Tuesday, 29 June 2010

Gilts, Yields and Equity Bonds

This blog’s chart shows the ratio of the 15 year gilt yield to the yield on equities and implies, for those who like looking at the statistical tea-leaves, that equities are very cheap. As ever, there may be two jokers in the pack. Gilts have had a truly remarkable run since yields of well over 4% during the time of Gordon Brown as Prime Minister, when the talk was of a funding crisis, reoccurring inflation and even recourse to the International Monetary Fund, have now dropped to 3.93% at 15 years. Equally, the equity dividend yield (Internal Rate of Return) may be overstated since the data is historic and BP, which at the best will suspend its dividend, accounts for one seventh of all FTSE dividends. The historic data have also witnessed dividend disappointments and the dividend yield may not, therefore, need to be adjusted. Lest anyone, wrongly, thinks that Kassius is an anti-equity house, this is interesting food for thought.

Thursday, 24 June 2010

Friday, 18 June 2010

Distressed Debt Purchases & Other Strategies

In keeping with our strategy of presenting new ideas to clients and professionals, Kassius are pleased to present to you our FREE Investment Seminar featuring: ‘Distressed Debt Purchases & Other Strategies’. Presenting this event is Mr Simon Armstrong, Founding Partner of Saltus, Fund Managers. CPD points are available for Professionals. Spaces are limited and will be allocated on a first come first served basis.

Event Details:

5th July 2010. Registration is at 12:30pm and seminar shall commence at 1:00pm prompt. Light lunch shall be provided.

14th July 2010. Registration is at 5:30pm and seminar shall commence at 6:00pm prompt. Light refreshment shall be provided.

The event shall be held at the Saltus Partners LLP office: 18 Derling Street,
London, W1S 1AQ.

To register for this event or for more information, please contact at Kassius on 020 8445 0246 or email us at advice@kassius.co.uk

Chirag Shah
Director, Kassius Ltd

Thursday, 10 June 2010

Thought of the week- Law Makers Strangled

It is good to see that Michael Gove, the Education Secretary, has already got down to work by abolishing three quangos (quasi non-governmental organisation, quasi-autonomous non-governmental organisation, and quasi-autonomous national government organisation): The General Teaching Council for England, characterised as a “bureaucratic siphon” of money away from teaching; Becta, which advised schools on the purchase of IT equipment and the Qualifications and Curriculum Development Authority, about which a teaching trade unionist said, “I frequently said that if the GTCE was abolished tomorrow few would notice and even less would care.” Let us hope that along with a bonfire of quangos, we will also witness the repeal of some of the 3000 laws passed under the Blair administration with many more under Brown. We should not forget that the quickest route to reducing crime is to reduce laws. And this is the theme of Philip Johnston’s “Bad Laws” (Constable).

In his “On Liberty”, published in 1859, John Stuart Mill defined the point at which legislation becomes oppressive to liberty: “The only purpose for which power can rightly be exercised over any member of a civilised community, against his will, is to prevent harm to others. His own good, either physical or moral, is not a sufficient warrant.” Since 2003 it has been illegal to own a horse, donkey or a Shetland pony without obtaining an identity card for the animal to ensure that it does not poison anyone who eats it. Letting off a firework after 11 p.m. can be punishable by six months in prison. The Sexual Offences Act 2003 criminalises “canoodling” by teenagers below the age of sixteen. Section 44 of the Terrorism Act 2000 has given the police authority to stop and question anyone within designated areas. It has been abused by councils. The police and other state agencies now have 266 separate powers to enter a home, often using force to do so. There has been a proliferation of databases ranging from ContactPoint with details of every child in the land, the NHS database and the largest DNA database in the world with profiles of a million innocent people. Council officials can examine phone and email details. The Licensing Act 2003 has produced many solid absurdities: when Zippo’s Circus arrived in Birmingham in 2008 the licensing officer declared that if the three Spanish clowns announced their act with a trumpet, tuba and exploding horn, it would be a live music performance and the big top would require a licence. The circus’s proprietor commented, “I am a big fan of silent comedy, but this is ludicrous.” Health and Safety is another area where government intrusion has become absurd with conker fights and cheese rolling banned.

Big government must cease. It cannot be afforded. It is a step towards a senseless & disorienting state. It saps the role of the individual. It is time wasting and deadens the economy. Perhaps the traditions of paternalism and liberalism which lie at the historical roots of our present coalition government can reverse the tide – as is already happening with the cancellation of ID cards.

A more extreme solution would be that practised in the Greek colony of Locri Epizefiri in Italy in 660 BC. “A Locrian (politician) who proposed any new law stood forth in the assembly of the people with a cord around his neck and if the law was rejected the innovator was instantly strangled.”

Wednesday, 9 June 2010

The Euro - We've been here before!

The subject matter of Today's blog is The Euro- We've been here before!

The convention of 23rd December 1865, which established the Latin Monetary Union, was a triumph for Napoleon III. It was not, however, the creation of a new fiat currency, as was the Euro, but rather mutual adherence to bimetallism, with France, Belgium, Italy and Switzerland tying their currencies to a standard of 4.5 grams of silver or 0.290322 grams of gold, crucially a ratio of 15.5 to 1. Greece formally joined the system in 1867 and Spain, Romania, Austria, Finland, Venezuela, Serbia, Montenegro, San Marino and the Vatican effectively became associate members. The Latin Monetary Union survived at least in name until 1927. At this time, when the tectonic plates of the Eurozone grind against each other (basically the prudent, competitive German creditor agonizing over its profligate and over-indebted Mediterranean neighbours), it is instructive to look at the history of the former Latin Monetary Union. Giacomo Cardinal Antonelli, the administrator of the Papal Treasury, was the first to break the rules by issuing silver coinage without the adequate silver content to the benefit of the Holy See and the detriment of those banks in the Union who were obliged to accept the debased coinage. The Papal States were expelled from the Union. Silver was a problem of the early days of the Union, both because small denomination and often sub-standard silver coins were allowed to circulate and silver itself was depreciating against gold. During the 1870's the Union became exclusively tied to gold.

The ultimate demise of the Union was based first on the financing needs of the First World War, which was the death knell of gold convertibility, but also with members of the Union finding themselves on different sides in the conflict, reinforcing the argument that monetary union is impossible without political and fiscal union. Contrast this with the situation in Bismarck's Germany, where after the Franco-Prussian War, political union was achieved in 1871 by force (as in the USA six years previously) and the chaotic multiple currencies such as the Thaler and Gulden were replaced by the Mark. Importantly, Germany had fiscal union through the federal collection of tariffs though the less important direct taxation was only collected centrally at the time of the First World War. Germany also toyed with a gold standard, transferring the gold element of the £200million reparations into its reserves (incidentally making the reparations agreed at Versailles in 1919 look not so unreasonable). And thus, with gold convertibility proving too burdensome, national competitiveness to mint debased coinage and the lack of political union, the Latin Monetary Union came to its end.

Tensions within the Eurozone are becoming fraught. Manual Barroso, the President of the European Commission, has called the German Chancellor, Angela Merkel, naïve (never a good policy towards one's paymaster) in respect of her efforts to save the Euro. Whether German aid is ruled illegal by the constitutional court in Karlsruhe; the markets rebel and refuse to finance the Eurozone or the citizens of Southern Europe refuse to accept the austerity imposed on them from Brussels and Berlin, the Euro experiment in its present form is looking less sustainable by the day.

Have you got anything to add?


In this Blog, I look at regular savings options in a changing taxation landscape, consider how to ensure effective gifts are made for minors and explain what rules apply when determining which investments can he held in particular tax wrappers.

The topic covered in this Blog is:

Gifting for Children - Designated Accounts

I often receive questions on the subject of account designations and whether or not they enable a child's tax allowances to be used rather than those of the investor (usually a parent) in respect of income and capital gains. This all depends on whether the investor is willing to give up the beneficial ownership of the investments held in the designated account and if this can be proved to the satisfaction of HMRC.

By giving up the beneficial ownership of the investments in the account, the investor is effectively creating a bare trust that will allow the child full access to the account once they attain age 18. The initial gift is normally exempt for Inheritance Tax purposes, although it will be a potentially exempt transfer to the extent that it is not exempt. Children have tax allowances in the same way as adults so any growth can be offset against the child's Capital Gains Tax allowance while income can be offset against the child's personal allowance (although if the investor is a parent, and the income generated during the tax year exceeds £100, the tax due will be charged to the parent).

However, the investor may not want the child to have unrestricted access to the account at 18 in case it would not be in his/her best interest at that time. In this case the aim is therefore just to set up the account for the child and nominally set aside the funds for investment, but not to give up the beneficial ownership. When the account is actually assigned to the child it will be treated as a disposal for CGT purposes and all gains and income will be assessed on the investor up to the point at which the account is transferred to the child.

If the aim is to use the child's tax allowances by making an outright gift, this would need to be fully documented to confirm this intention to HMRC. Any account designation would therefore need supporting evidence. Alternatively, a bare trust could be established with the deed providing the documentary proof of the gift. Where neither of these approaches is used, any designation could be challenged by HMRC as not being a true gift so that the child's allowances would not be used and any tax liability would fall on the person making the gift.

The bare trust approach should be used where such investments are held by us as it is only possible to report income and capital gains tax in respect of the portfolio owner which, in the case of an account designation, is the person making the gift.

Did you know in 2009 the Government had received over 2 Billion Pounds from IHT alone?

European Debt Contagion

Above is diagram of the European Debt Contagion. Have a quick look at it and decided whether the European Debt matters are spiraling out of control or whether the financial position of Europe can be prospered.

It may well be that the EU's "rescue package" has merely managed to institutionalise problems
which would otherwise have been localised or related to specific financial institutions.

What is your opinion on the matter?