Monday, 23 July 2012

London under seige

“Go back to bed, America. Your government has figured out how it all transpired. Go back to bed, America. Your government is in control again. Here. Here's American Gladiators. Watch this, shut up. Go back to bed, America. Here is American Gladiators. Here is 56 channels of it! Watch these pituitary retards bang their fucking skulls together and congratulate you on living in the land of freedom. Here you go, America! You are free to do what we tell you! You are free to do what we tell you!”

― Bill Hicks

Replace America with 'Great Briton' and American Gladiators with the 'Olympic Games'.

News flash

The games lanes causing havoc in London!

This morning I arrived at Tottenham Court Road to hear that due to 'a person under a train' westbound services were suspended.  People often quite irritatingly clamber under tube trains. I do wonder what they do down there.

Fortunately I was going eastbound however I am also somewhat retarded and mistook east for west thus I hurried out of the tube and planned to 'bus it' down new oxford street (A40). Only something strange had happened and it appeared the street had been turned into a bus stand. The street all the way down to Holborn was stationary in all directions (so I walked) .

I suspect an Olympic sized fuck up may have occured. The traffic was so bad even cyclists were stuck.

But alas I was not alone it seems as thousands of people driving into London encountered a fabulous British phenomenon; a large queue. The BBC's Tom Edwards offered some 'profound' analysis;

"What TfL are trying to do is control the amount of traffic that gets onto the Olympic Route Network to - their words - "protect the venues".

What that does in reality is force traffic out of town.

This wasn't a mistake, this wasn't a one-off and it wasn't a freak occurrence. This is part of the plan and it will only get worse when the other Games Lanes are activated on Wednesday. "

Now few sane people attempt to commute into London by car anyway but I suspect much of the traffic is commerical bringing supplies and services into the capital. Is it part of the Olympic plan to starve London in a modern twist on the medieval siege?

Still best not let the 14 million people living in London get in the way of the IOC private party. Alas I hope the delays on the A13 mean their oysters are rather spoiled.

More and more I must agree that these London Olympics look like an event one would have in a Totalitarian state. They make Beijing and their fake singing girl and fake fireworks look rather tame.

Friday, 20 July 2012

Henderson release flawed PR

Henderson's economist Simon Ward is here to tell us all that UK housing is just 'a-ok' with a tasty piece explaining why house prices are roughly at fair value.

Simon starts by explaing how the typical measure of affordability; price/income is not representative of housing valuation. Lets give it a whirl;

"A national accounts version of this metric is the value of the housing stock divided by aggregate household disposable income. This stood at 4.31 at the end of 2010, 52% above the average of 2.84 since 1965.

The 'equilibrium' level of prices relative to earnings, however, has trended higher over time as rising demand – due to an expanding population, a fall in average household size and the tendency to spend more on accommodation as income increases – has clashed with inelastic supply."

Now to a certain extent the idea that the ratio has been driven higher over time is true in so far as demand has risen and no houses have been built. This UK national ratio also masks regional differences for instance in London house prices are more like 8x income. Bubbles anyone?

But there is another more important factor at play here and it is called leverage. As the only leveraged investment available to UK plebs housing also offers the ability to increase in value as borrowing costs fall. A structural 20 year reduction in interest rates since the early 1990's (incidentaly the last UK property crash point) has made borrowing ever increasing amounts of money more affordable. Today rates for some trackers are below 2% and with 4/10 mortages being interest only im hardly surprised property is still affordable for those with such existing products.

So on measure no.1 Ward totally ignores the real driver of this changing ratio and tries to explain why this ratio should not remain constant whilst then citing another ratio as a constant;

"A superior valuation metric is the ratio of prices to rents or its inverse, the rental yield. Rents already incorporate fundamental influences on housing demand and supply. People need to live somewhere – the choice is between buying your own home or renting, not between spending money on housing or retaining income for other purposes."

Now ward has a point here since the cost of renting vs buying should never deviate greatly being a relative measure. However why should it not also change over time with increased demand for flexibility or other structural factors. Alas this is not explored.

"A national accounts version of the rental yield is the sum of actual and owner-occupied imputed rents divided by the value of the housing stock. This finished 2010 at 3.56% – almost exactly in line with its average since 1965, of 3.57%.

The yield reached a low of 2.77% in September 2007, consistent with house prices being overvalued by 29% (the percentage deviation of 3.57 from 2.77). This excess, however, has been eliminated by a combination of a 5% fall in prices – according to the Department of Communities and Local Government index – and a 24% rise in rents."

Oh dear. You can argue that buying compared to renting will give a relative measure of the affordability of one versus the other since said ratio is not an absolute measure. Therefore just because rents have risen 24% it does not mean house buying is affordable given it has fallen only 5%. It simply means housing across the board has all become more unaffordable everywhere.

We may have discovered that rare breed; a one handed economist! The lack of joined up thinking here is palpable;

"The statement that housing is not expensive does not, of course, preclude a fall in prices to an undervalued level, for example if a shock to household income resulted in forced selling. Displaced owner-occupiers, however, would add to the demand for rented accommodation. Any downside for prices from current levels is likely to be temporary and limited as long as rents continue to increase solidly."

Here our one handed economist has missed the point. When those who cannot afford their homes have them repossesed a surplus appears in the market. This surplus drives down the value of the existing stock of homes. Those stuck renting see the purchasing power of their deposit rise and move out and buy the now more affordable homes just as those who suffer repossesion move into the rental market. Rents do not rise forever.

The only reason housing is not now affordable in the UK against say the US is that homes have not been repossed due to (a) more people retaining their jobs and hence income during the recession (b) more floating rate mortgages linked to the BoE base rate alongside prices remaining robust due to (c) a less fraudulent lending bubble and (d) lack of supply due to planning controls.

Until repossessions rise prices remain above the level at which the market clears and illiquidty reigns.

Tuesday, 10 July 2012

Joseph Rowntree grabs headlines

The JRF has been busy updating their survey of how poor all poor people are. 

 A cursory glance of their survey details that they needn’t have bothered since their headline grabbing rise in the minimum income standard is driven solely be the following;

“Over the period as a whole, the joint amount that a couple with two children needs to earn in order to make ends meet has risen by £5,000 a year, after inflation. Without the need for a car, this earnings requirement would have stayed about the same in real terms. However, this is the product of many different factors, some causing earnings requirements to rise, and others causing them to fall.”

The JRF have been busy in their little microcosm of life up in Loughborough a UK town renowned for being the home of nothing. They used many skills to try to communiate with local people and there are some admirable quotes which English speakers should be able to translate;
"Nowadays branded ain’t like when we were kids and it was all designer because T. K. Maxx sells all last season’s don’t it?
– Father, Loughborough"

They have even discovered that living on benefits one cannot meet the MIS. This is a terrible injustice as clearly anybody without a job should have certain rights and privileges. Things are especially tough if you are a loner:

“The substantial increase in the MIS budgets for families with children has caused an erosion in the adequacy of their benefits, especially for lone parents. A lone parent with one child gets 59 per cent of what the family needs through benefits, compared with 68 per cent in 2008. For a couple with two children, the fall has been smaller, from 63 to 60 per cent.”

However the real crux to my mind as Londoner is they set the whole survey in the East Midlands for council housing tenants. It is a well known fact that nobody lives in the East Midlands and nobody can expect to get a council house in the next century if they don’t already have one since the government has been gifting them away to voters for paltry sums for 25 years.

“Applying the low-cost category principle to rent, we have used an average of social rents for each appropriate property type in the East Midlands as a benchmark. While many people do not have the opportunity to live in council housing, a significant proportion of people, especially on low incomes, live in some form of social housing. Social rents in the East Midlands are below average for the country, but this is not the cheapest region.”

I’m continually astonished that these surveys decline to address the real cost issue for British people; housing and the lack thereof (and to a lesser extent childcare which is related in that women are all working to help pay off the mortgage). The chronic lack of housing particularly in the south east and the rise of buy-to-let has permanently raised the rent required for people to simply live under a roof. I hear people chirping about the globalization effects on wages and the price of food and fuel but all we need is a 20% cut in the price of all housing across the board to substantially raise living standards.  I’ll happily take a pay cut and become more competitive if I can waste less of my income handing it to the UK rentier class who produce no productive value at all (be it a bank getting its interest or a landlord his rent; same thing).

Id love to see the JRF MIS for a family with 2 children in London with no benefits/social housing due to their 'middle' income jobs. They might have to draw a new line for relative poverty as I suspect those in the East Midlands on the social are having a better time of it.

Let’s have a go using the national costs plus london rent and childcare (from p.46);

MIS ex rent/Childcare; Couple, 2 Children; £454 p.w (p.46)
Rent in Zone 4 (Finchley for 3 bed semi); £400 p.w
Childcare for London inner per the survey (p.25); £130 x 2 Children = £260
Zone 4 travel cards commuting: 2 x £41 = £82
Total MIS; £1,196 p.w = £62,192 p.a

Annual Middle Income Wages: 2x (Gross £30,000, after tax =  £22,762) = £45,524p.a which is £875 p.w.

Meeting the % of MIS; 875/1196 = 73%.

I could achieve 60% of the MIS doing FA sat on my backside in Derby.

In order to meet my London MIS you would need £62k after tax which requires each of the couple to be earning £42k p.a. That means you need 2 professional salaries (or two tube drivers) to achieve the MIS.

If a couple both working full time with 2 Children can live barely above the poverty line in London it seems pretty obvious where the bulk of the costs are coming from. The MIS decomposes as;

  • 33% Rent
  • 22% Childcare
  • 38% Other inc Car
  • 7% Public Transport
55% of all MIS is occuring in areas which add absolutely no economic value to the UK economy and demand for goods and services.

Note in real terms 46% of all income earned (£875 p/w) is being spent on rent and 30% on Childcare meaning this family has just 24% of its earnings or £210p/w to spend on food, fuel and everything else.

I suspect the only reason politicians harp on so much about food and fuel is this is what old folks (being the largest block that actually votes) moan about since they own their homes outright as they bought them for 10p in the 1970’s but now they are suffering ruin as their pensions can't support their need for ambient temperatures at home of 32’c.

Monday, 9 July 2012

Brussels fires blanks

Eurocrats continue their attack on wealth not derived from syphoning off gravy from large public slush funds with a hunt on the wildebeest herds of fund managers feeding upon European pastures; the FT reports;

“Existing pay policies create incentives for fund managers to take excessive risk, lead to short-term decision making and must be revamped to protect investors, according to the European Commission.”

The irony is most asset managers don’t take enough risk! They hug the index like mad and charge investors 75bps a year for the privilege. The perverse incentive is that the way to make money is to take as little risk as possible whilst marketing as hard as possible to gain the largest pool of assets. The IM industry is all about scale and the reason top managers earn so much is scalability.

Of course most ‘long term institutional investors’ have a timeframe of about one quarter. They may pretend to be long term, and they are long term; until you have a bad quarter. So the idea that pay deals on a 3-5 year basis align fund manager interests with those of investors is also incorrect.

So the Eurocrats have totally missed the point here;

“Dan Waters, managing director of ICI Global, an industry trade body, rejected any suggestion that bonus structures were problematic. "“We are not living in a world where anyone thinks Ucits funds have been managed by fund managers who are causing funds to be damaged,”

“Nobody has said remuneration strategies and structures are a problem. Nobody has offered any evidence of that,” he said.””

Bus alas democracy or transparency is not necessary in the great ‘resentiment’ against all things finance:

“Didier Millerot, deputy head of asset management at the Commission, said the proposals were viewed as “non-controversial”, and were likely to be adopted before the end of the year.”

Fund managers much like banks like to have a lot of variable pay so they can cut costs during the regular downturns of the business/asset cycle. In addition increased regulation of recent decades has already raised the fixed costs of the business as the armies of auditors and compliance officers must be paid heavily fixed compensation.

So what happens when you increase the labour rigidity in the industry by raising fixed compensation and multi year deferred remuneration? Nobody moves jobs or is incentivised to improve performance (sounds like French industry!). Instead they just get fired. Maybe portfolio managers need a union?

I am not sure why the EU thinks excessive risk taking is even an issue. If a fund manager screws up the firm will hemorrhage assets Gartmore style and collapse with shareholders getting wiped out. This is called capitalism and nobody sheds a tear. These aren't banks who craftily moved from the 'heads I win tails you lose' risk model to the current nipple of the ECB funding milk to continue to enjoy the high life. In fact the banks' actions make it clear the the best long trade around right now is to declare yourself 'to big to fail' and get a seat at the gravy train.

If you really want a better system then fixed fees should equal manager’s basic expenses and all other remuneration would be performance fee based against benchmarks or total return as per the mandate with claw-backs. But under that scenario who’d bother to run a fund manager anyway because you cant turn any kind of consistent profit.

To know this you might actually have to consult with the people you intend to regulate. That clearly would be too much effort as the bubble of smug surrounding the town of Brussels is becoming increasingly impermeable.

“The only thing that saves us from the bureaucracy is inefficiency. An efficient bureaucracy is the greatest threat to liberty.”

- Eugene McCarthy

Monday, 2 July 2012

Plausible Deniability

“No matter what promises you make on the campaign trail - blah, blah, blah - when you win, you go into this smoky room with the twelve industrialist, capitalist scumfucks that got you in there, and this little screen comes down... and it's a shot of the Kennedy assassination from an angle you've never seen before, which looks suspiciously off the grassy knoll.... And then the screen comes up, the lights come on, and they say to the new president, 'Any questions?'

"Just what my agenda is."

-          Bill Hicks

So the great LIBOR scandal deepens. Now it appears the BoE influenced BARC to report a lower rate to help restore ‘confidence’ in the ponzi banking system. But strangely nobody can remember or recall the exact details of the conversation between Bobbie and the bank. Quelle surprise! The BoE and the banks were colluding to appear to still have clothes…go back to bed shorting speculators, your central bank is in control.

Bob diamond plays the usual CEO ignorance by blaming lowly traders – if they are so lowly why are they handling something so important?

It smells of bullshit and right on cue an ‘insider’ provides the vital clue which usually heralds a big pile of bull – convoluted news-speak;

“Before long, though, I was drawing up presentations to explain the "dislocation of Libor from itself" for corporate relationship managers. I was deciphering the subject in emails, internally and externally. And I was using the phrase myself openly with customers of the bank.

What I was explaining was that the bank was manipulating Libor. Only I didn't see it like that at the time.”
- The Telegraph

Bobbie’s ignorance reminds me of Dickie Fuld and Lehman’s Repo 105 accounting fraud. Fuld claimed that he was unaware of the Repo 105 transactions and the spreadsheets of these transactions which were sent to him since apparently he did not have a computer and can’t open attachments on his Blackberry. Now this could almost be credible if he is as technologically retarded as many of those fine old gentelemen of his generation but it does raise the specter of negligence - how the fuck did he do his job?

Claiming ignorance of everything is a great tactic employed by the mafia for many generations. The boss is never caught making a direct instruction or report. All orders are communicated by innuendo through a chain of command to preserve any boss from direct indictment. 

I used to think the judgement of medieval witches was a terrible injustice. You bound them and threw them in the river. If they drowned they were innocent and if they floated they were witches and were burned at the stake. In the case of bank directors I think a similar trial technique would be equally effective. Anybody with a grain of sense knows these chaps are as guilty as OJ Simpson but time and again they employ some implausible deniability to save their skins and the bank shareholders take the hit.

Bobbie’s gotta go.

I like to see my disgraced former banks fronted by men who are now suffering interminable hell be it Horta Osorio' s mental breakdown as the head of the headless horse or Hester losing all his hair. The sight of Bobbie’s fake plastic America veneers has all the sparkling arrogance of Simon Cowell’s face and it really grinds my gears…