tag:blogger.com,1999:blog-6880179487125101242024-03-05T23:37:03.420+00:00the Market Soul © 1999 - 2011We are here to INSPIRE...
Inspire vision, direction, clarity of economic thought and above all the creation of an environment in which human dignity and rights are preserved, in order to give life force to the ideas of hope and prosperity, not at any cost, but at responsibly true and fair economic factor costs; so that we can encourage the growth and development of sustainable human endeavours
...the rest is just noise! (...and if you where wondering - It's Basics)theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.comBlogger88125tag:blogger.com,1999:blog-688017948712510124.post-61915514199228175812011-11-06T18:03:00.001+00:002011-11-06T18:03:18.994+00:00The Big Design: Moral Hazard, and the EU<br />
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<span style="font-family: Georgia, serif; font-size: 10pt;"><span class="Apple-style-span" style="color: #990000;">Irrespective of how the twists and turns of the Greek political
system plays out over the next few days and weeks, we believe that the Big EU
(Eurozone more specifically) players and their leaders only have themselves to
blame for Greece's seemingly petulant behaviour.<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="color: #990000;"><span style="font-family: Georgia, serif; font-size: 10pt;">If at the fundamental level we cannot understand that ANY form of
bail-out will always support and lead to </span><a href="http://karmaisking.wordpress.com/category/moral-hazard/"><span style="font-family: "Georgia","serif"; font-size: 10.0pt;">Moral Hazard</span></a><span style="font-family: Georgia, serif; font-size: 10pt;">, then we
have learnt nothing from the past and the more recent debt and financial crisis
of the 2008.<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="color: #990000;"><span style="font-family: Georgia, serif; font-size: 10pt;">Previously we mentioned the 'Credit Quake' with lots of after
tremors (attributed to </span><a href="http://www.linkedin.com/in/riskreward"><span style="font-family: "Georgia","serif"; font-size: 10.0pt;">Dennis Cox</span></a><span style="font-family: Georgia, serif; font-size: 10pt;"> of Risk
Reward), will last for a number of years and this is exactly what we have
playing out as daily deadlines in front of our eyes at the moment.<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="color: #990000;"><span style="font-family: Georgia, serif; font-size: 10pt;">However, to return to the point at hand: The age of economic
dilemma of Moral Hazard has reared its monstrous head again and is in danger of
‘nabbing us in the butt' (yet again), because the leaders of the EU (more
specifically the Eurozone 17) do not want to understand that all their actions
in supporting Greece is only leading to a more dangerous form of </span><a href="http://www.youtube.com/watch?v=_SdtoKeFTi0"><span style="font-family: "Georgia","serif"; font-size: 10.0pt;">Moral Hazard</span></a><span style="font-family: Georgia, serif; font-size: 10pt;"> and flies in the face of the
Austrian School's ideas of 'Creative Destruction'.<o:p></o:p></span></span></div>
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<span style="font-family: Georgia, serif; font-size: 10pt;"><span class="Apple-style-span" style="color: #990000;">Without effective mechanisms in place to deal with European
regions at different cycles of development (not even to mention the basic lack
of sound fiscal management), is to ask for problems (on a continuous
basis).<o:p></o:p></span></span></div>
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<span style="font-family: Georgia, serif; font-size: 10pt;"><span class="Apple-style-span" style="color: #990000;">Until a sound framework of either full fiscal and monetary union
with appropriate checks and balances are rolled out in Europe, with a single
capital market instrument (Gilt / Bond or EuroBond) and mechanisms for dealing
with localised 'failures' of the market to clear itself effectively (never mind
efficiently); we will continue to wretch and lurch about with market confidence
eroded and leaders running around like headless chickens trying and implementing
inappropriate tools for the job a sound framework is supposed to deal with.<o:p></o:p></span></span></div>
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<span style="font-family: Georgia, serif; font-size: 10pt;"><span class="Apple-style-span" style="color: #990000;">It is not <i><b>more</b></i>
regulation we want. It is simply <b><i style="mso-bidi-font-style: normal;">BETTER</i></b> regulation. It is that
simple.</span><o:p></o:p></span></div>
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<span style="font-family: Georgia, serif; font-size: 10pt;"><span class="Apple-style-span" style="color: #20124d;"><b>theMarketSoul ©2011</b></span><span class="Apple-style-span" style="color: #c00000;"><o:p></o:p></span></span></div><div class="blogger-post-footer">Please read and feel free to comment on my latest blog posting.
theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0Cambridge, UK52.2025441 0.131236852.1636181 0.05227279999999998 52.241470099999994 0.2102008tag:blogger.com,1999:blog-688017948712510124.post-64134984674361556912011-09-22T21:34:00.000+01:002011-09-22T21:34:11.401+01:00QE – Our take on the Bell Curve effect<br />
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<strong><em><span class="Apple-style-span" style="color: #660000;">Making sense of the distribution and lag effects</span></em></strong></div>
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<a data-mce-href="http://themarketsoul.files.wordpress.com/2011/09/qe.jpg" href="http://themarketsoul.files.wordpress.com/2011/09/qe.jpg"><img alt="" class="aligncenter size-large wp-image-1135" data-mce-src="http://themarketsoul.files.wordpress.com/2011/09/qe.jpg?w=1024" height="671" src="http://themarketsoul.files.wordpress.com/2011/09/qe.jpg?w=1024" style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; display: block; margin-left: auto; margin-right: auto;" title="QE" width="1024" /></a></div>
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<span class="Apple-style-span" style="color: #990000;">Let us explain the problem or rather challenge of choosing between </span><a data-mce-href="http://en.wikipedia.org/wiki/Quantitative_easing" href="http://en.wikipedia.org/wiki/Quantitative_easing" target="_blank" title="QE"><span class="Apple-style-span" style="color: #990000;">Quantitative Easing (QE</span></a><span class="Apple-style-span" style="color: #990000;">) and an Interest Rate reduction to stimulate economic activity, with reference to the Bell Curve diagramme above:</span></div>
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<span class="Apple-style-span" style="color: #990000;">There are two major factors at play here:</span></div>
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<li><span class="Apple-style-span" style="color: #990000;">Distribution</span></li>
<li><span class="Apple-style-span" style="color: #990000;">Time</span></li>
</ol>
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<span class="Apple-style-span" style="color: #990000;">With a bout of QE, the effect feeds into the margins of theBellcurve and it takes time for the distribution network (money supply chain) to filter the new enhanced supply into the economy at large. So there is both a distribution and time lag effect with QE.</span></div>
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<span class="Apple-style-span" style="color: #990000;"><br /></span></div>
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<span class="Apple-style-span" style="color: #990000;">On the other hand, with an immediate Interest Rate reduction, the effect is to cover the larger middle ground of the Bellc urve more instantly. Yes, it does depend on your wealth and debt holder structure too, but both borrowers and savers feel the effect more immediately.</span></div>
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<span class="Apple-style-span" style="color: #990000;"><br /></span></div>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #990000;">But, with Interest Rates currently so low, this option is not really that feasible. With inflation running at between 2 – 5% depending on which side of the pond you are, effectively savers are paying an additional ‘tax contribution’ to the Treasury by this stealth means.</span></div>
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<span class="Apple-style-span" style="color: #990000;"><br /></span></div>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #990000;">So we are back to the scenario of a </span><a data-mce-href="http://themarketsoul.com/2011/08/05/economics-of-taxation/" href="http://themarketsoul.com/2011/08/05/economics-of-taxation/" target="_blank" title="Economics of Taxation"><span class="Apple-style-span" style="color: #990000;">tax on the stock (or wealth) of the economy</span></a><span class="Apple-style-span" style="color: #990000;">, as most flows have dried up.</span></div>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #990000;">Therefore, join the happy queue over here.</span></div>
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<a data-mce-href="http://agilepartnership.com/blogit/wp-content/uploads/2010/06/sadHappy.jpg" href="http://agilepartnership.com/blogit/wp-content/uploads/2010/06/sadHappy.jpg"><img alt="" class="aligncenter size-medium wp-image-1128" data-mce-src="http://themarketsoul.files.wordpress.com/2011/09/sadhappy.jpg?w=300" height="225" src="http://themarketsoul.files.wordpress.com/2011/09/sadhappy.jpg?w=300" style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; display: block; margin-left: auto; margin-right: auto;" title="sadHappy" width="300" /></a> <span class="Apple-style-span" style="color: #990000;">Image from:</span> <a data-mce-href="http://agilepartnership.com/blogit/wp-content/uploads/2010/06/sadHappy.jpg" href="http://agilepartnership.com/blogit/wp-content/uploads/2010/06/sadHappy.jpg">http://agilepartnership.com/blogit/wp-content/uploads/2010/06/sadHappy.jpg</a></div>
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<span data-mce-style="color: #ff0000;" style="color: red;"><br /></span></div>
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<span data-mce-style="color: #ff0000;" style="color: red;"> <strong>theMarketSoul ©2011</strong></span></div>
<div class="blogger-post-footer">Please read and feel free to comment on my latest blog posting.
theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0tag:blogger.com,1999:blog-688017948712510124.post-55402483963070139752011-09-19T19:00:00.000+01:002011-09-19T19:00:00.877+01:00Recapitalising Europe<br />
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<span class="Apple-style-span" style="color: #660000;">Forget about recapitalising the French Banks, saving Greece, (or the Euro)….</span></div>
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<dt class="wp-caption-dt"><a data-mce-href="http://themarketsoul.files.wordpress.com/2011/09/euros_1826681c.jpg" href="http://themarketsoul.files.wordpress.com/2011/09/euros_1826681c.jpg"><span class="Apple-style-span" style="color: #660000;"><img alt="" class="size-medium wp-image-1092" data-mce-src="http://themarketsoul.files.wordpress.com/2011/09/euros_1826681c.jpg?w=300" height="187" src="http://themarketsoul.files.wordpress.com/2011/09/euros_1826681c.jpg?w=300" style="border-bottom-style: none; border-bottom-width: 0px; border-color: initial; border-color: initial; border-left-style: none; border-left-width: 0px; border-right-style: none; border-right-width: 0px; border-style: initial; border-top-style: none; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="euros_1826681c" width="300" /></span></a></dt>
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<strong><em><span class="Apple-style-span" style="color: #660000;">Continuing our conversation on Innovation</span></em></strong></div>
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<span class="Apple-style-span" style="color: #660000;">Yes, we admit it! The headline statement above is all about grabbing your attention. We are <em><span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">not</span></em> advocating <span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">any disorderly default</span> crises.</span></div>
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<span class="Apple-style-span" style="color: #660000;"><br /></span></div>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #660000;">What we believe is that the ‘agricultural’ economic base and the semi-integration of Europe, via market and monetary union, without going the full circle of political and fiscal union as well, has at <span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">this point failed</span>.</span></div>
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<span class="Apple-style-span" style="color: #660000;"><br /></span></div>
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<span class="Apple-style-span" style="color: #660000;">Not that a major concerted (and concentrated) effort to ensure it does not fail will end in failure itself. But has anyone really asked the question: <strong>At what financial cost?</strong></span></div>
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<strong><span class="Apple-style-span" style="color: #660000;"><br /></span></strong></div>
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<span class="Apple-style-span" style="color: #660000;"> <a data-mce-href="http://themarketsoul.files.wordpress.com/2011/09/500_euro.jpg" href="http://themarketsoul.files.wordpress.com/2011/09/500_euro.jpg"><img alt="" class="alignleft size-medium wp-image-1093" data-mce-src="http://themarketsoul.files.wordpress.com/2011/09/500_euro.jpg?w=300" height="225" src="http://themarketsoul.files.wordpress.com/2011/09/500_euro.jpg?w=300" style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; float: left;" title="500_euro" width="300" /></a></span></div>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #660000;">If an US Treasury Secretary, Timothy Greitner, has to take the unprecedented step of flying across the Atlantic to come and <a data-mce-href="http://www.marketwatch.com/story/geithner-will-not-urge-boosting-efsf-size-2011-09-13" href="http://www.marketwatch.com/story/geithner-will-not-urge-boosting-efsf-size-2011-09-13">join a European Union Finance Ministers meeting</a>, then something big must be on the cards!</span></div>
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<span class="Apple-style-span" style="color: #660000;">Is he going to come and tell Germany and France in person to just let Greece go?</span></div>
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<span class="Apple-style-span" style="color: #660000;"><br /></span></div>
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<span class="Apple-style-span" style="color: #660000;"><br /></span></div>
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<span class="Apple-style-span" style="color: #660000;"><br /></span></div>
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<span class="Apple-style-span" style="color: #660000;"><br /></span></div>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #660000;">This reminds us of a stanza from Felix Dennis’ poem “<a data-mce-href="http://www.felixdennis.com/poetry/how-to-get-rich-2/" href="http://www.felixdennis.com/poetry/how-to-get-rich-2/">How to Get Rich</a>” about timing:</span></div>
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<span class="Apple-style-span" style="color: #660000;"><br /></span></div>
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;"><pre style="font: normal normal normal 12px/18px Consolas, Monaco, monospace;"><span class="Apple-style-span" style="color: #cc0000;"><b>“Good timing? To win it
You gotta be in it.
Just never be late
To quit or cut bait.</b></span></pre>
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</pre>
</span><div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #660000;"> This might just as well be the message for Europe: <em>How <span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">not</span> to get Poor</em>. The key words are “<span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">Never be late to quit or cut bait</span>”.</span></div>
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<span class="Apple-style-span" style="color: #660000;"><br /></span></div>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #660000;">What we believe is happening behind the scenes is the planning for an <span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">orderly</span> default mechanism and Euro ‘disbanding’.</span></div>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #660000;"><br /></span></div>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #660000;">The more Angela Merckel’s resolve hardens around <a data-mce-href="http://www.ft.com/cms/s/0/f53728fc-b133-11e0-a43e-00144feab49a.html#axzz1XvDpqgPo" href="http://www.ft.com/cms/s/0/f53728fc-b133-11e0-a43e-00144feab49a.html#axzz1XvDpqgPo" target="_blank">saving the Euro</a>, the less we believe Europeans themselves are warming to this concept.</span></div>
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<span class="Apple-style-span" style="color: #660000;"><br /></span></div>
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<span class="Apple-style-span" style="color: #660000;"><strong><em> </em></strong><strong><em>So what about Innovation then?</em></strong></span></div>
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<strong><em><span class="Apple-style-span" style="color: #660000;"><br /></span></em></strong></div>
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<span class="Apple-style-span" style="color: #660000;"> <a data-mce-href="http://themarketsoul.files.wordpress.com/2011/09/social-innovation.jpg" href="http://themarketsoul.files.wordpress.com/2011/09/social-innovation.jpg"><img alt="" class="alignleft size-medium wp-image-1094" data-mce-src="http://themarketsoul.files.wordpress.com/2011/09/social-innovation.jpg?w=300" height="254" src="http://themarketsoul.files.wordpress.com/2011/09/social-innovation.jpg?w=300" style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; float: left;" title="Social-Innovation" width="300" /></a> </span></div>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #660000;">We started this article with the intention of continuing our conversation on Innovation.</span></div>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #660000;">So, what we mean by Recapitalising Europe actually is related to addressing the culture of decay that has enveloped Europeover the last few decades. If Europe is referred to as the ‘Sick Man’, then there must be something behind that statement.</span></div>
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<span class="Apple-style-span" style="color: #660000;"><br /></span></div>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #660000;">And we believe that it is the general lack of support for invigorating Europethat is a key driver.</span></div>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #660000;">What do you mean, we hear you ask?</span></div>
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<span class="Apple-style-span" style="color: #660000;">In the quest to unite Europe, we have built a framework of a European parliament, a Council of Europe, a judicial system, etc. </span></div>
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<span class="Apple-style-span" style="color: #660000;"><br /></span></div>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #660000;">With these institutions have come regulation, rules and edicts. Sometimes messy, sometimes helpful. But at this juncture, we are so overrun by nonsensical regulation that the will and spirit to be creative and innovative has drained away from the general citizenry.</span></div>
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<span class="Apple-style-span" style="color: #660000;"><br /></span></div>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #660000;">This is a very, very sad state of affairs. The young European citizens have lost their ‘psychological contract’ with the wider Europe and European integration goal. <a data-mce-href="http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Unemployment_statistics#Youth_unemployment_trends" href="http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Unemployment_statistics#Youth_unemployment_trends">High rates of youth unemployment across Europe</a> is breeding a generation of disengaged European citizens and ultimately is an opportunity and efficiency waste in the medium term.</span></div>
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<span class="Apple-style-span" style="color: #660000;"><br /></span></div>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #660000;"><br /></span></div>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #660000;">But how do we Recapitalise a spirit of Innovation in Europe?</span></div>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #660000;"><br /><a data-mce-href="http://themarketsoul.files.wordpress.com/2011/09/innovation_m.jpg" href="http://themarketsoul.files.wordpress.com/2011/09/innovation_m.jpg" target="_blank"><img alt="" class="alignright size-medium wp-image-1095" data-mce-src="http://themarketsoul.files.wordpress.com/2011/09/innovation_m.jpg?w=300" height="240" src="http://themarketsoul.files.wordpress.com/2011/09/innovation_m.jpg?w=300" style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; float: right;" title="innovation_M" width="300" /></a></span></div>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #660000;">This is a key question we are going to ask of our network and as part of our general ‘outreach series’ and report back on our progress towards establishing an Innovation Framework for Recapitalising Europe.</span></div>
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<span class="Apple-style-span" style="color: #660000;"><br /></span></div>
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<span class="Apple-style-span" style="color: #660000;">Please ‘tune-in’ again soon for a status and progress up date.</span></div>
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<span data-mce-style="color: #ff0000;" style="color: red;"><strong><br /></strong></span></div>
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<span data-mce-style="color: #ff0000;" style="color: red;"><strong><br /></strong></span></div>
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<span data-mce-style="color: #ff0000;" style="color: red;"><strong>theMarketSoul ©2011</strong></span></div>
<div class="blogger-post-footer">Please read and feel free to comment on my latest blog posting.
theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0tag:blogger.com,1999:blog-688017948712510124.post-39743451823078701482011-09-19T14:00:00.000+01:002011-09-19T14:00:21.870+01:00Get your calculators out<br />
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<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #660000;"><a data-mce-href="http://www.bbc.co.uk/news/business-14877865" href="http://www.bbc.co.uk/news/business-14877865" target="_blank">Very recently</a> the <a data-mce-href="http://bankingcommission.independent.gov.uk/" href="http://bankingcommission.independent.gov.uk/">Independent Commission on Banking</a> (Vickers Commission) published its long anticipated, yet low in surprises report on Banking Reform in the UK.</span></div>
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<span class="Apple-style-span" style="color: #660000;">See:<a data-mce-href="http://themarketsoul.files.wordpress.com/2011/09/icb-final-report.pdf" href="http://themarketsoul.files.wordpress.com/2011/09/icb-final-report.pdf" target="_blank" title="ICB Report - September 2011"><img alt="" class="aligncenter size-full wp-image-1085" data-mce-src="http://themarketsoul.files.wordpress.com/2011/09/ibcreport.jpg" height="274" src="http://themarketsoul.files.wordpress.com/2011/09/ibcreport.jpg" style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; display: block; margin-left: auto; margin-right: auto;" title="IBCreport" width="221" /></a></span></div>
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<span class="Apple-style-span" style="color: #660000;"><br /></span></div>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #660000;">Rather than rehash the analysis already performed, we only have two items to add at this stage:</span></div>
<ol style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<li><span class="Apple-style-span" style="color: #660000;">Get your calculators out, or at least keep the Quants busy, because unravelling and implementing reforms are going to cost a lot of money (and we all know who pays for that at the end of the day)</span></li>
<li><span class="Apple-style-span" style="color: #660000;">How do we create the ‘Imperfect Competitive’ markets or at least address <a data-mce-href="http://en.wikipedia.org/wiki/Oligopoly" href="http://en.wikipedia.org/wiki/Oligopoly" target="_blank">Oligopolistic Competition</a> more effectively?</span></li>
</ol>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #660000;">In a fiercely competitive international market space the desire to aggregate banks and financial institutions and hence reduce cost economies of scale at the expense of risk accumulation is overwhelming. (Which the discredited Sir Fred Goodwin ex Chief Executive of Royal Bank of Scotland [RBS] can <a data-mce-href="http://blogs.telegraph.co.uk/finance/tracycorrigan/8518976/Dont_shred_Sir_Fred_he_isnt_the_only_banker_to_blame/" href="http://blogs.telegraph.co.uk/finance/tracycorrigan/8518976/Dont_shred_Sir_Fred_he_isnt_the_only_banker_to_blame/" target="_blank">testify</a> to only too well)</span></div>
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<span class="Apple-style-span" style="color: #660000;"><br /></span></div>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #660000;">Let’s hope the Vickers Report is not the start of the death knell of the UK financial services sector; or perhaps in a cynical way, that is exactly what is (intended) needed to address the UK’s long-term structural reliance on the financial services sector at the expense of a more balanced portfolio of productive output and activity.</span></div>
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<strong><span data-mce-style="color: #ff0000;"><span class="Apple-style-span" style="color: #20124d;">theMarketSoul ©2011</span></span></strong></div>
<div class="blogger-post-footer">Please read and feel free to comment on my latest blog posting.
theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0tag:blogger.com,1999:blog-688017948712510124.post-38635388179292417422011-09-19T08:32:00.002+01:002011-09-19T23:41:10.185+01:00The Market Equation<br />
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: red;">Please note: This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License. To view a copy of this license, visit <a data-mce-href="http://creativecommons.org/licenses/by-nc-sa/3.0/" href="http://creativecommons.org/licenses/by-nc-sa/3.0/" target="_blank" title="Creative Commons License">http://creativecommons.org/licenses/by-nc-sa/3.0/</a> or send a letter to Creative Commons, 444 Castro Street, Suite 900, Mountain View, California, 94041, USA. If you would like to speak to the author about any aspect of this work, or in order to contribute towards developing the framework and ideas further, please click on the <strong><a data-mce-href="http://themarketsoul.com/home/contact-us/" href="http://themarketsoul.com/home/contact-us/" target="_blank" title="Contact us">Contact Us</a></strong> link. (We acknowledge and reward valued contributions).</span><br />
<span class="Apple-style-span" style="color: red;"><br /></span></div>
<h2 data-mce-style="text-align: center;" style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 1.5em; line-height: 19px; text-align: center;">
<span data-mce-style="color: #ff0000;" style="color: #4c1130;"><strong>The Market eQuation (MeQ):</strong></span></h2>
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<a data-mce-href="http://themarketsoul.files.wordpress.com/2011/09/thumbnailcaqf5mz4.jpg" href="http://themarketsoul.files.wordpress.com/2011/09/thumbnailcaqf5mz4.jpg"><img alt="" class="aligncenter size-full wp-image-1103" data-mce-src="http://themarketsoul.files.wordpress.com/2011/09/thumbnailcaqf5mz4.jpg" height="264" src="http://themarketsoul.files.wordpress.com/2011/09/thumbnailcaqf5mz4.jpg" style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; display: block; margin-left: auto; margin-right: auto;" title="thumbnailCAQF5MZ4" width="264" /></a></div>
<div data-mce-style="text-align: justify;" style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px; text-align: justify;">
<span class="Apple-style-span" style="color: #20124d;">Today we are commencing our investigation and outreach to discover what we will call the Market Equation.</span></div>
<div data-mce-style="text-align: justify;" style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px; text-align: justify;">
<span class="Apple-style-span" style="color: #20124d;"><br /></span></div>
<div data-mce-style="text-align: justify;" style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px; text-align: justify;">
<span class="Apple-style-span" style="color: #20124d;">Basically the idea is to come up with a mathematical equation and rating or ranking system to assess the state and status of various markets.</span></div>
<div data-mce-style="text-align: justify;" style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px; text-align: justify;">
<span class="Apple-style-span" style="color: #20124d;"><br /></span></div>
<div data-mce-style="text-align: justify;" style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px; text-align: justify;">
<span class="Apple-style-span" style="color: #20124d;">Whether this will lead to a theory of Markets that can compete with some of the other theories in existence is open to debate.</span></div>
<div data-mce-style="text-align: justify;" style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px; text-align: justify;">
<span class="Apple-style-span" style="color: #20124d;"><br /></span></div>
<div data-mce-style="text-align: justify;" style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px; text-align: justify;">
<span class="Apple-style-span" style="color: #20124d;">The basic premise is this:</span></div>
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<span class="Apple-style-span" style="color: #20124d;"><br /></span></div>
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<span class="Apple-style-span" style="color: #20124d;">There should be a methodology to access the Openness and Fairness of any given market versus other comparable markets. This specific ratio or result should therefore determine the individual participant’s level of engagement and commitment to that specific market. The result should also be able to be repeatable over time in order to elicit trends and movements of particular markets relative to each other.</span></div>
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<span class="Apple-style-span" style="color: #20124d;"><br /></span></div>
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<span class="Apple-style-span" style="color: #20124d;">The basic equation can be expressed as MA<sup>2</sup>R<sup>4</sup>K<sup>2</sup>E<sup>3</sup>T<sup>3</sup> = OF outcome (Open & Fair).</span></div>
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<br /></div>
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<span class="Apple-style-span" style="color: #20124d;">Therefore:</span></div>
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<span data-mce-style="color: #ff0000;" style="color: red;">OF = (A)<sup>2</sup> x (R)<sup>4</sup> x (K)<sup>2</sup> x (E)<sup>3</sup> x (T)<sup>3</sup></span></h3>
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<br /></div>
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<span class="Apple-style-span" style="color: #20124d;">And derives from the Market Equation Table listed below:</span></div>
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<br /></div>
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<em><strong><span class="Apple-style-span" style="color: #20124d;">The Market Equation Table</span></strong></em></div>
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<span class="Apple-style-span" style="color: #20124d;"><strong> </strong><sup> </sup></span></div>
<table align="left" border="1" cellpadding="0" cellspacing="0" style="cursor: default; font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;"><tbody>
<tr><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="40">O</td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="95">Open</td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="91"></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="98"></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="87"></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="89"></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="68"></td></tr>
<tr><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="40">F</td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="95">Fair</td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="91"></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="98"></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="87"></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="89"></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="68"></td></tr>
<tr><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="40">M</td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="95">Multiple</td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="91"></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="98"></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="87"></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="89"></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="68"></td></tr>
<tr><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="40">A</td><td style="cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="95"><span data-mce-style="color: #ffff00;" style="color: orange;">Accessible</span></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="91"><span data-mce-style="color: #00ff00;" style="color: lime;">Adjoining</span></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="98"></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="87"></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="89"></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="68"></td></tr>
<tr><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="40">R</td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="95">Random</td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="91">Rapid</td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="98"><span data-mce-style="color: #00ff00;" style="color: lime;">Regular</span></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="87"><span data-mce-style="color: #00ff00;" style="color: lime;">Repeated</span></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="89"><span data-mce-style="color: #00ff00;" style="color: lime;">Regulated</span></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="68"><span data-mce-style="color: #00ff00;" style="color: lime;">Risk</span></td></tr>
<tr><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="40">K</td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="95">Complex</td><td style="cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="91"><span data-mce-style="color: #ffff00;" style="color: orange;">Connected</span></td><td style="cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="98"><span data-mce-style="color: #ffff00;" style="color: orange;">Competitive</span></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="87"></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="89"></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="68"></td></tr>
<tr><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="40">E</td><td style="cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="95"><span data-mce-style="color: #ffff00;" style="color: orange;">Effective</span></td><td style="cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="91"><span data-mce-style="color: #ffff00;" style="color: orange;">Efficient</span></td><td style="cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="98"><span data-mce-style="color: #ffff00;" style="color: orange;">Equilibrium</span></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="87"></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="89"></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="68"></td></tr>
<tr><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="40">T</td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="95"><span data-mce-style="color: #00ff00;" style="color: lime;">Technology</span></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="91"><span data-mce-style="color: #00ff00;" style="color: lime;">Time</span></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="98"><span data-mce-style="color: #00ff00;" style="color: lime;">Trade</span></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="87"></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="89"></td><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="68"></td></tr>
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<br /></div>
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Key:</div>
<table border="1" cellpadding="0" cellspacing="0" style="cursor: default; font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;"><tbody>
<tr><td style="cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="275"><span data-mce-style="color: #ffff00;" style="color: orange;">Subjective</span><span data-mce-style="color: #ffff00;" style="color: yellow;"> </span><span data-mce-style="color: #ffff00;" style="color: orange;">measure</span></td></tr>
<tr><td style="color: black; cursor: text; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 11px; margin-bottom: 8px; margin-left: 8px; margin-right: 8px; margin-top: 8px;" valign="top" width="275"><span data-mce-style="color: #00ff00;" style="color: lime;">Objective (External) measure</span></td></tr>
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<span class="Apple-style-span" style="color: #20124d;"><br /></span></div>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #20124d;">MA<sup>2</sup>R<sup>4</sup>K<sup>2</sup>E<sup>3</sup>T<sup>3</sup> = OF outcome</span></div>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #20124d;"><br /></span></div>
<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">
<span class="Apple-style-span" style="color: #20124d;">Therefore: OF = (A)<sup>2</sup> x (R)<sup>4</sup> x (K)<sup>2</sup> x (E)<sup>3</sup> x (T)<sup>3</sup></span></div>
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<br /></div>
<div data-mce-style="text-align: justify;" style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px; text-align: justify;">
<span class="Apple-style-span" style="color: #20124d;">The subtler reader might already have seen through this equation. Because by dropping the M (which will always be 1) the letters that remain result in the word raket if unscrambled which in effect is:</span></div>
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<span class="Apple-style-span" style="color: #20124d;"><br /></span></div>
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<span class="Apple-style-span" style="color: #20124d;">RACKET or not? With the additional C being the complex bit so ultimately the Market Equation becomes a</span> <span data-mce-style="color: #ff0000;" style="color: red;">COMPLEX RACKET.</span></div>
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<span data-mce-style="color: #ff0000;" style="color: red;"><br /></span></div>
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<strong><span data-mce-style="color: #ff0000;" style="color: red;">theMarketSoul ©2011</span></strong></div>
<div class="blogger-post-footer">Please read and feel free to comment on my latest blog posting.
theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0tag:blogger.com,1999:blog-688017948712510124.post-57589109361453193502011-09-19T07:12:00.000+01:002011-09-19T07:13:43.793+01:00I blame John Maynard Keynes (JMK)<br />
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<span class="Apple-style-span" style="color: #660000;">Ever since the Great Depression and JMK’s ‘<a data-mce-href="http://books.google.com/books/about/The_General_Theory_of_Employment_Interes.html?id=dQD9o31F1N4C" href="http://books.google.com/books/about/The_General_Theory_of_Employment_Interes.html?id=dQD9o31F1N4C" target="_blank">The General Theory of Employment, Interest and Money (1936)</a>', have we had more intense government interference and hence taxation in most advanced economies. Thank you JMK.</span></div>
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<a data-mce-href="http://themarketsoul.files.wordpress.com/2011/09/books.jpeg" href="http://themarketsoul.files.wordpress.com/2011/09/books.jpeg"><span class="Apple-style-span" style="color: #660000;"><img alt="" class="aligncenter size-full wp-image-1072" data-mce-src="http://themarketsoul.files.wordpress.com/2011/09/books.jpeg" height="205" src="http://themarketsoul.files.wordpress.com/2011/09/books.jpeg" style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; display: block; margin-left: auto; margin-right: auto;" title="books" width="128" /></span></a></div>
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<span class="Apple-style-span" style="color: #660000;">But seriously, how much is too much? There must be value in controlling fiscal policy, monetary policy and (social) employment policy, but is this being done in an integrated fashion and with ‘value maximising’ principles?</span></div>
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<span class="Apple-style-span" style="color: #660000;">We at theMarketSoul Limited believe this not to be the case.</span></div>
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<span class="Apple-style-span" style="color: #660000;">We prefer to take a leaf out of <a data-mce-href="http://en.wikipedia.org/wiki/Joseph_Schumpeter" href="http://en.wikipedia.org/wiki/Joseph_Schumpeter" target="_blank">Joseph Schumpeter’s</a> book and view the economic cycle as either short (1 – 2 years), medium (around a decade) and long-term (many decades).</span></div>
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<span class="Apple-style-span" style="color: #660000;">The trouble with any form of economic analysis is that taking any temperature readings during any specific cycle is just that – A temperature reading. Meaningless without being set in its proper context. We generally have a major problem in identifying where we are in any given long-term cycle.</span></div>
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<span class="Apple-style-span" style="color: #660000;">It is only with hindsight and the historical perspective that we can truly determine where we were and where we thought we were heading.</span></div>
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<span class="Apple-style-span" style="color: #660000;">It is our belief that we are (still) in the midst of a major paradigm shift, triggered by the innovation wave of the ICT revolution over the last 20 years.</span></div>
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<span class="Apple-style-span" style="color: #660000;">We still have not fully grasped the consequences and full extent of this ‘drift’ to a new equilibrium.</span></div>
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<span class="Apple-style-span" style="color: #660000;">As one of the unintended consequences we are currently facing up to a sovereign Debt balloon and are desperately trying to determine when we will encounter ‘Peak Debt’.</span></div>
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<span class="Apple-style-span" style="color: #660000;">One of the popular libertarian ideals is to <a data-mce-href="http://danieljmitchell.wordpress.com/2011/06/12/boost-economic-growth-by-slashing-the-size-of-government/" href="http://danieljmitchell.wordpress.com/2011/06/12/boost-economic-growth-by-slashing-the-size-of-government/" target="_blank">cut government’s stake</a> as a percentage of total output of GDP. We endorse this view, but it appears that at the end of the day (because we have forgotten what Laissez faire looks like); we’ll still need someone to keep the lights on, adjust the interest rates and collect our taxes. All this in the name of <a data-mce-href="http://news.bbc.co.uk/1/hi/8402392.stm" href="http://news.bbc.co.uk/1/hi/8402392.stm">job creation</a>…</span></div>
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<span class="Apple-style-span" style="color: #20124d;"><b>theMarketSoul ©2011</b></span></div>
<div class="blogger-post-footer">Please read and feel free to comment on my latest blog posting.
theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0tag:blogger.com,1999:blog-688017948712510124.post-71208775848902883812011-08-28T18:03:00.000+01:002011-08-28T18:03:27.988+01:00Crafting the cynical generation<strong><span class="Apple-style-span" style="color: #0b5394;">...continuing our conversation in the Economics of Taxation series (part 2)</span></strong><br />
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<strong><em><span class="Apple-style-span" style="color: #990000;">A European Generation ‘E’ enquiry – (‘E’ for employment)</span></em></strong><br />
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<span class="Apple-style-span" style="color: #990000;">Referring to our previous article entitled ‘<a href="http://wp.me/pQe31-eR" target="_blank" title="Economics of Taxation">The Economics of Taxation</a>’, today we elaborate and flesh out the basic ideas around taxation.</span><br />
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<span class="Apple-style-span" style="color: #990000;">The basic idea is that any form of taxation becomes a drain on productive resources and at some point counter productive in attempts at balancing the government budget. For a fuller explanation of the effects of tax rate rises see the <a href="http://danieljmitchell.wordpress.com/2011/03/03/a-laffer-curve-tutorial/?blogsub=confirmed#subscribe-blog" target="_blank" title="International Liberty - Laffer curve">Laffer Curve </a>analysis and the Cato Institute’s Dan Mitchell explain the Centre for Freedom and Prosperity’s view on Fiscal policy.</span><br />
<div align="center"><span class="Apple-style-span" style="color: #990000;"><a href="http://themarketsoul.files.wordpress.com/2011/08/260px-laffer-curve-svg.png" target="_blank" title="http://en.wikipedia.org/wiki/Laffer_curve"><img alt="" class="aligncenter size-full wp-image-1020" height="209" src="http://themarketsoul.files.wordpress.com/2011/08/260px-laffer-curve-svg.png" title="260px-Laffer-Curve.svg" width="260" /></a><a href="http://themarketsoul.files.wordpress.com/2011/08/laffer-curve.jpg"><br />
</a> Source: Wikipedia – Laffer Curve</span></div><span class="Apple-style-span" style="color: #990000;">Two specific points are made by Dan Mitchell in his explanation, which bears thinking about:</span><br />
<ul><li style="text-align: justify;"><span class="Apple-style-span" style="color: #990000;">We don’t necessarily want to be at the point on the curve where government revenue is maximised, due to other factors such as the disincentives of maximising tax declaration by tax payers or the cost of collecting that revenue in the first place (sub-optimisation effects)</span></li>
</ul><div style="text-align: center;"><a href="http://themarketsoul.files.wordpress.com/2011/08/laffer-curve.jpg"><span class="Apple-style-span" style="color: #990000;"><img alt="" class="aligncenter size-full wp-image-1019" height="214" src="http://themarketsoul.files.wordpress.com/2011/08/laffer-curve.jpg" title="Laffer Curve" width="320" /></span></a></div><div style="text-align: center;"><ul><li style="text-align: justify;"><span class="Apple-style-span" style="color: #990000;">Growth (in the economy) incentives fall well short on the upward side of the Laffer curve. In plain English this means that economic growth is maximised somewhere where people have the incentive to retain as much of their hard earned income and that point is somewhere well before we reach the Government Revenue maximising point. (The second Laffer Curve graph above captures this point in a more visual and understandable format). At point D on the curve economic growth will be maximised and note how it still falls well short of the Government Revenue maximising point B.</span></li>
</ul></div><span class="Apple-style-span" style="color: #990000;">The behavioural question that fascinates us at <a href="http://themarketsoul.com/" target="_blank" title="theMarketSoul">theMarketSoul ©1999 – 2011</a> is how come citizens in Europe are able to tolerate so much more of an overall higher tax rate burden than our cousins across the pond in the United States?</span><br />
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<strong><span class="Apple-style-span" style="color: #20124d;">theMarketSoul ©2011</span></strong><br />
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theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0tag:blogger.com,1999:blog-688017948712510124.post-16249180845186708062011-08-17T22:41:00.002+01:002011-08-28T17:50:00.470+01:00A cynical swipe at the money (value chain) consumer end of the line<div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">Today’s short opinion piece revolves around the recent <a href="http://www.bbc.co.uk/news/uk-14538167">rail fare increases</a> announced in the UK.</span></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiW2ijIekgSttV16iijQ0UfcZxdDtA31p1SdEvlFC6PFzqVY-nhpqXF0uDcxlIVTVL6Hbd-4LfMSrpG7u_t_n91-_FdbLU0coFMuHJx3p0rn2p1vm7loZVrymmxWmQcTmsp0MBwIbdUQzM/s1600/trains-at-orient-way-53416.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="213" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiW2ijIekgSttV16iijQ0UfcZxdDtA31p1SdEvlFC6PFzqVY-nhpqXF0uDcxlIVTVL6Hbd-4LfMSrpG7u_t_n91-_FdbLU0coFMuHJx3p0rn2p1vm7loZVrymmxWmQcTmsp0MBwIbdUQzM/s320/trains-at-orient-way-53416.jpg" width="320" /></a></div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;"><br />
</span></div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">It strikes us as a very cynical way of rewarding behaviour and policies implemented by previous governments and parliaments to now go and increase the ‘tax’ on rail commuters when the switching policy from road to rail has meant that more rail passenger miles are being racked up versus road miles and supposedly turning off the tax flows into the Treasury from fuel duties, because <a href="http://www.bbc.co.uk/news/uk-13329027">more rail journeys</a> are being undertaken.</span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">Yet again the pendulum has swung the other way and at the consumer end of the bargain, we are being sent a confusing message us to which behaviours the government wants to encourage us to take. </span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;"><a href="http://www.bbc.co.uk/news/uk-england-london-14460554">No wonder the general malaise of cynicism and anti democratic behaviours we have recently experienced has and will manifest itself again.</a><o:p></o:p></span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">Less government, less interference, less confusion. Let the (a well governed) market help efficiently incentivise people to do the right thing at the right time for the right price.</span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><b style="mso-bidi-font-weight: normal;"><a href="http://themarketsoul.com/"><span class="Apple-style-span" style="color: #351c75;">theMarketSoul ©2011</span></a><span class="Apple-style-span" style="color: #990000;"><o:p></o:p></span></b></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">For more information about the <a href="http://themarketsoul.com/2011/08/05/economics-of-taxation/">Economics of Taxation</a> just click the link in this sentence</span></div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;"><br />
</span></div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;"><iframe align="right" frameborder="0" marginheight="0" marginwidth="0" scrolling="no" src="http://rcm.amazon.com/e/cm?t=themar0c-20&o=1&p=8&l=bpl&asins=1840641894&fc1=000000&IS2=1&lt1=_blank&m=amazon&lc1=0000FF&bc1=000000&bg1=FFFFFF&f=ifr" style="align: right; height: 245px; padding-right: 10px; padding-top: 5px; width: 131px;"></iframe></span></div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;"><iframe align="right" frameborder="0" marginheight="0" marginwidth="0" scrolling="no" src="http://rcm.amazon.com/e/cm?t=themar0c-20&o=1&p=8&l=bpl&asins=0631221808&fc1=000000&IS2=1&lt1=_blank&m=amazon&lc1=0000FF&bc1=000000&bg1=FFFFFF&f=ifr" style="align: right; height: 245px; padding-right: 10px; padding-top: 5px; width: 131px;"></iframe></span></div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;"><a href="http://www.amazon.com/International-Journal-of-Transport-Economics/dp/B00007AYEL?ie=UTF8&tag=themar0c-20&link_code=btl&camp=213689&creative=392969" target="_blank">International Journal of Transport Economics</a><img alt="" border="0" height="1" src="http://www.assoc-amazon.com/e/ir?t=themar0c-20&l=btl&camp=213689&creative=392969&o=1&a=B00007AYEL" style="border: none !important; margin: 0px !important; padding: 0px !important;" width="1" /></span></div><div class="blogger-post-footer">Please read and feel free to comment on my latest blog posting.
theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0tag:blogger.com,1999:blog-688017948712510124.post-47777395901556959262011-08-16T00:02:00.000+01:002011-08-16T00:02:32.319+01:00The Economics of Social breakdown<span class="Apple-style-span" style="font-family: 'Lucida Grande', 'Lucida Sans', 'Lucida Sans Unicode', Arial, sans-serif; font-size: 12px; line-height: 18px;"><span class="Apple-style-span" style="color: #990000;"></span></span><br />
<h2 style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: Georgia, serif; font-size: 2em; font-style: inherit; font-weight: normal; margin-bottom: 0.75em; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;"><span class="Apple-style-span" style="color: #990000;"><br />
</span></h2><div style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: inherit; font-size: 12px; font-style: inherit; font-weight: inherit; margin-bottom: 1.5em; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;"><span class="Apple-style-span" style="color: #990000;">How do we define the state of our nation at the moment?</span></div><div style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: inherit; font-size: 12px; font-style: inherit; font-weight: inherit; margin-bottom: 1.5em; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;"><span class="Apple-style-span" style="color: #990000;">For a little while now we have been experiencing an ‘unease’ with the communication revolution and the disparate nature of communication tools at our disposal. On the surface it would appear that what is happening is that rather than bind together a society it is having exactly the opposite effect.</span></div><div style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: inherit; font-size: 12px; font-style: inherit; font-weight: inherit; margin-bottom: 1.5em; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;"><span class="Apple-style-span" style="color: #990000;">The recent <a href="http://www.bbc.co.uk/news/uk-14449675" style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: inherit; font-size: 12px; font-style: inherit; font-weight: inherit; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-decoration: none; vertical-align: baseline;" target="_blank" title="BBC - Riots reporting">riots in the UK</a> is just a small manifestation of this general unease.</span></div><div style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: inherit; font-size: 12px; font-style: inherit; font-weight: inherit; margin-bottom: 1.5em; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;"><span class="Apple-style-span" style="color: #990000;">From a purely economic and dispassionate analysis of the situation, we would offer the following opinion:</span></div><div style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: inherit; font-size: 12px; font-style: inherit; font-weight: inherit; margin-bottom: 1.5em; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;"><span class="Apple-style-span" style="color: #990000;">We don’t have a ‘<a href="http://www.bbc.co.uk/news/uk-politics-14524834" style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: inherit; font-size: 12px; font-style: inherit; font-weight: inherit; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-decoration: none; vertical-align: baseline;" target="_blank" title="Broken Society">broken society</a>‘, as is such an often uttered phrase, but rather a complete <a href="http://www.linkedin.com/groupItem?view=&gid=2847369&type=member&item=65373861&qid=5e82d9dd-d5bf-4d3b-890b-1755e8a2b013&goback=%2Egna_2847369" style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: inherit; font-size: 12px; font-style: inherit; font-weight: inherit; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-decoration: none; vertical-align: baseline;" target="_blank" title="Risk Reward forum discussion">misunderstanding of the disconnect between our ‘old / slow business models’</a> and the pace at which technology moves and changes the rules of engagement.</span></div><div style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: inherit; font-size: 12px; font-style: inherit; font-weight: inherit; margin-bottom: 1.5em; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;"><span class="Apple-style-span" style="color: #990000;">The pace of change in organisational design, planning and execution models lags multiple-fold behind the pace of technological advancement. It almost has an exponential relationship and due to this factor, we have not yet come to grips with applying new technology to ‘old world’ thinking, with its checks and balances and control mechanisms.</span></div><div style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: inherit; font-size: 12px; font-style: inherit; font-weight: inherit; margin-bottom: 1.5em; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;"><span class="Apple-style-span" style="color: #990000;">The disconnect between the pace of the communication revolution and the nature of diminishing returns has led to a massive gap in appreciating the fact the occasionally we have to pause and reflect on where we are and where we want to be.</span></div><div style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: inherit; font-size: 12px; font-style: inherit; font-weight: inherit; margin-bottom: 1.5em; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;"><span class="Apple-style-span" style="color: #990000;">Both the continuing economic crisis, pace of change, realisation that the future does not hold the same promise and prosperity as the recent past; are all infliction points that have amplified and spilled over into anger and the violence of the past few days.</span></div><div style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: inherit; font-size: 12px; font-style: inherit; font-weight: inherit; margin-bottom: 1.5em; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;"><span class="Apple-style-span" style="color: #990000;">So what we have is a ‘broken understanding’ of how different factors of production, such as land, labour, capital, enterprise and innovation has drifted further apart and caused unnecessary and unsustainable concentrations of accumulated power and risk amongst differing population groupings in the UK and elsewhere.</span></div><div style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: inherit; font-size: 12px; font-style: inherit; font-weight: inherit; margin-bottom: 1.5em; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;"><span class="Apple-style-span" style="color: #990000;">Remember, all five of these factors of production listed above need to work in harmony, in order to add, create and manage value and output that are useful and life sustaining necessities for all citizens.</span></div><div style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: inherit; font-size: 12px; font-style: inherit; font-weight: inherit; margin-bottom: 1.5em; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;"><span class="Apple-style-span" style="color: #990000;">Let’s address the gap between political and civil society to ensure <a href="http://themarketsoul.com/2010/05/19/the-sustainability-gene/" style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: inherit; font-size: 12px; font-style: inherit; font-weight: inherit; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-decoration: none; vertical-align: baseline;" target="_blank" title="The Sustainability Gene">sustainable progress</a> and development for all.</span></div><div style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: inherit; font-size: 12px; font-style: inherit; font-weight: inherit; margin-bottom: 1.5em; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;"><span class="Apple-style-span" style="color: #990000;"><span style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: inherit; font-size: 12px; font-style: inherit; font-weight: inherit; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;"><strong style="font-weight: bold;"><a href="http://themarketsoul.com/">theMarketSoul © 2011</a></strong></span></span></div><div style="border-bottom-width: 0px; 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</span></span></div><div style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: inherit; font-size: 12px; font-style: inherit; font-weight: inherit; margin-bottom: 1.5em; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;"><span class="Apple-style-span" style="color: #990000;"><span style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: inherit; font-size: 12px; font-style: inherit; font-weight: inherit; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;"><iframe align="right" frameborder="0" marginheight="0" marginwidth="0" scrolling="no" src="http://rcm.amazon.com/e/cm?t=themar0c-20&o=1&p=8&l=bpl&asins=1576754863&fc1=000000&IS2=1&lt1=_blank&m=amazon&lc1=0000FF&bc1=000000&bg1=FFFFFF&f=ifr" style="align: right; height: 245px; padding-right: 10px; padding-top: 5px; width: 131px;"></iframe><br />
<iframe align="right" frameborder="0" marginheight="0" marginwidth="0" scrolling="no" src="http://rcm.amazon.com/e/cm?t=themar0c-20&o=1&p=8&l=bpl&asins=0955699908&fc1=000000&IS2=1&lt1=_blank&m=amazon&lc1=0000FF&bc1=000000&bg1=FFFFFF&f=ifr" style="align: right; height: 245px; padding-right: 10px; padding-top: 5px; width: 131px;"></iframe><br />
<iframe align="right" frameborder="0" marginheight="0" marginwidth="0" scrolling="no" src="http://rcm.amazon.com/e/cm?t=themar0c-20&o=1&p=8&l=bpl&asins=0865716412&fc1=000000&IS2=1&lt1=_blank&m=amazon&lc1=0000FF&bc1=000000&bg1=FFFFFF&f=ifr" style="align: right; height: 245px; padding-right: 10px; padding-top: 5px; width: 131px;"></iframe></span></span></div><div style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: inherit; font-size: 12px; font-style: inherit; font-weight: inherit; margin-bottom: 1.5em; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;"></div><div class="blogger-post-footer">Please read and feel free to comment on my latest blog posting.
theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0tag:blogger.com,1999:blog-688017948712510124.post-5379896416527150432011-08-07T17:42:00.000+01:002011-08-07T17:42:53.685+01:00<span><iframe align="right" frameborder="0" marginheight="0" marginwidth="0" scrolling="no" src="http://rcm.amazon.com/e/cm?t=themar0c-20&o=1&p=8&l=bpl&asins=1587991640&fc1=000000&IS2=1&lt1=_blank&m=amazon&lc1=0000FF&bc1=000000&bg1=FFFFFF&f=ifr" style="align: right; height: 245px; padding-right: 10px; padding-top: 5px; width: 131px;"></iframe></span><span style="color: #990000; font-family: "Helvetica Neue", Arial, Helvetica, sans-serif;">So it has finally happened. After threatening for months that a credit rating down grade was probable for the USA, <a href="http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-Type&blobcol=urldata&blobtable=MungoBlobs&blobheadervalue2=inline%3B+filename%3DUS_Downgraded_AA%2B.pdf&blobheadername2=Content-Disposition&blobheadervalue1=application%2Fpdf&blobkey=id&blobheadername1=content-type&blobwhere=1243942957443&blobheadervalue3=UTF-8">Standard & Poor's finally took the 'big step' on Friday 5 August</a>, after the major markets closed.</span><br />
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<span style="color: #990000; font-family: "Helvetica Neue", Arial, Helvetica, sans-serif;">So what next?</span><br />
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<span style="color: #990000; font-family: "Helvetica Neue", Arial, Helvetica, sans-serif;">In our article <a href="http://themarketsoul.com/2011/07/30/the-us-treasury-yield-curves-%e2%80%93-are-the-markets-really-that-bothered/">'US Treasuries - Are the markets really that bothered?'</a> published on 30 July 2011, we argued that the markets were not really bothered, as both 5 & 7 year T-Bill currently delivered a negative Real Return to investors.</span><br />
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<span style="color: #990000; font-family: "Helvetica Neue", Arial, Helvetica, sans-serif;">Everyone is dreading the opening bells in stock capital and forex market on Monday, yet we believe the fundamental question for this week will be:</span><br />
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<span style="color: #990000; font-family: "Helvetica Neue", Arial, Helvetica, sans-serif;">Is this an FX or market call?</span><br />
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<span style="color: #990000; font-family: "Helvetica Neue", Arial, Helvetica, sans-serif;">What we meanby this question is: </span><br />
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<span style="color: #990000; font-family: "Helvetica Neue", Arial, Helvetica, sans-serif;">Will the markets and market participants see the down grade as an opportunity to play an FX gain game; or has the game fundamentally shifted and will the capital markets react by demanding a higher nominal or at least Real Return on US Treasury bills?</span><br />
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<span style="color: #990000; font-family: "Helvetica Neue", Arial, Helvetica, sans-serif;">All pointers at the moment did not indicate a problem, but time will tell on whether a fundamental shift in attitude has occurred. Remember a credit rating is only a qualitative indicator, not a quantitative one, so on a technical call a few FX traders and investors might make a profit or two; but we are all waiting to see if the entire game has changed, or not.</span><br />
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<span style="color: #990000; font-family: "Helvetica Neue", Arial, Helvetica, sans-serif;">Other factors that might come into play soon would be <a href="http://www.zerohedge.com/article/qe3-has-already-started">QE3</a> and attitude hardening by major T-Bill investors.</span><br />
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<span style="color: #990000; font-family: "Helvetica Neue", Arial, Helvetica, sans-serif;">How the US Treasury and administration now react will be crucial.</span><br />
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<span style="color: #990000; font-family: "Helvetica Neue", Arial, Helvetica, sans-serif;">Who are we going to trust to make this big call?</span><br />
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<span style="color: #20124d; font-family: "Helvetica Neue", Arial, Helvetica, sans-serif;">theMarketSoul © 2011</span><br />
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<span style="font-family: "Helvetica Neue", Arial, Helvetica, sans-serif;"><span><iframe align="right" frameborder="0" marginheight="0" marginwidth="0" scrolling="no" src="http://rcm.amazon.com/e/cm?t=themar0c-20&o=1&p=8&l=bpl&asins=0735201447&fc1=000000&IS2=1&lt1=_blank&m=amazon&lc1=0000FF&bc1=000000&bg1=FFFFFF&f=ifr" style="align: right; height: 245px; padding-right: 10px; padding-top: 5px; width: 131px;"></iframe></span></span><span style="font-family: "Helvetica Neue", Arial, Helvetica, sans-serif;"></span><div class="blogger-post-footer">Please read and feel free to comment on my latest blog posting.
theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0tag:blogger.com,1999:blog-688017948712510124.post-6951281577031803072011-08-05T08:21:00.000+01:002011-08-05T08:21:18.558+01:00Economics of Taxation<o:p><span style="font-family: Calibri;"> </span></o:p><br />
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<div class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: justify;"><span style="font-family: Calibri;"><span style="color: #990000;">There are in essence only two ways of taxing citizens:<o:p></o:p></span></span></div><span style="color: #990000;"> </span><br />
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<div class="MsoListParagraphCxSpLast" style="margin: 0cm 0cm 10pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;"><span style="color: #990000;"><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;"><span style="font-family: Calibri;">2.</span><span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><span style="font-family: Calibri;">A Tax on Flows (Income or consumption)<o:p></o:p></span></span></div><span style="color: #990000;"> </span><br />
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<div class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: justify;"><span style="font-family: Calibri;"><span style="color: #990000;">Within these two tax methodologies are hidden the minutiae of the tax regime system, but at a fundamental level, any tax raising authority has to look at these two options / methodologies available to them.<o:p></o:p></span></span></div><span style="color: #990000;"> </span><br />
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<div class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: justify;"><span style="font-family: Calibri;"><span style="color: #990000;">Now step back second and consider the tax take flows from these two options:<o:p></o:p></span></span></div><span style="color: #990000;"> </span><br />
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<div class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: justify;"><span style="font-family: Calibri;"><span style="color: #990000;">With Incomes and consumption generally on the wane, where else can the taxing authority turn for sustaining or growing there net tax take?<span style="mso-spacerun: yes;"> </span>Only on the stock of capital assets held by its citizens, so expect a sustained, possibly nuanced, yet blatant attack on your net wealth over the coming few years.<o:p></o:p></span></span></div><span style="color: #990000;"> </span><br />
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<div class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: justify;"><span style="font-family: Calibri;"><span style="color: #990000;">Another salvo <span style="mso-spacerun: yes;"> </span>was launched again from the Business Secretary, Vince Cable, yesterday and we expect a sustained rhetoric and action in the next budget cycle.<span style="mso-spacerun: yes;"> </span>Today, the main stream press are reporting rumour of lower the 50% rate to 45%, to encourage an inflow of entrepreneurial and highly skilled management talent, reversing the recent drain or threat of ‘brain drain’ from taxpayers in this tax rate band.<o:p></o:p></span></span></div><br />
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<div class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: justify;"><span style="color: red;"><span style="font-family: Calibri;"><span style="color: #20124d;">theMarketSoul ©2011<o:p></o:p></span></span></span></div><br />
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</div><div class="blogger-post-footer">Please read and feel free to comment on my latest blog posting.
theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0tag:blogger.com,1999:blog-688017948712510124.post-91080796557972723542011-08-01T02:00:00.001+01:002011-08-01T02:04:26.047+01:00A sigh of relief?<div class="MsoNormal"><b><br />
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</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">Some say that in life timing is everything...</span></div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;"><br />
</span></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYTqaIj_tYCOPKvVqyjhOV4NAUcwbfXeq72jtDpfC1BmIjQzQXCX8K9Z5d6H8L5zeMf_-BRlEt3JM3YA0sxXJlswVGcR_7l54A-iVl-gg3EHoOfVXQKyohFPlTfIjHqKr-TOSO6k0IhwM/s1600/timing.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="153" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYTqaIj_tYCOPKvVqyjhOV4NAUcwbfXeq72jtDpfC1BmIjQzQXCX8K9Z5d6H8L5zeMf_-BRlEt3JM3YA0sxXJlswVGcR_7l54A-iVl-gg3EHoOfVXQKyohFPlTfIjHqKr-TOSO6k0IhwM/s200/timing.jpg" width="200" /></a></div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;"><br />
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</span></div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;"><iframe align="right" frameborder="0" marginheight="0" marginwidth="0" scrolling="no" src="http://rcm.amazon.com/e/cm?t=themar0c-20&o=1&p=8&l=bpl&asins=1441954082&fc1=000000&IS2=1&lt1=_blank&m=amazon&lc1=0000FF&bc1=000000&bg1=FFFFFF&f=ifr" style="align: right; height: 245px; padding-right: 10px; padding-top: 5px; width: 131px;"></iframe></span></div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;"><br />
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</span></div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">And so too it is with economics.</span><span class="Apple-style-span" style="color: #990000;"><span style="mso-spacerun: yes;"> </span></span><span class="Apple-style-span" style="color: #990000;">We don’t yet have a fully developed and ‘mature’ [in terms of life-cycle] grasp of the impact of timing with leads and lags in the economy in general.</span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">Yes, we have very sophisticated and advance models, analytics, knowledge management, quantitative theories, etc.; but we still do not fully comprehend the impact of time and timing in general on the factors of production influencing our ‘modern’ global economy.</span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">In short, it looks like the potential calamitous <a href="http://www.washingtonpost.com/politics/congressional-leaders-struggle-to-work-out-bipartisan-debt-deal/2011/07/30/gIQAqdfdjI_story.html?hpid=z1">US Debt Ceiling crisis has been averted</a> (events during Monday 1 August still need to unfurl), meaning that the US nation can continue to settle its debt obligations for a little while longer, without <a href="http://www.trust.org/alertnet/news/whouse-addresses-14th-amendment-on-debt-ceiling">President Obama having to resort to the 14<sup>th</sup> Amendment</a>.</span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">And this is where the timing conversation picks up its thread again.<span style="mso-spacerun: yes;"> </span><a href="http://www.reevewillknow.com/new-york-metro/is-the-debt-ceiling-all-political-rhetoric/">The Debt Ceiling needs to the raised in order to settle obligations already incurred</a>, not new spending.<span style="mso-spacerun: yes;"> </span>Therefore, the future continues to look uncertain for the point at which ‘<a href="http://www.marketoracle.co.uk/Article171.html">peak US Debt</a>’ will be reached and how long creditor nations and other institutions will continue to fund the US appetite for amassing what seems to be an insurmountable and unsustainable level of sovereign debt.<span style="mso-spacerun: yes;"> </span>In our <a href="http://wp.me/pQe31-eF">previous article</a> we discussed the negative Real US T-Bill Yields on both new 5 and 7 year US Treasuries.<span style="mso-spacerun: yes;"> </span>If this is anything to go by, ‘<a href="http://www.marketoracle.co.uk/Article171.html">peak US Debt</a>’ must still be little while off in the distant future.</span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">If only we could get the timing thing right and have a more insightful and meaningful (adult) debate not just in the US, but including global partners, both creditors and debtors alike.</span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">But such is the nature of markets and <a href="http://en.wikipedia.org/wiki/Spontaneous_order">spontaneous order</a>, as espoused by our friends at the <a href="http://en.wikipedia.org/wiki/Austrian_School_of_Economics">Austrian School</a>, that we still believe and endorse the fact that ‘the market’ is still the best and most efficient mechanism for allocating resources (even financial and debt instruments) and informing the participants of potential risks and opportunities for clearing this market.</span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><b style="mso-bidi-font-weight: normal;"><span class="Apple-style-span" style="color: #20124d;">theMarketSoul ©2011</span><span class="Apple-style-span" style="color: red;"><o:p></o:p></span></b></div><div class="MsoNormal"><b style="mso-bidi-font-weight: normal;"><span class="Apple-style-span" style="color: #20124d;"><br />
</span></b></div><div class="MsoNormal"><b style="mso-bidi-font-weight: normal;"><span class="Apple-style-span" style="color: #20124d;"><a href="http://www.amazon.com/Theory-Money-Credit-ebook/dp/B001GS7B6Q?ie=UTF8&tag=themar0c-20&link_code=btl&camp=213689&creative=392969" target="_blank">The Theory of Money and Credit</a><img alt="" border="0" height="1" src="http://www.assoc-amazon.com/e/ir?t=themar0c-20&l=btl&camp=213689&creative=392969&o=1&a=B001GS7B6Q" style="border: none !important; margin: 0px !important; padding: 0px !important;" width="1" /><iframe align="right" frameborder="0" marginheight="0" marginwidth="0" scrolling="no" src="http://rcm.amazon.com/e/cm?t=themar0c-20&o=1&p=8&l=bpl&asins=B004S7ZADS&fc1=000000&IS2=1&lt1=_blank&m=amazon&lc1=0000FF&bc1=000000&bg1=FFFFFF&f=ifr" style="align: right; height: 245px; padding-right: 10px; padding-top: 5px; width: 131px;"></iframe></span></b></div><div class="blogger-post-footer">Please read and feel free to comment on my latest blog posting.
theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0Cambridge, UK42.3726399 -71.10965279999999242.346646400000004 -71.1577713 42.3986334 -71.061534299999991tag:blogger.com,1999:blog-688017948712510124.post-70535488150466607252011-07-31T07:15:00.025+01:002011-07-31T07:15:00.499+01:00The US Treasury Yield Curves #2 – Do you factor inflation into the deal?<div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;"><iframe align="right" frameborder="0" marginheight="0" marginwidth="0" scrolling="no" src="http://rcm.amazon.com/e/cm?t=themar0c-20&o=1&p=8&l=bpl&asins=0471708984&fc1=000000&IS2=1&lt1=_blank&m=amazon&lc1=0000FF&bc1=000000&bg1=FFFFFF&f=ifr" style="align: right; height: 245px; padding-right: 10px; padding-top: 5px; width: 131px;"></iframe></span><span class="Apple-style-span" style="color: #990000;"><img alt="" border="0" height="1" src="http://www.assoc-amazon.com/e/ir?t=themar0c-20&l=btl&camp=213689&creative=392969&o=1&a=" style="border: none !important; margin: 0px !important; padding: 0px !important;" width="1" />In the <span lang="EN-US"><a href="http://themarketsoul.com/2011/07/30/the-us-treasury-yield-curves-%E2%80%93-are-the-markets-really-that-bothered/">previous article</a></span> we posted, mention was made of the (0.72)% [negative 0.72%] real return US Treasury investors can currently expect on 5 Year Treasury Bills. The Nominal (quoted) Yield Curves and Real </span><span class="Apple-style-span" style="color: #990000;">Inflation adjusted) Yield Curves for two specific points in time, namely Friday 29 July 2011 and 30 July 2006 are listed below.</span><br />
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<div style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiGtRFNiHDu9BKLJoyxzJhNbTg6Tr3GWY4tO5w1kRUFnktThsXgf9OIWefsioI6UB5vRDNFAc0IUud8QY2xLSPk_2OJnDwUO79Lf7gVw1yj-gl4V7XjJnKFd81BkjlxBpWoJRudyg70mwE/s1600/US+Department+of+the+Treasury+%252829072011+Comparative+Yield+Curves%2529.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="257" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiGtRFNiHDu9BKLJoyxzJhNbTg6Tr3GWY4tO5w1kRUFnktThsXgf9OIWefsioI6UB5vRDNFAc0IUud8QY2xLSPk_2OJnDwUO79Lf7gVw1yj-gl4V7XjJnKFd81BkjlxBpWoJRudyg70mwE/s400/US+Department+of+the+Treasury+%252829072011+Comparative+Yield+Curves%2529.jpg" width="400" /></a></div></div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;"><br />
</span></div><div align="center" class="MsoNormal" style="text-align: center;"><span class="Apple-style-span" style="color: #990000;">Yield Curve 1<o:p></o:p></span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">What is interesting to note is the very flat nature of the Yield Curve for all T-Bills at the end of July 2006, at around a 5% Nominal Return for investors. Yet the most significant fact is that the Real Yield was around 2.37% on 5 Year Treasuries, versus today’s (0.72)% on 5 Year or (0.18)% 7 Year T-Bill yields. In order to generate a very small Real Return, you have to be looking at purchasing a 10 Year T-Bill to obtain a modest 0.38% Real Return in today’s market. <o:p></o:p></span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">A cynic might make this remark:</span><o:p></o:p></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><i><span class="Apple-style-span" style="color: #4c1130;">“Not only do you pay your taxes, but with the negative Real Yields on both 5 & 7 Year T-Bills, you are paying the government to hold on to your cash too”</span></i><span class="Apple-style-span" style="color: #ffc000;"><o:p></o:p></span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal">They win both ways!<o:p></o:p></div><div class="MsoNormal"><br />
</div><div class="MsoNormal" style="margin-bottom: 13.0pt; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><b><span lang="EN-US" style="color: #fe0000; font-family: Georgia, serif; font-size: 13pt;">theMarketSoul ©2011</span></b><span lang="EN-US" style="font-family: Georgia, serif; font-size: 13pt;"><o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 13.0pt; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><br />
</div><div class="MsoNormal"><span lang="EN-US" style="font-family: Georgia, serif; font-size: 13pt;">Source Material: US Treasury web site: <o:p></o:p></span></div><div class="MsoPlainText"><a href="http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/Historic-Yield-Data-Visualization.aspx">http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/Historic-Yield-Data-Visualization.aspx</a><br />
<a href="http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/Historic-Yield-Data-Visualization.aspx"><iframe align="right" frameborder="0" marginheight="0" marginwidth="0" scrolling="no" src="http://rcm.amazon.com/e/cm?t=themar0c-20&o=1&p=8&l=bpl&asins=0470821256&fc1=000000&IS2=1&lt1=_blank&m=amazon&lc1=0000FF&bc1=000000&bg1=FFFFFF&f=ifr" style="align: right; height: 245px; padding-right: 10px; padding-top: 5px; width: 131px;"></iframe></a></div><div class="MsoNormal"></div><div class="blogger-post-footer">Please read and feel free to comment on my latest blog posting.
theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0tag:blogger.com,1999:blog-688017948712510124.post-37973945951385971042011-07-30T21:47:00.001+01:002011-07-31T01:25:44.345+01:00An Aggregated Challenge<div style="font-family: 'Trebuchet MS', sans-serif;"><span class="Apple-style-span" style="color: #351c75;">[<i>A forgotten article from mid 2010</i>]</span><br />
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<span class="Apple-style-span" style="color: #351c75;"><span class="Apple-style-span" style="color: #990000;">Conspiracy theories! </span></span></div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"></div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Today we express an opinion on the phenomenon of ‘governmental’ economic landscape shaping.<br />
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</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"></div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Interference whether actively pursued or via involuntary actions heightens our sense of concern by the effects that the aggregation of supply and therefore the encouragement, either directly or indirectly of oligopolistic and monopolistic market structures, is having on the global competitive landscape.<br />
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</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"></div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">It has occurred in the financial services sector and it happening in the oil industry too.<br />
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</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"></div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Even though the barriers to entry are relatively high, having fewer competitors on the scene cannot be a good thing.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"></div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">The trends we are spotting in the competitive landscape are as follows:<br />
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</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"></div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Imperfect competitive firms (many market participants with differentiated products and services) are being deluged with over burdensome bureaucratic regulatory requirements, shifting some of these additional transaction costs onto the ultimate (final) consumers, whilst in strategically important industrial complexes, such as energy supply, the aggregation effect is indirectly encouraged to ensure that national strategic and security interests are promoted.<br />
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</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"></div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Funny old thing, economic theory then…</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><iframe align="right" frameborder="0" marginheight="0" marginwidth="0" scrolling="no" src="http://rcm.amazon.com/e/cm?t=themar0c-20&o=1&p=8&l=bpl&asins=0073375691&fc1=000000&IS2=1&lt1=_blank&m=amazon&lc1=0000FF&bc1=000000&bg1=FFFFFF&f=ifr" style="align: right; height: 245px; padding-right: 10px; padding-top: 5px; width: 131px;"></iframe></div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #351c75; font-family: "Trebuchet MS",sans-serif;"><strong>theMarketSoul ©2010</strong><br />
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[An article we wrote in mid 2010 during the height of the BP Gulf of Mexico oil spill disaster, but somehow never published. The theory is just as relevant today when we speak about the Debt Ceiling crisis...]<br />
<iframe align="right" frameborder="0" marginheight="0" marginwidth="0" scrolling="no" src="http://rcm.amazon.com/e/cm?t=themar0c-20&o=1&p=8&l=bpl&asins=1592576605&fc1=000000&IS2=1&lt1=_blank&m=amazon&lc1=0000FF&bc1=000000&bg1=FFFFFF&f=ifr" style="align: right; height: 245px; padding-right: 10px; padding-top: 5px; width: 131px;"></iframe></div><div class="blogger-post-footer">Please read and feel free to comment on my latest blog posting.
theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0tag:blogger.com,1999:blog-688017948712510124.post-41630102964944209652011-07-30T13:52:00.001+01:002011-07-31T01:30:09.575+01:00The US Treasury Yield Curves – Are the markets really that bothered?<div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;"><b><br />
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</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">As a general introduction today we will look at two US Treasury Yield curves. The first Yield curve in the Curve graphic 1 below is the 3 Month bills compared to the 10 Year bills over the last 5 years.<o:p></o:p></span></div><div class="MsoNormal"><br />
</div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiHNGCFYz6NO-TOwtkolna-INc4XHBmGeLDsVVqocff4nD7gKECFIvxL3Y4vGiMMSoCn7H-H_Qv4teg4zeoVqFvRDrAlM8tLiAHi84UrbMz8jlWWkdmyJGUvvT2IUJ6JouwsVMaXNN1Tkw/s1600/US+Department+of+the+Treasury+%25285+Year%2529.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="207" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiHNGCFYz6NO-TOwtkolna-INc4XHBmGeLDsVVqocff4nD7gKECFIvxL3Y4vGiMMSoCn7H-H_Qv4teg4zeoVqFvRDrAlM8tLiAHi84UrbMz8jlWWkdmyJGUvvT2IUJ6JouwsVMaXNN1Tkw/s320/US+Department+of+the+Treasury+%25285+Year%2529.jpg" width="320" /></a></div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;"><br />
</span></div><div align="center" class="MsoNormal" style="text-align: center;"><span class="Apple-style-span" style="color: #990000;">Yield Curve 1<o:p></o:p></span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">In this table it is clear that the current 10 Year rate of 2.82% as of 29 July 2011, is still well below the 5 year average rate. The trend of the 3 Month bills, especially over the last few months has drifted aimlessly between 0.15% on 28 February 2011 and currently at 0.10% on 29 July 2011. There is in fact no noticeable concern in the Bond / Capital market over the potential technical US Treasury default on 2 August 2011.<o:p></o:p></span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">The second curve below in Curve graphic 2 illustrates this fact of the 3 Month bills trend since 28 February 2011 to 29 July 2011. As can be observed, in the last few days a very slight spike has been observed, yet the rate at 0.10% is still below the 0.15% rate of 28 February 2011.<o:p></o:p></span></div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;"><br />
</span></div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;"><br />
</span></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgN3N5jtF-yPZ4eToB9GLdVGrOHsWtiEeQxl9Y_pl2B4L_VU813GI9X6paxF5vRL0fwUkQt6XyboXxsr_JDvPmxUauYOflidoVTLsiCB4aHY1_YtB_cXBHt9owrcbOcDNER2fJ_XXindzc/s1600/Preview+of+%25E2%2580%259CUS+Department+of+the+Treasury%25E2%2580%259D.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="208" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgN3N5jtF-yPZ4eToB9GLdVGrOHsWtiEeQxl9Y_pl2B4L_VU813GI9X6paxF5vRL0fwUkQt6XyboXxsr_JDvPmxUauYOflidoVTLsiCB4aHY1_YtB_cXBHt9owrcbOcDNER2fJ_XXindzc/s320/Preview+of+%25E2%2580%259CUS+Department+of+the+Treasury%25E2%2580%259D.jpg" width="320" /></a></div><div align="center" class="MsoNormal" style="text-align: center;"><span class="Apple-style-span" style="color: #990000;"><br />
</span></div><div align="center" class="MsoNormal" style="text-align: center;"><span class="Apple-style-span" style="color: #990000;">Yield Curve 2<o:p></o:p></span></div><div align="center" class="MsoNormal" style="text-align: center;"><br />
</div><div class="MsoNormal" style="margin-bottom: 13.0pt; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span class="Apple-style-span" style="color: #990000;">In real monetary terms it is costing 5 Year Treasury bill holders (0.72%) (Yes a negative return of 0.72% currently to buy 5 Year Treasuries. (See US Treasury web site).<o:p></o:p></span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">It will be interesting to observe and track the trends over the coming days, especially as we kick off August and Debt Ceiling D-Day in the US congress and Senate.</span><o:p></o:p></div><div class="MsoNormal"><br />
</div><div class="MsoNormal" style="margin-bottom: 13.0pt; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><b><span lang="EN-US" style="font-family: Georgia, serif; font-size: 13pt;"><span class="Apple-style-span" style="color: #20124d;">theMarketSoul ©2011</span></span></b><span lang="EN-US" style="font-family: Georgia, serif; font-size: 13pt;"><o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 13.0pt; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><br />
</div><div class="MsoNormal"><span lang="EN-US" style="font-family: Georgia, serif; font-size: 13pt;"><span class="Apple-style-span" style="color: #990000;">Source Material: US Treasury web site: http://www.treasury.gov/resource-center/Pages/default.aspx</span></span></div><div class="MsoNormal"><br />
<iframe align="right" frameborder="0" marginheight="0" marginwidth="0" scrolling="no" src="http://rcm.amazon.com/e/cm?t=themar0c-20&o=1&p=8&l=bpl&asins=0470572132&fc1=000000&IS2=1&lt1=_blank&m=amazon&lc1=0000FF&bc1=000000&bg1=FFFFFF&f=ifr" style="align: right; height: 245px; padding-right: 10px; padding-top: 5px; width: 131px;"></iframe></div><div class="blogger-post-footer">Please read and feel free to comment on my latest blog posting.
theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0Cambridge, UK52.2025441 0.1312368000000105952.1659486 0.0826198000000106 52.239139599999994 0.17985380000001058tag:blogger.com,1999:blog-688017948712510124.post-24250514327111696922011-07-29T09:53:00.000+01:002011-07-29T09:53:20.423+01:00A Storm in a 'Tea' cup<div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">Never resist the temptation to start a discussion with a pun.</span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">In our <a href="http://themarketsoul.com/2011/07/28/hold-your-nerve/">previous article</a> we highlighted the ‘battle royal’ on Capitol Hill to get a proposal agreed to address the possibility of a US Treasury default, whether actual or technical on or after 2 August 2011.</span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">So the Republicans could not <a href="http://www.washingtonpost.com/business/economy/boehner-other-gop-leaders-ramp-up-pressure-on-republicans-to-pass-debt-plan/2011/07/28/gIQARD5veI_story.html">muster together enough support on Thursday</a> to ensure safe passage of the bill to the Senate, where it looks likely to be overturned or severely amended in any case.</span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">There is obviously a lot of back room dealing going on over this and analysts in Europe (taking their beading eyes off the Greek and now Italian and Spanish dominoes) have started to pay attention to the goings on across the pond.<span style="mso-spacerun: yes;"> </span>We heard one commentator mention the fact that the USA’ reputation has already been affected by this, irrespective of the fact that a default occurs or not.</span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">So there you go.<span style="mso-spacerun: yes;"> </span>The fringe minority floating in the ‘Tea’ cup with a lack of the ability to look over the brim of that particular cup, might in fact achieve their overall objective of raising their own profiles, albeit at the expense of the nation’s reputation and standing as a pillar of the international capital market.</span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">Look, we are not choosing sides here, because at the heart of the matter is the fundamental principles of <a href="https://www.nyu.edu/ipk/files/docs/publications/civil_society_and_public_sphere_public-culture.pdf">civil society versus the public sphere</a> debate raging and continuing to rage in the USA.</span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">In our next article we will highlight some of the basic differences in opinion and views on the size and influence of government in the USA versus Europe, via the <a href="http://www.economicshelp.org/blog/economics/the-rahn-curve-economic-growth-and-level-of-spending/">Rahn curve analysis</a>.</span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">Until then, it is tick, tock; tick, tock whilst we await the vote and subsequent consequences and fall-out from the <a href="http://www.huffingtonpost.com/rebecca-thiess/five-things-to-remember-i_1_b_912698.html">US debt ceiling debate</a>.</span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #351c75;"><b>theMarketSoul ©2011</b></span></div><div class="blogger-post-footer">Please read and feel free to comment on my latest blog posting.
theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0tag:blogger.com,1999:blog-688017948712510124.post-27269671971428604942011-07-28T08:12:00.000+01:002011-07-28T08:12:22.727+01:00Hold your nerve!<div class="MsoNormal"><b><br />
</b></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">It is a confidence thing.</span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">We are so very, very close to seeing and experiencing another colossal collapse in confidence in the world’s financial system.</span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">This time it is driven by the ‘<a href="http://www.bloomberg.com/news/2011-07-27/gold-climbs-toward-record-as-go-to-asset-amid-u-s-debt-ceiling-impasse.html">US Debt Ceiling impasse</a>’.<span style="mso-spacerun: yes;"> </span>A steady flight to gold has been taking place over the past few months and even though most informed commentators believe the <span style="mso-spacerun: yes;"> </span>US Treasury ‘<a href="http://www.ctv.ca/CTVNews/World/20110718/us-washington-debt-default-talks-republicans-democrats-110718/">default scenario</a>’ is not likely to physically occur, the mere threat of a default has not yet managed to ‘<a href="http://www.washingtonpost.com/business/economy/reid-debt-reduction-proposal-would-save-more-than-boehner-plan-congressional-budget-office-finds/2011/07/27/gIQArgSkcI_story.html?hpid=z1">focus the minds</a>’ of the US congress house of representatives locked in an ideological battle over fundamental economic policy and direction.</span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">At stake here is a scenario that will make the 2008 financial crisis wane into insignificance, should the threat of a US Treasuries default actually play out.<span style="mso-spacerun: yes;"> </span></span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">Yet, very few mainstream headlines outside of the United States have been published about this potential catastrophic event.<span style="mso-spacerun: yes;"> </span>And we are only a few days away from the edge of disaster (<a href="http://ipolitics.ca/2011/07/18/clock-ticking-on-avoiding-u-s-default-no-deal-in-sight/">Default D-Day is chalked up for Tuesday 2 August 2011</a>) and the <a href="http://www.washingtonpost.com/">Washington Post</a> has a default clock ticking down on this deadline web site.</span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #990000;">If a default actually occurs, confidence in the international capital and currency markets will have been breached and no serious commentator has yet fully quantified or effectively mapped out the potential consequences of this potentially disastrous collapse in capital market confidence.</span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal" style="margin-top: 12.0pt;"><span class="Apple-style-span" style="color: #990000;">The only significant contribution we can make at this publication is to cross our fingers, hold as much in cash and liquid (non US dollar) assets and hope that some real focus and a <a href="http://www.washingtonpost.com/business/economy/what-we-know--and-dont--about-a-possible-budget-deal/2011/07/27/gIQANbe4dI_story.html?hpid=z2">meeting of minds</a> occurs before Tuesday 2 August 2011 on Capitol Hill.</span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="color: #20124d;">theMarketSoul ©2011</span></div><div class="blogger-post-footer">Please read and feel free to comment on my latest blog posting.
theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0tag:blogger.com,1999:blog-688017948712510124.post-301594107583040932011-07-16T08:23:00.002+01:002011-07-16T08:23:36.851+01:00The Elusive “G” Factor! – Part 1 [Economics in a Nutshell]<div class="MsoNormal"><br />
</div><div class="MsoNormal"><span lang="EN-US" style="font-family: Arial;"><span class="Apple-style-span" style="background-color: white;"><b><span class="Apple-style-span" style="color: #990000;">An Introduction</span></b><span class="Apple-style-span" style="color: #990000;"><o:p></o:p></span></span></span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span lang="EN-US" style="font-family: Arial;"><span class="Apple-style-span" style="background-color: white;"><span class="Apple-style-span" style="color: #990000;">There is a conundrum here somewhere! As a libertarian leaning Think Tank organization and publication, we instinctively know that more government interference in the economy and bigger government per se is not a good thing. And so is sovereign debt and the servicing of that debt. Both are drains on the economy and economic potential of any sovereign nation, yet both are necessary evils too.<o:p></o:p></span></span></span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span lang="EN-US" style="font-family: Arial;"><span class="Apple-style-span" style="background-color: white;"><span class="Apple-style-span" style="color: #990000;">But where lies the ‘sweet spot’ between the size of government, fiscal policy, sovereign debt (if necessary)? The magic formula or ratio between the public and private sectors and their respective shares of the economic output pie?<o:p></o:p></span></span></span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span lang="EN-US" style="font-family: Arial;"><span class="Apple-style-span" style="background-color: white;"><span class="Apple-style-span" style="color: #990000;">These are questions the political and business leaders are struggling to understand and define in Europe and the USA at this point in time in order slowly and arduously drag their economies back to a ‘normal growth cycle’.<o:p></o:p></span></span></span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span lang="EN-US" style="font-family: Arial;"><span class="Apple-style-span" style="background-color: white;"><span class="Apple-style-span" style="color: #990000;">Part of the challenge we believe is the massive imbalance created by the shifting nature and sources of production, combined with the rapid uptake of technology and the disruptive influences of technology. Our planning cycles and hence levels of understanding and ability to adjust the factors of productions to keep up with these disruptive forces are being severely challenged. Or maybe our grasp of the theory underpinning our economic models just aren’t up to coping with the rapid nature of change and forces of change in the global economy.<o:p></o:p></span></span></span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span lang="EN-US" style="font-family: Arial;"><span class="Apple-style-span" style="background-color: white;"><span class="Apple-style-span" style="color: #990000;">As has been argued in previous articles, by its very nature the instruments we utilise to adjust economic activity and output in specific geographical locations, namely fiscal (tax) and monetary policy, are very blunt instruments and not as effective and able to cope with the speed of change in given economies. But are their any other mechanisms we can utilise to adjust unfavourable behaviours and activities in order to get back to equilibrium?<o:p></o:p></span></span></span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span lang="EN-US" style="font-family: Arial;"><span class="Apple-style-span" style="background-color: white;"><span class="Apple-style-span" style="color: #990000;">A further factor we believe is a lack of understanding of where exactly we are in the </span></span><u><span class="Apple-style-span" style="background-color: white;"><span class="Apple-style-span" style="color: #990000;">global economic adjustment lifecycle</span></span></u><span class="Apple-style-span" style="background-color: white;"><span class="Apple-style-span" style="color: #990000;">. There is no real comprehensive understanding and agreement at best of these influences. True mechanisms like the G8 now G20 have been created to address more global challenges, but there is hardly ever consensus and a collective will to act in unison to address the bottlenecks and imbalances in global economic activities.<o:p></o:p></span></span></span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span lang="EN-US" style="font-family: Arial;"><span class="Apple-style-span" style="background-color: white;"><span class="Apple-style-span" style="color: #990000;">With this introductory article we have laid out some of the areas to explore and bring back into the ‘light of scrutiny’ as part of a deeper understanding of the nature of our global economic state and status. </span><o:p></o:p></span></span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span lang="EN-US" style="font-family: Arial;"><span class="Apple-style-span" style="color: #351c75;"><span class="Apple-style-span" style="background-color: white;">theMarketSoul © 2011</span></span><o:p></o:p></span></div><div class="blogger-post-footer">Please read and feel free to comment on my latest blog posting.
theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0tag:blogger.com,1999:blog-688017948712510124.post-6080543539877961572011-07-15T08:41:00.000+01:002011-07-15T08:41:20.268+01:00The Elusive “G” Factor! [Economics in a Nutshell]<div class="MsoNormal"><br />
</div><div class="MsoNormal"><span lang="EN-US" style="font-family: Arial;"><span class="Apple-style-span" style="color: #660000;">Everywhere the elusive “G” Factor is beginning to raise its head in the discourse of politicians and business leaders alike. When will a sustainable and prolonged period of economic growth start to manifest itself and drive forward development and wealth creation?<o:p></o:p></span></span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span lang="EN-US" style="font-family: Arial;"><span class="Apple-style-span" style="color: #660000;">This is a very complex subject area and in a series of articles we will attempt to define and understand the drivers and blockers of growth.<o:p></o:p></span></span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span lang="EN-US" style="font-family: Arial;"><span class="Apple-style-span" style="color: #660000;">We will investigate and explore the traditional factors of production along this journey and uncover the truth around debt, monetary policy and fiscal policies and stimulus process.<o:p></o:p></span></span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span lang="EN-US" style="font-family: Arial;"><span class="Apple-style-span" style="color: #660000;">Any contributions and clarifications are more than welcome on this short journey along the Economics in a Nutshell series.<o:p></o:p></span></span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span lang="EN-US" style="font-family: Arial;"><span class="Apple-style-span" style="color: blue;">theMarketSoul © 2011</span><o:p></o:p></span></div><div class="blogger-post-footer">Please read and feel free to comment on my latest blog posting.
theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0tag:blogger.com,1999:blog-688017948712510124.post-51700988977581053522010-08-27T08:20:00.004+01:002010-08-27T08:23:04.230+01:00Risk Management Ideas<div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Risk has as one of its essential elements trust as a foundation.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Trust on the other hand has many other factors that interplay and interact on it.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Markets are created when there are needs that are immediately met from you local environment and therefore scarcity around. Market participants step in to fill the void.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">As for any subset of Risk, either Operational, Market, Liquidity, Interest, etc. a big part of the assessment process it not just about looking inward and assessing the risk profiles, risk attitudes, risk systems, etc., but an important part of the process is stepping into the realm of uncertainty and looking outwards and the wider market context we find ourselves in.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Being too prescriptive about the individual risk profiles and control systems will only stifle innovation and growth. Some say we need a very healthy dose of growth right now, whereas others are content with the new world order of the ‘anti growth economic’ bias (our description of austerity) we have already entered in the Western Hemisphere.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Our positive risk management framework, also known as <i style="color: #4c1130;"><b><a class="wp-caption-dd" href="http://themarketsoul.files.wordpress.com/2010/07/value-oriented-risk-management2.pdf" target="_blank" title="Value Oriented Risk Management">Value Oriented Risk Management </a></b></i>encapsulates both risk and uncertainty management and combines it with the best offerings of <a href="http://www.12manage.com/methods_value_based_management.html" style="color: #741b47;">Value Based Management</a>. (For more information or to contact us, please click on the <b><a href="http://themarketsoul.com/contact-us/" style="color: #4c1130;">Contact us</a></b> link).</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Our Value Oriented Risk Management is the positive Risk Management focus, acting as an enabler ensuring that you unlock value in your organisation amidst the regulatory compliance constraints added to your management agenda.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #351c75; font-family: "Trebuchet MS",sans-serif;"><b>TheMarketSoul ©2010</b></div><div class="blogger-post-footer">Please read and feel free to comment on my latest blog posting.
theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0tag:blogger.com,1999:blog-688017948712510124.post-46878404604979500592010-08-27T08:13:00.002+01:002010-08-27T08:16:36.834+01:00Risk-Based Change Management<div style="color: #660000; font-family: "Trebuchet MS",sans-serif; text-align: justify;"><b>Introduction</b></div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;">Cost cutting has been a priority in the private sector, ever since the financial credit quake started in 2008, yet the words currently are ‘austerity measures’ and budget cuts in the public sector.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;">Most of the cost cutting in organisations has been along the tactical and operational lines and we believe that in the ‘age of austerity’ we are within, revisiting cost cutting from a more strategic perspective would add significant value to both the private and public sector organisation alike.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;"><br />
</div><div style="color: #660000; font-family: "Trebuchet MS",sans-serif; text-align: justify;"><b>A Zero Based Approach</b></div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;">Within most organisations budgeting and budget setting is an incremental affair. It is very much focused on a business as usual mentality and the status quo is rarely questioned or scrutinised with any level of depth and rigour, as long as the financial plan delivers the numbers senior managers anticipate and the investor community expects.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;">Yet this is exactly the kind of ‘tyranny of the status quo’ that has destroyed a significant proportion of value in organisations over the past two years.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;">A zero based approach addresses some of the short comings associated with incremental budgeting and financial planning. It is by no means a perfect replacement for incremental budgeting, it cannot address all the strategic issues and it is fraught with its own pitfalls, yet we assert that a focus on some recent lessons learnt in organisations that have implemented cost cutting via a zero based approach can add value to our clients budgeting and financial planning systems.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;">Zero-based budgeting can be summarised as the process of preparing financial plans from a change perspective, normally building the financial plan from scratch (the zero base), viewing the process as if the organisation has not delivered the particular service of product in focus before.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;">Some of the lessons learnt are briefly listed below:</div><ul style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;"><li>Many versus few – Instructions and the interpretation thereof by individual users</li>
<li>Focus on the Full Time Equivalents (FTEs) and people cost <i>early</i> in the process<br />
<br />
<ul><li>Check Payroll Data integrity</li>
<li>Understand thoroughly the organisational restructuring issues (get Human Resources understanding the financial budgeting language early in the process)</li>
<li>Ensure a distinction between building a Business Case versus Budgeting</li>
<li>Confidentiality (how, who, what and staff and managerial morale implications)</li>
</ul></li>
<li>Education process and ensuring skills, knowledge and information convergence to ensure the budget is delivered as a value added ‘conversation’</li>
<li>Appreciation of management style versus timetable for budget delivery</li>
<li>Over communicate (more information is better than more or inadequate assumptions)</li>
<li>Concentrate on the budget story (strategy and changes) and ‘hang’ the budget numbers on the end of the storyline (Making the budgeting process less ‘threatening’ to budget owners)</li>
</ul><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;">These lessons can be separated into two distinctive themes, namely the Human Capital dimension and the Systems issues.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;"><br />
</div><div style="color: #660000; font-family: "Trebuchet MS",sans-serif; text-align: justify;"><b>Themes to be aware of</b></div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;">As far as the Human Capital dimension is concerned the major lesson is to ensure that both the budget holders and prepares are fully cognisant and understand the language of both budgeting and what the inherent risks and concerns around a zero-based approach is.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;">Key issues and risk are around work stream teams from different disciplines (HR, Finance, Operations, IT and marketing) not always having a common language and frame of references for similar linguistic terms and phrases. Ensure that potential for misunderstanding the objectives and delivery mechanisms are addressed early in the Zero Based Budgeting approach.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;">Foster a culture of empathy within the management ranks and never underestimate the emotional impact that getting rid of people can have on both the managers having to make the tough calls and both the staff being called upon to leave and the staff morale of the people earmarked to remain behind and deliver the business as usual processes.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;">As far as the Systems issues are concerned, ensure that enough time and preparation goes into the planning and delivery of the Zero Based Budgeting mechanisms and tools, as you will be running a process that has not been utilised and thoroughly tried and tested under operational conditions before. There are risks in the following areas to be aware of:</div><ul style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;"><li>Data integrity</li>
<li>Spreadsheet modelling and calculation errors</li>
<li>Documentation and the support services (handling budget holder queries and concerns)</li>
<li>Skills and knowledge of the budget holders and preparers might be limited </li>
</ul><div style="color: #660000; font-family: "Trebuchet MS",sans-serif; text-align: justify;"><b>Conclusion</b></div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;"><b></b></div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;">As was suggested in the Lessons Learnt listing above, over communicate with managers, budget holders and preparers and staff. Ensuring that adequate information is made available in comprehensible and non-technical language is the key to success. Too often we have seen ‘lazy’ and shortcut assumptions being made, when a little bit of extra effort, ‘digging’ and asking the right people with the operational knowledge the right questions would ensure a more robust and rigorous budget.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;">Finally, ensure that both the process and outcomes are well documented and articulated as they serve as your shield and defence when the reality does not turn out as the best laid financial plan might have anticipated.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;">We view Zero Based Budgeting as a risk-based change management tool that assists and informs the senior managers in any organisation of the opportunities and risks inherent in designing and building innovative change processes to help add value to the organisation’s overall performance.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif; text-align: justify;"><br />
</div><span style="color: #990000; font-family: "Trebuchet MS",sans-serif;">At <i><b><a href="http://themarketsoul.com/contact-us/" target="_blank" title="Contact us">theMarketSoul ©1999 – 2010</a></b></i> we have practitioners available who can assist you on a consultancy basis to operationalise the full 360 degree Financial Management practices most organisations require in order to ensure that they remain competitive, profitable and continue to create value.</span><div class="blogger-post-footer">Please read and feel free to comment on my latest blog posting.
theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0tag:blogger.com,1999:blog-688017948712510124.post-76707355497369141362010-08-27T07:50:00.000+01:002010-08-27T07:50:56.868+01:00Random Collisions of Chance<div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Chance and spontaneity are two interesting phenomenon required for innovation and creativity.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">We were reminded of this in an interview recorded of a LinkedIn executive recently*. He stated that chance encounters are "<u><i>where we make some of our most significant connections</i></u>", be it your life partner, business associates, etc. and that speeding up those chance encounters was one of the fundamental principles and aims of social networking.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">That idea struck a chord with us. Like our free market principle of ‘Spontaneous Order’, random collisions and network creation, leading to opportunity exploitation and ultimately wealth and welfare maximisation is intuitively an attractive proposition.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">So, we have the mechanisms in place, with online tools and social networking sites, but how much of this activity is outward focussed revenue and income generating? What is meant by this is that the revenues are not focussed on increasing advertising and network operator revenues, but individual participant to participant’s opportunity flows.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">And beyond building an online presence with followers and individuals being influencers and thought or trend leaders in their domains, how many of us focus on being revenue leaders and wealth and welfare ‘maximisers’ in this space?</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Do you have personal metrics of success, which help inform and modify and moderate your personal behaviours to ensure that you maximise your ‘Return on Ether-time’? [ROET]</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Maybe it is well worth a thought because in the neo-classical world of market participation, if you aren’t in the market and making a living (or a half descent living) from it, you might get marginalised and lose out on the wave that hit us when Web 2.0 arrived.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><a href="http://themarketsoul.com/contact-us/" mce_href="http://themarketsoul.com/contact-us/" target="_blank" title="Contact us"><b>theMarketSoul ©2010</b></a></div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br mce_bogus="1" /></div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">* We are searching for a link / reference to this interview. Once we have found it, we will update this post</div><div class="blogger-post-footer">Please read and feel free to comment on my latest blog posting.
theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0tag:blogger.com,1999:blog-688017948712510124.post-15406319326057041212010-08-27T07:46:00.000+01:002010-08-27T07:46:06.237+01:00Collaborative nano and micro ventures<div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><b><br />
</b></div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">“<i><a href="http://posiwid.blogspot.com/2008/11/dont-waste-crisis.html" mce_href="http://posiwid.blogspot.com/2008/11/dont-waste-crisis.html">Don’t waste a good crisis</a></i>” – not entirely sure who first uttered these immortal words, although a Google search on initial analysis seems to attribute it (or some very similar words) to Rahm Emmanuel, the current Chief of Staff of the White House, part of the Barack Obama administration. The actual phrase might be attributed to an economist called Paul Romer.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">However, irrespective of who uttered the words initially, it is true that borne out of crisis the spirit of innovation always seem to rise like a new Phoenix bringing both hope and opportunity with it.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">That is the great gift that the ‘study of scarcity’ that is economics provides us with.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">We have the chance to think creatively about new platforms of collaboration and how Charles Handy's ‘<i><a href="http://posiwid.blogspot.com/2008/11/dont-waste-crisis.html" mce_href="http://posiwid.blogspot.com/2008/11/dont-waste-crisis.html">Shamrock Organisation</a></i>’ will eventually play out.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"> </div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">At the moment we are conducting a research study into how nano and micro businesses might find new routes to market and sustain themselves during these strained economic times as part of the extension of the outsource provider to the Shamrock Organisation. We will be trying to uncover some of the factors that lead to collaboration and other forms of formal and informal business structures that promote and underpin this form of collaboration.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"> </div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Please watch this space for updates in the very near future.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #351c75; font-family: "Trebuchet MS",sans-serif;"><b>theMarketSoul ©2010</b></div><div class="blogger-post-footer">Please read and feel free to comment on my latest blog posting.
theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0tag:blogger.com,1999:blog-688017948712510124.post-14606723126653077102010-07-28T11:30:00.001+01:002010-07-28T11:30:01.081+01:00The Hungry Spirit<div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Today’s post is a very short and concise post, yet these are some inspirational quotes and extracts from two chapter’s of Charles Handy’s 1997 book entitled: “<a href="http://www.amazon.co.uk/Hungry-Spirit-Beyond-Capitalism-Purpose/dp/0091801680/ref=sr_1_2?s=books&ie=UTF8&qid=1278784950&sr=1-2" target="_blank">The Hungry Spirit</a>“:</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><strong>A Life of our own</strong></div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Capitalism, efficiency and markets have their flaws, but also their uses. They are neither the complete answer to our dilemmas nor the only cause of the. They provide some of the context of our lives but not the purpose. For that we need a philosophy not an economic system.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><strong>A better capitalism</strong></div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Left to themselves, things do not necessarily work out for the best. Laissez faire is value free. No one is responsible for anyone else. That is improper selfishness and can self-destruct. We need something better. Capitalism as an idea includes social capital as well as economic capitalism. One without the other will not work for long. </div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><span id="_marker"> </span></div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><span id="_marker"><br />
</span></div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><span style="font-size: small;"><b><span><span style="color: #3366ff;">theMarketSoul © 2010</span></span></b></span></div><div class="blogger-post-footer">Please read and feel free to comment on my latest blog posting.
theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0tag:blogger.com,1999:blog-688017948712510124.post-75023985692177151212010-07-26T10:00:00.001+01:002010-07-26T10:00:00.192+01:00Capricious Markets<div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">The market is capricious. We are paraphrasing a line from one of Bernard Cornwell’s series of historic novels on 9<sup>th</sup> century England, where he referred to the ‘old gods’ (pagan gods) of the Danes and Vikings as capricious.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">So if the impulsive nature of markets is to be appreciated for what they are, then why are we trying so hard to manage risk completely out of existence? </div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">We will focus on two specific factors today in what we refer to as the ‘dumbing down of risk’.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">A strict or narrow definition (old financial language) of risk is possibly that it is a quantifiable number with a probability ranking and we can therefore attach a statistical inference to the occurrence of the risk event.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Yet in The Health & Safety Executives language a risk and <a href="http://www.hse.gov.uk/risk/getstart.htm">“Risk management involves you, the employer, looking at the risks that arise in the workplace and then putting sensible health and safety measures in place to control them”.</a> So in the common language in the work place the HSE has managed to destroy the proper use of the work risk and risk management with this dumbed-down version.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">In our mind, if the risk cannot be quantified and expresses on a scale of probabilities, then it is not a risk, but an uncertainty. And we can manage both risks and uncertainties, but the emphasis is different.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Maybe any situation or health and safety ‘risk’ can eventually be codified on a risk probability matrix, but the cost involved in getting to this situation is prohibitive, so we shall stick to our guns and call a health and safety issue a ‘Health & Safety Uncertainty’.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Let’s recap briefly the difference between what risk is (supposed to be) and what uncertainty is:</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Risk in investment and market participation is the likelihood of a quantifiable measurable outcome either occurring or not occurring.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Frank Knight In his seminal work Risk, Uncertainty, and Profit, <a href="http://en.wikipedia.org/wiki/Frank_Knight" title="Frank Knight">Frank Knight</a> (1921) established the distinction between risk and <a href="http://en.wikipedia.org/wiki/Uncertainty" title="Uncertainty">uncertainty</a>.</div><table border="0" cellpadding="0" cellspacing="0" style="color: #990000; font-family: "Trebuchet MS",sans-serif; width: 0px;"><tbody>
<tr> <td valign="top" width="20">“</td> <td valign="top">… Uncertainty must be taken in a sense radically distinct from the familiar notion of Risk, from which it has never been properly separated. The term “risk,” as loosely used in everyday speech and in economic discussion, really covers two things which, functionally at least, in their causal relations to the phenomena of economic organization, are categorically different. … The essential fact is that “risk” means in some cases a quantity susceptible of measurement, while at other times it is something distinctly not of this character; and there are far-reaching and crucial differences in the bearings of the phenomenon depending on which of the two is really present and operating. … It will appear that a measurable uncertainty, or “risk” proper, as we shall use the term, is so far different from an unmeasurable one that it is not in effect an uncertainty at all. We … accordingly restrict the term “uncertainty” to cases of the non-quantitive type.”</td> </tr>
</tbody> </table><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Too summarise therefore, risk should be a measurable and quantifiable occurrence, whereas uncertainty is what the HSE addresses, but misinforms as risk, namely the likelihood of something occurring, but that likelihood is not quantifiable.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">So where does this detour into the use of language leave us as far as the Capricious Market is concerned?</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">We suppose that because market participants are both humans and mechanical systems (eg. ETS – Electronic Trading Systems), one of these participant groups, namely the humans have a level of sophistication and complexity (irrationality) that leaves the best construed risk models in tatters, once the uncertainty element of human emotion and the perception factor unleashed.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Therefore, to construct models of rational behaviours, the outcome and predictability of non-human mechanical systems (in other words more models) should be able to predict the behaviours of other models. But to extend this to human actors clearly moves us more firmly into the domain of uncertainty and not risk.</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #990000; font-family: "Trebuchet MS",sans-serif;">Therefore, we conclude that the markets will always be capricious as long as irrational beings are willing and able participants. Until this ceases to be, let us ensure that we get the use of our risks sorted out from our uncertainties.</div><div style="color: #351c75; font-family: "Trebuchet MS",sans-serif;"><br />
</div><div style="color: #351c75; font-family: "Trebuchet MS",sans-serif;">theMarketSoul ©2010</div><div class="blogger-post-footer">Please read and feel free to comment on my latest blog posting.
theMarketSoul ©1999 – 2012</div>theMarketSoul.com © 1999 - 2012http://www.blogger.com/profile/05331011601793842860noreply@blogger.com0