Glossary T

The financial world is full of jargon - i.e. strange words no-one understands. Here we try to explain some of the many technical terms.

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T

Tariff

A tax on goods as they cross a border. Usually imposed on imports by a government to provide an advantage to its indigenous businesses. Becoming illegal in most places, apart from the largest economies.

Tax Breaks

Subsidies given to large companies.

Tax Haven

Somewhere you do not have to pay tax. Usually only for the very rich; examples include Monaco, Liechtenstein, Jersey, Switzerland, plus various Caribbean and Pacific islands. Tax havens and money laundering are intimately connected; all monetary transactions leave a paper trail, so sending money to places where there are strict secrecy laws - tax havens - is a good way to lose this trail; dirty money then becomes clean money, and criminals can enjoy the good life as respectable businessmen.

Recent terrorist activity has led to a crackdown on the 'offshore banking industry' (- the polite term for tax havens) - most of these places are very small, and can easily be bullied into handing over their records to large powerful nations; nations which then have the resources to examine the transaction trail for suspicious or unusual activity. (Clever criminals, always one step ahead, will actually avoid the use of tax havens as it looks too suspicious; most major league money laundering is done through respectable banks and the major financial centres.)

In general, it is a very tempting idea to try and fiddle your taxes; 'why should I be penalised for my success?' you may think, but our advice is quite simple on this; don't do it. Large corporations can use their international financial structure to book profits and debts where they choose; they also have armies of lawyers and accountants to fight on their behalf and so can effectively pay less tax; they can do it, but you, as a private individual or small businessman cannot.

- Tough!

So just accept it and get on with life. Of course, there are any number of tax specialists who will - for a price - create schemes to hide your money; but ask yourself this - can I trust this person? What happens if he disappears with all my money - I won't be able to go to the police now, will I? Furthermore, the tax authorities can be very aggressive in their dealings; if they believe you may be doing something to avoid your legal tax liabilities they will investigate you thoroughly. Even businessman subsequently cleared of any wrongdoing have found themselves traumatised by the experience.

Remember - it was the taxman who got Al Capone!

Tax havens are of course, pretty much an irrelevance to our US readers, as the latest round of tax cuts have made their domestic situation very favourable.

Technical Analysis

Attempting to analyze stock prices by looking at things such as - moving averages, support and resistance levels, trend lines, bollinger bands, fibonacci retracements, GANN angles, and whatever else has been dreamt up by the Chartists, as they were formerly known. If you do not know what these things are, it is quite OK, you do not have to; and if you do know what these are, then you can forget about them - although it all sounds impressively scientific, it isn't. None of these methods can be used to generate a solid prediction - it is all handwaving nonsense, so beware of this pseudo-science.

You will often hear something like - 'the such-and-such is a reliable indicator of the market, and has been right in 90% of cases over the past 20 years ...', don't believe a word of it. If you still feel curious and want to investigate yourself, then you will quickly find out how bizarre it all is; some of these trading systems come along with quite ridiculous baggage in the form of associated socio-economic and political theories - a particularly good bad-example would be the Elliott Wave theory - not only does it explain share price movements, but it contains all of human history. Yes, it really does ...

The test of a theory being scientific is falsifiability - and none of these systems are falsifiable; they are 'always right' for if shown to be in fact wrong, then the expert practitioner will point out to you the mistakes you have made in your interpretation of the theory, all of which have this room for manoeuvre available to them.

Technical Non-Analysis would be a better description.

Think Tank

A privately-funded, independent (- now there's an oxymoron for you!) research institute populated by 'leading' academics who investigate social, scientific and economic matters in order to frame the various public policy debates.

- yeah, right ... all these lavishly funded 'charities' (- now there's a bare-faced tax dodge for you!) are nothing more than neutral, i.e. harmless, 'generators of ideas' ...

In theory, yes, but alas, as in so many other areas, the realities are quite different -

The average think-tank is little more than a combined kindergarten for the vicious young ideologue, and retirement home for the rabid old rightist rottweiler put out to pasture; wherein each group may nourish and pollute the other. Positions are usually gifted as a prize for a lifetime of relentless class warfare - the oak panelled office, a good wine cellar, afternoon tee times at the best golf courses, or as a carrot to the zesty young market zealot.

The think tank acts in various capacities -

As a concocter-of-schemes, varying from the antisocial, through the bizarre and along to the downright nasty and finally arriving at the objectively evil.
As a commentator-on-events/reviewer-of-the-intellectual-discourse it acts as a promulgator of distortion and panderer of rightist propaganda.
As muddiers-of-the-waters where the preferred viewpoint cannot be seriously debated.

These talking heads are wheeled out by the media whenever some expert analysis is required, and despite the reputation for aggressive questioning by certain interviewers, curiously deferred to.

The kind of scientific research concocted by the think-tank tends to result in the following variety of research paper :

Eat Yourself Thinner, aka the Atkins Diet
The Case for Slavery
Pollution : the possible benefits
DNA damage; making evolution faster- strengthening the race
Tobacco as chemical delivery vector; health benefits, the unspoken truth the PC obsessed liberal media dont want you to know about
Efficiency of Hopping in comparison to Walking; the economic benefits of Amputation
Convergent Dualities : the Blackness of White and vice versa.

OK, so I'm having a bit of laugh now ... but not by the distance you might like to think ...

The precursor of the think tank probably lies in the days of the British Empire when much policy and important decision making was done in the exclusive private clubs of Pall Mall or at the Oxford High Table; in these surroundings the 'right sort' of people could meet to debate important issues without the prying eyes and ears of petty bureaucrats, journalists or heaven forbid, the general public - (For example, one could debate the necessity of keeping China British, or agricultural tariffs during the Irish potato famine.) - only when all details were thrashed out and the position clear, would the appropriate Foreign Office memorandum or Times editorial be written.

How do you spot a Think Tank and its denizens?

The names of these organisations are a dead give-away, having a strong Orwellian flavour to them - there will be much use of words like Free/Freedom/Defence/Heritage and perhaps classical allusions to various philosophers to confer a sense of intellectual gravitas.

[e.g. The Platonic Western Freedom Foundation]

- things like that. Blandly, well-meaning sounding combinations that no one could sensibly have an objection to - we all like 'Freedom' right? Is there anyone, anywhere who doesn't like Freedom?! Of course the freedom they mean is the freedom of corporations to do whatever they like, not your freedom to live, work for a fair wage, get educated or see a doctor when you're sick; these latter, true, freedoms, would probably be characterised as socialism, and hence, slavery.

If an individual on a TV news or discussion program comes across in his general demeanour and mannerisms as being a repressed homosexual, is probably wearing a bowtie, and what he is saying seems just, absolutely, totally, mad - an effront to basic common sense, then you have found your man. [Dr Scrimshaw McTaggart, Lecturer on Islamic Bio-Terrorism discusses his new book 'Lets Kill all the Wogs and be Done With It']

Think Tanks are an easy target for satire - and lets face it theres got to be a few good comic novels worth of material therein - but they aren't a laughing matter. The true danger of the think tank lies in its longevity and doggedness; they just keep going, they bide their time and while you weren't paying attention, last decades laughable scheme has become today's reality.

Next time you hear of some plan being floated by these 'experts', duck and please, hold onto your wallet!

Tobin Tax

This is a proposed tax on international currency dealing designed to nullify the effects of aggressive speculators; named after its inventor.

Not likely to ever be introduced, on any account. No way. Are you f***ing kidding - we're talking 'Elvis in a jumpsuit climbing out of the UFO with Glenn Miller and the Loch Ness Monster ... ' - time. In other words, no.

You may have noticed while reading this material that there are basically two viewpoints about the market (- aka the 'Free' Market/market economy/neoliberal economy/capitalism, or the new buzzword 'globalisation') - firstly that it is 'Good', secondly that it is 'Bad' (- cutting through the usual economics verbiage) -

Good - because 'the world would not function without it'; everything would just stop. No food on the shelves, no electricity, no new medicines; utter social chaos, the breakdown of law and order, anarchy, prehistoric caveman brutalism, no TV, no razor blades, lots of people with beards, no soap, lots of smelly people, only one type of coffee rather than 48000 ... etc
Bad - because 'look at all the financial disasters there have been'; stock market bubbles and crashes which have awful social consequences, enormous frauds, i.e. theft; the disgusting rewards allowed to our modern-day robber barons; currency devaluations - the economic destruction of poor countries; the prevention of small nations in conducting 'free' trade; even power cuts in California show the system cannot even keep the lights on ... etc

These positions are mutually exclusive, the proponents of each being extremely entrenched, normally regarding the others views as being merely anomalous details - exceptions which prove the rule, that kind of thing.

The people of the latter position often have the more immediately powerful arguments as they have a lot of ammunition at their disposal, but ask them what they would put in place of the market system and they start to get defensive; pressed, the responses you might get will range from de-facto old style Soviet 'state-capitalism' or some slack-arsed hippy-dippy 'let's all live in a commune' shit. (To look at many of these, often over-privileged, middle-class teenagers you could easily imagine them throwing a hissy-fit if for some reason they couldn't get hold of 'their shampoo', or 'good coffee' ...) But an even tougher question for the latter viewpoint is this - supposing you really have got it all worked out - a scientifically constructed, operationally perfect model of a new society, which functions without a market (- as we now know it) - the question is this; how are you going to put it in place? Those that benefit from things-exactly-as-they-are-right-now are unlikely to just 'hand over the keys'; and remember, these people have all the money, and all the guns; so unless you feel up for a really hard fight, you just better get back to your dorm, college-boy ...

Market supporters, on the other hand, may accept the data of their critics, but simply refuse to draw any conclusions from it (- anyone for a revocation of modus ponens?) - it is a case of 'Yes, but ..' i.e. in the 'scheme of things' all the frightful nastiness of capitalism is but a minor detail. And anyway, every so often the World Bank publishes a report which proves that the poor are getting richer (- if you accept the assumptions of their statistical methodology), so we can all rest easy then ...

Occasionally, a third kind of individual appears; the market apologist, who will attempt to square the circle between these views, which is where we get back to the main point - this is where the Tobin Tax comes from; the theory is this - Free Trade in goods and services is good, benefits us all, and is what provides the positive effects of capitalism; on the other hand, free flow of money/capital is dangerous and is what causes all the bad things to happen. So, all we have to do is to open up trade, but put some restriction on the flow of currency, like, e.g. a Tobin Tax - and we will have solved all our problems. Sweeeeet ...

Too Good to be True

It probably is!

- a hoary old cliche; but one well worth keeping in mind.

Total Assets

Assets that are not liquid, but that are kept on a company's books for accounting purposes.

Timeseries, Analysis of

The mathematical term for the chart of the share price is a 'timeseries'. Timeseries appear in many, many different contexts and so there has been great historical interest in examining their properties, with many techniques being applied.

The practical engineering discipline known as signal processing attempts to extract 'true values' - signals - from timeseries; the part which is not signal is called noise, and is generated by some random process. The main question about noisy time series is whether they contain any pattern/signal at all, or are simply all noise. Looking at them can be very misleading - our brains are hooked up to see patterns sometimes where there are none - hence my comments about the madness of daytrading. Ever seen 'shapes in the fire'? - or dropped some peas on the floor and seen 4 'in a straight line'?

Timescales, Relevance to Trading Styles

The timescales over which trading takes place determine what the emphasis should be in terms of decision making tools - the foolish daytrader will be looking at a single timeseries for a stock of interest while keeping alert for anything which could be construed as a news warning; our sensible 'daychecker-weektrader' will be looking at timeseries plus financial news; long-termers will want more financial analysis and will not be too concerned with short-term 'fluctuations'.

Timescales are also very relevant to the mechanics of trading - buying stock is usually a long term move, for months or years; spread betting takes place over timescales of a few days at maximum, and options are bought with specific expiry dates, which would normally be a month or two in the future.

Trend

When analyzing timeseries it is natural to regard the raw signal as being composed of two components - a trend, plus a noise signal.

In science and engineering we are principally concerned with trying to extract some real, underlying, 'true value' - the trend - while compensating for a random noisy component which has polluted the measured signal; a good example would be studying the light from a distant galaxy which is being distorted by the twinkling effect caused by the Earth's atmosphere.

The usefulness of this frame of reference with regard to share prices lies in that the trend component will usually be more understandable than the raw data - we can then theorize about it, and for example, extrapolate it to provide a prediction; the noise can have its statistical properties measured and thus be accounted for. We can thus take scientific practice and apply it effectively to a financial application, but there is an important difference to realise here - the underlying trend is not the 'true value' of the object of our study; we buy and sell stocks and shares at the quoted price, we do not do so at the 'trend value'. The splitting of the price into a trend and noise component is a computational convenience which may, or may not, provide us with a predictive advantage. Be warned - it is a useful fiction only. There are some commentators who would identify such found underlying trends with the strength of a stocks fundamentals, i.e. its 'fair value', its genuine worth, but this is much too strong a statement to make; there has to be some connection between the share price and the fundamentals, but it is not as straightforward as this.

So what is Trend/Signal and what is Noise? Aren't these labels simply arbitrary?

Fourier and wavelet analysis are effective means to find any underlying trends in timeseries data; spikes in the spectrum represent the existence of order, that is to say, deviations from pure randomness; these can subsequently be exploited to improve our probabilistic predictors; in practice this means that our contours of probability will be tightened.

The general approach we take to timeseries analysis is to make the initially conservative assumption that the share price is a random process, then later we will use more advanced and computationally intensive techniques to try to find and exploit any correlations, i.e. patterns, which may exist in the data; but note that much of the time, there aren't any, and that the output of our expensive techniques will be the same as our simplest.

Trendbreaker

An extreme news event which has not been accounted for in our conventional statistical analyses. Something large and unusual which comes out of the blue. Typically quite rare, but not so rare that we can forget about completely, and with inadequate statistical samples to build a model with.

A good example would be a takeover bid, or a merger; these types of things are kept very secret in the planning stage until the announcement is made, then you will see a sharp jump in the share price, possibly moving the valuation well outside of what you may have regarded as its range.

Triple Witching Day

The third Friday in March, June, September and December when U.S. options, index options and futures contracts all expire simultaneously often resulting in massive trades.

This is a good time for the private investor to sit out the action; there are likely to be some very wild and unusual price movements as the big players indulge in a spot of market manipulation.

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