Saturday, February 21, 2009

High structural deficit

The chickens have come home to roost for our public finances

The main cause of public debt during recessions and their aftermath, is not in fact the cost of bail-outs(the media headline) but rather the collapse in tax revenues. The UK seems to be facing a huge structural deficit that will change the nature of taxation(up) and public services(down) for many many years to come. When I first read about 2030 being the estimated time of a recovery in public finances, I thought "surely not", but it would seem that for those in the UK aged around 35-40 the majority of their remaining working life will be in a regime of high taxation and lower social provision. Perhaps most won't notice lower social provision but almost certainly taxes will be noticed.

Posted by stillthinking @ 12:35 PM (1098 views)
Please complete the required fields.



10 thoughts on “High structural deficit

  • stillthinking says:

    I realise that this is a kind of duplicate post, but I think that given 1% of high earners contribute 20% of tax revenue, and the financial services industry contributes 30%, and -all- sectors of the UK apart from London and the SE don’t manage to make a net contribution, then in that case you could go on to think about the “real” cost of government as opposed to the “mirage” cost.
    I suppose this a kind of boring repeat post in some ways, but the required level of taxation going forward, by any measure, seems to be huge.

    “The UK’s Tax Freedom Day fell on June 2 in 2008. That means that average Brits are spending more than five months of the year working for the Chancellor”

    This is tax freedom day when the tax take has been pumped up beyond belief by our fake economy, and for the median, most people are probably between april and may. If the higher earners and financial services drop out, then the median must presumably move up to June also, which isn’t enough, so then on to July.

    That is a nut cracking level of taxation. Really, that is kind of ridiculous.

    Reply
    Please complete the required fields.



  • ST quite right, the inferred tax burden is huge and revenue is going to TANK for a long time. Not a great recipie.

    Anyway I rem you saying you didn’t have much cash to invest but you don’t actually need much and you’d probably be good at the specific analysis needed. I spent months trying to find undervalued companies and have mostly lost money, so recently have changed focus looking for overvalued companies, and there are a lot of them. The profile I really like are companies whose income must drop as people spend less but which are so heavily indebted that even peak income couldn’t support ie bust, I mean really bust I’ve found co’s whose debt is > 30 times PEAK annual income!

    After a credit binge there seem to be a lot of companies that fit that profile – currently I’m trying to find the weakest amongst car sales, pub chains and commercial property and very quickly I’m uncovering some real basket cases. The worst seem to be those with large property holdings (eg Mitchells and Butler) where the prop justifed taking on huge amounts of credit based on the idea that cap values would just keep growing.

    Anyway if you time it you can short these companies until they go bust and if you call it right make good money. Most if not all of the CFD accounts that allow you to short extend you credit above your margin amount.

    Reply
    Please complete the required fields.



  • by peak annual income ie meant profit not turn over – its crazy out there but not that crazy!

    Reply
    Please complete the required fields.



  • bellwether: nobody would argue with your opinion on which industries/companies to short. But its important to recognise that the market and its major participants spends most of its’ time ‘stop hunting’ and applying the “short squeeze”. The idea is to apply so much pain to individuals holding positions that they have to bail out before the market proves them right. Not many people have the money or emotional strength to tolerate the huge losses before their position becomes profitable. The trouble with trading is that being right is never enough (think of me as the spirit of flashman)

    Reply
    Please complete the required fields.



  • Thanks Bob1 that’s interesting. I’ve been trying to develop a strategy for a few months so really good to get feedback. That said I’m not sure I fully understand the implications of what you are saying and perhaps I can flash question across to you

    Take for example M and B (and setting aside the questionable potential that exists if or rather when Punch goes to the wall) they are bust and yet their share price has climbed 70% since Sept. They were bust in Sept too so I can see how shorting them would have been torture since then even tho the short would be right. I kind of imagined that waiting until there is a reversal in price action and then shorting ie having a target list of co’s and waiting until there is downward momentum. Are there reasons this wouldn’t work that well?

    Reply
    Please complete the required fields.



  • the trouble with momentum trading is that you never know which move has ‘legs’. Many will see a lower price as a buying opportunity and so the price will rise. Sometimes the big boys will also want to go short but will see an opportunity to first make money with a short squeeze. They drive the market up (running peoples stops as they go which accelerates the move). Then when most of the stops have been run they finally go short.

    The way to handle this is to set your stops away from other peoples stops. Fortunately most people read books on where to place stops so its easy to know where most of them are. Of course this generally means having a wide stop loss so its important to adjust trading size so that any losses are tolerable. Also learning to interpret volume is a very useful aid to recognising if a move in genuine

    Reply
    Please complete the required fields.



  • Thanks. My intention was to only short to the extent that I could withstand upwards price movement eg shorting say citigroup right now would be painful as the price could double or triple quickly also because of govt intervention the future of these banks is totally opaque.

    I guess I was envisaging myself as a value shorter ie if the analysis is right stick with it – this is going to be pyschologly easier with amounts I can cover and with companies which are seeing a steady rather than dramatic price down and no viable reason for a huge rally eg it may tick up for a month but if the analysis is right the analysis is right and eventually market will recognise it is bust and it will fall to zero.

    Maybe naive?

    I’ve find trading difficult and struggle to make sense of technical analysis. Noted on volume tho.

    Reply
    Please complete the required fields.



  • not at all naive but even the slowest moving stocks experience crazy spikes. Sometimes the whole market rallies as one entity on something like interest rate news (crap example now but once upon a time markets went crazy for even the hint of an interest rate cut). The spike is often temporary but its too late if your stop has blown. A hedge fund might suddenly buy a huge tranche of stock or there might be a buyout rumour or an actual buyout occurs. The worst one is when the government introduces legislation that drastically effects your stock. The ‘unexpected’ is actually the rule

    Regarding technical analysis, maybe this will save you some time (my opinion only):
    GOOD: Divergences
    NOT GOOD: pivot points and Fibonacci numbers (old school stuff that can’t possibly work because everyman and his dog knows about them)
    IDIOTIC: Elliot wave (one for the whack-jobs)

    Reply
    Please complete the required fields.



  • stillthinking says:

    Bellwether, I have nothing to invest, I don’t mean not much or suchlike. In my totally ignorant of trading view, I see trading in companies as subordinate to currency trading, because over the last year, even if you had a winner every time, you would have still done better selling sterling to begin with.
    Amusingly, the only trade I have ever made was about 7 years ago, before I was interested in economics. I was relatively flush at the time. There was a secretary at work whose husband worked at a company called Viglen, according to her husband the shares were about to shoot up la la la, and she was worried about investing. I thought “insider knowledge”, great, and went down and I bought 2K and she bought 5K. Anyway, by the end of the day the shares had halved because her idiot husband seemed unaware that the shares had been touted in the Daily Mail the previous day, so I (and her) ended up buying them after the whole of the Daily Mail readership had piled in (I seem to remember Piers Morgan made some money as editor from this). Anyway, I lost half my money in several hours.

    Reply
    Please complete the required fields.



  • Thanks Bob, really appreciate your taking the time and useful advice. Think will avoid stops altogether ie will only short with a certain amount and only if as certain as possible that researched and prepared to sit through it. Also will try and generate a few ideas rather than one or two and do the research as open mindedly as possible.

    Overall I have a deflationary view with govts unable to get to grips until we are way below where we are at present ie I believe down is the overall trend for everything, so if I’m right I will at least have that benefit. I actually think that’s quite a solid bet though, credit was almost the sole engine for growth and that’s gone I think, bust banks and with prices falling no illusion of wealth to fuel the capacity or appetite to take on.

    By way of history got lucky going long on the market to begin with but it was just luck and eroded all early profits thinking I was a hero buying cheap only to have to bail as things got a lot cheaper! It all looked so east from the sidelines too.

    ST a funny story and running around with that other guys wife too – playah! Just kidding.

    Reply
    Please complete the required fields.



Add a comment

  • Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
  • Please note that any viewpoints published here as comments are user´s views and not the views of HousePriceCrash.co.uk.
  • Please adhere to the Guidelines

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>