble replaced another in the property market. And property market eventually popped, taking the banks with it. This led to the bubble ending up in the last place it can: Sovereign debt which is now so expensive, it's paying a negative real yield.

Ultimately the reason for the crisis is that the USA and the UK did not have the recession which was needed in 2000. The mal-investment wasn't purged, just moved. For recessions aren't things to be avoided. They are inevitable and necessary. Like Eucalyptus needs the fire to germinate, recessions clear dying businesses and free the resources of capital and labour to new, more efficient, faster-growing businesses. The longer you prevent this process from happening, the more zombie companies you have lying around, able to service their debts, but holding onto Labour and capital which could be better used elsewhere. This has been Japan's curse for twenty years. It remains to be seen whether this round of monetary cocaine (abenomics) will work. Without a cleansing recession to clear the mal-investment out of the economy, mal-investment just builds up until it becomes an intolerable burden of companies doing things of limited use, propped up by the state and banks.

This is ultimately why planned economies fail. Mal-investment can be sustained by political will until the economy's making steel no-one needs in a gargantuan make-work scheme. This is the reason the USSR measured tractor production by ... weight.... Even in the worst free-market system, there's only so may places it can hide before the wheel comes off. The economic cycle is around 7-10 years. Even the Bible knew this. Mr Brown should have realised, as a son of Presbyterian preacher, he hadn't abolished the seven fat and seven fallow years (Genesis 41:30) but instead put off the day of reckoning. (Isiah 10:3). It certainly wasn't Margaret Thatcher's fault, however fervently lefties wish it. It wasn't only Gordon Brown's fault, however much I wish it. The crisis did start in America, but the main people to blame for the crisis, however are idiot regulators and central bankers, who followed Mr Greenspan's example.

Wednesday, 10 April 2013

A Better Basis for Taxation

I don't like tax, but if we absolutely have to raise some taxes, it's better if it's raised in ways that have other benefits.

Fuel taxes reduce pollution and congestion. Tobacco taxation reduces smoking and so forth. Land value taxes increase the assortiveness of the property market. The added benefit is these taxes are extremely unpopular, which limits the amount Government can raise. Now... all we need to do is ban PAYE. Once everyone has to write a cheque for income tax and national insurance, it will be at least as unpopular as fuel duty.

Tuesday, 9 April 2013

Thatcher's Legacy

I am a stockbroker. Many of my clients are plumbers and builders. Many "working class" (and proudly so) people earn far more than the "professionals" who serve them. Those who lack the wit to buy their own tools, van and hire a mate, and instead spend their wages in the pub or the bookies, have only themselves to blame. Before Thatcher, someone like me would only have seen a plumber when a pipe burst. Now, they're my clients.

The working class people, who bought, or whose parents bought their council house, and got on haven't changed as people. They remain the stout, hard working, decent people they always were. They've just got access to wealth which in previous generations was reserved for others. 

Other generations have had means for people of the right talents to rise: Imperial service, industry, academia, politics or grammar schools provided means by which people from all backgrounds have risen to the top, and achieved comfortable stations in life. Britain has never been the snobby, closed society of myth. It's just we've never wanted to throw our Aristocrats out, but instead join them at table. 

The "post war consensus" though really did for a while create closed, corporatist, sclerotic society, and Thatcher shattered it. 'Right to buy' was, for many, the Thatcher policy which broke the mould as it put capital, and lots of it in the hands of people who previously were merely tennant vassals of the state or employer. That policy, and the idea that big business can start out of the back of a van gave people the confidence to try to change their station in life. These two policies shattered the working-class block-vote for Labour, and showed them that most people don't want a hand out, but a hand up. The sense of belief in the country, and the talents of its people came from the top. 

Labour in office spent 13 years spending taxes earned by Thatcher's children, rebuilding the client state she smashed, with disastrous results. Those who benefited from her reforms will never forget her. Those who were left behind will never forgive her. But don't pretend she was only for the rich. Because she made a lot of people of previously modest means very, very wealthy. 

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