Coffin Corner

According to the Telegraph UK stock markets are approaching “coffin corner”, where even the slightest miscalculation could lead to a sharp correction or even a crash.

“Coffin corner” is the point at which a passenger jet is flying at maximum altitude with engines at full throttle. This is when even the smallest mistake can lead to disaster, and it has (so the Telegraph claims) startling relevance for today’s stock markets.

The people piloting the global economy today freely admit they are in completely uncharted territory and largely responding to each event as and when it comes.

I have news for the Telegraph, that is exactly how markets work.

Markets are based on fear, greed and the herd mentality; that is why bubbles form and bubbles burst!

2.5% - The New Normal

Mark Carney, Governor of the Bank of England, expects interest rates to stabilise at around 2.5% by 2017 and that the 2.5% will be "the new normal".

Anyone who attempts to predict the future wrt economics or politics is either remarkably foolish or remarkably well informed.

Time will tell!

The Dark Pools of Barclays

Barclays, a bank that likes to remain in the headlines, finds itself once more the subject of media attention. This time the subject is that of "Dark Pools" (anonymous trading venues that do not make any trading information available until after the trades have been completed).

New York's Attorney-general Eric Schneiderman has claimed that Barclays duped investors by telling them they were investing in a safe places, when in fact they were exposed to high frequency trading predators. As such, Barclays is being sued over claims it falsified marketing material to mislead people into investing in its dark pools.

 

Mr Schneiderman is quoted by the Telegraph:

“The facts alleged in our complaint show that Barclays demonstrated a disturbing disregard for its investors in a systematic pattern of fraud and deceit.

Barclays grew its dark pool by telling investors they were diving into safe waters. Barclays’ dark pool was full of predators – there at Barclays’ invitation.”

Mr Schneiderman alleged that Barclays removed from a marketing document, intended for institutional investors, the dark pool’s then largest participant – a high frequency trading firm Barclays knew engaged in predatory behaviour in the dark pool.

The attorney general's office quoted one Barclays employee as saying:

“I had always liked the idea that we were being transparent, but happy to take liberties if we can all agree.”

Another allegedly said:

"If we can help ourselves we should; it's in our control."

The attorney general's office claimed that Barclays "has never prohibited any trader from participating in its dark pool, regardless of how predatory its activity was determined to be" and gave "safe" ratings to traders that were found to be toxic.

"Barclays operates its dark pool to favour high-frequency traders and has actively sought to attract them by giving them systematic advantages over others trading in the pool." 

Barclays said in a statement:

“We take these allegations very seriously. Barclays has been cooperating with the New York Attorney General and the SEC and has been examining this matter internally. The integrity of the markets is a top priority of Barclays.”

This will be worth following.

Housing Market Cooling?

The British Banking Association (BBA) would have us believe that the housing market is beginning to cool as mortgage approvals for new homes fell for the fourth consecutive month in May, to its lowest level since last August.

Data from the British Banking Association showed that mortgage lending grew by £1.2BN in May, down from a £1.3BN in April.

Mortgage approvals totalled 41,757 in May down from 41,834 in April.

The BBA's chief economist Richard Woolhouse is quoted by the Telegraph:

"Our figures indicate that the heat appears to be coming out of the housing market.

These are the first mortgage approval figures we have seen since the introduction of the Mortgage Market Review, so it is significant they have fallen for the fourth row in a month."

Maybe so. However, a reduction in approvals of 77 hardly constitutes a collapse!

Let us see more data in the coming months before concluding that the market is cooling.

Interest Rates

As I noted yesterday, don't expect interest rate rises anytime soon.

As per Mark Carney, Governor of The Bank of England, at today's Treasury Select Committee:

"The exact timing of that [increases in interest rates] will be driven by the data. But the most important aspect of the guidance that we're giving is that our view is that the increases in rates over the forecast horizon, in our best estimation, will be limited and gradual."

'Nuff said!

Interest Rates

David Miles, one of the Bank of England's Monetary Policy Committee (MPC), has written in the Telegraph that:

"It now seems to me much more likely that a normalisation of monetary policy starting at some point in my remaining year on the MPC will become appropriate."

Does that mean rates will rise in the next month or so?

No, rates will not rise yet.

For why?

Next year's general election needs to be out of the way first, before the government risks upsetting the voters. More to the point Professor Miles acknowledges that there is slack in the economy and as such "the stimulus given by very low interest rates is not something that has to be removed right now".

The media of course have missed the above two points and are screaming that interest rates will be raised in the very near future.