In an article titled
"Credit crunch gives banks $11bn headache
A torrid market for higher-risk debt has left Wall Street investment banks struggling to sell loans and bonds worth $11 billion"
my response was duly published. For what its worth here is what I said then.....
What have markets, regulators and investors learned from Michael Milken in '80's (who coined the junk market) and subsequent failures at Enron & LTCM? Not much by the looks of it. What no-one in the financial press is mentioning is that all this over-excessive debt parcelling wouldn't be possible without an accounting failure on a monstrous level. Looking at any balance sheet (especially bank balance sheets) for any multi$bn company is such a maze. It's only a matter of time before several banks get bailed out and then investors, etc will be taking a closer look at these balance sheets and come to the conclusion that transparency is hardly taking place. Can someone please explain to me what the point of regulation is?
Richard Hoblyn, CofL, UK
Thursday 23 April 2009
Tuesday 21 April 2009
IMF calculates $4 trillion and spiralling
The huge losses inflicted on banks across the West by the credit crisis and past, lax lending are set to soar to $4 trillion (£2.75 trillion), the International Monetary Fund (IMF) said today.
Confirming massive loss estimates first revealed by The Times two weeks ago, the IMF says that the mounting toll on banks from the worst global recession since the Second World War is leading write-offs from loans to spiral.
In an analysis, the fund has sharply increased its estimate of losses on lending first made in the US for a second time, to $2.7 trillion. That is up from an initial forecast of slightly less than $1 trillion and an updated $2.2 trillion estimate released six months ago.
For the first time, the IMF has also produced estimates of likely losses inflicted on banks across key economies from lending originated in Europe and Japan.
It now puts likely total losses due to European lending at $1.19 trillion, and those for Japan at a comparatively modest $149 billion.
Two thirds of the total $4 trillion in write-offs are set to be made by banking groups, the IMF believes, with the rest affecting insurance groups and other types of financial institution.
Losses by British banks in 2009-10 alone are put at $200 billion, compared with $750 billion for European banks, and $550 billion for those in the US.
The vast scale of the losses and writedowns, released by the fund today in its twice-yearly Global Financial Stability Report, will massively increase the need for banks across the West to raise huge amounts in new capital, or be given capital injections by national governments.
To restore banks’ financial strength, measured by the amount of capital they have to back outstanding lending, to levels immediately before the present crisis erupted, the IMF says that banks need a total of $775 billion in fresh funding.
British banks would require $125 billion, US banks $275 billion, and eurozone institutions some $375 billion.
But the IMF warns that the capital needed could be very substantially larger.
To restore banks’ financial strength to the more secure levels of the mid-Nineties, it puts the capital required at almost $1.5 trillion — $250 billion for UK banks, $500 billion for US banks, and $725 billion for those in the eurozone.
Richard Hoblyn; It's quite clear that the efforts of Tim Geithner and other practitioners is having little impact on Main Street. It's also quite clear that Wall Street has made a classic Hospital Pass to the US (& UK) tax-payers. I said in January that the losses between 2009 and 2025 could spiral to £17tn in UK alone and I see no reason to change my estimate. Rather than looking at the way that derivative packages could be unwrapped (allowing for the actual core derivatives and mortgages etc to be traded out) the authorities have simply passed the problem to the tax-payer. What no-one seems to explain is what the UK tax-payer should do with these toxic assets now that the banks have offloaded them. I doubt very much whether UKFI has the skills, resources or imagination to do anything positive going forward. Regarding QE I'm wondering if Bank of England rather than buying gilts (the reverse auctions)should be bidding for the IMF's 400 tonne impending gold sale. This seems far more sensible to me as governments get more cajoled into re-examining a form of gold standard years down the line.
Confirming massive loss estimates first revealed by The Times two weeks ago, the IMF says that the mounting toll on banks from the worst global recession since the Second World War is leading write-offs from loans to spiral.
In an analysis, the fund has sharply increased its estimate of losses on lending first made in the US for a second time, to $2.7 trillion. That is up from an initial forecast of slightly less than $1 trillion and an updated $2.2 trillion estimate released six months ago.
For the first time, the IMF has also produced estimates of likely losses inflicted on banks across key economies from lending originated in Europe and Japan.
It now puts likely total losses due to European lending at $1.19 trillion, and those for Japan at a comparatively modest $149 billion.
Two thirds of the total $4 trillion in write-offs are set to be made by banking groups, the IMF believes, with the rest affecting insurance groups and other types of financial institution.
Losses by British banks in 2009-10 alone are put at $200 billion, compared with $750 billion for European banks, and $550 billion for those in the US.
The vast scale of the losses and writedowns, released by the fund today in its twice-yearly Global Financial Stability Report, will massively increase the need for banks across the West to raise huge amounts in new capital, or be given capital injections by national governments.
To restore banks’ financial strength, measured by the amount of capital they have to back outstanding lending, to levels immediately before the present crisis erupted, the IMF says that banks need a total of $775 billion in fresh funding.
British banks would require $125 billion, US banks $275 billion, and eurozone institutions some $375 billion.
But the IMF warns that the capital needed could be very substantially larger.
To restore banks’ financial strength to the more secure levels of the mid-Nineties, it puts the capital required at almost $1.5 trillion — $250 billion for UK banks, $500 billion for US banks, and $725 billion for those in the eurozone.
Richard Hoblyn; It's quite clear that the efforts of Tim Geithner and other practitioners is having little impact on Main Street. It's also quite clear that Wall Street has made a classic Hospital Pass to the US (& UK) tax-payers. I said in January that the losses between 2009 and 2025 could spiral to £17tn in UK alone and I see no reason to change my estimate. Rather than looking at the way that derivative packages could be unwrapped (allowing for the actual core derivatives and mortgages etc to be traded out) the authorities have simply passed the problem to the tax-payer. What no-one seems to explain is what the UK tax-payer should do with these toxic assets now that the banks have offloaded them. I doubt very much whether UKFI has the skills, resources or imagination to do anything positive going forward. Regarding QE I'm wondering if Bank of England rather than buying gilts (the reverse auctions)should be bidding for the IMF's 400 tonne impending gold sale. This seems far more sensible to me as governments get more cajoled into re-examining a form of gold standard years down the line.
Tuesday 7 April 2009
Toxic Debts accelerate according to IMF
Toxic debts racked up by banks and insurers could spiral to $4trn, new forecasts from the International Monetary Fund (IMF) are set to suggest. The IMF said in January that it expected the deterioration in US-originated assets to reach $2.2trn by the end of next year, but it is understood to be looking at raising that to $3.1trn in its next assessment of the global economy. In addition, it is likely to boost that total by $900bn for toxic assets originated in Europe and Asia, reports the Times.
Richard Hoblyn says; It would appear that uncovering these losses hidden off-balance sheet is going to be a long drawn out process. My take is that taxpayers, primarily US & UK, are being palmed off with toxic debts as the banks trade out their synthetic derivative positions. The effective black holes that investment and commercial banks may indeed have may be much larger than at first thought. My own calculations based on assumed global derivative risk ($600 trillion) gave me a UK figure alone of £17 trillion compounded to 2025. I think the next stages of the crisis are about to occur; it's interesting to note that IMF received $1 trillion of packages from G20 last week and at the same time indicated a massive sell-off of bullion reserves depressing Gold in the short-term. The picture is indeed gloomy!
Richard Hoblyn says; It would appear that uncovering these losses hidden off-balance sheet is going to be a long drawn out process. My take is that taxpayers, primarily US & UK, are being palmed off with toxic debts as the banks trade out their synthetic derivative positions. The effective black holes that investment and commercial banks may indeed have may be much larger than at first thought. My own calculations based on assumed global derivative risk ($600 trillion) gave me a UK figure alone of £17 trillion compounded to 2025. I think the next stages of the crisis are about to occur; it's interesting to note that IMF received $1 trillion of packages from G20 last week and at the same time indicated a massive sell-off of bullion reserves depressing Gold in the short-term. The picture is indeed gloomy!
Thursday 2 April 2009
Review 1 Q 2009 2nd April 2009
An American President once said, “Oh for a one-armed economist so he cannot say, on the one hand, etc…”
As the new American President joins the other 19 leaders at G20 in London I have been trying to fathom JM Keynes’s jargon and decide if Quantitative Easing is going to succeed and reignite the world economies fuelling the new BULL market or whether this is just a dress rehearsal for the hardships to come. It’s a pretty confusing picture not helped by the media hoping for the odd scrap on Threadneedle Street as well as in the Excel Centre, arrive left “Sarko” with his new maiden “Merkel”. Poor Carla seems to have been rudely sidelined; she’s probably entertaining the wags.
What is clear to me is that the safety nets put in place by Central Banks to kick-start lending and presumably the investment climate isn’t working. The ongoing debate about “mark-to-market” and the calculations concerning “toxic debt” may have come to a head by now if liquidators had been forced to dispose of these failed bank derivative positions but of course the tax-payers have effectively bailed out these banks (pirate vessels). Lehman and Bear Stearns didn’t receive their bonuses so I’m at a loss to understand why politicians, non-executive directors, regulators and all and sundry think it perfectly acceptable to allow for failed businesses to reward those who’ve been at the centre of the toxic mess. Those who work for General Motors, Ford or Chrysler (Chapter XI is inevitable I think for Detroit), CitiGroup, JP Morgan Chase, RBS, Lloyds Banking (notice how it has reverted to it’s pre-TSB HBOS name) and a plethora of other names should not (never?) receive a penny in bonuses until all the tax-payers debt is repaid. Sorry to be brutal and blunt but what we are witnessing is hardly capitalism but more reminiscent of piracy in its heyday. Well done to Obama for his comments on this matter to date. So is QE going to work? Well, I don’t know the answer to that (and no doubt that will still be debated 30 years from now) but I keep reminding myself of my first economics lesson (age 13) and can hear my teacher drumming into me Keynesian doctrine and the definition of inflation as “too much money chasing too few goods”. Looking at Wikipedia and reminding myself of the definitions of Demand-Pull Inflation and Cost-Push Inflation I’m not sure I fully understand the extent of what he said then and I’m even more certain that he wasn’t sure of what he was saying back then either. With the global markets being far more elastic than back in the ‘30’s it seems to me that the current inflationary outlook is a combination of both types as the Monetary Supply accelerates. The Governor, Mervyn King, is clearly aware of the QE implications but as for our SocioCapitalist leaders in Downing Street it seems to me that they’ll do everything in their powers to maintain property prices in UK at the still absurd heights safeguarding their futures long enough till the next General Election. Inflation by then may have started to rise further along with interest rates (they can hardly stay at this level as there’s not much evidence of excessive lending and depositors are getting increasingly impatient) and thus the outlook for ordinary businesses, tax-payers, SME’s is truly depressing. Sorry to use the “D word” but when I see the levels of Public Sector abuse in France my toes curl up at the thought of some hapless Guardian reader responding to a highly paid job for some neo-socialist county council. Have you all noticed how the issue of “productivity” in the private sector has been replaced by job securitisation for the public sector? So where exactly is the productivity in paying someone £40,000 pa to cycle around the neighbourhood checking to see if one’s colleagues yesterday completed their paintwork, testing whether it’s dry and returning to base (a Chesterfield sofa and a glass of Irn-Bru) to instruct a second-paint job the following day? The UK should change it’s name to The Forth Railway Bridge Paintshop because that’s what everyone will be doing if the Public Sector is empowered any further!
The shares strategy for 2009 has worked pretty well so far with one notable exception being Anglo-American which cut its dividend out of the blue; I am holding them for now. The position with other base miners has been confusing too; in particular Rio Tinto has over-run itself at present and I am pleased to have exited it (albeit early) due to its high gearing. Although the volatility has diminished I am still recommending Hochschild (still my favoured pick for 2009 recommended at 138p in January now 243p), Randgold (HOLD- touching £39-40), Royal Dutch & BP (probably the cheapest and safest stocks in the market as oil rises back above $50pbo and perhaps is destined to rise back to $100pbo very soon), Templeton Emerging (risky but this is where the world’s engine is right now) and Yamana Gold (a Canadian precious producer recommended at 525p) at 680p. In the UK domestic market I have been trading Ladbrokes, Tate & Lyle and Marstons recently but one has to have pretty nifty footwork to keep pace with events at the moment. I don’t believe that many UK domestics provide solid and sound Buy and Hold strategies at present and would expect a market sell-off quite soon (sell in May & run like…). What has been surprising throughout the crisis is that very few large capitalization businesses have failed and unlike the aftershock of the ’87 crash none of the Treasury divisions of large caps have announced drastic trading losses as a result of excessive trading in derivatives, f/x, etc. So far there have been a catalogue of trading failures amongst banks and brokers and very few public statements regarding hedge fund losses (although clearly many have closed their doors). In other words there hasn’t been an Enron-esque fatality on main street although it’s predicted that Detroit will fail. The markets seem to be discounting Detroit anyway and a surprise is on the cards in my view. The next leg of the Greater Depression may only just be starting and I believe precious metals and oil stocks may be the only way to safeguard the £ in the pocket. I recollect an ex-colleague broker during ’87 continually remind his clients that equities are the best way to combat inflation so some further analysis (looking for solid earnings lowly geared businesses) is required on my part.
I continue to favour portfolio weightings such as 30% Fixed Interest (incl Index-Linked), 20% cash, 50% equities (overseas earners mainly incl. up to 25% in precious metals) throughout 2009. Keep an eye on gold test levels of $963, $1163, $1332 & $1461; a trading range of $1200-2000 is still predicted for 3rd and 4th Q’s 09.
I wonder what JM Keynes, JK Galbraith and Milton Friedman would have made of it all? Let’s all hope the summer arrives early; that way the paint can dry better.
As the new American President joins the other 19 leaders at G20 in London I have been trying to fathom JM Keynes’s jargon and decide if Quantitative Easing is going to succeed and reignite the world economies fuelling the new BULL market or whether this is just a dress rehearsal for the hardships to come. It’s a pretty confusing picture not helped by the media hoping for the odd scrap on Threadneedle Street as well as in the Excel Centre, arrive left “Sarko” with his new maiden “Merkel”. Poor Carla seems to have been rudely sidelined; she’s probably entertaining the wags.
What is clear to me is that the safety nets put in place by Central Banks to kick-start lending and presumably the investment climate isn’t working. The ongoing debate about “mark-to-market” and the calculations concerning “toxic debt” may have come to a head by now if liquidators had been forced to dispose of these failed bank derivative positions but of course the tax-payers have effectively bailed out these banks (pirate vessels). Lehman and Bear Stearns didn’t receive their bonuses so I’m at a loss to understand why politicians, non-executive directors, regulators and all and sundry think it perfectly acceptable to allow for failed businesses to reward those who’ve been at the centre of the toxic mess. Those who work for General Motors, Ford or Chrysler (Chapter XI is inevitable I think for Detroit), CitiGroup, JP Morgan Chase, RBS, Lloyds Banking (notice how it has reverted to it’s pre-TSB HBOS name) and a plethora of other names should not (never?) receive a penny in bonuses until all the tax-payers debt is repaid. Sorry to be brutal and blunt but what we are witnessing is hardly capitalism but more reminiscent of piracy in its heyday. Well done to Obama for his comments on this matter to date. So is QE going to work? Well, I don’t know the answer to that (and no doubt that will still be debated 30 years from now) but I keep reminding myself of my first economics lesson (age 13) and can hear my teacher drumming into me Keynesian doctrine and the definition of inflation as “too much money chasing too few goods”. Looking at Wikipedia and reminding myself of the definitions of Demand-Pull Inflation and Cost-Push Inflation I’m not sure I fully understand the extent of what he said then and I’m even more certain that he wasn’t sure of what he was saying back then either. With the global markets being far more elastic than back in the ‘30’s it seems to me that the current inflationary outlook is a combination of both types as the Monetary Supply accelerates. The Governor, Mervyn King, is clearly aware of the QE implications but as for our SocioCapitalist leaders in Downing Street it seems to me that they’ll do everything in their powers to maintain property prices in UK at the still absurd heights safeguarding their futures long enough till the next General Election. Inflation by then may have started to rise further along with interest rates (they can hardly stay at this level as there’s not much evidence of excessive lending and depositors are getting increasingly impatient) and thus the outlook for ordinary businesses, tax-payers, SME’s is truly depressing. Sorry to use the “D word” but when I see the levels of Public Sector abuse in France my toes curl up at the thought of some hapless Guardian reader responding to a highly paid job for some neo-socialist county council. Have you all noticed how the issue of “productivity” in the private sector has been replaced by job securitisation for the public sector? So where exactly is the productivity in paying someone £40,000 pa to cycle around the neighbourhood checking to see if one’s colleagues yesterday completed their paintwork, testing whether it’s dry and returning to base (a Chesterfield sofa and a glass of Irn-Bru) to instruct a second-paint job the following day? The UK should change it’s name to The Forth Railway Bridge Paintshop because that’s what everyone will be doing if the Public Sector is empowered any further!
The shares strategy for 2009 has worked pretty well so far with one notable exception being Anglo-American which cut its dividend out of the blue; I am holding them for now. The position with other base miners has been confusing too; in particular Rio Tinto has over-run itself at present and I am pleased to have exited it (albeit early) due to its high gearing. Although the volatility has diminished I am still recommending Hochschild (still my favoured pick for 2009 recommended at 138p in January now 243p), Randgold (HOLD- touching £39-40), Royal Dutch & BP (probably the cheapest and safest stocks in the market as oil rises back above $50pbo and perhaps is destined to rise back to $100pbo very soon), Templeton Emerging (risky but this is where the world’s engine is right now) and Yamana Gold (a Canadian precious producer recommended at 525p) at 680p. In the UK domestic market I have been trading Ladbrokes, Tate & Lyle and Marstons recently but one has to have pretty nifty footwork to keep pace with events at the moment. I don’t believe that many UK domestics provide solid and sound Buy and Hold strategies at present and would expect a market sell-off quite soon (sell in May & run like…). What has been surprising throughout the crisis is that very few large capitalization businesses have failed and unlike the aftershock of the ’87 crash none of the Treasury divisions of large caps have announced drastic trading losses as a result of excessive trading in derivatives, f/x, etc. So far there have been a catalogue of trading failures amongst banks and brokers and very few public statements regarding hedge fund losses (although clearly many have closed their doors). In other words there hasn’t been an Enron-esque fatality on main street although it’s predicted that Detroit will fail. The markets seem to be discounting Detroit anyway and a surprise is on the cards in my view. The next leg of the Greater Depression may only just be starting and I believe precious metals and oil stocks may be the only way to safeguard the £ in the pocket. I recollect an ex-colleague broker during ’87 continually remind his clients that equities are the best way to combat inflation so some further analysis (looking for solid earnings lowly geared businesses) is required on my part.
I continue to favour portfolio weightings such as 30% Fixed Interest (incl Index-Linked), 20% cash, 50% equities (overseas earners mainly incl. up to 25% in precious metals) throughout 2009. Keep an eye on gold test levels of $963, $1163, $1332 & $1461; a trading range of $1200-2000 is still predicted for 3rd and 4th Q’s 09.
I wonder what JM Keynes, JK Galbraith and Milton Friedman would have made of it all? Let’s all hope the summer arrives early; that way the paint can dry better.
Market Abuse or Regulatory & Exchange Failure
LONDON (Dow Jones)--The U.K. Financial Services Authority, or FSA, said Thursday that it has won its market abuse case at the Financial Services and Markets Tribunal against Winterflood and two of its traders, Mr Sotiriou and Mr Robins.
Winterflood is an FSA authorised firm and the largest market maker in AIM securities.
In June 2008, the FSA found that Winterflood and its traders had played a pivotal role in an illegal share ramping scheme relating to Fundamental-E Investments (FEI), an AIM listed company.
In particular, the market maker had misused rollovers and delayed rollovers thereby creating a distortion in the market for FEI shares and misleading the market for about six months in 2004, the FSA said.
The FEI share trades executed by Winterflood had a series of unusual features which should have alerted the market maker to the clear and substantial risks of market manipulation. Rather than taking steps to ensure that the trades were genuine, Winterflood continued the highly profitable trading.
Winterflood made about GBP900,000 from trading in FEI shares, its single most profitable stock at the time.
As a result of their conduct, the FSA decided to impose fines of GBP4 million, GBP200,000 and GBP50,000 on Winterflood, Mr Sotiriou and Mr Robins respectively, the regulator said.
Winterflood did not challenge the findings of the FSA investigation at the Tribunal but referred the matter on a point of legal interpretation.
Winterflood, Sotiriou and Robins are now seeking permission to appeal the decision at the Court of Appeal, the FSA said.
Other parties involved in the scheme have referred their cases to the Tribunal.
Richard Hoblyn comments as follows;- Although it's impossible to deduce exactly the extent of the alleged market abuse as per above I, like many of my colleagues around the market, am dismayed at the sheer size of the penalties given here especially to the 2 individuals concerned. Throughout the period concerned the LSE & FSA conducted inadequate guidance to practitioners regarding the use of "roll-overs". Although personally I've never countenanced the use of roll-overs for any clients many brokers have sought to throughput business with market-makers on this basis. Perhaps if there had been stronger monitoring of roll-overs by LSE & FSA earlier and clearer guidelines set (I recollect seeing confusing and contradictory memorandums at the time) this situation would not have arisen. Furthermore, if as is alleged, there was a false market in the said shares then this is more pertinent to the fact that neither the LSE nor the FSA has sought to address the extraordinary poor liquidity in all AIM stocks. By allowing market-makers to put up firm quotes on the "yellow strip" in sometimes a few hundreds pounds of stock is it surprising then that volatile share price movements occurred whilst market-makers were conducting albeit profitable and at the time perfectly legal roll-over trading. Better leadership at the helm is what is required here and I fear that the current misguidance is here to stay unless brokers and market-makers unite and request a self-administered market place with rule books that are adhered to as per the old LSE dealing guidelines which appear to be generally ignored by the current crop of dealers/traders.
Winterflood is an FSA authorised firm and the largest market maker in AIM securities.
In June 2008, the FSA found that Winterflood and its traders had played a pivotal role in an illegal share ramping scheme relating to Fundamental-E Investments (FEI), an AIM listed company.
In particular, the market maker had misused rollovers and delayed rollovers thereby creating a distortion in the market for FEI shares and misleading the market for about six months in 2004, the FSA said.
The FEI share trades executed by Winterflood had a series of unusual features which should have alerted the market maker to the clear and substantial risks of market manipulation. Rather than taking steps to ensure that the trades were genuine, Winterflood continued the highly profitable trading.
Winterflood made about GBP900,000 from trading in FEI shares, its single most profitable stock at the time.
As a result of their conduct, the FSA decided to impose fines of GBP4 million, GBP200,000 and GBP50,000 on Winterflood, Mr Sotiriou and Mr Robins respectively, the regulator said.
Winterflood did not challenge the findings of the FSA investigation at the Tribunal but referred the matter on a point of legal interpretation.
Winterflood, Sotiriou and Robins are now seeking permission to appeal the decision at the Court of Appeal, the FSA said.
Other parties involved in the scheme have referred their cases to the Tribunal.
Richard Hoblyn comments as follows;- Although it's impossible to deduce exactly the extent of the alleged market abuse as per above I, like many of my colleagues around the market, am dismayed at the sheer size of the penalties given here especially to the 2 individuals concerned. Throughout the period concerned the LSE & FSA conducted inadequate guidance to practitioners regarding the use of "roll-overs". Although personally I've never countenanced the use of roll-overs for any clients many brokers have sought to throughput business with market-makers on this basis. Perhaps if there had been stronger monitoring of roll-overs by LSE & FSA earlier and clearer guidelines set (I recollect seeing confusing and contradictory memorandums at the time) this situation would not have arisen. Furthermore, if as is alleged, there was a false market in the said shares then this is more pertinent to the fact that neither the LSE nor the FSA has sought to address the extraordinary poor liquidity in all AIM stocks. By allowing market-makers to put up firm quotes on the "yellow strip" in sometimes a few hundreds pounds of stock is it surprising then that volatile share price movements occurred whilst market-makers were conducting albeit profitable and at the time perfectly legal roll-over trading. Better leadership at the helm is what is required here and I fear that the current misguidance is here to stay unless brokers and market-makers unite and request a self-administered market place with rule books that are adhered to as per the old LSE dealing guidelines which appear to be generally ignored by the current crop of dealers/traders.
Wednesday 1 April 2009
Keynes WHY THE GREAT DEPRESSION DID NOT RETURN
Prof. John P. Jones has written
"Keynes's Vision: Why the Great Depression Did Not Return" (Routledge).
(Amazon Hardback £75).
John Maynard Keynes dealt with Hoblyn & King, Members of the London Stock Exchange during his lifetime.
"Keynes's Vision: Why the Great Depression Did Not Return" (Routledge).
(Amazon Hardback £75).
John Maynard Keynes dealt with Hoblyn & King, Members of the London Stock Exchange during his lifetime.
An email sent to my clients on 7th June 2007
Like many stockbrokers I am sitting at my desk and pondering these markets and wondering just what to say to those clients who keep remarking that I sold such and such stock at such and such price and yet it is higher today and everything appears so rosy. There is so much CASH about so the markets must go up mustn't they? When comparing valuations today with such and such stock and such and such market everything looks so cheap according to most market observers. Then there was a technical analyst on Bloomberg only this week explaining to the millions watching that the Put/Call Ratio albeit being the highest ever (well since 1931) is in fact bullish if everyone holds their nerve as the shorts must get closed out.....eventually.....only he would be concerned with higher roll-over positions if that happens.
Picture left. I am no longer looking at Proquote nor at Bloomberg TV nor reading any more tip sheets predicting the next growth stock, sector, market nor being sidetracked by analytical research telling me that for instance, Alliance Boots (ahead of Guy Hands and KKR) looks overbought at £8 and investors should sell down (target 740p Dresdner recommendation 18th Dec), hold (target 670p Panmure Gordon 12th March), sell (Citigroup 29th March)...to my knowledge not a single analyst in the UK retail sector recommended BUY prior to the surge to £11+ and in my opinion this is one of the best sectors covered here in UK with men like Ratner and Bubb on top of things. So when Guy Hands's Terra Firma failed with Alliance Boots he simply traded over to EMI, a company in a totally different industry. It will be interesting to see how EMI pans out as I can't help thinking observers are missing out on the real value of mixing digital distribution with a large breadth of content. The answer to my fears and thoughts is on my wall of course. Read on....
I have the following share certificates framed in no particular order; "The Beaumont (Texas) Petroleum & Liquid Fuel Co Ltd" (cert 1903); "The Ripanji Quicksilver & Silver Mines Co Ltd" (1889); "The Underwriters Trust Ltd" (1898); "The Oil & Asphaltum Co Ltd" (1904); "The Olympic Music Hall Ltd" (1893) and my favourite "The Non-Poisonous 'Strike Anywhere' Match Syndicate Ltd" (1899)-perhaps the world's first eco-friendly stock! All very interesting you might say and highly amusing. Well, it would be but for the name on all 5 certificates, is that of my great great grandfather, CD Hoblyn who founded a stockbroking firm in 1872 (apologies to Messrs R & B who arrived on the scene 3 years later) on the basis that he was a "wealthy chap" from a "wealthy family" and had a friend at the Prudential who by all accounts used him ferociously for his dealing in tandem with a certain Revd.FW Parkes who managed a startling 1046 transactions in the April-September 1896 dealing book plus countless contango transactions. What is the point I am making? Well, many of you have guessed that it is easy for investors to be taken in by tips, bubbles, excessive trading etc but even easier for "market professionals" and that many of the current market topics are simply being repeated after excessive repackaging by our American cousins. As a minor scripopholist I have other framed certificates to match those of CD Hoblyn Esq, Threadneedle Street. Ones that I bought rather than lifted from old safe custody safes incidentally. They are "British Butte Mining", "El Gallao (Bolivia)" and "Russia Tobacco" amongst others still sitting in their files. So you can ascertain (possibly) what I am getting at. Many of the themes prevalent today are on my wall and the hedge fund managers and dealers acting for them are possibly repeating the same mistakes of the many stockbrokers who survived the boom and bust periods prior to WW1 and WW2...and since.
I learned this week of a piece of research penned by Execution Research (who?) entitled "Win Win Win" subtitled "Undervalued in every outcome" with a target price of 835p. The stock in question is Royal Bank of Scotland. RBS has been tabled as a BUY by virtual every broker in the market but I'm NOT going to read it. And the reason why? I keep pinching myself to remind myself of an article I read a few years ago in the "Evening Standard" written by a Professor (whose name escapes me) from London School of Economics I think who highlighted the real reasons why Enron Corporation and others failed in US markets in the latter part of 20th century (LTCM was another casualty but for trading reasons). In essence it was due to "irregular" and "creative" accounting and the Professor called for an harmonisation of International Accounting Rules and Regulations which I would question has happened. The proliferation of leveraged deals (you'd think that Michael Milken formerly at Shearson would have taught investors a few harsh lessons) conjured by US investment banks, unregulated private equity houses and hedge fund operators is more than just alarming. It is no wonder that traditional analysts using methods tried and tested for generations are being sidelined by "nouveau analysis" care of KKR and their followers suitably nurtured by excessive lending by commercial banks,etc.
Why should clients and advisers ......care or give a jot about all this you might ask? Well, it goes back to "Big Bang" and the super-regulatory regime that has evolved since. Today the London Stock Exchange is run and ruled by Foreign Companies with no real intent nor interest in building or rebuilding a nation that empowered and created the phrase "globalisation" long before the term was reincarnated by Merrill Lynch and their US counterparts. No, 9 out of the top 10 securities operations in the London market are American and the 10th is European. Their only interest is to profit and profiteer from British Industry and by rejigging the accounts and bundling and rebundling the debt and playing pass the parcel someone is going to be left holding the proverbial baby and politicians as usual will be throwing out the bath water. So is London really a success as it becomes a trading home for countless overseas stocks? No wonder then that the Trades Unions are shouting "blue murder" at the hedge funds and private equity houses, etc. It's jobs in the UK and for the UK that count and in this sense RBS's assessment on the Barclays bid for ABN-AMRO is spot on. I for one don't subscribe to the "Wimbledon Effect" and would like all tennis to be played on grass as it was invented years ago. In the same fashion I would like more emphasis placed on real cash, proper real investment and precious metals rather than spiralling debt (please don't get me on the subject of property prices either in UK, Spain, Florida, Ohio or even Tin Pan Alley) and derivatives. Even our kids understand the basics of Monopoly so why are these US investment banks being allowed to smokescreen Dickensian and Keynesian (***) principles today?
It won't be long before Boots splits with Unichem and private investors will be asked to stump up premium cash for a stock market return (see Debenhams and its rising debt levels). Who really profited from KKR's takeover? It wasn't UK private nor UK institutional investors. Like Branson demanding an investigation into Sky's monopoly and a break-up of the UK digital TV industry it is about time UK investors tabled the motion that we'd like our market back. The back-slapping in the financial media and within the LSE & FSA must stop but I fear it will take more than just an Enron to make people wake up to what is really happening. By pretending that the City is a separate money centre to the rest of the UK economy must be very disheartening for industrialists and SME's. Life is not all about "Big Business" and the spin coming from within the City in this regard seems to me to conflict with what "Big Bang" was supposed to do to regenerate and catalyse back in the late '80's. UK City firms were supposed to benefit from the influx of foreign competition. I don't think that has happened when one compares the Capitalisation's and Profits of the US versus UK players although the UK lawyers have done very nicely ("Win Win Win").
Hearing that the esteemed UK economist Tim Congdon is predicting 5% inflation within a year or so because the Bank of England has lost control of prices I can't help feel that giving the Old Lady so much power has only allowed our American cousins to spoon feed the old girls with meaningless data and strategy ideas simply designed to feather their own nests.
So back to markets and what one should do when everything goes pear-shaped which ultimately it will. The demise of the US$ is very likely, as is a bubble pricking on a grand-scale in China (the recent 8% correction and tripling of stamp to 0.3% is hardly going to scare any capitalistic communist) but more alarming is what might happen if Putin severs the western influence in Russia and FSU. The recent political and military rumblings over the old cold war misgivings could be the one piece of the jigsaw that no-one has predicted. With a Russian girlfriend (yes, she's got a British passport) I am aware of the extraordinary climate changes in Southern Russia at the moment (25 degrees at night I understand with unprecedented day time temperatures of 35-40 range) which have yet to be highlighted in the media as G8, Diana and the demise of WIndies cricket hits the headlines. A failed harvest in 1978-1979 triggered an invasion of Afghanistan fuelling the surge in gold to US$855 pto (I was a young silver clerk at the time) allowing the Soviets access to western grain. History has a habit of repeating itself although I'm not suggesting that the latest Russian battle tank will be seen in Kabul later this year. Furthermore Russia has a $100 bn+ budget surplus thanks to the oil and commodities boom so it no longer has to plead poverty for grain from US. How the tide has turned? Anyway it would appear that Gold is in the ascendancy again and should be treated as a real currency again.
The real tragedy of Capital Markets is how the spin has moved away from real things towards an almost guaranteed profit-making universe invented and subscribed by the likes of Goldman Sachs, JP Morgan Chase and Merrill's,etc. As a sixth generation broker with a 1* year old son I cannot see him working in one of those Canary Wharf workhouses as I cannot see the attractions other than financial. There is more to life than just $, £ and euros and I'm beginning to understand what Scargill fought for all those years ago. My late mother used to say "think before you leap, it is not always about win, win,win"! Trading bullion or cash as I once did or even shares as I do now is real whereas trading a basket of derivatives surrounding aesthetic instruments that don't exist is tantamount to disaster. But then a global $370 trillion exposure in derivatives is proof indeed that I may be out of touch as indeed Warren Buffett might be. With his track record I wouldn't want to bet against him though.
I am recommending Randgold (RRS) and Hochschild (HOC) at present, both well managed London traded established gold shares and generally remains cautious on the outcome for the remainder of 2007.
Picture left. I am no longer looking at Proquote nor at Bloomberg TV nor reading any more tip sheets predicting the next growth stock, sector, market nor being sidetracked by analytical research telling me that for instance, Alliance Boots (ahead of Guy Hands and KKR) looks overbought at £8 and investors should sell down (target 740p Dresdner recommendation 18th Dec), hold (target 670p Panmure Gordon 12th March), sell (Citigroup 29th March)...to my knowledge not a single analyst in the UK retail sector recommended BUY prior to the surge to £11+ and in my opinion this is one of the best sectors covered here in UK with men like Ratner and Bubb on top of things. So when Guy Hands's Terra Firma failed with Alliance Boots he simply traded over to EMI, a company in a totally different industry. It will be interesting to see how EMI pans out as I can't help thinking observers are missing out on the real value of mixing digital distribution with a large breadth of content. The answer to my fears and thoughts is on my wall of course. Read on....
I have the following share certificates framed in no particular order; "The Beaumont (Texas) Petroleum & Liquid Fuel Co Ltd" (cert 1903); "The Ripanji Quicksilver & Silver Mines Co Ltd" (1889); "The Underwriters Trust Ltd" (1898); "The Oil & Asphaltum Co Ltd" (1904); "The Olympic Music Hall Ltd" (1893) and my favourite "The Non-Poisonous 'Strike Anywhere' Match Syndicate Ltd" (1899)-perhaps the world's first eco-friendly stock! All very interesting you might say and highly amusing. Well, it would be but for the name on all 5 certificates, is that of my great great grandfather, CD Hoblyn who founded a stockbroking firm in 1872 (apologies to Messrs R & B who arrived on the scene 3 years later) on the basis that he was a "wealthy chap" from a "wealthy family" and had a friend at the Prudential who by all accounts used him ferociously for his dealing in tandem with a certain Revd.FW Parkes who managed a startling 1046 transactions in the April-September 1896 dealing book plus countless contango transactions. What is the point I am making? Well, many of you have guessed that it is easy for investors to be taken in by tips, bubbles, excessive trading etc but even easier for "market professionals" and that many of the current market topics are simply being repeated after excessive repackaging by our American cousins. As a minor scripopholist I have other framed certificates to match those of CD Hoblyn Esq, Threadneedle Street. Ones that I bought rather than lifted from old safe custody safes incidentally. They are "British Butte Mining", "El Gallao (Bolivia)" and "Russia Tobacco" amongst others still sitting in their files. So you can ascertain (possibly) what I am getting at. Many of the themes prevalent today are on my wall and the hedge fund managers and dealers acting for them are possibly repeating the same mistakes of the many stockbrokers who survived the boom and bust periods prior to WW1 and WW2...and since.
I learned this week of a piece of research penned by Execution Research (who?) entitled "Win Win Win" subtitled "Undervalued in every outcome" with a target price of 835p. The stock in question is Royal Bank of Scotland. RBS has been tabled as a BUY by virtual every broker in the market but I'm NOT going to read it. And the reason why? I keep pinching myself to remind myself of an article I read a few years ago in the "Evening Standard" written by a Professor (whose name escapes me) from London School of Economics I think who highlighted the real reasons why Enron Corporation and others failed in US markets in the latter part of 20th century (LTCM was another casualty but for trading reasons). In essence it was due to "irregular" and "creative" accounting and the Professor called for an harmonisation of International Accounting Rules and Regulations which I would question has happened. The proliferation of leveraged deals (you'd think that Michael Milken formerly at Shearson would have taught investors a few harsh lessons) conjured by US investment banks, unregulated private equity houses and hedge fund operators is more than just alarming. It is no wonder that traditional analysts using methods tried and tested for generations are being sidelined by "nouveau analysis" care of KKR and their followers suitably nurtured by excessive lending by commercial banks,etc.
Why should clients and advisers ......care or give a jot about all this you might ask? Well, it goes back to "Big Bang" and the super-regulatory regime that has evolved since. Today the London Stock Exchange is run and ruled by Foreign Companies with no real intent nor interest in building or rebuilding a nation that empowered and created the phrase "globalisation" long before the term was reincarnated by Merrill Lynch and their US counterparts. No, 9 out of the top 10 securities operations in the London market are American and the 10th is European. Their only interest is to profit and profiteer from British Industry and by rejigging the accounts and bundling and rebundling the debt and playing pass the parcel someone is going to be left holding the proverbial baby and politicians as usual will be throwing out the bath water. So is London really a success as it becomes a trading home for countless overseas stocks? No wonder then that the Trades Unions are shouting "blue murder" at the hedge funds and private equity houses, etc. It's jobs in the UK and for the UK that count and in this sense RBS's assessment on the Barclays bid for ABN-AMRO is spot on. I for one don't subscribe to the "Wimbledon Effect" and would like all tennis to be played on grass as it was invented years ago. In the same fashion I would like more emphasis placed on real cash, proper real investment and precious metals rather than spiralling debt (please don't get me on the subject of property prices either in UK, Spain, Florida, Ohio or even Tin Pan Alley) and derivatives. Even our kids understand the basics of Monopoly so why are these US investment banks being allowed to smokescreen Dickensian and Keynesian (***) principles today?
It won't be long before Boots splits with Unichem and private investors will be asked to stump up premium cash for a stock market return (see Debenhams and its rising debt levels). Who really profited from KKR's takeover? It wasn't UK private nor UK institutional investors. Like Branson demanding an investigation into Sky's monopoly and a break-up of the UK digital TV industry it is about time UK investors tabled the motion that we'd like our market back. The back-slapping in the financial media and within the LSE & FSA must stop but I fear it will take more than just an Enron to make people wake up to what is really happening. By pretending that the City is a separate money centre to the rest of the UK economy must be very disheartening for industrialists and SME's. Life is not all about "Big Business" and the spin coming from within the City in this regard seems to me to conflict with what "Big Bang" was supposed to do to regenerate and catalyse back in the late '80's. UK City firms were supposed to benefit from the influx of foreign competition. I don't think that has happened when one compares the Capitalisation's and Profits of the US versus UK players although the UK lawyers have done very nicely ("Win Win Win").
Hearing that the esteemed UK economist Tim Congdon is predicting 5% inflation within a year or so because the Bank of England has lost control of prices I can't help feel that giving the Old Lady so much power has only allowed our American cousins to spoon feed the old girls with meaningless data and strategy ideas simply designed to feather their own nests.
So back to markets and what one should do when everything goes pear-shaped which ultimately it will. The demise of the US$ is very likely, as is a bubble pricking on a grand-scale in China (the recent 8% correction and tripling of stamp to 0.3% is hardly going to scare any capitalistic communist) but more alarming is what might happen if Putin severs the western influence in Russia and FSU. The recent political and military rumblings over the old cold war misgivings could be the one piece of the jigsaw that no-one has predicted. With a Russian girlfriend (yes, she's got a British passport) I am aware of the extraordinary climate changes in Southern Russia at the moment (25 degrees at night I understand with unprecedented day time temperatures of 35-40 range) which have yet to be highlighted in the media as G8, Diana and the demise of WIndies cricket hits the headlines. A failed harvest in 1978-1979 triggered an invasion of Afghanistan fuelling the surge in gold to US$855 pto (I was a young silver clerk at the time) allowing the Soviets access to western grain. History has a habit of repeating itself although I'm not suggesting that the latest Russian battle tank will be seen in Kabul later this year. Furthermore Russia has a $100 bn+ budget surplus thanks to the oil and commodities boom so it no longer has to plead poverty for grain from US. How the tide has turned? Anyway it would appear that Gold is in the ascendancy again and should be treated as a real currency again.
The real tragedy of Capital Markets is how the spin has moved away from real things towards an almost guaranteed profit-making universe invented and subscribed by the likes of Goldman Sachs, JP Morgan Chase and Merrill's,etc. As a sixth generation broker with a 1* year old son I cannot see him working in one of those Canary Wharf workhouses as I cannot see the attractions other than financial. There is more to life than just $, £ and euros and I'm beginning to understand what Scargill fought for all those years ago. My late mother used to say "think before you leap, it is not always about win, win,win"! Trading bullion or cash as I once did or even shares as I do now is real whereas trading a basket of derivatives surrounding aesthetic instruments that don't exist is tantamount to disaster. But then a global $370 trillion exposure in derivatives is proof indeed that I may be out of touch as indeed Warren Buffett might be. With his track record I wouldn't want to bet against him though.
I am recommending Randgold (RRS) and Hochschild (HOC) at present, both well managed London traded established gold shares and generally remains cautious on the outcome for the remainder of 2007.
Subscribe to:
Posts (Atom)