As isolation and social difference goes viral, it’s time to come together.

As the state cavalry charges over the hill to save us all from the viral hordes could March 2020 go down as the month that speculation died? I, for one, hope not. After all, speculation makes the world go round. From starting that batshit crazy business idea through to asking for the number of an out-of-your-league hottie behind the counter.

I’m an investor. Some of you may prefer to call me a speculator or perhaps even a rent-seeking bastard. Whatever the label I wear I do know capitalism is great when it works and that finance is essential to keep it flowing. But if the financial tributary is corrupted then capitalism goes toxic. It’s become fashionable is some circles to disdainfully label this toxicity as “neoliberalism”.

It’s clear that high finance has been underwritten by the state because it’s too big to fail – socialism for the rich. What’s missing in finance is personally wearing the risk you take. Our current bloated edifice of fast-moving flows and trades would not exist if all participants faced the risk of personal ruin.

“Whatever the label I wear I do know capitalism is great when it works and that finance is essential to keep it flowing.”

Allowing financial institutions and people to fail ruinnessly without pulling down the system is the keystone to any durable healthy free-ish entrepreneurial future. The spectre of ruin brings judgement and scaling to any durable activity and the stupid or overally avericious go under quickly. So less regulation is needed rather than more. Regulation, beyond simple consumer protections, is not the answer and just another conceit that we are cleverer than the future. All those traders and financiers that we demonise, and then yet bail out when the faeces enter the ventilaltion system, should be exposed to the risk of personal ruin.

Most of the short-term trading stuff and other high-finance activities are unnecessary for the successful functioning of finance and the economy and we’d be better without them. Like parasites these areas of the financial market feed off of implicit state and regulatory support. Perversely, we think our increasingly-complex regulatory interventions fix things. Doh!

The irony of the fix-it-through-regulation approach, after 2008, is that it merely succeeded in suppressing general economic growth for real people, while the fleet-footed financial crowd danced around the barriers to make out like pigs once again. We suppressed the financial speculation machine without realising it was also how we funded our growth. I’m not saying it’s the only way to fund growth, rather that it was how we did it and when we suppressed it we didn’t realise the self-harm we would inflict on people over the past decade.

Being an active investor places me in the centre of the current storm in terms of newsflow, opinions, perceptions and politics. A maelstrom that plays on fast forward through my days at the moment. It’s intense and bewildering. It’s also interesting, but not in a good or comfortable way as I’m losing lots of money. I’m not crying about it and I’m acutely aware that I’m lucky relative to the waiter who lost his job overnight or the nurse battling the viral Armageddon.

I invest in companies I think are durable and undervalued, and have invested through the bear markets of 2000-3 and 2007-9 and many other volatile periods. I’m a contrarian sort liking things that are unpopular and avoiding things the crowd loves. I often lag behind the up-markets, particularly when they get euphoric but then do better during the hard times. I made money in both previous bear markets this century. They were clearly signposted and I saw them coming.

“I’m losing lots of money. I’m not crying about it and I’m acutely aware that I’m lucky relative to the waiter who lost his job overnight or the nurse battling the viral Armageddon.”

The action in markets during the year to date has been more dramatic and discombobulating than my prior experience by a distance, and probably more than any other time in Western markets including the Great Depression. It’s probable that the only parallels are in societies that have had catastrophic failure moments.

Three risks have rolled into each other at once. Hugely excessive valuation and optimism around the US equity market (like 2000-3 but with the median company even more overvalued), severe dysfunction in the global financial plumbing (like 2007-9 but on steriods) and Covid-19.

For the record, I’d have done quite alright with just the first two risks. I was ready for them as they were 100% telegraphed if you weren’t part of the backslappingly euphoric crowd. Nevertheless, it’s a brutal business and as I got the Covid-19 risk wrong my losses will be just as bad as the dolts that missed the other two risks too. As for leveraged investors? The market is shooting them dead and that is contributing to the bewildering volatility.

In isolation, any one of the above risks would be enough to cause a bear market in excess of 50%. So does that mean together this risk layer cake will cause a financial apocalypse more like 1929 and so, given our overly financialised economies, an economic end times too?

Hold on to your hat but the perverse fact is that Covid-19 will be our saviour. The acute human misery and angst that Covid-19 brings is awful. However, from a socio-economic and political perspective it will prove to be a godsend. The immediate existential threat it presents liberates all forms of previously unimaginable response. No need to hold onto any of our dodgy economic shibboleths. And when the virus threat recedes the door will remain open to the once unimaginable. We’ve stepped through a looking glass permanently.

I’m non-ideological, believe in the market and entrepreneurialism, but view myself to be left leaning in a political sense. The central societal conundrum to solve is how to make the majority who don’t win the economics game happy with their lot.

There can be many ways to solve this conundrum. I’m happy to live in a society that seeks to solve it alongside high levels of personal liberty. Others, like the Chinese, seek a very different solution.

I associate a free-ish market and entrepreneurialism with liberty. Markets and entrepreneurialism can be a bit mad and frenetic, even wasteful at times, but in the end they probably deliver the best results. For example, there isn’t an example of a single significant Command Economy that hasn’t wrought dreadful environmental damage. That doesn’t exonerate every “free” society but it’s among these societies where best practice can be found.

The decade since the great recession has been a weird dreamtime state. We all knew things weren’t right but most of us non-ideological sorts didn’t believe that anyone had the right alternative plan that we’d risk what we had in hand to jump to their alternative future. We just muddled on increasingly dissatisfied.

“Now a massive event has arrived, beyond mere recession or financial market implosion. I don’t think we’ll squander it”

Now a massive event has arrived, beyond mere recession or financial market implosion. I don’t think we’ll squander it. Social justice and reduced inequality are now in play. Don’t expect it to resolve overnight. We’ll have to keep pushing for it, but in collaboration even with those from a different political tradition. Stop blaming the shadowy neoliberals and just get on with winning the peace. The ball’s in your court for now. Don’t foul out.

The Outsider

The Outsider is a hedge fund investor and financial entrepreneur from a working class background in North East Scotland.

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One Comment on “A rent-seeking bastard speaks”

  1. Its not the landlords who are the badies here. It is the government for not changing the laws so that there is a greater equality of opportunity in access rights to land. This change can be made through taxing land values instead of incomes, purchases and capital investment gains.

    A wise and sensible government would recognize that this problem derives from lack of opportunity to work and earn. It can be solved by the use of a tax system which encourages the proper use of land and which stops penalizing everything and everybody else. Such a tax system was proposed almost 140 years ago by Henry George, a (North) American economist, but somehow most macro-economists seem never to have heard of him, in common with a whole lot of other experts. (I would guess that they don’t want to know, which is worse!) In “Progress and Poverty” 1879, Henry George proposed a single tax on land values without other kinds of tax on produce, services, capital gains, etc. This regime of land value tax (LVT) has 17 features which benefit almost everyone in the economy, except for landlords and banks, who/which do nothing productive and wrongly find that land dominance has its own reward.

    17 Aspects of LVT Affecting Government, Land Owners, Communities and Ethics

    Four Aspects for Government:

    1. LVT, adds to the national income as do all other taxation systems, but it can and should replace them.
    2. The cost of collecting the LVT is less than for all of the production-related taxes—then tax avoidance
    becomes impossible because the sites being taxed are visible to all.
    3. Consumers pay less for their purchases due to lower production costs (see below). This creates
    greater satisfaction with the government’s management of national affairs.
    4. The national economy stabilizes—it no longer experiences the 18 year business boom/bust cycle, due to periodic speculation in land values (see below).

    Six Aspects Affecting Land Owners:

    5. LVT is progressive–owners of the most potentially productive sites pay the most tax.
    6. The land owner pays his LVT regardless of how his site is used. When fully developed, a large
    proportion of the ground-rent from tenants becomes the LVT, with the result that land has less sales-value but a significant “rental”-value (even when it is not being used).
    7. LVT stops the speculation in land prices and any withholding of land from proper use is not
    worthwhile.
    8. The introduction of LVT initially reduces the sales price of sites, (even though their rental value can
    still grow over long-term use). As more sites become available, the competition for them becomes less fierce so entrepreneurs are more active.
    9. With LVT, land owners are unable to pass the tax on to their tenants as rent hikes, due to the reduced competition for access to the additional sites that come into use.
    10. With LVT, land prices will initially drop. Speculators in land values will want to foreclose on their
    mortgages and withdraw their money for reinvestment. Therefore LVT should be introduced
    gradually, to allow these speculators sufficient time to transfer their money to company-shares etc.,
    and simultaneously to meet the increased demand for produce (see below).

    Three Aspects Regarding Communities:

    11. With LVT, there is an incentive to use land for production or residence, rather than it being unused.
    12. With LVT, greater working opportunities exist due to cheaper land and a greater number of available sites. Consumer goods become cheaper too, because entrepreneurs have less difficulty in starting-up their businesses and because they pay less ground-rent–demand grows, unemployment decreases.
    13. Investment money is withdrawn from land and placed in durable capital goods. This means more
    advances in technology and cheaper goods too.

    Four Aspects About Ethics:

    14. The collection of taxes from productive effort and commerce is socially unjust. LVT replaces this
    extortion by gathering the surplus rental income, which comes without any exertion from the land
    owner or by the banks–LVT is a natural system of national income-gathering.
    15. Bribery and corruption on information about land cease. Before, this was due to the leaking of
    news of municipal plans for housing and industrial development, causing shock-waves in local land
    prices (and municipal workers’ and lawyers’ bank balances).
    16. The improved and proper use of the more central land reduces the environmental damage due to a) unused sites being dumping-grounds, and b) the smaller amount of fossil-fuel use, when traveling
    between home and workplace.
    17. Because the LVT eliminates the advantage that landlords currently hold over our society, LVT
    provides a greater equality of opportunity to earn a living. Entrepreneurs can operate in a natural
    way– to provide more jobs. Then earnings will correspond to the value that the labor puts into the
    product or service. Consequently, after LVT has been properly introduced it will eliminate poverty
    and improve business ethics.

    TAX LAND NOT PEOPLE; TAX TAKINGS NOT MAKINGS!

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