It is Obvious

Chris Rick has got altogether too much to say

Archive for November, 2013

Good idea 4427

Posted by chrisrick13 on November 28, 2013

It is obvious: solutions are difficult to come up with

If you put a set of rules or laws in place then 80% of cases fall easily into a law slot and cost nothing to deal with in any sense.  The other 20% take endless effort and cost to deal with.  It does not matter where you move the line.  Different entities are affected but most are no trouble the other 20% are a problem.  The only way to eliminate the cost is not to have the laws/rules…and then other problems arise also obeying the 80/20 rule.  So why bother – because we are not animals.

Human beings are very good at maximising their gain and minimising their loss.  The maximin approach.  You do not have to manage this as a government or society we all do it naturally…unless we are insane.  Of course as a government you can feed people false information and they will act against their best interest.  You can do it as a company as well and they do it all the time.

So it is that many laws and regulations can be simplified.  The cry from government is that there are a lot of cases to consider.  No there are not.  My favourite is taxation and NIC.  Why not give everyone a state pension when they are 65 or maybe 90 as we are moving towards.  Then remove NICs.  There will be other problems and certain classes will suffer.  So tell the population that NIC will be reduced by 2% a year until it is gone starting next year.  We will maximin and by the time NIC goes, the boundary will have moved and we will all have organised our affairs to stand on the right side of the boundary from our perspective.

Then we will have a society where £10,000 a year, if earnt, all goes to the person.  There is free medical care.  When you stop working money will still come in.  Sounds good to me.  We will need tax increases to keep government income up.  So add 1% to tax, or 2%, or whatever it takes.  The boundary cases will have 5 years to arrange their affairs to their best advantage.

I was dismayed that the government backed down from taking branding off cigarette packaging.  Cowardly, hypocritical, immoral.  They need more evidence.  Tosh.  It is advertising and costs so the cigarette companies would not do it unless it had a benefit.  The move will turn cigarettes into a low-cost, low margin activity.  There will be scope for more taxation without raising prices.  But a percentage of smokers will give up.  That is a price worth paying by our society.

However there is a boundary condition here.  Push prices up and at every increase some people will stop.  However some people will do something else.  They will switch to black-market cigarettes or move on to another drug.  So another approach is to make it very difficult to smoke.  Ban smoking within 10 yards of a doorway.  Ban smoking in parks.  Provide public smoking pits like loos.  Fill them full of psychological messages to encourage giving up.  Pass a law that lets cigarette companies make them but only government can package and distribute.  In the packaging factories spray the cigarettes with something that makes people who smoke them feel nauseous.  Nicotine patches are not sexy so subsidise them.  Throwing up in public is not sexy either.

It is obvious: solutions are difficult to come up with but improvements are easy.

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It’s an economic miracle – we are saved

Posted by chrisrick13 on November 27, 2013

It is obvious: I live in a democracy

So that nice Mrs Thatcher, the cuddly Mr Major, the dapper Mr Blair, the bumbling half-wit Mr Brown and the smooth Mr Cameron have hidden a big secret from us.  For years we have got deeper and deeper into debt as a nation.  Not considering the personal indebtedness there is the visible government debt, the pension shortfalls, the crumbling infrastructure, and the other promises made on our behalf by the government.  Our descent into a debt/default is inevitable.

Yet during all that time our leaders have stuck money under the carpet.  So much so it has been difficult walking around.  At least I hope it was not literally under the carpet.  I know these wise and well advised people have put the money into strongly performing assets that have generated income (re-invested) and grown.  There is much money slopping around ready to deploy to save our economy.  They are on the point of releasing the funds.  All will be well.

How do I know this?  If they have, and will spend, the millions it will cost to have a Scottish independence referendum then they must have huge amounts of money stashed away that they have no idea what to do with.

It is obvious: I live in a democracy so where is my voice?

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I’m two thirds of pop group

Posted by chrisrick13 on November 26, 2013

It is obvious: invest in yourself

I’m lucky to be alive.  I have a different view on education to my wife…and she is a teacher.  At least she can’t answer back here.

I did my education with the elitist 11+, grammar schools and secondary modern schools, and university when less than 5% of the population went there.  The system was full of flaws.  My wife advocates a system of equality of opportunity for everyone enabling learning and valuing other things than the ability to add two numbers together and remember when the battle of Waterloo was.  A system full of flaws.

I showed my maths exercise book that I used in the 5th form to my sons as they got into the same year.  They both thought it was a foreign language.  They never proved Pythagoras.  They have never done any differentiation.  Never solved a quadratic equation.  They have also never learnt their ‘times tables’ which is like a bird trying to fly before it has grown feathers as far as maths is concerned.  It is a worry that one son teaches mathematics to young children.

What the system I went through did was to put people in boxes.  Anyone wanted a thinker they could go to the degree box.  You wanted a technician and you could go to the HND box.  Someone who could actually put things together – the apprentice box.  Now you have no idea based on their qualifications what a person can do.  I have bleated this before.

At a time that a degree was worth much more than it is now it was free.  I got a grant and my dad made it up to the full amount (£360 a year).  I even claimed unemployment during the holidays for the first two years when I didn’t have a job.  When I graduated there were companies fighting to get my signature on an employment contract.  With just a little effort I was going to be in the system and comfortable for life.  I came out of university with assets and more money than I went in with.

Now we have degrees of dubious value that cost, according to the NUS, £21,000 a year which is £63,000.  There is a nasty game now though.  Young prople are split down the middle.  There are those with degrees and those without.  If you are an employer with 300 applicants for a job what is as good a way as any to reject half of them?

So there are two ways to fund a degree: be rich or borrow lots.  Does this requirement not seem a little elitist to you?

Now the government is about to sell a lot of its student loan ‘book’ to…the mafia.  Might as well be.  I wonder that this might be a little like packages of sub-prime mortgages.  Bear in mind that it is a tax.  The loan only performs when the person earns above a threshold.  The payment is not related to the loan but is a percentage of earnings.  I’m sure that the entity buying the loans has done its numbers and I bet that those numbers are based on schemes to squeeze money out of ex-students.  Soon there will be fees and fines, payable now, for not complying with the various, complex, rules that are put in place.  There will be a department that ‘puts the squeeze’ on ex-students.  I can even see a new class of loan being invented where when certain conditions are met it is converted from a tax to a loan.  They might even try and lure students into switching voluntarily.

Degrees are close to becoming elitist again with an underclass of people with worthless degrees from the 90s and 00s lugging some very big albatrosses around with them.

It is obvious: invest in yourself if you can afford it

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I can do that

Posted by chrisrick13 on November 25, 2013

It is obvious: the fat lady must have sung

Imagine you go for a job interview.  You are an expert plumber but you fancy having a go at brain surgery.  They spend a couple of hours asking you questions about yorkshire joints, combi-boilers, hot-water header tanks and air-locks.  You pass with flying colours so they give you a scalpel and send you down to theatre.

So it is with politicians.  They have skills at getting elected.  Then they are asked to do brain surgery…or run a country.  I was going to say that they have skills at running a political party but I don’t see much of that.  Is there any surprise that countries are not consistently run well?

There is an aura of invincibility about the Chinese.  A big country that is heading towards number one slot by any measure you care to use: economy, population, army, information censorship, human rights abuses, damage to environment.  These inscrutable people get it right every time.  So skills at getting to the top of the politburo are those that are needed to run a country?  No they are not.  The wheels on China are just as wobbly as everywhere else it is just that we can’t see them.

Which naturally leads me on to banks.  Banks are companies that are run by…bankers.  So well run that they never go bust and have to be rescued by you and me.  I think that the Co-op bank took an innovative approach, worthy of merit, appointing someone who knows nothing about banks to run theirs.

I have a friend who retired as a bank Manager at Lloyds at least 15 years ago and might have been more.  He had worked in banking for many years and knew it well, just as his mates did.  I once had a cheque for a large amount where the words did not match numbers (deliberately so I think)  The pence were not mentioned in the words.  The cheque did not clear.  He told me to ‘concede’ the pence and, bingo, it cleared.  He had the detail and hea had the big stuff as well.  He said when he left that there was nobody working in the company knew anything about banking at his level or above.  They were all insurance salesmen.  It is clear they were doing illegal stuff all along but he was surprised it took so long for them to fail.

It is obvious: the fat lady must have sung – the Flowers are out (couldn’t let that one pass me by)

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I do drone on

Posted by chrisrick13 on November 21, 2013

It is obvious: I’m not a number

I read today that a Pakistani Taliban leader was killed by drone-strike yesterday.  A good thing too.  I don’t like the politically correct words.  He was killed by an American sniper about 12,000 miles away.  A good thing too.  What I liked, if the report is to be believed, is that 3 missiles were seen to hit the ROOM he was in.  A good thing too.

Particularly these terrorists do not care who is killed with their targets and they broaden them to include all the population.  We are legitimate targets.  I am not a target.  There is no roundel painted on my back.  I can fight in only remote ways.  One is to support this kind of activity.

Great care is taken, not to limit collateral damage, but to kill as few people standing near him as possible.  I want solid and simple words.  It is important to kill some though.  We want people naturally to put distance between themselves and their leaders.  Perhaps when they hide in schools and hospitals people will take action to eject them.

We also need to keep going so that the mantra “we’ll get you eventually” holds true.  You stand up to be counted and you will be.

While we debate the lowering of the age of consent the Taleban can debate the lowering of the age of their leaders.

This attrition on their leaders needs to be accompanied by two things.  The first is funding for public health, education and infrastructure.  Improve the lot of people who are in need.  The second is to support the dissemination of information.  This will end extremism.  The internet, MacDonalds, Levi and Apple will bring down any extreme government or religion.  It takes time as the youngest generation has to grow up, but it is inexorable.

It is obvious: I’m not a number but I will be counted

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Posted by chrisrick13 on November 20, 2013

It is obvious: it is easy to count all the black sheep in a field

I just heard a building society official being interviewed on the radio.  There was a lot of time spent on 95% loans being risky.  The building society guy said that it was not a risk but that 120% loans were risky.  He said that most of us had loans on houses that were 95% at the beginning.

I do wonder that such rubbish is allowed an airing on the radio especially Radio 4.  Still today’s rubbish was minor compared to the interviewee yesterday who declared the economic problems of the world fixed without challenge from his interviewer.

In 1978 I took out my first mortgage.  It was for £10,000 and I put down £100…borrowed from my parents.  The criteria for acceptance for the loan was that 3 times my salary plus my wife’s had to exceed the loan.  It did that quite easily.  This lending model was based on long-term average interest rates and our ability to repay the loan.  There was no consideration for house prices going down, they just didn’t.  Nor did they go up much either.  They just trundled along at a couple of percentage points a year.  Interest rates oscillated in a narrow band.  This had been the state of affairs for many years apart from the ‘Barber Boom’ in 1972.

So what is the big deal on 20%+ deposits for houses?  The simple answer is risk.  The banks know that there are tough times coming and they will not take a risk.  So they have put it all on the lender and, with the government guarantee scheme, you and me.  The risk comes from two directions: house prices going down, interest rates going up.  It is a different world to 1978.

The only solace I take is that 25% might wipe out the borrowers and us via the government guarantees but it won’t be enough protect the banks.

It is obvious: it is easy to count all the black sheep in a field: count all the sheep then count all the white ones and subtract the two numbers.

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Dig for victory!

Posted by chrisrick13 on November 20, 2013

It is obvious: our course was set a long time ago

TFR is an interesting number.  It is the total fertility rate.  Like most numbers although the idea is simple it proves slippery when you try a description.  It is the average number of children that women are producing for a given population.  It involves fractions so is not calculated on a single person basis!  There is more to this definition but I can leave it there.

If most women live until they stop producing babies and allowing that there are slightly more boys born than girls then a TFR of 2.05 keeps the population stable as you might expect.  Look at somewhere that has poor public health and fighting and the TFR has to be a lot higher to keep the population from shrinking.

Western Europe and the USA has a TFR below 2 which means that the population ought to be shrinking for both…but it is not.  This is somewhat accounted for by us living longer.  A lot of baby-boomers from the 60s and 70s are still around when they should have faded away already.  But they will fade.  In the same way that we had a boom we are going to have a bust.  Gordon Brown would be proud of it.

But these changes work on a ‘generation’ as the basic unit.  Change is slow on a 20-year basis compared to nearly all the cycles that interest us.  Thinking of the need to double population to double GDP we are going to have trouble keeping population stable over the next 20 years.  There is no need to build another London as there won’t be people to put in it.  The government, whoever it is, only needs to hang on a little longer and we will have all the houses we need and at prices that the next generation can afford.  This is another factor that prevents the economy of the UK reaching 2% GDP growth.  Without that growth we will enter a debt default cycle sooner or later.

So I note that the Chinese are rowing back from their 1-child policy.  They have a TFR of 1.6.  There are a lot of them but they are too old and a change in the policy will only see a significant effect in…a generation.  They are going to invest heavily in improving efficiency of production so that they can get their GDP up to where it needs to be.  It is all very well if one worker can run a production line and turn out a thousand cars an hour, there have to be people buying those cars at the rate of a thousand an hour.  GDP is as much about consumption as it is about production.  I suppose that you could feed the cars into an automatic recycling plant run by 1 worker but that only puts wealth in the hands of 2 workers.  I think the Chinese intend to sell to us.  If they manage it then they will drive us into the ground sooner than we are managing on our own.

So my wife has done her bit (with my help) to keep the economy going by having 3 children.  Have you done your bit for your country?

It is obvious: our course was set a long time ago but even with the iceberg in sight nobody seems capable of yanking on the wheel

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I’m walking backwards for Christmas

Posted by chrisrick13 on November 14, 2013

It is obvious: it’s not over

I love ice-hockey.  I hate it as well.  It is physical.  It is fast.  It is exciting.  And you can’t see the damn puck!  Frenetic action, bodies everywhere then they all throw their hands in the air and skate off.  After a careful search you can see a little black dot partially obscured on the floor next to the net.  Only a couple of minutes of slow motion replay lets you see the full story.  Don’t know why anyone bothers going to a game.  What I really like from the skill perspective is the defenders who can skate backwards as fast as the attacking players going forwards.  It is amazing.

I see backwards movement every day done with great skill.  I thought that the forward guidance on interest rates was action as unemployment passed 7%.  Not backwards skating but it is action only to be considered when the rate goes below 7%.  How much below?  How long for?  Maybe action will be taken at 6.5%?  So why not say it?  The answer is obvious…because they don’t want to be tied to a number.  So why fly 7%?  Forward guidance is supposed to stabilise things with certainty.  The markets are moving independently of the guidance.  How does it stabilise things when the BoE says that it thought it would happen in 2016 but has now brought that date forward to 2014?  Maybe it will push it out next month.  Is that stability.

So my prediction is that the 7% target will be moved before it occurs.  It is a good job that the people who it matters to are ignoring it.

What bothers me about the 7% is the accuracy of the measure.  I have had enough trouble getting and keeping myself on the unemployed list so I know there is huge pressure to cut that unemployment number.  Everyone is aware of that.  So the BoE is going to base its strategy on a number that is at best ‘leant on’ and is actually fiddled.

Even if it is correct, what does it measure that has some bearing on interest rates.  If 100,000 move to part-time working and 100,000 unemployed take up the slack then nothing much has changed in the economy.  Unemployment drops by 2 points though.  So I would like to find out what the governor thinks this number is signalling to him?

I wrote about lucky generals in the last blog.  Maybe after Canada and now the UK Carney is a lucky general.  Alas, I do not think so.

It is obvious: it’s not over until the fat lady laces up her skates up

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I’m an expert

Posted by chrisrick13 on November 13, 2013

It is obvious: it is easy to make money investing

Many years ago I heard of one of what I now know is a classic fraud.  It appears innocent at first but it is illegal and immoral.  Then I read a very good set of SF books that eventually ended with a play on that fraud.

A racing tipster advertised a tipping service where you sent him £10 and he sent you a tip that you could bet on.  If it did not win then he returned the £10.  Nothing wrong there?  The ‘tipster’ (time for quotes) just randomly assigned people to horses in a race with 6 horses.  He got, say, 600 punters and 100 were very happy.  The other 500 got their money back.  So the 100 winners put another £10 each in.  (Probably a good few of the losers did as well such is he psychology of gambling.)  Of those 100, 16 were happy.  The 16 paid again and 3 were happy and that was that.  £1200 less expenses.  Not much of a deal but a steady profit if you can get a lot of people trying it.  And illegal.

I also read of a study of generals that had the goals of showing that a) they got to fight battles until they lost one and b) that winning a battle did not depend on the general enough for him to materially affect the result no matter how good he was.  This was not successful as it was very difficult to decide who had won a lot of battles.  Good generals were just lucky ones?

So it is with fund managers and economic gurus.

Once in a long while there will be someone who has a long run of luck.  many thought Hanson and White geniuses but when they died their company rapidly disappeared.  Were they on a run of luck?  There are plenty who say that Buffet and Munger have just had a long run of luck.

Whenever I hear of companies that grow rapidly from nothing I wonder about how many ‘comfortable to rags’ stories there are that we never hear about.

So I look at people who might manage any money that I have.  What is a good way to choose the ‘lucky’ one?

I have two criteria.  Unless you understand the investment completely do not put money in it.  If it looks reasonable it probably isn’t.

It is obvious: it is easy to make money investing – be lucky

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‘Ere guv, wanna cheap castle?

Posted by chrisrick13 on November 12, 2013

It is obvious: a fool and his money are soon parted

I just read an article on renting versus buying.  In summary over a long time it concluded the costs of the two are very similar.  In the short-term a house will take a lot more of your cash than a rental.  The risks associated with each are very different.  You really have to get your timing right with buying and selling and you need to be very sure that you can afford the mortgage over its life.  If you own a house and it sucks the maintenance money out of you then at least you will have something close to what you want.  Of course if you rent you can always move on if you don’t like it.  One benefit I might well have had would have been that if I had rented I doubt I would have accumulated nearly so much stuff.

If all things are considered then the rental versus buying costs ought to be similar because if they weren’t then demand for one or the other will go.  As a landlord there has to be a profit in it or there is no point doing it which pushes the equation around a bit.  This has to be factored in and is a reason why there are council houses.

Last night there was a short programme on the housing bubble.  I had to watch it.  The government minister stood there and steadfastly denied a bubble while every other expert warned of one.  There was the observation that building lots of houses and bringing prices down by over-supply was much kinder than making mortgages affordable to people thereby pushing prices up.  These are people who can barely afford the mortgage with base rate at 0.5%.  One new buyer said that she was completely unaware that the current interest rate was the lowest it had been in 200 years.   When she was told that the long-term average was 9 times the current rate she just stared at him.  I was unsure whether it was shock or she just did not understand what the interviewer was talking about.

The programme also showed people queueing outside a house to view it on a Saturday before putting a bid in for the Monday when it sold for £75,000 more than was being asked.  Do you remember that sort of thing happening before?  I do – twice.  I also remember what happened soon after.  I remember what happened with Dutch tulip bulbs in 1637 as well.

I have advised that you should not buy a house at the moment, however if you have one then keep it as a store of value over any rest that occurs.  If I thought I could get the timing right I might sell my house over the next few months with the intention of buying back in when the bubble bursts.  However if that coincides with vastly increased inflation then there might not be any timing possible that is ‘right’.  This is a consideration where you are close to deciding whether to put you house on the favourite at Lingfield in the two thirty or not.

What the programme showed me was increases in house prices that are starting to get a lot of people out of a nasty hole.  They are in houses that they could not sell as they would have to put money in to make up for the drop in value against the mortgage: negative equity.  There are others in a similar nasty hole.  They have to take whatever deal their current lender offers them as they do not have enough equity to go to another lender and negotiate a good deal.  In similar fashion there is another group who if they sold would not have enough equity to put down on another house and get a mortgage.  The government scheme bumps up their deposit and helps them pay more for another house.

The people getting out of their holes are being replaced by a lot of people who are starting at the bottom of an already quite deep hole.  Just a 1% increase in base rate will make it deeper and fill it with water.  That 1% increase, like bubbles, is further away than you can possibly think but it is coming.

It is obvious: a fool and his money are soon parted but how on earth did he get it in the first place

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