Monthly Archives: June 2016

A few portfolio updates:

Volex reweighting

Doubling down (once again) on Volex, the troubled cable manufacturer. As this was under half weight, this is under the scope of the “sell or top up” for stocks below half of the reference allocation. This is in Obliquity London.

This is a classic obliquity-style stock, and priced on a distressed basis. The recovery process has produced serial disappointments, rotating top management at a frantic pace. Major shareholder Nat Rothschild is now full time in charge, as executive chairman, and I think he seems to have the right long term vision so I’ll give him another chance. Short-term funding issues seem resolved as well.

Plastic is fantastic


Anybody buying? (credit: Fox Marble)

In the stamp collection, speculative marble digger Fox is out. It was a fun punt from a couple of years back. On reflection it fails most of my current small cap tests: I wouldn’t trust the somewhat slimeballey CEO with my wallet, it’s not obvious whether it’s a long term operation or a stock promotion, takeover potential is probably limited as there isn’t an obvious buyer for whom it would be a good fit (it’s not really mining, and other marble market operators may not want Kosovo exposure), and banks would probably not loan due to the country risk (expropriation, corruption, etc), and it’s far from being profitable, let alone make a million a year. So actually it’s almost a complete mismatch!

The cherry on the cake was the company PR emphasizing a deal with a distributor, which on cursory research with Companies House and web searches, seems to be a one-man shop created last year…

Of course it’s gone up 15% the day after I sold, but that’s par for the course.

Ascent and descent

Lest we have no fun at all, I’ve topped up again with speculative punt Ascent Resources (see previous episodes). At 0.6p, this is well below exercise price of the recent batch of executive options (around 1.5p) and below the credit notes’ option value (1p). A few days later main creditor and fund manager Henderson topped up at the exact same price, which I find reassuring. They had a setback on getting permission for an on-site processing plan, but they have a plan B (now plan A) of sending it off to a neighbouring country with a partner with a use for it there, that might still work out.

The various basic income proposals floating around are often criticized for being unrealistic, and let’s face it, they often are. In a recent column, John Kay is asserting that “either the basic income is impossibly low, or the expenditure on it is impossibly high.”

This includes an implicit dismissal of the Keynesian arguments — that the basic income would create demand that would snowball into economic growth — of some basic income proponents. I happen to agree that this aspect is unlikely to deliver miracles, so let’s assume no such effect here.

Too high

It’s easy to agree that spending half of GDP on basic income would not be acceptable, but it’s also a good problem to have: humans are scarcity animals and do not work well when too far from need, as can be seen in the often sorry state of people benefiting from windfalls (third generation heirs, lottery winners, small “first nations” in rich and guilty countries, etc). Thus a basic income should probably be high enough to remove fear of survival (food and shelter) but not to so high as to remove the need to get out to the world to improve one’s lot.

Impossibly low is desirable…

In Western countries what some would describe as “impossibly low” does provide pretty decent survival standard. The Ikea/Lidl/Primark lifestyle is pretty okay, and way more comfortable than what the richest slice of society could afford a century or two ago. So a basic income in the region of say $500 a month for a tier 1 developed country would probably do the trick (assuming social housing and healthcare are not subsumed into it).

… and possible

Would simple arithmetic work for that? To design a realistic basic income we need some premises:

  • Assume the net expense on welfare remains constant, because it reflects what a society is ready to accept in redistributive pressure. This allows isolating the effect of the basic income as a redistribution technique from other ideas about changing the amount of redistribution (which can be done through any mean).
  • Assume the wealthier members of society (say the top half) do not get richer out of it, that is the (income) tax system is adjusted to increase the tax they pay by the amount of basic income they receive.
  • Some existing welfare mechanisms are abolished (such state unemployment benefits, child benefits) or restricted (e.g. pension age could be pushed forward) as the basic income replaces them.

Then what basic income is possible? It’s simply equal to:

basic income = removed welfare services budget + tax equalisation

Detailed number crunching would be required, but I’d expect it to come to $300-$600 per adult, again for a tier-1 developed country.

The main variable here is what services get replaced (and to what extent) by basic income so it computes at all times.

Radical realism

A realistic scenario is probably better thought with social housing, public education and public healthcare arrangements untouched, but the basic mechanism also applies should someone wish to privatise some or all of these services: then the fewer services are left, the closer you get to a basic income equal to the tax take, though the higher basic income might then buy less, depending on the distributional profile of each service (a most tricky issue on its own).

What are the benefits of a survival income?

A survival basic income wouldn’t abolish poverty, in so far as this is more or less defined as inequality — how much less one has than others, rather than the absolute level of what one has — but still have some interesting properties:

  • Improve the bargaining power of low-paid workers not forced to work for mere survival
  • Remove net tax discontinuities (being a net loser when taking a low paid job)
  • Simplified administration (some)
  • Increased acceptability of redistribution

The welfare illusion

The latter point is perhaps the most neglected while the most powerful point in favour of basic income. It makes no difference in pure economic terms whether the cash flow between the state and the citizen is done through tax or benefit payments, it’s the net that matters.

But, like with the money illusion in the monetary realm, optics matter. This can be observed today in the difference in perception between universal benefits (like child payments and some healthcare in many developed countries) and means tested ones (typically unemployment and safety net income). The former are often popular and well accepted, even by net payers, while the latter are seen as prone to abuse, and divisive. A basic income, even if compensated by tax, would probably quickly become part of the societal furniture.

Even if it was the only benefit, it’s probably worth doing for that alone.