Friday, January 30, 2009

The New Global Order

In shades of Hitler, Prime Minister Brown refers to the recession thus:

"The economic crisis should be treated as the difficult birth-pangs of a new global order".


The crisis is as a result of poorly regulated greed and stupidity, compounded by dithering and colossal policy blunders by UK, US and European governments and central banks.

Brown's hands are as dirty as anyone elses, as he constructed the ineffective tripartite "regulatory" system and allowed a housing and credit bubble to balloon to monumental proportions during his tenure in office.

Thursday, January 29, 2009

UK Recession Worst in Developed World

The International Monetary Fund (IMF) presented a bleak forecast for the UK economy, predicting that it would shrink by 2.8% in 2009. This is more than the 2% average drop for developed nations in 2009.

Putting all our economic eggs in one financial basket (namely the financial services industry and City) appears to have been a blunder of colossal proportions.

Wednesday, January 28, 2009

The Retail Crunch

Things must be bad in the high street if even the Queen's shop, Fortnum and Mason, is having to lay off staff.

Maybe now the bottom is finally being reached?

Tuesday, January 27, 2009

Cars R Us

The Times reports that the Cabinet has approved headline grabbing proposals to help bailout the car industry.

These proposals will probably involve guarantees for loans to the industry, to assist with short-term finance. There may also be help to enable the financing arms of car companies to access the Bank of England's liquidity scheme.

All well and good, maybe, as a short term effort to lessen the jobs cuts in the car industry and to give the government some nice "we are busy" headlines.

However, could this effort not be better directed?

Should not the car workers, who are likely to lose their jobs, be retrained to work in another industry (if there is one left in the UK)?

Are cars really necessary in the numbers that are currently being produced and, until recently, purchased? Their emissions blight the air, and motorways and traffic jams blight the landscape and city centres.

Is this not an opportunity to redirect/restructure a very significant part of British industry into producing something that actually adds value to people's lives?

How many jobs will really be saved by this knee jerk reaction in the long term?

Monday, January 26, 2009

FSA Fails Again

The Financial Services Authority (FSA) has once again demonstrated to all and sundry that its role is to protect its paymasters in the financial services industry, rather than champion an efficient, open, transparent and honest financial services industry for hapless consumers and investors.

The FSA has announced that it is extending the waiver that allows banks not to pay out on claims for compensation for overcharging on unauthorised borrowing.

The waiver was introduced in July 2007, when the Office of Fair Trading (OFT) began a court action to prove that high charges for unauthorised borrowing are unfair. It was due to expire next Monday. However, the court case is still ongoing and the FSA has said that it will allow banks to put claims on hold for a further six months.

While the waiver is in place the Financial Ombudsman Service will not proceed with complaints, and cases in the county courts have also been put on hold.

Another nail in the coffin of the FSA's reputation.

Thursday, January 22, 2009

The Bleeding Obvious

The Times reports that Lord Turner, the Financial Services Authority (FSA) chairman, said that aspects of the current regulatory system for banks and other institutions were "seriously deficient".

No kidding?

The failure of our regulatory system is as result of the tripartite structure, whereby the Bank of England, FSA and Treasury all have a role in regulation but no one knows who is actually in charge or who takes ultimate responsibility.

Gordon Brown created this seriously flawed structure over ten years ago.

Wednesday, January 21, 2009

King Paves The Way For Quantitative Easing

Mervyn King, Governor of The Bank of England, paved the way for quantitative easing (printing money), or as he put it "unconventional measures", in order to lessen the effects of the recession.

When all else fails, throwing shitpot loads of money at the problem may in the short term alleviate some of the distress.

The irony of this "solution" is that the state is in effect borrowing to get itself out of the problems caused by excess debt, which is exactly how we got here in the first place.

Our economic future has now been mortgaged for decades to come.

Tuesday, January 20, 2009

The End of Sterling?

Jim Rogers, who co-founded the Quantum fund with George Soros, has told Bloomberg:

"I would urge you to sell any sterling you might have. It's finished. I hate to say it, but I would not put any money in the UK".

In the short term Sterling will undoubtedly fall further (and many people who short it will make fortunes out of its demise). Indeed Sterling today fell below $1.40 to its lowest point in over seven years, because of concerns about the banking crisis and debt levels.

However, currencies strengths are relative. No other developed country will escape the recession. The Euro will, in the not too distant future collapse as the folly of the "inflexible" high interest rate policy of the ECB is laid bare. The Dollar will also fall as America's economy worsens.

Sterling will rise again.

Monday, January 19, 2009

RBS In Deep S**t

It is fair to say that the Royal Bank of Scotland (RBS) has placed itself in a very deep pile of s**t. RBS announced today that its losses (due to be formally announced in February) could hit £28BN, partly due to its bizarre decision to spend billions acquiring ABN Amro last year. ABN Amro had exposure to US sub-prime mortgages, and invested directly in the American home loan market.

One wonders quite why RBS thought that this was such a great deal at the time, and whether the board had any real understanding of what was happening in the market.

Gordon Brown chose to vent his spleen on the subject (a political ploy no doubt, but it will resonate with the public), as per The Times:

"Yes, I'm angry about what happened at the Royal Bank of Scotland.

Now we know that so much was lost in sub-prime loans in the US and now we know that some of that was related to the purchase of ABN Amro, I think people have a right to be angry that these write-offs are happening and that these write-offs were caused by decisions that were made about international investments that were clearly wrong investments

Despite being angry, Brown will increase the government's stake (ie ours) in RBS from 58% to 70%.

I wonder how many of the RBS board will resign for their folly, end eschew generous payoffs?

Friday, January 16, 2009

The Equitable Life Game Plan

The Treasury, via Yvette Cooper the Chief Secretary, issued an apology to the long suffering Equitable Life victims.


"I think the whole House regrets the mismanagement of the society. I wish to apologise to policyholders on behalf of the public bodies and successive governments responsible for the regulation of Equitable Life between 1990 and 2001, for the maladministration we believe has taken place."

However, there will be no compensation merely some possible payments to those who have suffered "disproportionately" (whatever "disproportionately" really means).

Those policyholders who are hooping that they may receive some form of payment need to be aware that the Treasury's game plan is very obvious:

- Delay
- Delay
- Delay

The objective being to offload the problem into the hands of the next government (unlikely to be Labour) after 2010, and to ensure that as many policyholders as possible have died of old age before any payment is finally agreed.

Wednesday, January 14, 2009

Window Dressing

Mervyn Davies, the chairman of Standard Chartered, has been appointed Trade Promotion and Investment Minister under Lord Mandelson to help to turn around the banking sector.

Davies will step down from Standard Chartered and work for no pay, doubtless a gong will be in the offing if he succeeds.

The government is also offering £20BN of loan guarantees for banks to lend to small/medium sized businesses.

As to whether this is mere window dressing, remains a moot point.

Tuesday, January 13, 2009

Exports Unresponsive

Despite the fall in the value of Sterling, statistics (if they can be relied upon) show that Britain's trade deficit grew from £7.6BN in October to £8.3BN in November.

In theory a falling pound should stimulate exports, and curtail imports.

One small piece of positive news is that shoppers from the Continent are flocking to London to snap up bargains.

Richard Brown, the chief executive of Eurostar, is quoted in The Times:

"We are an international business, and while the pound is weak, that means that London is much cheaper for people coming from France and Belgium, so we have seen 15 per cent and more growth in visitors coming to London, a lot of them using our shops and buying stuff here in London."

Let us trust that the bargains that they are purchasing are British, and not foreign imports.

Monday, January 12, 2009

We Are All Bankers Now

In a delicious irony, despite the mistrust and dislike of the bankers who have brought the country to the edge of financial collapse, the British taxpayer finds himself/herself owning 43% of a new "superbank".

The "superbank" has been formed out of the wreckage of the merger between Lloyds TSB and HBOS, which was rejected by investors (who only bought less than 1% of the shares offered by both banks).

Thursday, January 08, 2009

Quantitive Easing

Today the MPC of the Bank of England will announce its decision wrt interest rates. The "smart" money is on there being a cut of between 0.5% and 1%. However, some pundits have noted that as the recent cuts have not eased the credit drought, using the same tool again will be pointless.

Either way, it seems that other weapons are needed in order to address the fundamental issue of a credit drought. Hence the solution being mooted in many quarters (and not being denied by the government) of printing money (quantitive easing), and using the money to buy assets ranging from government or commercial debt to private equities.

There is a danger of inflation. However, under the current circumstances a small dose of inflation may be exactly what is needed.

Wednesday, January 07, 2009

Darling Admits To Overoptimism

Alistair Darling has admitted that his predictions last year, that there would be a recovery in the second half of this year, were in fact wrong.

In the Financial Times Darling says that the Pre-Budget Report in November may have been overoptimistic, when a recovery was forecast for the second half of this year.

No kidding!

Tuesday, January 06, 2009

Falling House Prices

It should come as no surprise to anyone to learn that the fall in house prices last year of 15.9%, as per a survey by Nationwide, was the largest fall since they began keeping records in 1991.

Unsurprisingly house prices are predicted to continue to keep falling this year. The Times notes that Howard Archer, chief UK and European economist at IHS Global Insight, estimated that house prices will fall another 15% in 2009.

Whilst the MPC are expected to cut rates by at least 0.5% this week, the level of interest rates alone will not be enough to staunch the losses. Until credit is once more flowing freely, there will be no respite to the ongoing property collapse.

Monday, January 05, 2009

Waterford Wedgewood Collapses

The "real" economy is now feeling some very "real" pain from the banking crisis. It was announced today that Waterford Wedgewood will be placed into administration, thus threatening 1,900 jobs in the UK.

Waterford Wedgwood missed a January 2 deadline to meet loan repayments. Its net debts are around Euro449M, and it had been unable to raise Euro150M of new equity.

The company had been making losses for the last six years.

As ever, it will be the fundamentals that determine which companies survive this recession (now that the era of "easy" money has ended); ie profits and cash flow.