tag:blogger.com,1999:blog-27013437000174761082024-02-19T12:29:16.315+00:00BlackRavenNothing written here should be taken as investment advice and readers should note that the author will have substantial long or short positions in all securities mentioned.BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.comBlogger225125tag:blogger.com,1999:blog-2701343700017476108.post-70732648172615691102013-07-25T13:53:00.002+01:002013-07-25T13:53:35.732+01:00Welby and Wonga; Why APR is a meaningless number for small short term loans.APR; Annual Percentage Rate. In theory, a useful measure to compare the cost of a loan. In practice almost meaningless.<br />
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<u>What is a reasonable cost for a short term loan? </u><br />
Ignoring the term (length) of the borrowing, for a company to lend money it incurs administrative costs, such as transferring money, keeping records, performing a credit check, chasing up payments, running the website, etc.<br />
<br />
This is before considering the cost of capital (ie how much money costs Wonga to borrow) or the likelihood of borrower default (ie the chance that a borrower will not repay the loan).<br />
<br />
<b><u>If one goes to Wonga's website, and looks at the cost of borrowing just £1 for 1 day, the fees and interest are £5.57.</u></b><br />
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Now if you were a moron you would conclude that this was an outrage because the APR is;<br />
<br />
<b><u>10,628,528,197,580,000,000,000,000,000,000</u></b><br />
<b><u>,000,000,000,000,000,000,000,000,000,000,000</u></b><br />
<b><u>,000,000,000,000,000,000,000,000,000,000,000</u></b><br />
<b><u>,000,000,000,000,000,000,000,000,000,000,000</u></b><br />
<b><u>,000,000,000,000,000,000,000,000,000,000,000</u></b><br />
<b><u>,000,000,000,000,000,000,000,000,000,000,000</u></b><br />
<b><u>,000,000,000,000%</u></b><br />
<br />
OR you would wake up and realize that it is an utterly stupid measure.<br />
<br />
There is an absolute cost of lending money and performing transactions that has no relation to the size of the loan, is £5 for a loan really outrageous?<br />
<br />
Welby would perhaps say that a credit card APR is more "fair", that would mean that the cost of borrowing £1 overnight would be 0.05p ie less than one twentyth of a penny. Nobody in their right mind could think that you could make a loan and record a transaction, check a credit score and transfer money for that price.<br />
<br />
I could go into more detail, obviously Wonga lend to people with poor credit quality, that means they are exposed to high number of people that will default on their loan, and as such they need to charge more to just breakeven. Even if 5% of customers failed to repay a one week loan, that would necessitate an APR of over 1000%, before you consider any administration costs, or heaven forbid the cost of capital or the firm's profit.<br />
<br />
I hope that people will stop being "outraged" by numbers that are meaningless and inappropriate.BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.com0tag:blogger.com,1999:blog-2701343700017476108.post-13995779269626443992013-07-24T11:48:00.000+01:002013-07-24T11:48:00.035+01:00"Layering", Spoofing, Spiving & "false" market ordersThe FCA recently fined a trader for "layering" ; <a href="http://www.fca.org.uk/static/documents/final-notices/coscia.pdf" target="_blank">fca pdf link</a><br />
<br />
Details are incredibly important when discussing the mechanisms of trading.<br />
<br />
A brief synopsis of Mr Coscia's strategy; to buy a contract, he'd place a small bid at the best bid, and simultaneous a larger sell order above the best offer, then he'd place further sell orders in the order book above the best offer, when he got filled on the bid he'd pull his sell orders.<br />
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In essence the charge is that he is manipulating the order book and giving a false impression of the "real" demand and supply.<br />
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<blockquote class="tr_bq">
<blockquote class="tr_bq">
As Mr Coscia’s large orders were so unlikely to be executed (due to their short </blockquote>
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resting time on the order book and inevitable cancellation once the small order </blockquote>
<blockquote class="tr_bq">
was executed or they were partially executed) they created false impressions of </blockquote>
<blockquote class="tr_bq">
liquidity rather than genuine market supply and demand.</blockquote>
</blockquote>
<br />
<blockquote class="tr_bq">
<blockquote class="tr_bq">
The market participants who were most likely to trade with Mr Coscia and be </blockquote>
<blockquote class="tr_bq">
impacted by his trading strategy were HFT market participants or traders using </blockquote>
<blockquote class="tr_bq">
algorithmic and/ or automated systems rather than manual traders.</blockquote>
</blockquote>
<br />
<blockquote class="tr_bq">
<blockquote class="tr_bq">
At least one significant market participant withdrew from ICE during the Relevant </blockquote>
<blockquote class="tr_bq">
Period directly as a result of Mr Coscia’s trading pattern which reduced liquidity </blockquote>
<blockquote class="tr_bq">
for other market participants as well as resulting in the loss of trading </blockquote>
<blockquote class="tr_bq">
opportunity.</blockquote>
</blockquote>
<br />
I have a serious problem with this sort of charge. An order is an order, you have no obligation to leave it in the market for a certain length of time. The reason that other market participants like resting orders is because they provide the opportunity for profit for other traders.<br />
<br />
For example a large and stationary bid is a great opportunity for "pennying", resting or leaning on. say a trader put in an order to pay 51.50 for 3000, and the order book is 3000 x 51.50 / 51.60 x 100. This allows other traders to bid 51.51, when they get filled they have almost a guaranteed stop loss of 0.01 and can offer out the stock they've picked up at 51.60, ie to make 9c profit only risking 1c.<br />
<br />
The other way to see the cost of this latency, is to imagine that you had to leave your order for a long period of time, you'd suffer from a serious amount of adverse selection.<br />
<br />
Anyone placing an order whether they "want" it to be filled or not, is taking risk. It makes no difference whether you trade with a "spoof" order or a "real" order the transaction is the same.<br />
<br />
Market participants that are trading on the information in the order book are not liquidity providing. If when you see a large sell order you are "spoofed" into selling on the bid, then you are taking liquidity out of the market, I don't think Warren Buffett is there smashing the bid in KO every time he sees a thousand lot offered up two ticks above the best offer. If anything spoof orders can only help long term investors and retail traders as they provide cover for their resting orders and provide additional bid and offers that they may agress against.BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.com0tag:blogger.com,1999:blog-2701343700017476108.post-61637078982587202482013-05-24T22:42:00.000+01:002013-05-24T22:42:53.932+01:00Swivel-WarThe Conservative party appears to want to fight a civil war.<br />
<br />
I think this analysis is interesting; <a href="http://www.ft.com/cms/s/0/5dde96d6-c138-11e2-b93b-00144feab7de.html#axzz2UFOuJEH7">http://www.ft.com/cms/s/0/5dde96d6-c138-11e2-b93b-00144feab7de.html#axzz2UFOuJEH7</a><br />
<br />
Mr Ganesh makes an interesting point; that the modernizers in the Conservative party were right, that the reforms were not enough. He suggests that by making austerity such an integral part of the election campaign the Conservatives did the right thing in the medium term, but that it has hurt them in the polls.<br />
<br />
I disagree.<br />
<br />
They did play up the tough stance they were going to take. Budgets were to be "slashed", "swingeing cuts", blood curdling calls for swinging and axe, etc.<br />
<br />
I didn't understand it at the time, and I still don't. Because there have never been any plans to do anything as radical as that. The budgets that Osborne wrote kept spending flat in real terms, they just didn't increase at the boom era rate that Labour had been planning, and hoped to close the budget deficit when tax income increased during the recovery.<br />
<br />
That plan has failed.<br />
<br />
The euro crisis has delayed the recovery, there has been no rise in tax revenues, and we therefore still have a large budget deficit.<br />
<br />
Now they have a terrible mismatch between the rhetoric and the reality. The public believe that spending has been brutally cut, yet the reality is that it is higher in real terms than two years ago.<br />
<br />
Every piece of negative economic data is evidence that the cuts have hurt the economy, and every time public services don't live up to expectation it can be blamed on cuts to their budgets.<br />
<br />
The problem is that Osborne has left the Conservatives without any achievement for all of this, the budget deficit is still gaping. It is absolutely the worst of all worlds, they have the reputational damage of being the party to have slashed services, but are unable to claim any particular achievement.<br />
<br />
I think the political analysis of the party's reform is still being viewed through a 'third way' Blairite prism. That the party that sits on the centre ground wins the most votes, because they win the votes on their side plus the centre they now occupy. I have a strong hunch that this actually doesn't work for the Conservative party. I don't think the Tory brand is popular enough to actually win under those conditions.<br />
<br />
If you ran an election with identical personalities and policies for both the Labour and Conservative party, I think Labour would win a hefty victory. For the Conservative party to win an election, they'll need to actually want to change the country, rather than just administer it with a New Labour + 1degree to the right policy booklet.<br />
<br />
Osborne has been the biggest let down. His budgets have been tremendously Brownite, tweaking, tampering and trying to score headline victories without really doing much. They just aren't likeable enough to win like that.BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.com0tag:blogger.com,1999:blog-2701343700017476108.post-58423009924428034822013-05-03T12:40:00.000+01:002013-05-21T19:00:02.709+01:00Why Austerity?AusterityUK and AusterityEU are two different animals.<br />
<div>
<br /></div>
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They often get lumped together although they are very different.</div>
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<br /></div>
<div>
Peripherals really only have a few choices;</div>
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1) "austerity" - where they show some budget constraint and agree to try to close their budget deficit in the short to medium term, with the implicit financial support of Germany and support of their banking system from EU institutions.</div>
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2) default/restructuring with or without euro exit</div>
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3) euro exit and devaluation (which is a de facto default)</div>
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<br /></div>
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To be clear, a country like Spain or Italy already have a bond market strike. </div>
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<br /></div>
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The market is not willing to loan money to these countries without there being implicit backstops and ECB support. </div>
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<br /></div>
<div>
Germany allows ECB and EU support under the condition that there is fiscal constraint. People can argue whether Germany's policy is correct or not, but unless you pay taxes in Germany and are a voter you really have little right to comment.</div>
<div>
<br /></div>
<div>
Many commentators say austerity is failing, and that peripherals should take a different course. That is easy to say, but meaningless.</div>
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<br /></div>
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They refuse to be explicit on the alternative given the constraints. ie. closed bond markets and German finance on conditions of restraint. If politically they are unwilling to leave the euro or restructure, then there really is no other option.</div>
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<br /></div>
<div>
To argue that Germany should agree to fiscal transfers regardless is either naive or dishonest. For fiscal transfers to have any legitimacy there has to be democratic support in both countries. It also means giving up fiscal sovereignty. </div>
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<br /></div>
<div>
Unless peripherals are willing to have their budgets agreed at an EU level and impose reforms to bring them into line with Germany then pleading for transfers without conditions is really are just pie in the sky/begging.</div>
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<br /></div>
<div>
Peripheral politicians need to be bold and take responsibility. Blaming Germany and the markets while they have depression level unemployment is feeble. They need to give up fiscal sovereignty or leave the euro.</div>
BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.com0tag:blogger.com,1999:blog-2701343700017476108.post-30260455810640244682013-04-09T23:40:00.002+01:002013-04-09T23:40:31.158+01:00$JCP updateThe stock traded 90mm shares today. there are only 220mm shares outstanding. PS own ~40mm of them.<br />
<br />
The stock fell ~12%.<br />
<br />
That isn't surprising given the recent pounding. Bad news already baked in there.<br />
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Most of the volume was earlier in the day and tailed off. I expect it to be heavy tomorrow. People will have taken liquidity in the stock.<br />
<br />
If there is a bigger seller out, they will have backed off when the price gave way.<br />
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The fundamentals are awful. Chatter today of further sales decline.<br />
<br />
Ron Johnson leaving and being replaced by the old CEO Ullman. Although "news" this isn't really new information/insight.<br />
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The last few quarters have shown that RJ's strategy was floundering, he didn't have the humility to understand or accept that. His loudest cheer leader has thrown him under the bus.<br />
<br />
I'm not saying it can't ever happen, I just don't think it will. I don't think this is a firm that is going to get bought out. Too much risk, not room to leverage the balance sheet (if you were mad enough to want to put financial leverage onto a recovery story that has a tonne of operational leverage at this point).<br />
<br />
Why pay a premium to get control?<br />
<br />
<br />BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.com0tag:blogger.com,1999:blog-2701343700017476108.post-39923926624339229432013-02-28T21:28:00.000+00:002013-02-28T21:28:50.851+00:00Herbalife$HLF +7.5%.<br />
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<br /></div>
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$JCP is -17% today.</div>
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<br /></div>
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Ackman is short the former and long the latter.</div>
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<br /></div>
<div>
Zerohedge blogged Ackman's position list according to his 13F filing.</div>
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<a href="http://www.zerohedge.com/news/2013-02-28/herbalife-appoint-two-icahn-directors-icahn-gets-right-boost-hlf-holdings-25">http://www.zerohedge.com/news/2013-02-28/herbalife-appoint-two-icahn-directors-icahn-gets-right-boost-hlf-holdings-25</a></div>
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<br /></div>
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If I were Bill Ackman's, I would be bricking it.</div>
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<br /></div>
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JCP's move is fundamental. The company's results were very poor. </div>
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<br /></div>
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It seems as if the superstar manager that Ackman spent so much time praising suffers from the same blindspots as he does. Massive overconfidence and an apparent unwillingness to change course even when data and events contradict their model of the world.</div>
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<br /></div>
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As a manager this is bad. As an investor this is lethal. </div>
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<br /></div>
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The biggest and most dramatic blow ups occur when overconfidence and a stubborn reluctance to change your view meet the market.</div>
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The market is telling Mr. Ackman he is wrong.</div>
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You can't change your mind every time a position ticks against you, but there should always be a fixed regular periods in both price and time that one re-evaluates the investment thesis. Buying a stock that falls 25% before it begins to rise, is not "early", it is wrong. And looking at Ackman's investment record it appears he's made plenty of mistakes, yet seems to leave himself no room for error.</div>
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<br /></div>
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Being a concentrated investor has its merits, however if you are shorting and using leverage then that concentration becomes a weakness. Other traders and investors are now talking about what he holds, that is chilling. </div>
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I've bought Herbalife today, because I think he is wrong, the chart looks good and it makes a lot of sense that other investors begin to see that too. </div>
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The more noise and adverse price action he faces the tougher his position becomes and the more likely he is to face redemption requests and be forced to liquidate.</div>
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<br /></div>
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Time to buckle up, it's about to get bumpy.</div>
BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.com0tag:blogger.com,1999:blog-2701343700017476108.post-71919357139846116332013-01-25T20:03:00.002+00:002013-01-25T20:03:41.362+00:00Herbalife - bet sizingI don't have much to add that hasn't been said already better by other bloggers and media outlets.<br />
<br />
to summarize;<br />
1) Bill Ackman is short ~20mm shares (#113mm shares outstanding) ie 17.7% of the company at current price of $45 that is a $900mm short.<br />
2) Dan Loeb is long about 8.9mm shares.<br />
3) John Hempton was (I don't know if he still is) long shares. He's done some digging on Ackman's short thesis. (<a href="http://brontecapital.blogspot.co.uk/2013/01/notes-on-visiting-herbalife-nutrition.html">bronte capital commentary</a>)<br />
4) One suspects that Icahn is long.<br />
<br />
I've read most the the secondary commentary on the stock and have done no work on it on my own. Ackman's short thesis should be on the web, I've linked to Hempton's comments which I think work well as a rebuttal. Loeb's description can be found in Third Point's investor letter from last quarter.<br />
<br />
The major point I wanted to make one of appropriate "bet sizing".<br />
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I believe Pershing Square (PSCM) has an AUM of ~$9bn.<br />
<br />
Shorting $900mm of a stock, ie <b><u>10% of AUM is just too big</u></b>. Way too big.<br />
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<u>Shorting 18% of a company is too big a position.</u><br />
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I guess they have sized this position based on number of days volume, because on this metric (looking back) it is 10days volume.<br />
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That is terrible, naive risk management.<br />
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Being short is a different risk profile to being long, and being publicly short increases the risk.<br />
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Icahn, although rude, is right, what is Ackman going to do if there is a short squeeze, or if the company starts to use FCF to buy back shares??<br />
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Conservatively the volatility on the stock is 50%, it is not hard to see it moving up ~30% in a month to $60. That is a $300mm loss.<br />
<br />
~3% of aum.<br />
<br />
But then you haven't even started trying to get out of your position, which you are likely going to have to at that point. I think the slippage on trying to get out is going to be horrific. I wouldn't be surprised if it was 5-10%.<br />
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This is the sort of position that would give me ulcers. This size trade is the sort that you can lose your company and name with when it goes very badly wrong.<br />
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Volkswagen shares traded as high as €1000 during their short squeeze in 2008 ie a squeeze of 600%. PSCM would have been liquidated long before it got close to that.<br />
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Even if he was proved to be eventually right, there are many potential paths where he loses hundreds of millions of dollars and gets stopped out. Personally I would never want a short to be more than 2.5% of AUM. In fact I'd much prefer to bet on something like this shorting credit or buying options, where one's downside is fixed and limited.BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.com0tag:blogger.com,1999:blog-2701343700017476108.post-8066472087486160002012-05-23T11:28:00.000+01:002012-05-23T11:28:48.052+01:00status 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.<br />
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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.<br />
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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 clichés, 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.<br />
<br />
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'.<br />
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I'll resist the urge to slate the bookrunning skills of MS.BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.com3tag:blogger.com,1999:blog-2701343700017476108.post-20720590793424663012012-05-23T11:14:00.000+01:002012-05-23T11:14:08.169+01:00JCPI 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.<br />
<br />
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.<br />
<br />
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'.BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.com0tag:blogger.com,1999:blog-2701343700017476108.post-70513718656604751752012-03-22T21:31:00.000+00:002012-03-22T21:31:23.479+00:00we'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.<br />
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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.<br />
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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.<br />
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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.<br />
<br />
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.BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.com0tag:blogger.com,1999:blog-2701343700017476108.post-38357222582408172852012-02-29T08:32:00.001+00:002012-02-29T08:35:36.288+00:00tax reform;after reading this; <a href="http://behindblueeyes.co.uk/2012/02/23/not-the-budget/">http://behindblueeyes.co.uk/2012/02/23/not-the-budget/</a> post I felt inclined to offer my thoughts on their suggestion.<br />
<div><br />
</div><div>I think there are several guiding principles that should be used to reform the system.</div><div><br />
</div><div>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).</div><div><br />
</div><div>Tax shouldn't distort the economy too much, and certainly not in ways that create more imbalances or retard growth.</div><div><br />
</div><div>Proportionally more tax should be raised from the wealthiest people.</div><div><div><br />
</div><div>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.)</div></div><div><br />
</div><div>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.<br />
<br />
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. </div><div><br />
</div><div>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.</div><div><br />
</div><div>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.</div><div><br />
</div><div>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.</div><div><br />
</div><div>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.</div><div><br />
</div><div>I am quite interested to know of what the negative unintended consequences of such a system would be.</div><div>(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).</div>BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.com0tag:blogger.com,1999:blog-2701343700017476108.post-78437875481612565952011-12-13T00:38:00.000+00:002011-12-13T00:38:42.088+00:00why did RBS fail? my notes from the FSA report.After a tiring day I thought there would be nothing better to do than read and take some notes on the FSA's report into RBS's failure. They are not comprehensive, the full 452 pages are here; <a href="http://www.fsa.gov.uk/pubs/other/rbs.pdf">FSA report into why RBS failed</a><br />
<br />
7/10/08 RBS funded by Emergency Liquidity Assistance from the BoE.<br />
13/10/08 RBS £20bn rights issue, only 0.24% taken up by private holders, government the balance.<br />
<br />
public commentary was that £40.7bn operating loss being the problem is inccorrect. Of that £32bn was intangible writedowns, which don't have an effect on regulatory capital.<br />
<br />
"Only" £8.1bn of capital was written down.<br />
<br />
end of 2007 had £68bn of reg cap + £12bn of rights issued raised capital, => £8bn would have been absorbed.<br />
<br />
1) less capital than peers, therefore first in firing line (although later charts show HBOS was in worse position but Eric Daniels had a brain fart).<br />
<br />
2) "excessively" dependent on short term funding (I use the inverted commas because, well the FSA didn't seem that bothered at the time and its NR report shows an even worse example they didn't care about).<br />
<br />
3) asset quality concerns<br />
<br />
4) large losses from credit trading<br />
<br />
5) ABN amro "wrong deal, wrong price, wrong way of paying and at the wrong time"...<br />
<br />
6) Systemic crisis.<br />
<br />
<br />
under Basell III RBS would have had 1.97% capital ratio rather than the required 8%.<br />
<br />
in sep07 when NR failed, RBS was still able to raise debt. thought they were experiencing a "flight to quality", really?!<br />
<br />
customer funding gap for the whole of the UK system rose from being zero in 2000 to ~£750bn by 2008 in pretty much a straight line.<br />
<br />
rbs had a big reliance on short term wholesale funding, even when it was levering up to buy ABN it paid in borrowed cash of less than 1yr term.<br />
<br />
ABN effectively doubled their trading book; that only required £2.3bn of capital for £470bn of balance sheet assets. from which they took £12.2bn of losses.<br />
<br />
FSA make a big deal about losses on credit trading, because they believe that this causes a loss of confidence, in both the institution and the system which leads to recession, which leads to defaults. Sure tighter credit hurts the economy, but part of that is signalling. trading p&l for 2007,8,9,10 were; +1.3,-8.4,+3.1,+4.5. So over the four years they made £1.3bn.<br />
<br />
Whereas losses from loans are £32.4bn.<br />
<br />
credit losses were £14bn over 07/08. FSA make valid point that there was a lot of uncertainty around it though, which inevitably leads to funding issues.<br />
credit trading pnl for 2008;<br />
they lost 2.3bn on counterparty defaults; 0.7 Lehmans, 0.6 Madoff, 0.6 Icelandic banks<br />
-0.6 CDPC<br />
-0.6 principal finance<br />
-2.4 structured credit<br />
-7.8 "strategic assets unit" ?? is that a prop desk name?<br />
-3.2 impairments<br />
+2.1 commission<br />
+4.0 interest<br />
-4.4 staff costs - is that payouts from tinning people??<br />
<br />
organic growth of the balance sheet was 24% p.a from 2004 onwards!<br />
<br />
losses on loans over 08-10<br />
Residential mortgages; £2.5<br />
personal lending 4.6<br />
corp property 10.4<br />
corp other 9.7<br />
other 3.2<br />
<br />
IMHO their enormous quickly grown loan book is the issue, and the market knew that at the time and yanked their funding. They were too reliant on short term wholesale funding so they got stopped out.<br />
<br />
ABN deal;<br />
paid in cash, which they borrowed rather than funding with equity.<br />
<br />
effectively doubled their trading book.<br />
<br />
took the risk of being consortium lead, meant they had to consolidate the purchase and then split it up, and I think is the reason they got so much of conduit losses of abn assigned to them, because that was still being discussed in early 08.<br />
<br />
thought that because they had integrated a same country retail deal that was bigger and had good reputation on cost control and synergies they would make a lot of money on the deal. described as a "vanity purchase", "didn't know what they were buying".<br />
<br />
because deal was competitive and of a public company, due diligence was minimal, although that wouldn't have made much difference IMHO, they had similar risks on already.<br />
<br />
rbs board unanimous and shareholders over 90% voted in favour of the deal.<br />
<br />
no regulatory oversight of the deal on the UK end of it - Dutch were surprised by that.<br />
<br />
<br />
there is a lot of discussion of management styles and processes, a lot of it is waffle looking for scape goats, and a lot more of it is hindsight trading. however there are some interesting issues;<br />
<br />
RBS were slow to take their marks. Goldmans were really quick and good at this.<br />
<br />
RBS used the 96% for their VaR, everyone else used 99.9%, how and why were they allowed to do this. Everyone else is planning for a 1 in 1000 even, whereas RBS are planning for a 1 in 24??<br />
<br />
losses were 8x what their VaR models were predicting. The fact they are surprised by this was worrying. Little real stress testing.BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.com8tag:blogger.com,1999:blog-2701343700017476108.post-72174180532601473882011-12-09T18:09:00.000+00:002011-12-09T18:09:58.881+00:00saying No to Europe."interesting" comments from some European politicians.<br />
<br />
Let us be absolutely crystal clear on a few things;<br />
1) France and Germany have shown that they wish to implement a tax on the City of London that would be paid into EU coffers. As far as I am aware there is no other example of such a tax.<br />
2) The treaty changes that were on the table will do nothing to change the course of the crisis, the idea that implementing a slightly stronger wording of deficit controls is going to change the solvency, competitiveness issues and lack of fiscal union is naive at best.<br />
3) Even if this would work, there is no "bluff calling", if they are going to build a new version of the EU institutions that they are not legally allowed to use, it will take years not months.<br />
4) Making a big fuss that the British are being obstructive is helpful, because it distracts both the markets and the electorates from the really big issue; <b>the currency union doesn't work, the solution to fix it; fiscal union has no democratic support or legitimacy.</b><br />
<br />
Parachuting in an army of Monti-style technocrats to run nations in the periphery, imposing German austerity, brings no guarantee of producing the reforms that will yield the vast improvements in competitiveness that are necessary for a country like Portugal or Italy to deal with the level of the euro. Regardless, the process will take years, look how long it took a rich developed nation (West Germany) to change a poorer one (East) when it had far more control, wealth and helpful global demand. It is easy to forget that German unemployment was at 12.5% in 2005.<br />
<br />
Extremely high unemployment, a feeling of imposed austerity and loss of sovereignty and pride are a highly volatile and dangerous mix in Europe.<br />
<br />
Imagine if China slowed down.BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.com2tag:blogger.com,1999:blog-2701343700017476108.post-7301767100874982782011-10-03T11:47:00.000+01:002011-10-03T11:47:39.232+01:00Timing a Greek default;There are three main mechanisms that could precipitate a default;<br />
<br />
<ol><li>EZ and IMF pull future lending</li>
<li>Greek banks face a domestic run on deposits</li>
<li>Greece finally starts running a primary budget surplus and political cover allows them repudiate "odious debts".</li>
</ol><div>(1) seems unlikely. Not because I believe that these institutions are committed or well organized, but because it would require action, as we have seen they clearly need a lot of prodding to do anything.</div><div><br />
</div><div>(2) would be very hard to predict as it is based on group confidence, so in modelling or thought process terms, its just a poisson process. </div><div><br />
</div><div>(3) on the other hand *should* be easy to forecast. (well if one could have any confidence that Greek reported figures were accurate or not deliberately manipulated).</div><div><br />
</div><div>There have been several rumours that Greece has been inflating their budget deficit figures.</div><div><br />
</div><div>Their most recent projections however show that they should be running a primary budget surplus next year. In which case it makes even more sense that they promise reform programmes that kick in with savings in 2015 to secure immediate loans.</div><div><br />
</div><div>I am cynical so it is easy to speculate that Greece is deliberately trying to maximize the receipt of a fiscal transfer. What I find much more difficult to understand is the German position.</div><div><br />
</div><div>Many commentators have tried to explain their actions as 'pot committed politicians'. That it is just politicians trying to save their pride and hide the folly of their euro project designs. In reality the polls and general German media commentary actually suggests that not to be the case, that the population actually support some form of action, perhaps because they don't understand the true cost?</div><div><br />
</div><div>It appears to me that Merkel is deliberately obfuscating and is reluctant to face the consequences on ANY decision, be they supporting the euro, drawing a line in the sand, or turning their back. That is very weak.</div><div><br />
</div><div>Roland Berger published a plan which they called "Eureca". Which essentially said that Greece should take €125bn of assets (clearly overvalued for the purpose) and put them into a SPV in Luxembourg, and sell them to the EZ, use the proceeds to do a massive bond buy back. Then the SPV could be unwound, if the proceeds were lower than 125bn Greece would be liable to top it up, but would retain any upside if the assets were more.</div><div><br />
</div><div>There were some worrying features;</div><div><ol><li>Putting the assets in an SPV in Luxembourg really is meaningless, if Greece decided to nationalize the assets again International law would be pretty much useless, or they could apply huge tax rates to those assets and perform a defacto nationalization.</li>
<li>Clearly this is just a secured loan, because Greece would still be liable for any shortfall, in which case unsecured creditors would still be wary on an ongoing basis of making new loans to Greece.</li>
<li>For the assets to have real value rather than to be trophy assets, then they must have some associated cashflow, in which case the secured loan must actually have a cost, ie. If they include public offices, then clearly the SPV must be paid rent, in which case the improvement in fiscal position is a lot smaller than the headline figure.</li>
<li>The point which was repeated several times that was most worrying however was the boast that such a plan would "burn speculators". Which they believed would cause spreads on the rest of the peripherals to collapse.</li>
</ol><div><u>This last point just shows that they don't have a clue.</u></div></div>BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.com0tag:blogger.com,1999:blog-2701343700017476108.post-55820624183214803722011-09-29T04:45:00.001+01:002011-09-29T04:45:55.331+01:00FTT - Financial Transactions Tax.Tobin's tax was designed to reduce volatility in the fx market.<br />
<br />
Its also been suggested that the FTT, which would be a 10bps tax on stock, bond and derivative trades would be a good way to raise revenue.<br />
<br />
Several commentators who really SHOULD know better, cite stamp duty in the UK as being a model.<br />
<br />
Perhaps they'd care to look at the thriving CFD market, and the amount raised from retail investors and compare that to institutional investors? and reappraise their view! The tax simply does not work within the UK.<br />
<br />
As to whether it reduces speculation? or volatility? well lets just say that if you think 10bps is going to stop somebody buying into a bubble or selling into a panic, well you need your head examined.BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.com0tag:blogger.com,1999:blog-2701343700017476108.post-40429954496513645862011-09-22T00:40:00.000+01:002011-09-22T00:40:48.336+01:00bubbles??the headline is a little unfair to the following link;<br />
<br />
<a href="http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/09/20/bloomberg_articlesLRTQMU0D9L35.DTL">BlackRock Buys Junk Debt at Spreads Exceeding Bearish Scenarios</a><br />
<br />
but there are several things that I dislike about it, as I commented on twitter;<br />
<br />
1) the first is a general point. VALUATIONS ARE NOT AN INVESTMENT THESIS. Especially when you are comparing a risky number to a historical realization for a long term instrument. Yes it is appropriate to look at historical default rates, but to compare them to a risky market number is not. It is naive to ignore liquidity risk, risk of recovery, a market price to those risks AND then to forget about how short a sample of history one is looking at.<br />
<br />
2) it is very consensual to believe that commodity producers and China are more stable. That the represent the future, and that Asia is insulated from the economic cycle. Although it is en-vogue to laugh at decoupling, there are more than enough people that treat it as a resting principle. The sectors that they proceed to say they are targeting demonstrate this;<br />
"[the] <span class="Apple-style-span" style="background-color: white; font-size: 13px;">firm is targeting bonds of speculative-grade companies involved in energy, mining, oil, natural gas, cable and wireless operations"</span><br />
<br />
because;<br />
<span class="Apple-style-span" style="background-color: white; font-size: 13px;"><br />
</span><br />
<span class="Apple-style-span" style="background-color: white; font-size: 13px;">"You want companies that have more stable and visible cash flow streams, so their earnings quality is a lot higher and more stable to withstand economic downturns"<span><br />
</span></span><br />
now these two statements are very much at odds with one another in my mind.<br />
<br />
Mining, Oil, Nat Gas, these are all dependent on the industrial cycle. Sure you can see a mine, and see that there has been good historical demand, and that China had a massive fiscal stimulus, but to extrapolate that into the future isn't clear cut.<br />
<br />
"<span class="Apple-style-span" style="background-color: white; color: #333333; font-family: Helvetica, Arial, sans-serif; font-size: 14px; line-height: 21px;">a bubble is any kind of debt-fueled asset inflation where the cash flow generated by the asset itself—a rental property, office building, condo—does not cover the debt incurred to buy the asset."</span><br />
<br />
I believe that he is talking about Chinese property in this quote from his interview with <a href="http://www.businessweek.com/magazine/content/10_16/b4174010646611.htm">Bloomberg Business Week</a>, but surely that applies to mines, oil and nat gas investments?BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.com0tag:blogger.com,1999:blog-2701343700017476108.post-48264134608772334322011-09-04T17:30:00.000+01:002011-09-04T17:30:25.316+01:00MarxThere have been several people pushing the ideas of Karl Marx recently, from the FT's Alphaville, UBS economist George Magnus to the "neutral" BBC article that appears to have no author.<br />
<br />
<a href="http://www.bbc.co.uk/news/magazine-14764357">http://www.bbc.co.uk/news/magazine-14764357</a><br />
<br />
Marx was a terrible economist.<br />
<br />
At the heart of Marxist economic theory, in fact I would say its central pillar is the Labour Theory of Value. LTV asserts incorrectly that the value of a good is the amount of man hours required to create it. So a portion of hot chilli con carne taking an hour to make is worth the same amount as a few litres of freshly squeezed ice cold orange juice. The most common objection is that Marx's theory is demonstrably wrong because it does not include input costs, ie. a gold ring is worth more than a silver ring. Marx took that simple incorrect theory and then proceeded to the conclusion that the difference between the selling price and the labour value of the product is the profit, which the bourgeois capitalists extract.<br />
<br />
Marx doesn't really care if its by ripping off the consumer (I think because he believes they will act in self interest in a free market), but cares about the extraction coming at the expense of those providing the labour. He believes that the value that capitalist create is purely their ability to own the means of production enabling them to purchase labour at an unfair price.<br />
<br />
In short, capital, capitalists, inventors and entrepreneurs only generate returns because they are in a privileged position to manipulate workers.<br />
<br />
This is utter nonsense. If anything in a democracy it is labour that is able to manipulate the system rather than capital, witness the UAW or public sector unions destroying the fiscal position of their employers.<br />
<br />
In our earlier example, the reason on a very hot day that cold orange juice will make a profit and the hot chilli con carne will not, is not because the owner of the means of production is able to bully his workforce, but because the decision to allocate capital correctly provided a popular and valuable choice to the market.<br />
<br />
Additionally Marx makes some rather bold predictions that are neglected in the article above. According to Marx, what should be happening in the West is that profit margins should be falling, leading to companies cutting the pay of their staff, there should be mass over production of goods and chronic under consumption as workers purchasing power declines.<br />
<br />
Instead we are now seeing very high profit margins, higher worker productivity and pay but weak cyclical demand. That really has almost nothing to do with Marx, other than the enormous sense of entitlement in large parts of Europe and a dollop of leftwing hunger to return to the rhetoric of class war.<br />
<br />
What I personally find particularly jarring is the juxtaposition of the West, with a massive social benefits system, free education, health care, and living standards the highest they have ever been in the history of mankind, that is nominally a free market system, that consumes the enormous production of a supposedly communist country, with a much lower standard of living, poor working conditions, low/no employee rights, no benefit system, no state healthcare and pensions. <u><b>Yet it is those in the rich west complaining that they don't have a big enough slice of the income and resources pie??</b></u><br />
<u><b><br />
</b></u><br />
It is as absurd to claim the "system" isn't fair because your neighbour has a bigger mansion than you in Chelsea.BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.com0tag:blogger.com,1999:blog-2701343700017476108.post-37473315638961236832011-09-04T17:10:00.000+01:002011-09-04T17:10:51.826+01:00a little break down; from 27th April to nowUtilities <span style="color: lime;"> </span><span style="color: lime;">2%</span><br />
Consumer Defensive <span style="color: red;"> (3)%</span><br />
Healthcare <span style="color: red;"> (8)%</span><br />
Communication Services <span style="color: red;"> (11)%</span><br />
Consumer Cyclical <span style="color: red;"> (13)%</span><br />
Real Estate <span style="color: red;"> (15)%</span><br />
Energy <span style="color: red;"> (17)%</span><br />
Basic Materials <span style="color: red;"> (17)%</span><br />
Industrials <span style="color: red;"> (23)%</span><br />
Technology <span style="color: red;"> (23)%</span><br />
Financial Services <span style="color: red;"> (24)%</span> <br />
<br />
What is interesting to me is the return on technology, its very idiosyncratic given the relatively "normal" systematic returns that we see with the other sectors, ie. we expect to see utilities outperforming fin serv and cyclical industrials and base materials in an anticipation of a double dip/slowdown, I'm not sure/ well I didn't think that we would see such a dramatic fall in tech in the same scenario.<br />
<br />
Looking at factor returns;<br />
size <span style="color: lime;"> 4.99%</span><br />
value <span style="color: lime;"> 15.81%</span><br />
dividend <span style="color: lime;"> </span><span style="color: lime;">7.52%</span><br />
momentum <span style="color: lime;"> 9.42%</span><br />
balance sheet <span style="color: red;"> </span><span style="color: red;">(0.43)%</span><br />
"cloud" <span style="color: lime;"> </span><span style="color: lime;">11.62%</span><br />
model <span style="color: lime;"> </span><span style="color: lime;">6.07%</span><br />
conc. Model <span style="color: lime;"> 6.97%</span><br />
<br />
I find it even more surprising that the return on the balance sheet model has been so poor over the period. What does stand out is that the value and dividend models have performed very well over that time frame, to me that means that there has been a lot of relatively unsophisticated participation in the market before and after the sell off started.<br />
<br />
The "cloud" factor is interesting as well, although mostly driven by the awful performance of normal tech.<br />
<br />
I feel comfortable posting numbers like this because these factors are quite robust. Something often neglected much to the detriment of real returns in the long term.<br />
<br />
BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.com0tag:blogger.com,1999:blog-2701343700017476108.post-78430894535737546882011-09-03T13:30:00.000+01:002011-09-03T13:30:16.843+01:00an interesting tax proposal;Prof L.J. Kotlikoff presents an interesting tax reform plan; <a href="http://www.bloomberg.com/news/2011-08-31/a-tax-reform-to-kick-start-the-economy-laurence-kotlikoff.html">http://www.bloomberg.com/news/2011-08-31/a-tax-reform-to-kick-start-the-economy-laurence-kotlikoff.html</a><br />
<br />
What I think is interesting is effectively shifting the burden on taxation onto consumption, rather than profits and income.<br />
<br />
There are several questions I think need to be answered that are more practical than political;<br />
1) LJK suggests taxing imputed rent; I think that is very difficult to achieve.<br />
2) What revenue would this raise theoretically? and what revenue would it raise after one calculated the effects of normal avoidance schemes?<br />
3) It would be interesting to see how much of the savings from tax return filing would be eaten up in the calculation of implied value of rent consumed?BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.com0tag:blogger.com,1999:blog-2701343700017476108.post-61276987862216620362011-08-30T09:05:00.000+01:002011-08-30T09:05:30.785+01:00economist link; China's Military Power<a href="http://www.economist.com/blogs/banyan/2011/08/chinas-military-power">http://www.economist.com/blogs/banyan/2011/08/chinas-military-power</a>BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.com0tag:blogger.com,1999:blog-2701343700017476108.post-57504603447374724752011-08-26T01:25:00.000+01:002011-08-26T01:25:29.864+01:00management matters<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiIJie3d3saiUXOJ67Tb6K9nDvwiv_5VwAUqPK2TgKB_fjQc0UCWSxb8GUk3caQ9tVSoU_9bGftulNOIs_dhciYW8vqAMLlMMTTnfi1hLaJp-Si8-Xm8TDboluj4RaL3ElTjoLg74YWIiu3/s1600/avril.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="124" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiIJie3d3saiUXOJ67Tb6K9nDvwiv_5VwAUqPK2TgKB_fjQc0UCWSxb8GUk3caQ9tVSoU_9bGftulNOIs_dhciYW8vqAMLlMMTTnfi1hLaJp-Si8-Xm8TDboluj4RaL3ElTjoLg74YWIiu3/s640/avril.jpg" width="640" /></a></div><div class="separator" style="clear: both; text-align: center;"><br />
</div><div class="separator" style="clear: both; text-align: left;">Molins is nothing short of a basket case company.</div><div class="separator" style="clear: both; text-align: left;"><br />
</div><div class="separator" style="clear: both; text-align: left;">Ms. Palmer-Baunack impresses me, Mrs T. would have been impressed with her handling of the unions in previous roles.</div><div class="separator" style="clear: both; text-align: left;"><br />
</div><div class="separator" style="clear: both; text-align: left;">I like that.</div><div class="separator" style="clear: both; text-align: left;"><br />
</div><div class="separator" style="clear: both; text-align: left;">If she can get a penny of value out of the company, then there are a couple of pounds of real value there according to the financial statements and a large dose of wet finger in the air.</div><div class="separator" style="clear: both; text-align: left;"><br />
</div><div class="separator" style="clear: both; text-align: left;">dd in progress...</div>BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.com0tag:blogger.com,1999:blog-2701343700017476108.post-42633662134640571512011-08-26T00:39:00.000+01:002011-08-26T00:39:02.598+01:00bank of americaits not a name i really care about. but i like to price things.<br />
<br />
Buffett has stuck $5bn down, for that he gets pref shares that are worth $5.5bn, what is 10% between buddies..<br />
<br />
the real KICKER is the warrants he gets, 700mm warrants that i think are worth $3.5, so $2.6bn.<br />
<br />
in essence that means BAC is letting Buffett buy stock at a discount of 5/(5+2.6) it at 66c on the dollar.<br />
<br />
BAC recently said that their tangible book value was $12.65<br />
<br />
<b><u>They just let Buffett buy the stock at effectively 36c on THEIR dollar</u></b> if they think that $12.65 is fair value...<br />
<br />
'yem kidding me.BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.com0tag:blogger.com,1999:blog-2701343700017476108.post-73140815904650133332011-08-25T22:41:00.004+01:002011-08-25T22:59:50.584+01:00jackson hole<div style="text-align: center;">
<br /></div><div style="text-align: center;">
<br /></div>at the beginning of the week it was easy for some people to think that other people thought there would be one of these;<div>
<br /></div><div>
<br /><div><span class="Apple-style-span" style="color: rgb(0, 0, 238); -webkit-text-decorations-in-effect: underline; "><img src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjmDSX7cWfkCGgzMktk7EoUBo7VdC_i4zl5S-jdwgNF5iMOOqcuXPpKaOrT19S6FfYew6JUf0i6kLoIJXUoWljjh3J-QMRZFD6d1FqV4EY1afhm8ijwvxkfql3jorHjA1SR02DlRLdXnNE/s400/chopper+ben.jpg" border="0" alt="" id="BLOGGER_PHOTO_ID_5644915782084440146" style="display: block; margin-top: 0px; margin-right: auto; margin-bottom: 10px; margin-left: auto; text-align: center; cursor: pointer; width: 295px; height: 348px; " /></span></div><div><span class="Apple-style-span" style="color: rgb(0, 0, 238); -webkit-text-decorations-in-effect: underline; ">
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<br /></div><div>but anyone reading anything finance related will have realized that Bernanke is not going to play ball tomorrow, no dice.</div><div>
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<br /></div><div style="text-align: center;"><img src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhZlz-Xhc3WydFvqkSFa7YDAZrWaTPB1wzyRcIyLPpa8-1f2kUik4LfFSAGpySVFm9T1oVNK4BcNKvaxl_xyYnFi67qKWdMAU12fWRtaR78XATMWPje70ldzckGpY30jhHI2oR3Ex5kSnA/s400/no+dice.jpg" /></div><div>
<br /></div><div>there are not the same signs of deflation to justify the launch of QE3.</div><div>
<br /></div><div>there is however the risk that Bernanke says the economy is weak and that they are keeping an eye on it. saying this would be a policy mistake in my view, even if that is what he thought. we have seen before the the market fears these sorts of comments because they think Bernanke can see lemons they don't have the data to see.</div><div>
<br /></div><div>Bernanke is not a mug, i don't think he will make that mistake tomorrow, and therefore i think there is upside risk.</div><div>
<br /></div><div>to balance that, today's price action was fugly.</div></div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-2701343700017476108.post-21065339618716375582011-08-24T23:54:00.000+01:002011-08-24T23:54:30.020+01:00Ian Dyson.Another "Captain of Industry".<br />
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When in charge of Punch Tavers, had a basic salary of £675k.<br />
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Now that he has split the company in two and is managing just the profitable easy bit, has a salary of £675k.<br />
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If I did 30% less and got paid the same amount of money I would be pretty pleased. Especially if I got a pension contribution of 25% of that salary, a 150% bonus, £18k BIK. We're talking almost £2mm. The market cap of the company is £277mm, no thanks to management. That is a 73bps management fee!<br />
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I guess shareholders, not so much.BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.com0tag:blogger.com,1999:blog-2701343700017476108.post-42257083635519629912011-08-23T21:44:00.000+01:002011-08-23T21:44:57.168+01:00why didn't anyone look at the SMP balance yesterday?well I didn't check how much the ECB bought of peripheral debt last week, and I didn't see any market chatter on the matter. The week before however there were millions of comments on that the ECB were out there buying €22bn.<br />
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Last week they clearly took it a little easier and only bought €14bn.<br />
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I think they only had/have the appetite to double the SMP, so they have €130bn of powder.<br />
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They don't expect to be buying once the EFSF is operational, although its not entirely clear to me when that will be, at first glance the earliest is in 4 weeks time, but it could be later.<br />
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That leaves them with €94bn. Which means they have the capacity to do €23.5bn a week.<br />
<br />
OR they actually expect it to be longer, as the ECB clearly prefer the shock and awe approach. Their steady state approach will probably be more like the 14bn they did last week, which implies EFSF buying starting in 6weeks time.BlackRavenhttp://www.blogger.com/profile/05896472586470597474noreply@blogger.com0