Wednesday, 23 May 2012

status update....

I've not pushed anything out there recently, because I don't think there is too much to say. I thought the Greeks would look to repudiate their existing debt when they started running a balanced primary budget, it looks like we are getting closer to that point. I think the pressures in the eurozone system are definitely increasing, and the press trying to whip up panic with stories of deposit flight and bank runs is certainly not going to help.

It is the mechanism that I thought could pull the rug out from the system, but would be hard to predict. I guess the ECB is falling over itself to provide liquidity to those banks who are losing deposits. I am not sure whether it should or not, given the uncertainty of the solvency and the questionable collateral they have accepted. Additionally there is the risk to the system they add as the subordinate other creditors, without the political mandate. But then I am a euroskeptic and I don't feel that the project has any democratic legitimacy.

I'd like to have a quick moan though, I find it increasingly difficult to read newspapers, magazines or watch the news. Maybe it is just my inevitable middle aged crankiness, but the ratio of factual reporting to opinion and "analysis" seems to be at an all time low. I like the next punter enjoy a bit of gossip, and hearing opinions, but surely not every article should soley consist of dumb down clich├ęs, rhetoric and the journos political views. The place for rants and froth is opinion pieces, editorials, letters and blogs, not leading stories and bulletin pieces surely.

The media, economist covers and consensus is definitely focussed on the euro, with a shocked belief that they will muddle through. A lot of the better macro commentary is talking about the slow down in China, which I agree remains the biggest risk, not that I feel I have any edge calling that or finding ways to express it. With complete consensus that the US is recovering better than 'expected'.

I'll resist the urge to slate the bookrunning skills of MS.


I always get a little bit nervous when a value investor falls in love with a retailer. I don't know much about JCP, I don't even think I have set foot in one. I do however remember Akman's involvement in Target, and the ongoing ulcer that SHLD is for Eddie Lampert. Both smart guys and good investors; both lacerated by concentrated retailer investments.

Perhaps JCP is different. I do worry about the fawning over management. AAPL is a different proposition to JCP. I also don't particularly think much of plans to make efficiency savings with the ad budget, that always seems like a false proposition to me and a short term attempt to increase the spreadsheet value of a business.

My biggest concern is that Akman will get frustrated and sell his shares, also not too sure who the marginal buyer really is, or more precisely when it'll be. Looking at the pricing of the stock, I just don't think there is enough margin of safety in there for me, maybe at $19 if the chart looks a bit better it might be worth a 'placeholder'.

Thursday, 22 March 2012

we're all to blame for the complex mess of the budget and tax code.

One has only to glance at the coverage of the budget and two things leap out; that the tax system is too complex and the public's interest in it is myopic.

Every website has a calculator so that "people can work out how this budget effects you". The methodology is crude approximation with no account of the bigger picture.

The rate of economic growth, interest rates, level of government debt, distribution of public spending, productivity and investment will have far more bearing on most households standard of living yet it is given little coverage. Instead the "analysis" focuses on how much extra tax a household might have to pay for the number of cigarettes they smoke.

Given that I believe these macro variables are more important, it doesn't make sense that the system is so complex. I don't believe that politicians and civil servants are capable of fine tuning and controlling the system well enough to justify the level of complexity and resources required for its administration.

These points are not unrelated. It is too easy for a chancellor to tweak policies and add more layers of complexity to the system in order to claim that they have done something for a particular special interest group, or are clamping down on another. We only have ourselves to blame.

Wednesday, 29 February 2012

tax reform;

after reading this;  post I felt inclined to offer my thoughts on their suggestion.

I think there are several guiding principles that should be used to reform the system.

I agree that simple systems are better. They cost less to administer and have less room for manipulation. (the negative is that there is often perceived unfairness, but when schemes cost more to deliver than they administer any cross sectional benefit is clearly lost).

Tax shouldn't distort the economy too much, and certainly not in ways that create more imbalances or retard growth.

Proportionally more tax should be raised from the wealthiest people.

VAT, is a good tax. It is hard to avoid and easy to calculate and collect. If it distorts the economy, it lowers consumption, lowers imports and increases savings. Relatively good things for rebalancing the UK's economy. (there is also a good argument made by Greg Mankiw that VAT is an implicit wealth tax.)

Corporation Tax is a bad tax. It is hard to calculate given the enormous number of schemes and allowances. Zero corporation tax would massively reduce the amount of money spent collecting tax and the amount of money spent by firms trying to optimize their tax structure. It doesn't raise a huge amount of revenue, yet costs a fortune for both parties to administer.

Additionally it would attract investment into the UK and companies to set up here. It clearly has an impact on where corporations decide to locate as Ireland has demonstrated. 

Given that politically there is a desire to tax the wealthy proportionally more removing corporation tax also makes sense. If you own 1 share of Tesco or 1mm shares of Tesco, your capital pays the same rate of tax.

All companies have owners, and the taxation should be applied when people take their money out of a firm as income, be that through a dividend, salary or whatever mechanism they like.

I propose that all income should be taxed at the same rate. As unpopular as this will sound, this includes inheritance, dividends, interest payments, wages, capital gains, BIK, etc. This way there is no distortion of the economy, no creation of management companies so as to stamp income as dividends, no disguising capital gains, etc.

This should be very simple to calculate, and by bringing lots of different types of income together at one rate with one tax free allowance one should be able to lower the marginal tax rates to half their level and be revenue neutral.

I am quite interested to know of what the negative unintended consequences of such a system would be.
(Apart from it being a massive vote loser as almost every section of society could be convinced that it could be tweaked for their benefit).