Loans and Finance

Loans and Finance

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News and information about loans, money, debt, finance and business issues.

Friday, January 31, 2014

The Oncoming Storm

As Britain continues to be battered by storms, it and other countries should be aware of the oncoming financial storm approaching from the East.

The crisis in emerging markets has spread to Eastern Europe. The Russian central bank has vowed “unlimited” intervention to defend the rouble after it fell to a record low against a basket of currencies.

Russia’s central bank governor, Elvira Nabiullina, said she would not allow a disorderly rouble slide or risk widespread damage to the financial system. She is quoted by the Telegraph:
We are not planning to quit intervention.” 
A macho defence of one's currency is all very well in the short term, however in the medium to long term it will achieve nothing (as Britain's disastrous flirtation with the ERM in the 1990's showed). At some stage Russia will be forced to allow the rouble to float, or else face a recession caused by an excessively tight monetary policy.

Turkey’s “shock and awe” doubling of interest rates on Tuesday has failed to restore confidence in the lira, it too will have to allow the lira to go where the markets wish.
 
Suffice to say Russia, given its rigid mindset and macho self belief, will not in the near future allow the rouble to float. Instead it will continue to tighten monetary policy, and will impose capital controls to prevent currency flight.
 
This in turn will prompt other countries in East Europe to do the same, resulting in a general stagnation of the world economy as the flow of free moving capital dries up and people's confidence in the banking system is eroded.
 

Wednesday, January 29, 2014

House Prices Rise 8.8%

Nationwide's House Price Index has shown an increase of 8.8% year-on-year in January, this is the 13th consecutive  monthly rise.
First-time buyers accounted for approximately 44% of all house purchases between July and September.

Robert Gardner, Nationwide's chief economist, is quoted by the Telegraph describing first-time buyers as "the lifeblood of the housing market". However, it is worth remembering that this lifeblood is being pumped by historically low interest rates and the government's Help to Buy scheme.

Approximately 7,500 buyers used the first phase of the Government’s Help to Buy scheme between October and December. Around 90% of these were first-time buyers.

As and when interest rates rise there will be a change in fortunes, irrespective of the government's attempts to manipulate the property market.

As Mr Gardner notes:
"While we do not expect interest rates to rise until mid-2015, borrowers should be prepared for the prospect of interest rates increasing back towards more normal levels."
Being able to buy a property is one thing, being able to afford to continue to live in it and pay the bills is another!

Tuesday, January 28, 2014

Queen's Finances Crumbling

According to the Commons public accounts committee, the Queen’s household finances are at a “historic low” with just £1M left in reserve.

That figure of course excludes the Queen's and her family's private wealth.

The Telegraph states that the report by the Commons public accounts committee found that the Queen’s advisers were failing to control her finances while the royal palaces were “crumbling”.

Margaret Hodge, the Labour chairman of the committee, said:
We believe that the Treasury has a duty to be actively involved in reviewing the household’s financial planning and management — and it has failed to do so.” 
Seemingly staff must catch rain in buckets to protect art and antiquities.

One suggestion mooted is for the palaces to be made more available for the public to visit (on a pay as you enter basis) on a more regular basis when the Queen is not in residence.

That is all very well, but given that the taxpayer is already funding the upkeep of the palaces and monarchy etc this suggestion is merely passing the bill/buck back to the taxpayer.

Friday, January 24, 2014

Screwfix.com Screw Up

The Telegraph reports that the Screwfix.com website suffered a temporary pricing anomaly, wherein the price of everything on the website was reduced to £34.99 overnight.

Suffice to say word was quickly spread on Twitter, and this morning the website was temporarily closed (it is now back up and running).

During the period of the anomaly one customer bought a Mountfield 432cc Ride-On Tractor Mower, which normally retails for £1,599.99, for £34.99.

However, as to whether Screwfix honour these purchases remains unclear. One customer who ordered an item and picked it up in-store this morning, posted a comment on HotUKdeals.com saying that Screwfix had demanded he bring his item back for a refund or they will charge him the full amount.

Thursday, January 23, 2014

The Giant Historic Mistake That is The Euro

Davos has produced a resounding criticism of the euro by a panel of experts, who pooh-pooh the delusions espoused by politicians and Europhiles that the European crisis is over.

Axel Weber, the former head of the German Bundesbank and now chairman of UBS, is quoted by the Telegraph:
"Europe is under threat. I am still really concerned. Markets have improved but the economic situation for most countries has not improved.

Markets are currently disregarding risks, particularly in the periphery. I expect some banks not to pass the test despite political pressure. As that becomes clear, there will be a financial reaction in markets."
Harvard professor Kenneth Rogoff said the launch of the euro had been a "giant historic mistake, done too soon".

Professor Rogoff quite rightly highlighted the scandal of youth unemplopyment within the Eurozone; noting that Europe is squandering the "scarce resource" of its youth, badly needed to fortify an ageing society as the demographic crunch sets in. 

It is not just the need to support an ageing population, but the risk to democracy from a generation of disaffected unemployed youth that Europe needs to wake up to.



Wednesday, January 22, 2014

Unemployment Falls To 7.1%

According to the Office for National Statistics UK unemployment has fallen to 7.1%, a more than four year low of 7.1%.

The number of people out of work fell by 167,000 to 2.32m in the three months to November, the largest quarterly decline since the autumn of 1997 and the second largest on since records began in 1971.

Despite the fall to close to the Bank of England's 7% threshold for considering raising rates, the Governor (Mark Carney) and the Monetary Policy Committee saw no immediate need to raise rates.

As per the Telegraph the MPC "saw no immediate need to raise bank rate even if the 7% unemployment threshold were to be reached in the near future” and that cost pressures remain “subdued” and headwinds to growth “would persist for some time”.

Tuesday, January 21, 2014

Davos 2014 Live

Friday, January 17, 2014

EU Savings Meltdown

According to a report by the European parliament’s budgetary control committee, the euro and EU are under threat from a meltdown in the real value of savings brought about by the current loosening of monetary policy and an increase in inflation.

The Telegraph quotes the report:
As a consequence of the macro-economic assistance programmes and ECB lending operations, EU citizens face a meltdown of their life savings with interest rates being lower than 1pc … around the current inflation rate. 
This situation could potentially put the acceptance of the euro currency and the EU as a whole at risk."
All very well but the report rather misses the fundamental problems wrt the euro and the EU:

1 Austerity, based on monetarist dogma dictated by the ECB, has all but destroyed the Southern economies of the Eurozone.

2 The destruction of the Southern economies, as evidenced by the appalling levels of unemployment (especially amongst the young) and the imposition of draconian "solutions" by the troika, is a major threat to democracy.

3 The "raid" on Cypriot banks, at the behest of the ECB, destroyed people's faith in the banking system in the Eurozone and will act as a major discouragement to saving.

In effect the seeds of destruction of the euro and EU are many fold, and cannot be blamed merely on the recent belated loosening of monetary policy.

Thursday, January 16, 2014

House Sales Hit Six Year Peak

Research from the Royal Institute of Chartered Surveyors (RICS) shows that house sales have hit a six-year peak, and are at their highest since March 2008.

RICS go on to warn that the imbalance between housing supply and demand could lead to a property market bubble.

Peter Bolton-King director at RICS, is quoted by the Telegraph:
Growing availability of affordable mortgages has released some pent-up demand from a market that, in recent years, has seen many viable buyers unable to enter the market.

On the face of it, this seems like good news but unless we see a marked increase in the number of homes coming up for sale we could well be looking at a price rises becoming unsustainable in some areas.”
Given the government's help to buy scheme, and the fact that 2015 is an election year, we can expect house prices to rise in order to promote a "feel good" factor. However, as I have noted many times before, rising house prices are not an indication of a real increase in personal wealth if one intends to move to a similar house.

Friday, January 03, 2014

Ernst & Young Fined Over £1M Re Farepak Audit

Accounting Web reports that the Financial Reporting Council (FRC) has ordered Ernst & Young to pay more than £1M in fines and costs wrt its audit of failed Christmas savings company Farepak.

EY was fined £750,000 and told it had to pay costs of £425,000, while auditor Alan Flitcroft, who worked for EY and was responsible for signing off the audit, was fined £50,000.

Both the firm and Flitcroft were also formally reprimanded by the FRC after admitting their audit of Farepak and parent company European Home Retail (EHR) fell below the expected standard.

The FRC ruled EY and Flitcroft failed to perform adequate procedures to assess all material subsequent events between July 2005 and February 2006.

EY has since said it regrets that aspects of its 2005 audit fell beneath standards, but stressed the regulator did not suggest its conduct triggered Farepak's collapse, or losses to savers.

Farepak collapsed into administration seven years ago, leaving 114,000 people with total losses of £37M.


Thursday, January 02, 2014

Happy New Year - Happy New Rail Fare Increases

It is the law of the jungles that rail fares rise at the beginning of every new year with the depressing inevitability of an unloved season.

Thus, as 2014 dawns, rail fares will rise by an average of 3.1%; with some routes increasing fares by up to 5%.

Can the hapless commuter expect an improvement in the quality of service, to match the increased cost?

No!