In order to redress the balance of negative sentiment, combined with a political(ly) charged environment with electioneering by all major political UK parties posturing new populist policies (say that fast a few times); we thought it a good idea to put a little perspective on the matter of #Tax avoidance (tax planning we prefer to call it). Remember this is #Election2015 coming up on 7 May 2015.
No investor can or should trust institutions without conducting their own due diligence and risk profile / risk appetite assessment first. In the past investors could possibly rely on professional ‘trusted’ advisors to help then navigate the due diligence part, at least in theory. Risk and risk appetite assessment was the more tricky part and not even the professionals had sophisticated enough tools to help their clients through this quagmire landscape.
We believe this is the unintended consequence of over regulation or an over regulated environment. Relational trust has been eroded in favour of ‘legislative trust’ and therefore the impersonal ‘hand of public scrutiny’ is supposed to protect the innocents.
We need to ensure the pendulum swings back to a happy balance between relationship and legislative trust, unburden ourselves from the over regulated and expensive compliance environment we have allowed to engulf and overwhelm us, not adding any value, but stifling innovation instead.
- David Hunter: From Roman market to flea market, caveat emptor (knoxnews.com)
- Q & A: How Do I Evaluate This Business? Real-World Due Diligence (upandrunning.bplans.com)
- What Do You Call A Salesman You Can Trust (frontofficebox.com)
- Buyer Seller Beware (madhatters.me.uk)
- Due Diligence Training Course (sellingprivatecompanies.com)
- Start-up due diligence is not mysterious (finance.fortune.cnn.com)
- Rumour helping improve general risk appetite a little (forexlive.com)
- What is Due Diligence? (sellingprivatecompanies.com)
Adding further value to our conversation on The Market eQuation we introduce the concept of the:
RISKed RETURN on MARKET (RdROM) today on 11.11.11.
More detail to follow in due course…
On reflection, the ‘mechanism’ established to rescue or save the Euro is indicative of the fact that we still understand very little and can control and short-circuit systems to some extent, yet we think we value everything.
Inflation, and dare we state it openly, serious inflation of double-digit proportions must now surely be back on the cards?
We realise that we are not the only and first publication to come up with this analysis.
Bloomberg reported on 30 September 2011 that European Inflation had unexpectedly jumped to 3%, up from 2.5% in August. Yet, this is still a long way off a double digit scenario, however, the factors mentioned in the Bloomberg report included, the Greek Default (possibility) and the ECB actions still possible in terms of containing European wide inflation.
Although most economists predict that inflation will start to wane next year, we believe that actions like the Greek Debt haircut and the increase in the EFSF’s bailout fund to €1tr sends signals to the market that the value of money is now seriously ‘delinked’ from operational reality.
We will not comment here in depth on monetary policy, as it is currently applied, however, we are beginning to get the impression that inflation as ‘the silent and stealth’ taxation it really is, is now firmly (yet behind closed committee room doors) on the agenda to help “manage” the size of the European Debt mountain.
It is worth keeping an eye on the real drivers of inflation and then there is some value in keeping an open mind.
- ECB Preparing Italy Bailout, Massive Inflation Coming – National Inflation Association (jansurvivalgear.wordpress.com)
- Preview: BOE Inflation Report To Leave Scope For More QE (forexlive.com)
- Should we celebrate falling inflation? (blogs.telegraph.co.uk)
- Analysts See ECB In Wait-See Mode; May Cede On Greek Bonds (forexlive.com)
Rather than rehash the analysis already performed, we only have two items to add at this stage:
- 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)
- How do we create the ‘Imperfect Competitive’ markets or at least address Oligopolistic Competition more effectively?
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 testify to only too well)
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.
Today’s short opinion piece revolves around the recent rail fare increases announced in the UK.
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 more rail journeys are being undertaken.
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.
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.
For more information about the Economics of Taxation just click the link in this sentence
So it has finally happened. After threatening for months that a credit rating down grade was probable for the USA, Standard & Poor’s finally took the ‘big step’ on Friday 5 August, after the major markets closed.
So what next?
In our article ‘US Treasuries – Are the markets really that bothered?‘ 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.
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:
Is this an FX or market call?
What we meanby this question is:
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?
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.
Other factors that might come into play soon would be QE3 and attitude hardening by major T-Bill investors.
How the US Treasury and administration now react will be crucial.
Who are we going to trust to make this big call?
theMarketSoul © 2011
Pleae refer to our disclaimer page
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