Financial Crisis

[Gambles]

Remember we are talking about naked, where the volume of shares in the market is increased beyond the number actualy issued versus normal shorting where there is no increase in the number of shares.

We are not going to agree on this, because, as I said before it is a bit of a religion. But in the States naked short selling is banned, and the Europeans have partially banned it. So there are clearly a number of influential people at the top, who have more insight in to this than I have, and they consider it is wrong, opening up the markets to manipulation and distortion.

Borrowing stock isn't counterfeit

Posting security to cover the liability for buying stock at a future point isn't counterfeit.

Short selling is a logical extension of market activities

Correct me if I am wrong, but the sub-prime shorters were not, in fact, putting huge tranches of counterfeit property into the market, or, taking it to the next level, selling counterfeit sub-prime bonds, what are they called, Structured Investment vehicles or something like that, but were taking out large bets, CDO, on the existing bonds. Similar to me insuring my drunkard neighbour's life. The fall in price occurred after the rest of the world found out about the toxic content of the bonds. This was a totally different mechanism to selling counterfeit shares into the market.

In a sense, yes, these guys balanced the shortage of sellers in the market

Q1 Yes, it collapsed due to the overpriced assets.

Q2. Yes, they made it a hel_l of a sight worse because if a load of shorters had not been betting on the same CDO's, basically meaning everybody in the entire street had also insured my drunken neighbour's life, then there would not have been the incredible explosion in the losses incurred through the Credit Default Swaps. Obviously the insurance companies had completely mis-priced the risk. I would argue that it should not be the case when say a 10,000 Dollar debt is defaulted on the insurance companies should have to pay out 1,000,000; taking down the whole banking system with it.

and if there hadn't been guys on the short side it's reasonable to assume that this nonsense would have run for far longer before the house of cards collapsed - the pricing became obvious because the CDS sellers started to outweigh the buyers - look at the analysis of the sellers at the time - the naked shorters probably saved the world from total collapse by helping stop this when they did

And you have contradicted yourself.

My only concern about naked shorting is who should do it

In a post above you stated that it was OK because everyone can do it, so it is a fair an essential part of the market. So if you restrict it to a few privileged users then surely that would refute your previous argument?

No, I want the opportunity to be available to everyone but oif there's to be regulation I'd like it to protect the short sellers from the market not the market from the short sellers. There's a danger that someone comes out with a naked shorts retail product and doesn't warn investors of the risks and downsides - this is where regulation should focus IMHO

[Gambles]

[Yes, this thread, through the many contributers, has had a very positive effect on my life. I have learnt a lot. And that is absolutely sufficient to justify the investment of time spent here.

And I admit it, I did not realise that there was this huge web of deception and lies being woven around me. And, indeed, I imagine that the majority of the world's population is still being deluded, stolen from and generally deceived, and they have no idea what is going on.

And what have I done?

Step 1, ensure that my future is financially secure as far as possible by diversifying across multiple countries, multiple banks and multiple asset classes.

Step 2 is to repeat step 1.

Step 3 is try and work out how it all fits together and then try and profit from it.

I am not sure that I will be successful at any of these steps, but I am certainly in a much better position that three years ago.

And once again I extend thanks to all those who have contributed to this thread.

I'd say that's pretty dam_n worthwhile. Well done!

[Gambles]

1. i am trying hard.

2. discussion? what discussion? participants lamenting how the oil spill in the Gulf of Mexico affects the bad bank in which Anglo-Irish drops its shitty toxic papers, predicting the default of the estonian taxpayer because the country will adopt the €UR next year, sympathise with the Germans who have to learn greek and in future eat Feta and drink Ouzo daily, copying and pasting the latest gold price prediction of some bakery aficionados, advise BP how to plug a hole, presenting pages with quotes from unkown persons who [allegedly] had wisdom poured with a funnel into their brains, agree or disagree with predictions which sovereign debtor will default next, applaud various members when they [for the umpteenth time] call Benjamin Shalom Bernanke, ol' Keynes or Obama an idiot, trying [with my rather limited knowledge of English] to figure out what exactly Abrak or Gambles meant in their postings? thank you, but NO thank you.

my interest is focussed on how to shuffle and position my assets, protecting them and their proceeds from the claws of greedy politicians and further additional crises [which may arise or not] thus protecting my and my wife's present life style for the statistical remainder our life time.

Sounds like the right focus to me, Herr Naam

Edited June 18, 2010 by Gambles

[Gambles]

Re BP

It may be my peculiar English sense of humour BUT

As I recall the BP Execs came out of their meeting with Obama looking beaten up and depressed. Obama got on the TV and talked about the US$20bn fund and suspension of dividend payments until 4Q. He looked kind of chuffed and it seems everyone was impressed.

However, my guess is that when BP Execs got back to their hotel they cracked open a bottle of champagne and there were high fives all round.

You see to some extent this US$20bn fund is a bit of a farce. What BP have actually agreed is to put US$5bn into a fund by December. Then put an additional US$1.25bn a quarter into the fund for the following three years. If Obama had said that BP had agreed to put US$20bn into the fund by December 2013, would be people have been so impressed?

The whole BP thing is being stage-managed by USG for the benefit of the watching gallery. This terrifies me - I can't think of a single major power except maybe Canada (I don't actually know enough to form any kind of judgement on Canadian politicians) and China possibly (no-one knows enough to form any kind of judgement) where there are any politicians that I trust to do the right thing - it's all about playing to the gallery or the special interests or sometimes trying to do both at once....

[12DrinkMore]

Naked Shorting:

We are never going to resolve this because it is, as I said, more like a religion than a science.

But, for my own clarity, the beliefs are

1. It is perfectly OK for someone to sell something they don't have in their possession, either through purchase or borrowing, on their own behalf.

2. It is perfectly OK for someone to distort and cause unnecessary volatility in the market by creating out of thin air a bunch of shares and diluting the owners of the real shares asset value.

3. It is perfectly OK for someone to insure the value of something that they neither own nor have any other interest in, other than it's destruction.

All of these actions are illegal in the real world of physical objects.

Somehow when we move into the smoke and mirrors world of electronic finance, then, in your own words, these become the heroes, " the naked shorters probably saved the world from total collapse by helping stop this when they did"

The plot was lost at the point where the finance guys realised that in the finance world, physical, moral and legal laws either no longer applied, or with a stroke of a keyboard, could be circumvented.

[Naam]

[Yes, this thread, through the many contributers, has had a very positive effect on my life. I have learnt a lot. And that is absolutely sufficient to justify the investment of time spent here.

And I admit it, I did not realise that there was this huge web of deception and lies being woven around me. And, indeed, I imagine that the majority of the world's population is still being deluded, stolen from and generally deceived, and they have no idea what is going on.

And what have I done?

Step 1, ensure that my future is financially secure as far as possible by diversifying across multiple countries, multiple banks and multiple asset classes.

Step 2 is to repeat step 1.

Step 3 is try and work out how it all fits together and then try and profit from it.

I am not sure that I will be successful at any of these steps, but I am certainly in a much better position that three years ago.

And once again I extend thanks to all those who have contributed to this thread.

I'd say that's pretty dam_n worthwhile. Well done!

i couldn't agree less on Gambles' "well done".

reasons:

-don't spread your holdings among various banks. as a client you lose clout with the bank and in case an urgent total reshuffling is required (such as Lehman 2008) the sudden workload is too big to handle with efficiency.

-besides, most of your assets (e.g. bonds, shares, funds) are not held by any bank but with the relevant custodians. if a bank goes belly-up you can only lose your cash assuming the bank is not located in a jurisdiction where the government guarantees your cash.

-think of the hardship for your wife/heirs to deal with multiple banks and their freaking formalities in case of your demise. that applies especially to those with wives who's command of a foreign language is poor or for children who are not yet legally entitled to make any decisions. none of us is immortal and that's why appropriate provisions should be in place.

[Abrak]

my interest is focused on how to shuffle and position my assets, protecting them and their proceeds from the claws of greedy politicians and further additional crises [which may arise or not] thus protecting my and my wife's present life style for the statistical remainder our life time.

Actually I do think your highlighted point is the easiest lesson one can learn from the current crisis. (1) There are large fiscal deficits and sovereign debt problems that exist (2) to the extent that you think there are 'economic', 'demographic' and 'financial' sector problems, Government social and financial responsibilities will increase. I think that you can virtually guarantee that to the extent that you have assets and income Governments are going to try and get far more of it out of you than they did before.

People have been lulled into a slight sense of complacency over this issue because the last twenty years have really been about lower taxation and freer capital movements (also it is essentially not 'interesting' or 'sexy' as Naam would say). 20 years ago people used to talk about the 'Laffer curve'. Namely when tax rates go up, people avoid more or work less. Which means if you avoid this issue, the Government needs to raise taxes even further. And when I say 'avoid the issue', one big mistake that people can make is that 'my money is here so it is free from tax' because that might be exactly what taxes are placed on. In order to successfully tax people more you need to aggressively crack down on tax avoidance as a Government.

The 'shuffling' of assets is an equal and opposite exchange. It is difficult to get right. While letting a Government get their hands on your money is easy to get wrong. If a Government takes something off you they are not going to give you anything in exchange.

It isnt interesting I admit. In my view the reason it is not interesting is because it is inevitable rather than debatable.

[Naam]

"It isnt interesting I admit. In my view the reason it is not interesting is because it is inevitable rather than debatable."

it might not be debatable but your views are valid and interesting Abrak. interesting because the stated "reason" should be (if possible) taken into consideration when planning for the future. personally i am convinced that it is only a matter of time till multiple countries/governments adopt the "american way" and try to fleece their citizens who live in Nakhon Nowhere as much as they fleece their citizens who live in Manchester or Frankfurt or Madrid. for the unfortunate who are already bearing the yoke of the IRS or their relevant taxman it is nearly too late (but not impossible) to counteract.

it is much easier for the fortunate ones who are not yet pestered by the taxman to arrange their affairs in a way that they pay only the minimum amount of taxes based on the expenses which can't be hidden but verified by the taxman.

[BlackJack]

so 2 parts of the equation are true

death and taxes

so how about some techie writing a viral program that randomly shuffles every ones ID and tax number

then puts a million or so into every ones account

then it would be christmas

[Abrak]

i couldn't agree less on Gambles' "well done".

reasons:

-don't spread your holdings among various banks. as a client you lose clout with the bank and in case an urgent total reshuffling is required (such as Lehman 2008) the sudden workload is too big to handle with efficiency.

-besides, most of your assets (e.g. bonds, shares, funds) are not held by any bank but with the relevant custodians. if a bank goes belly-up you can only lose your cash assuming the bank is not located in a jurisdiction where the government guarantees your cash.

-think of the hardship for your wife/heirs to deal with multiple banks and their freaking formalities in case of your demise. that applies especially to those with wives who's command of a foreign language is poor or for children who are not yet legally entitled to make any decisions. none of us is immortal and that's why appropriate provisions should be in place.

Thank you for contributing to a subject that is 'unsexy' a 'matter of philosophy' and 'nothing to do with the financial crisis'.

I tend to agree with you entirely on the issue but if you assume 'enough stupidity' in the underlying investor 'diversification' does not equal 'diworsification'. The underlying cost of the issue at some point becomes justified because the reason to pay for 'diversification' rather than simply doing it yourself is the 'underlying costs' of not achieving it. The underlying issues you have with 'diversification' is that to the extent that is your 'goal' you have already achieved it because only you know your underlying assets and liabilities. And to the extent 'maximum returns' are you goal they are based on the fact that you have achieved adequate 'diversification.'

The 'underlying reason' you disagree with Gambles, I suspect, is that you already have a 'diversified' portfolio that reflects your risk/reward ratio. I suspect you have some 'cash' to meet emergencies, do not have an underlying mismatch between assets and liabilities. You simply believe that a 'degree of diversification' is a 'prerequisite' to investment (say to the extent you always have cash) that anyone who doesnt understand that concept probably shouldnt be 'investing' in risk assets.

For an investor a degree of diversification is 'axiomatic' rather than a 'goal'. As a theory it is vaguely interesting because of individual companies. If you were say Microsoft, owned 60% by Bill Gates, he has an incentive to 'diworsify' while you who might invest in his shares, do not wish him to (because you can do that yourself.)

I do agree with Gambles that if you are not intelligent enough to understand a 'degree' of diversification it is necessary 'matching assets and liabilities' etc, then a degree of diversification is more important than maximum returns.

(BTW as a theoretical point, I believe that Gambles gets mixed up with an underlying theory. Which is that it is possible to achieve both 'diversification' and 'above average returns' as a mathematical equation (assuming he knows your brain). One might think that maximum diversification just leads to convergence to the mean average return (if you assume no costs.) It really comes down to this though. Diversification becomes a good investment strategy based on the fact you are not diversified enough. I.E. complete stupidity. Beyond that it simply becomes a degree of belief that you know what you are doing.)

[12DrinkMore]

To revisit this topic of Naked Short Selling for the last time. Here is a a paper worth reading if you are not already fed up with this discussion

http://www.cato.org/pubs/regulation/regv31n1/v31n1-7.pdf

On the second point that companies and shareholder value are destroyed, former sec chairman Harvey Pitt claims:

Naked shorting harms the market and market participants, particularly when fails persist for substantial periods, as they clearly have. Naked short sellers effectively gain more leverage than if they were required to borrow securities and deliver within a reasonable period of time. And this additional leverage may be used to drive down a stock’s price. In addition, naked shorting effectively dilutes the pool of real securities. Phantom shares created by naked shorting are analogous to counterfeit money. In a stock market corollary

to Gresham’s law, the more phantom shares of an issuer’s stock that circulate, the more they drive out or devalue an issuer’s real shares to the detriment of investors and issuers alike. Fails associated with naked shorting harm investors in other ways, for example, by depressing stock prices to the point that shares may not be marginable, denying shareholders the ability to borrow against them.

and

The sec and the dtcc defend occasional naked short selling and delivery failures on the grounds that they foster “liquidity.” Such arguments reveal that these regulators and professionals have forgotten that a price is a mixture of scarcity, risk, and value; unlimited liquidity obliterates scarcity and undermines the price system. As William Donaldson, Pitt’s successor as chairman of the sec, once remarked, “How much fraud are you willing to tolerate for liquidity? I think the answer is zero.”

So we have two Chairmen of the SEC condemning Naked Short Selling, they certainly know far more about it than I do.

Not much left to discuss really, except maybe why the fraudsters still manage to get away with it?

[Naam]

"The 'underlying reason' you disagree with Gambles, I suspect, is that you already have a 'diversified' portfolio that reflects your risk/reward ratio."

not at all! i disagreed with spreading across multiple countries and banks. perhaps my mistake was that i thought of the combination "banks in multiple countries". only "12drink" can clarify what he meant.

quote "12drink": ensure that my future is financially secure as far as possible by diversifying across multiple countries, multiple banks and multiple asset classes.

that's why i highlighted "multiple countries" and "multiple banks" and left out the "multiple asset classes" because i fully agree with the latter. of course if "12drink" meant "spreading assets across multiple countries" i have to agree with that too. i have given also a valid reason for my objection.

[Abrak]

"It isnt interesting I admit. In my view the reason it is not interesting is because it is inevitable rather than debatable."

it might not be debatable but your views are valid and interesting Abrak. interesting because the stated "reason" should be (if possible) taken into consideration when planning for the future. personally i am convinced that it is only a matter of time till multiple countries/governments adopt the "american way" and try to fleece their citizens who live in Nakhon Nowhere as much as they fleece their citizens who live in Manchester or Frankfurt or Madrid. for the unfortunate who are already bearing the yoke of the IRS or their relevant taxman it is nearly too late (but not impossible) to counteract.

it is much easier for the fortunate ones who are not yet pestered by the taxman to arrange their affairs in a way that they pay only the minimum amount of taxes based on the expenses which can't be hidden but verified by the taxman.

I know this topic is slightly off thread but it is more 'productive' than BP, short selling debates. I am sure you have everything sorted but a list of ten things you should consider or ask yourself (especially bearing in mind what might happen in the future would be interesting). Especially pointers in Thailand re say forex or registration of houses. My understanding is property taxes here are inevitable, especially on unoccupied units BUT on the plus side the lease length maybe extended. (Obviously Thailand doesnt need the money but they wish to increase liquidity.) Also BVIs becoming non-BVIs countries, banks at risk of disclosing your assets. Monaco turned into a nightmare for me.

I am not a UK resident but I suspect they are the most vulnerable.

Edited June 19, 2010 by Abrak

[Gambles]

my interest is focused on how to shuffle and position my assets, protecting them and their proceeds from the claws of greedy politicians and further additional crises [which may arise or not] thus protecting my and my wife's present life style for the statistical remainder our life time.

Actually I do think your highlighted point is the easiest lesson one can learn from the current crisis. (1) There are large fiscal deficits and sovereign debt problems that exist (2) to the extent that you think there are 'economic', 'demographic' and 'financial' sector problems, Government social and financial responsibilities will increase. I think that you can virtually guarantee that to the extent that you have assets and income Governments are going to try and get far more of it out of you than they did before.

People have been lulled into a slight sense of complacency over this issue because the last twenty years have really been about lower taxation and freer capital movements (also it is essentially not 'interesting' or 'sexy' as Naam would say). 20 years ago people used to talk about the 'Laffer curve'. Namely when tax rates go up, people avoid more or work less. Which means if you avoid this issue, the Government needs to raise taxes even further. And when I say 'avoid the issue', one big mistake that people can make is that 'my money is here so it is free from tax' because that might be exactly what taxes are placed on. In order to successfully tax people more you need to aggressively crack down on tax avoidance as a Government.

The 'shuffling' of assets is an equal and opposite exchange. It is difficult to get right. While letting a Government get their hands on your money is easy to get wrong. If a Government takes something off you they are not going to give you anything in exchange.

It isnt interesting I admit. In my view the reason it is not interesting is because it is inevitable rather than debatable.

sadly, it's an area that I find fascinating. It's very much under exposed because it doesn't sound sexy but the right structural and geographical approaches to investment holding in a world where givernments are short of revenues and desperate to appropriate what they can is likley to be a much more important decision that buying stock A and selling stock B (or shorting stock C if 1-2 lets me )

Laffer curve references always interest me - ever since he did his performing seal act of drawing it on a napkin, Laffer's dangerous misconceptions have been quoted by econopaths like Reagan and Thatcher to justify nonsensical long term damage to economies in the name of short term expediency.

I did an interview with The Bangkok Post a while back where I admitted that I was very concerned that Australia, UK, Canada and many European jurisdictions were moving towards US style global taxation in rapidly accelerating baby steps....

[Gambles]

Naked Shorting:

We are never going to resolve this because it is, as I said, more like a religion than a science.

But, for my own clarity, the beliefs are

1. It is perfectly OK for someone to sell something they don't have in their possession, either through purchase or borrowing, on their own behalf.

2. It is perfectly OK for someone to distort and cause unnecessary volatility in the market by creating out of thin air a bunch of shares and diluting the owners of the real shares asset value.

3. It is perfectly OK for someone to insure the value of something that they neither own nor have any other interest in, other than it's destruction.

All of these actions are illegal in the real world of physical objects.

Somehow when we move into the smoke and mirrors world of electronic finance, then, in your own words, these become the heroes, " the naked shorters probably saved the world from total collapse by helping stop this when they did"

The plot was lost at the point where the finance guys realised that in the finance world, physical, moral and legal laws either no longer applied, or with a stroke of a keyboard, could be circumvented.

I think that you're missing the points that a risk taken with their own capital is surely something that they're entitled to do and if it prevents bubbles getting out of control then it inhibits volatility. In practice, it's not something that's hugely important to me - but philosophically I think that it's important to have as much ammunition to prevent market manipulation and in theory at least that's how I would define naked shorting. I think that there is a big difference between the potential application of a methodology and actual instances of how that has been abused but don't throw the baby out with the bathwater - othewose the heroes of "The Big Short" wouldn't have been abale to save us from ourselves (or from GS etc etc etc)

and as I say ban this then you have to ban the other side of the coin otherwise you're creating a market distortion that will be very painful when reality causes it to mean revert. Markets aren't actually supposed to just go one way and it's worrying not comforting if we regulate in a way that tries to make that the only outcome because it's divorced from reality...

Have you read "The Long Short" ? - frothy and fun but gives a good sense of what it was like to be right (Mike Burry) but to be getting clobbered on all sides for it because of the inherent prejudices and manipulation in the system. Sorry if I keep bombarding you with an ever increasing library. There's a copy in the MBMG library if you can't get hold of one....

[Gambles]

"It isnt interesting I admit. In my view the reason it is not interesting is because it is inevitable rather than debatable."

it might not be debatable but your views are valid and interesting Abrak. interesting because the stated "reason" should be (if possible) taken into consideration when planning for the future. personally i am convinced that it is only a matter of time till multiple countries/governments adopt the "american way" and try to fleece their citizens who live in Nakhon Nowhere as much as they fleece their citizens who live in Manchester or Frankfurt or Madrid. for the unfortunate who are already bearing the yoke of the IRS or their relevant taxman it is nearly too late (but not impossible) to counteract.

it is much easier for the fortunate ones who are not yet pestered by the taxman to arrange their affairs in a way that they pay only the minimum amount of taxes based on the expenses which can't be hidden but verified by the taxman.

emphasis on not yet!!

[Gambles]

"It isnt interesting I admit. In my view the reason it is not interesting is because it is inevitable rather than debatable."

it might not be debatable but your views are valid and interesting Abrak. interesting because the stated "reason" should be (if possible) taken into consideration when planning for the future. personally i am convinced that it is only a matter of time till multiple countries/governments adopt the "american way" and try to fleece their citizens who live in Nakhon Nowhere as much as they fleece their citizens who live in Manchester or Frankfurt or Madrid. for the unfortunate who are already bearing the yoke of the IRS or their relevant taxman it is nearly too late (but not impossible) to counteract.

it is much easier for the fortunate ones who are not yet pestered by the taxman to arrange their affairs in a way that they pay only the minimum amount of taxes based on the expenses which can't be hidden but verified by the taxman.

I know this topic is slightly off thread but it is more 'productive' than BP, short selling debates. I am sure you have everything sorted but a list of ten things you should consider or ask yourself (especially bearing in mind what might happen in the future would be interesting). Especially pointers in Thailand re say forex or registration of houses. My understanding is property taxes here are inevitable, especially on unoccupied units BUT on the plus side the lease length maybe extended. (Obviously Thailand doesnt need the money but they wish to increase liquidity.) Also BVIs becoming non-BVIs countries, banks at risk of disclosing your assets. Monaco turned into a nightmare for me.

I am not a UK resident but I suspect they are the most vulnerable.

You suspect right my friend

Things that I told the Post -

British expatriates who still have connections with their homeland may face a challenge over their residency that could put them at the mercy of the

If you are not prepared to change your life, then the thing you might need to change is your entire tax planning,HMRC will scrutinise more closely the non-resident status of British citizens living overseas, who until last year, could claim non-residency status if they spent no more than 91 days a year in the UK but the number of days spent in the UK is only one factor now. They're going to look at all other things about the way you arrange your life and decide whether the UK is the centre of your life as the new guidelines from Her Majesty's Revenue and Customs (HMRC) require British nationals claiming non-resident status to prove they do not retain connections with the UK.

These links include having a property, holding sports or social club memberships, keeping a mobile phone contract and having family there or children going to schools or universities in the UK. A Briton who makes regular visits home could also be liable for UK tax. UK residents are required to pay British taxes on their worldwide assets and income, whereas generally non-residents only pay UK tax on income that originates from UK sources.

These changes in UK tax practice followed the case against Robert Gaines-Cooper, a British business tycoon who lost his appeal in February this year to HMRC. Mr Gaines-Cooper, who has established a business empire since the 1970s in the Seychelles, claimed to be wrongly denied non-resident status since he complied with HMRC guidance. He is now facing a tax bill estimated to be in the region of 20 million.

British expats should make three levels of decisions. The first is to ensure they really are clearly non-resident under the new UK rules. If so then fine

If not they could be seen as UK residents, and the second step is to decide whether they want to change their lifestyle to sever the connections, which may mean not flying back to the UK every summer to visit their family and friends.

If not then the third, would be to change their approach to tax-planning: If you are not prepared to change your life, then the thing you might need to change is your entire tax planning. You might need to think about planning your affairs from the point of view of being a UK resident, which is a very different outlook to planning your affairs as a non-resident.

The effcets of this are of course global - with more than 50,000 British expats living in Thailand, the new UK tax rules are expected to have an immediate and long-term impact on Thailand's economy. Any UK expats who felt they were non-residents but who are now classed as UK residents may not spend and invest as much in Thailand as the money will be spent on paying UK taxes and In the long term, the ruling could also affect people planning to retire in Thailand as it's going to make a big difference on their views of the cost and benefits of living in Thailand. Maybe they thought they're going to be 40% or 50% better off by living in Thailand or on investment income, but it might not be the case now.

It will also be harder to set up businesses in Thailand and elsewhere as companies in the UK may have to bear the rising costs in sending British nationals overseas.

The rule change could also herald a host of measures from Western tax authorities seeking to boost their tax revenues from nationals overseas. The big concern is that the next step by the UK and all the other indebted Western governments will be to move to an American-style tax basis, where all citizens are liable to tax on worldwide gains and income, irrespective of their residence status. This could affect millions of expats worldwide and have a huge impact on the economy of countries such as Thailand.

Am I allowed to include the following graphic?

I think that we're not supposed to post links to the BP so if you really , really wanted to see the article you'd need to add something like /business/economics/35617/british-expatriates-face-higher-tax-bills after the Post 's url

[Naam]

I did an interview with The Bangkok Post a while back where I admitted that I was very concerned that Australia, UK, Canada and many European jurisdictions were moving towards US style global taxation in rapidly accelerating baby steps...

well done Gambles! we have a leftist (in fact rather marxist) party (making good progress) in Tchermanny which is not only thinking aloud but demand that Germans pay income tax on their worldwide income even if they are not residents. they also defined already various simple procedures to enforce it. e.g. reduce validity of german passports from 10 to 5 years declare even those recently issued only for 5 years valid) and issue new passports only if a tax clearance certificate is submitted to the relevant embassy or consulate. some of the ultras go as far with the ridiculous demand that any Tchermann leaving for a trip abroad has to submit said certificate which will be called "finance Greece and the other €uropean PIIGS".

[Abrak]

This is a great report on the mathematics of the 'Austerity Challenge'

What calculates the effect of a 1% reduction of the fiscal deficit/GDP on the post ante reduction of the fiscal deficit allowing for the effect of the reduction of the fiscal deficit on GDP and the reduction of the GDP on the fiscal deficit.

So a 1% deficit/GDP reduction is.....

UK 0.26%

France 0.36%

Germany 0.57%

Spain 0.29%

Italy 0.33%

Portugal0.49%

Greece 0.21%

So for the UK to reduce its deficit by 7% or GBP100bn it needs to make spending and tax cuts of about GBP320bn (it is nt 100/.26 because it reduces real GDP by 25%.

Now this is based on the deficit reduction being all in one year, no inflation and no underlying real GDP growth. I havent done the maths but say assuming 2% underlying growth and (2% inflation, not very sensitive) with the deficit spread over 4 years and the number would be a lot better at a guess GBP250bn and an 10% real GDP fall. And the UK is well off in one respect in that it has an independent monetary policy which means it can create inflation and crater its currency which should boost exports, so long as everyone isnt playing the austerity challenge all at once.

Greece, as usual is totally stuffed because 1) it has a low savings ratio and 2) it is in the Euro so it is possible that its prices will even fall with the massive contraction of the economy and that wont help exports much because they are less than 15% of GDP and at least a third of that is tourism which wont be going there when they learn the true meaning of 'Austerity.'

Also there are a couple of charts that shows how Sweden unwound its deficit of 10%+. They devalued 30% - exports as a percent of GDP climbed from 21% to 39% and they reduced interest rates from 9% to 3%.

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Edited June 19, 2010 by Abrak

[Naam]

it is much easier for the fortunate ones who are not yet pestered by the taxman to arrange their affairs in a way that they pay only the minimum amount of taxes based on the expenses which can't be hidden but verified by the taxman.

emphasis on not yet!!

agreed!

[badge]

I found this article from The Economist on Bubble History interesting.

I fear Ive missed the conspiracy and secret handshake element yet again though.

[Gambles]

i couldn't agree less on Gambles' "well done".

reasons:

-don't spread your holdings among various banks. as a client you lose clout with the bank and in case an urgent total reshuffling is required (such as Lehman 2008) the sudden workload is too big to handle with efficiency.

-besides, most of your assets (e.g. bonds, shares, funds) are not held by any bank but with the relevant custodians. if a bank goes belly-up you can only lose your cash assuming the bank is not located in a jurisdiction where the government guarantees your cash.

-think of the hardship for your wife/heirs to deal with multiple banks and their freaking formalities in case of your demise. that applies especially to those with wives who's command of a foreign language is poor or for children who are not yet legally entitled to make any decisions. none of us is immortal and that's why appropriate provisions should be in place.

Thank you for contributing to a subject that is 'unsexy' a 'matter of philosophy' and 'nothing to do with the financial crisis'.

I tend to agree with you entirely on the issue but if you assume 'enough stupidity' in the underlying investor 'diversification' does not equal 'diworsification'. The underlying cost of the issue at some point becomes justified because the reason to pay for 'diversification' rather than simply doing it yourself is the 'underlying costs' of not achieving it. The underlying issues you have with 'diversification' is that to the extent that is your 'goal' you have already achieved it because only you know your underlying assets and liabilities. And to the extent 'maximum returns' are you goal they are based on the fact that you have achieved adequate 'diversification.'

The 'underlying reason' you disagree with Gambles, I suspect, is that you already have a 'diversified' portfolio that reflects your risk/reward ratio. I suspect you have some 'cash' to meet emergencies, do not have an underlying mismatch between assets and liabilities. You simply believe that a 'degree of diversification' is a 'prerequisite' to investment (say to the extent you always have cash) that anyone who doesnt understand that concept probably shouldnt be 'investing' in risk assets.

For an investor a degree of diversification is 'axiomatic' rather than a 'goal'. As a theory it is vaguely interesting because of individual companies. If you were say Microsoft, owned 60% by Bill Gates, he has an incentive to 'diworsify' while you who might invest in his shares, do not wish him to (because you can do that yourself.)

I do agree with Gambles that if you are not intelligent enough to understand a 'degree' of diversification it is necessary 'matching assets and liabilities' etc, then a degree of diversification is more important than maximum returns.

(BTW as a theoretical point, I believe that Gambles gets mixed up with an underlying theory. Which is that it is possible to achieve both 'diversification' and 'above average returns' as a mathematical equation (assuming he knows your brain). One might think that maximum diversification just leads to convergence to the mean average return (if you assume no costs.) It really comes down to this though. Diversification becomes a good investment strategy based on the fact you are not diversified enough. I.E. complete stupidity. Beyond that it simply becomes a degree of belief that you know what you are doing.)

In the real world that I live, I tend to meet a great many investors who have problems with existing portfolios that they have previously managed themselves or had other help managing and that they now bring to me for my help and advice. Many of these are extremely disappointing and too many of them are absolutely disastrous - for these people mean returns would have been something that would have kept them very happy. However we're not in the business of targetting mean returns as that implies benchmarking and active, adaptive, pragmatic diverification aims to outperform that.

The damaged portfolios are generally the portfolios of intelligent, diligent people and in almost every case mis-focused concentration risk is the greatest cause of mal-investment. Another and maybe the greatest example of this is perhaps the investment focus of the vast majority of US investors which has been excessively skewed towards US equities and fixed interest for many years. In all these cases pragmatic diversification would have made a huge difference to the outcomes and to these people's lives. Although the portfolios of our affiliated managers underperformed equity markets last year and of course investors wish that they'd made the solid returns achieved in 08 and the equity market returns in 09, most are realistic enough to know that's not a feasible outcome - you can't choose diversified when it suits and concetrated when it suits in hindsight.

It's all about stated aims and understanding risks - that doesn't mean avoiding high conviction plays, it means setting them in an overall context. We assume that most investors want to protect their wealth and look to achieve inflation/bank rate + a range of maybe 250-400 Basis points over the longer term. The danger is that perhaps we only fully understand a certain part of the potential client base. Because we market ourselves in that niche of welath preservation and stable growth or income, maybe we tend to attract clients with those stated aims and before you know it we've created our own little reality inhabited by low to relatively low risk, diversified investors who've been very happy to achieve a gain of around 8.5-10% per year. It may be that there is a much bigger reality outside this - Abrak has done a great job in the past of trying to make me more aware of this and partly as a result we've commissioned a 3rd party detailed review into our methodologies, partners, their performance etc and the main conclusions have been (predictably Abrak would say):

1) what we can arrange and offer for that client base is highly satisfactory

2) we need to provide greater choice for more 'aggressive' investors.

Interestingly though, the recommendation is that the more aggressive twist is likely to be achieved by an alternative offering with a different focus but still with a high level of diversification - diversification doesn't mean benchmarking or stodginess - it means, as Abrak suggests, understanding the interplay between assets and I think that this is true across the risk spectrum. This is how risk is reduced while targetting outperformance of the average.

I rarely hear complaints from clients about having been too diversified.......

Edited June 19, 2010 by Gambles

[12DrinkMore]

Must be the season for it.

Here's another offering as a World Currency.

Medvedev Shows Off Sample Coin of New ‘World Currency’ at G-8 - Bloomberg.com

Russian President Dmitry Medvedev illustrated his call for a supranational currency to replace the dollar by pulling from his pocket a sample coin of a “united future world currency.”

[flying]

China Signals End to Yuan’s Two-Year Peg to Dollar

June 19 (Bloomberg) -- China said it will allow a more flexible yuan, signaling an end to the currency’s two-year-old peg to the dollar a week before a Group of 20 summit.

Full article at link above

[seanocasey]

very interesting comment

The US and the IMF say the Yuan is undervalued, which helps Chinese firms compete overseas and contributes to the large surplus in China's international trade.

China has kept the currency from rising by selling Yuan for dollars and has built up massive foreign exchange reserves as a result.

The way China invested those reserves is seen by many economists as a key factor in the recent international financial crisis.

In April, the US treasury delayed a report that could label China a currency manipulator, in what was seen as an attempt to give Beijing time to reform its currency without appearing to do so under pressure.

bbc

[churchill]

China Signals End to Yuan’s Two-Year Peg to Dollar

June 19 (Bloomberg) -- China said it will allow a more flexible yuan, signaling an end to the currency’s two-year-old peg to the dollar a week before a Group of 20 summit.

Full article at link above

Interesting to see how it performs against Asian currencies / Is it possible that the Yuan rather than strengthening against the USD may weaken , as has happened recently with other Asian currencies ?

[sokal]

Why would you invest in something that has been in a 30 year bull market ? Why would you invest in the most obvious bubble asset in the world right now ?

Because, as our Maggie used to say

There Is No Alternative

no there is gold. wake up

[12DrinkMore]

Interesting to see how it performs against Asian currencies / Is it possible that the Yuan rather than strengthening against the USD may weaken , as has happened recently with other Asian currencies ?

The Chinese don't really seemed to have said very much, perhaps the whole noise was just to keep Tim off their backs for a while?

All they said was that the rate would be more flexible, but no time scale. With EUR-Trade exceeding USD-Trade, the comments at the bottom indicate that the RMB could very well depreciate against the USD, which is currently on the up and up, in order to support the EUR-Trade.

The Chinese have pretty much all the cards here, so in the end they will do what's best for China. as indeed Tim tries to do what's best for the US, in his own somewhat deluded way.

[BlackJack]

my interest is focused on how to shuffle and position my assets, protecting them and their proceeds from the claws of greedy politicians and further additional crises [which may arise or not] thus protecting my and my wife's present life style for the statistical remainder our life time.

Actually I do think your highlighted point is the easiest lesson one can learn from the current crisis. (1) There are large fiscal deficits and sovereign debt problems that exist (2) to the extent that you think there are 'economic', 'demographic' and 'financial' sector problems, Government social and financial responsibilities will increase. I think that you can virtually guarantee that to the extent that you have assets and income Governments are going to try and get far more of it out of you than they did before.

People have been lulled into a slight sense of complacency over this issue because the last twenty years have really been about lower taxation and freer capital movements (also it is essentially not 'interesting' or 'sexy' as Naam would say). 20 years ago people used to talk about the 'Laffer curve'. Namely when tax rates go up, people avoid more or work less. Which means if you avoid this issue, the Government needs to raise taxes even further. And when I say 'avoid the issue', one big mistake that people can make is that 'my money is here so it is free from tax' because that might be exactly what taxes are placed on. In order to successfully tax people more you need to aggressively crack down on tax avoidance as a Government.

The 'shuffling' of assets is an equal and opposite exchange. It is difficult to get right. While letting a Government get their hands on your money is easy to get wrong. If a Government takes something off you they are not going to give you anything in exchange.

It isnt interesting I admit. In my view the reason it is not interesting is because it is inevitable rather than debatable.

sadly, it's an area that I find fascinating. It's very much under exposed because it doesn't sound sexy but the right structural and geographical approaches to investment holding in a world where givernments are short of revenues and desperate to appropriate what they can is likley to be a much more important decision that buying stock A and selling stock B (or shorting stock C if 1-2 lets me )

Laffer curve references always interest me - ever since he did his performing seal act of drawing it on a napkin, Laffer's dangerous misconceptions have been quoted by econopaths like Reagan and Thatcher to justify nonsensical long term damage to economies in the name of short term expediency.

I did an interview with The Bangkok Post a while back where I admitted that I was very concerned that Australia, UK, Canada and many European jurisdictions were moving towards US style global taxation in rapidly accelerating baby steps....

the globalisation of taxes - is a certainty!

[BlackJack]

very interesting comment

The US and the IMF say the Yuan is undervalued, which helps Chinese firms compete overseas and contributes to the large surplus in China's international trade.

China has kept the currency from rising by selling Yuan for dollars and has built up massive foreign exchange reserves as a result.

The way China invested those reserves is seen by many economists as a key factor in the recent international financial crisis.

In April, the US treasury delayed a report that could label China a currency manipulator, in what was seen as an attempt to give Beijing time to reform its currency without appearing to do so under pressure.

bbc

well aint that the pot calling the kettle black - "the US treasury delayed a report that could label China a currency manipulator"