Respected billion pound fund manager, Tim Price (PFP Wealth), has the perfect solution for UK investors: “Any sane investor who buys into the gold bull should be buying ……. – while it’s still relatively cheap. The rise in bullion prices could yet prove extraordinary by comparison to the recent past …….”
Just as the ink is drying on what could prove to be another disastrous European merger (British Iberian Airways! -although I hear International Airways Group has been chosen) I’ve been pondering how to lighten up this report as the fiscal situation globally worsens. With employment data looking bleak the only way I can add a little sparkle to the proceedings is to continue to suggest that GOLD and related investments are increased forthwith. Our beloved leader, his henchmen and the media continue to press upon us the speed of the recovery but it seems only a smokescreen to protect the status quo. With the 1Q10 UK GDP growth number remaining at +0.4% markets remain buoyant but it’s questionable if the party can continue much longer.
I’m trying very hard to put anything in the Pro column right now for most domestic, all fixed income and a great many international securities as p/e’s look around 20% too expensive to me. As you know I have been recommending that investors focus on precious metals and oil stocks for some years now. On the Against side I continue to scribe the usual suspects (banks, builders, retails, service groups, in fact anything consumer orientated). Like many of us with a few grey hairs I’ve missed most of the rally we’ve been having on FTSE100 (ex-Randgold, BP & Royal Dutch of course) since March 2009. Isn’t this just a great tonic and confirmation of the great success of the stumulae that our great leaders, regulators, chancellors, bankers et al have undertaken on all our behalves? It’s fixed! I’m referring to the economies of course although reading the varying reports that cross my desk from market analysts I’m beginning to hear my builder “Chappers” who’s doing such a splendid job on my barn roof shout “wolf, wolf Hoblyn” from on high when I regularly return to my desk after having delivered him his regular cuppa and good news about the few stocks he owns. But for these people who actually work for a living and the regular missives from Mr Bonner and his colleagues at the “Daily Reckoning” I’m sure that I would be spoon feeding everyone with tales of fortune and great hope in the stock market. Except of course my judgment suggests that despite billions of $’s, Euros & £pounds later many of the balance sheets of these (banking) establishments are in fact still encumbered with large amounts of debt, toxic derivatives and who knows what. Now in addition to this many of our household blue chip companies are still looking very sick around the edges. They might be able to persuade us by their recently improved profits but looking a little closer many things don’t appear that rosy. After the bedlum of 4Q08 all market analysts went very quiet and slashed their forecasts (the Americans call this low-balling, a baseball expression) only to see many companies exceed these forecasts in 2Q09, 3Q09, 4Q09, 1Q10 but as we approach the summer there are many pundits now suggesting that the current “high-balling” (where analysts have upgraded and are ahead of real events) is going to leave the markets looking very flat sometime very soon. China itself is a major bubble (stocks, property and you guessed it CREDIT) and with current GDP growth at a staggering 11.9% the debate re the revaluation of the Yuen will likely recommence. The possible fall out and trade war could well be the trigger for a market correction of 10-25% replicating the events that unfolded back in the ‘30s when everyone back then thought that the bull rally that started after ‘29 had all the answers.
It’s clear that the Yuen/US Treasuries issue (the Chinese own $2.4trillion of treasuries) is the big storm cloud on the horizon and yet there are so many other storm clouds appearing too. I described the juggernauts heading in different directions and yet all meeting at the same crossroads scenario to one or two people recently and everyone seems to agree on this and yet no-one can predict which juggernaut or storm cloud will arrive first. The Greek debt issue and the extraordinary entanglement between the Greeks, the EU (Trichet just looks utterly out of depth to me!), the IMF and bond markets is clearly fazing currency dealers. Recently the Euro has taken some punishment and instead of speculators rushing to reserve currencies it would appear that many singled out GOLD, the new (actually it’s the oldest) currency, as the best bet driving it back to around $1,150pto. The key level to look for is $1,163 then $1,332, $1,461 but why should most of us worry about these moves? It is very early days for GOLD, very very early days in my professional opinion. One pundit recently predicted $15,000pto for the yellow metal once the entire unwinding process pans out and investors globally throw in the towel on paper currencies and many over-leveraged equities.
Inflation at (rising) c.3% in UK and the extraordinary core deposit rates for cash investors in UK is a honey trap that many will regret. I can see the flaw in these absurd Cash ISA rates (1.90% up to 2.67% at C&G for variable & a staggering 3.44% to 4.46% for fixed term ISAs) as there is something seriously wrong with the banking system when rates obtainable to the public exceed the current ½% Bank Rate and exceed the purile base deposit rates provided commercially which are on Call money circa 0.4% and on Short Term circa 0.85% (note 3 month LIBOR is 0.6484%). Depositors (“the public”) are being over optimistic with regard to the support programs and fail to take on board that a systemic risk is still intact. Another IceSave/Northern Rock could easily occur at some juncture so investors do need to wise up (the old wives tale “you don’t get something for nought”) to what really is on offer and FSA really should (but of course they wont) instruct financial institutions to publish clear health warnings on deposits that can apply rates over and above centuries obtained commercial reality. The counter argument may be that banks can take these deposits in at these rates and lend at 8%+ (all the way up to 20-25% I hear) but the actual lending levels are marginal I suspect and the true derivatives mix is allowing for some splendid creativity inside the banking halls. Albeit interest rates have been held last week (1/2% UK & 1% for Eurozone) although should inflation surface I can see a rude awakening. So is there any great merit in depositing funds at 2/3 ½% when inflation is at 3%?
Other future calamitous issues which markets and voters (ahead of what could well be a disastrous hung parliament and low turnout on 6th May) should be aware are (in very approximate chronological order);-
• Increasing likelihood of a stalemate in the Greek baleout leading to possible default
• California solvency issues (Los Angeles County too)
• Likelihood of a credit downgrade on UK (after 6th May) leading to severe test for £stg. UniCredit has alerted investors in a client note that Britain is at serious risk of a bond market and sterling debacle and faces even more intractable budget woes than Greece
• An increase in Quantative Easing beyond the existing £200billion level
• Continual fraction within EU on the back of EU debt worries
• Chinese inflation rate increases and China continues to build up Gold Reserves
• Chinese rate hike knocking the stuffing out of stock & property markets
• Chinese CREDIT bubble pricked leading to realization that Emerging Markets are no longer immune to downturns
• Ongoing stress within Eurozone (Portugal, Spain, Ireland & smaller zones)
• US Government stalls on Citigroup $35bn 7.7 billion shares sale IPO and triggers concerns as to how US & UK governments can sell/reduce their stockholdings (why should investors buy into banks when governments sell & withdraw support?)
• More forensic detailed evidence that Lehman and other banks used “balance sheet manipulation” to mislead investors and regulators (Goldman’s & JPMorgan under the spotlight more as the year unfolds). Note the City of Milan has filed irregularities against 3 int’l banks for the sale of derivatives (just the tip of the iceberg)SEE ***STOP PRESS BELOW***
• A complete failure by regulators to get to grips with the derivatives market that is still around $500 trillion exposure
• EU’s Directive on hedge fund and private equity firms blows up in everyone’s face (war of words between the anglo’s & Sarkozy/Merkel)
• More pain for householders in US & elsewhere (Spain & quite possibly UK) as mortgage defaults rise against a higher tax universe
• Oil to retest $100pbo 2nd & 3rd Q’s ; leads to slowdown and dip (note petrol in UK is already 120p per litre)
• Scrutiny over IMF’s role and it’s financial expertise after Greece
• Detroit rescue plan derails as consumers stay away from hybrid motors & especially US motors
• Facebook IPO plans disappoint as serious flaws in advertising revenue emerge for Google and other social networking sites
• Microsoft continues to lose ground to Apple and serious concerns surround those companies that sell add-on’s to Microsoft universe
• Institute for Fiscal Studies issue ongoing reports that debt interest payments will exceed by some margin the £73.8bn figure by 2014/15 as reported in the recent Darling Budget (or 10p in the pound of all UK earnings)
• Public sector net debt (excluding financial interventions) was £741.6 billion (equivalent to 52.6 per cent of GDP) at the end of February 2010 with forecasts approaching £1trillion prevalent
• Pension burden on the UK taxpayers will stand at an unaffordable £1trn (this is going to come to a head alongside compensation for Equitable Life policyholders)
If one has managed to digest just some of these (potential) headaches then need I mention the 8m Americans (several million in UK) out of work with no job prospects, the extraordinary tax burden on US taxpayers after Obama’s HeathPlan, the increasing likelihood that more Public Sector jobs will be created everywhere thus penalizing hard working people through accelerating income tax and other (stealth) tax rises, excessive and unnecessary regulation which will stop entrepreneurs and investors from making decisions that might just create job opportunities, the ongoing dramas unfolding with Iran/Israel/North Korea, the realization that UN aid and response programs are ineffective and very costly and that world food shortages are going to get worse, further climate change tensions, global water supply and purification issues, african AIDS HIV timebomb clicks……..it all seems an uphill struggle as politicians and power players try to dampen the grip that youngsters have on the Internet which used properly and openly could create more opportunities and just possibly solve many of the world’s problems.
Looking again at GOLD I notice that Hinde Capital, a precious metals specialist, has been telling its clients that it expects GOLD to climb to $5,000pto over the next few years. Interestingly there are 160,000 tonnes above ground and this is split roughly as follows; governments 30,000**, private sector as bullion/jewellery 110,000, industrial use 20,000. Another 50,000 is accounted as mining reserves (around 2,500 tonnes is recovered each year). In financial markets ETF’s (Exchange Traded Funds) are becoming more popular and the largest ETF, Spyder Gold Shares now accounts for 1,140.43 tonnes increasing roughly 10 tonnes per day. Central banks** exact figure is 30,116.9 tonnes with China, Russia and India being the biggest buyers. It seems to me that sovereign states are beginning to recognize that GOLD can underpin their currencies more and more and although there is no need for a return to the Gold Standard some nations have taken it upon themselves to safeguard their economies by hoarding for a rainy day. As for the price I still believe that a range of $2,000-2,500 can be achieved over the next year.
I reiterate that one should focus on oils, precious metals and companies that have relative low gearing and intact business models. Domestically the UK is far too exposed to a severe downturn when one factors in the scale of the UK government’s problems. Stockpicking in 2nd & 3rd quarters should remain selective and mainly international and special situations focused. I continue to hold BP and Royal Dutch Shell ‘B’ (safe dividends), Yamana Gold, Randgold (selling into strength circa £60 as the p/e is very high), Newmont Mining and ASA (US listed closed-end fund focusing on precious metals). UK equities such as GlaxoSmithKline (buy below £12, yield 4.8%), Sainsbury (yield 3.9%), Greene King (yield 4.9%), Marstons (yield 7.3%), Standard Life (yield 6%), Foreign & Colonial Asset (yield 8.8%) and Tullett Prebon (bid situation, yield 4.2%) could be examined for income (inside ISA’s) whilst Dana Petroleum, Heritage Oil, Dominion Petroleum appear attractive for appreciation alongside the recently listed miner African Barrick (Mkt Cap £2.5bn). The recent recommendation regarding WisdomTree Emerging Markets Currencies Fund ETF listed on NYSE epic: CEW $22.39 appears to be working as a hedge against western currencies whilst Ashmore Global Opportunities Trust is an interesting play on sovereign and corporate debt. To hedge one’s portfolio Proshares Ultra SHORT China also listed on NYSE epic: FXP $7.23 could still reap terrific rewards should China top out. Like many out there I think the surge in precious metals mining could be the one area that really blossoms out of the ’08 crisis and subsequent recession which many are still calling The Greater Depression.
I recently asked a friend what life was like in Thailand. Marvellous was the reply. There was no mention of unrest which is all that the UK media want to project to us. Indeed he described how his satellite dish (a South African system that sits in his garden) was erected in 1 day; he ordered in at 10am in the morning, men came to his house in Chiang Mai that afternoon and it was up & running by 3pm. Everyone is very courteous and everything works. People are happy and their Income Tax rate is 1%. If they want a doctor they pay for it from their savings. Everything is driven from the belief that people matter. It seems to me that the Welfare State has forgotten this and the sooner the West reverses this trend the better. It may be that the early cracks in this process are coming to fruition.
The sun has just come out and a hot summer is predicted in Western Europe by the farmers. I think a sound investment in new deckchairs is necessary and having read this ghastly review a soft drink or something stronger may be tempting. Best wishes!
*********STOP PRESS***********
This quarterly report has been delayed due to my having to assist in some funeral arrangements in UK last week followed by a bout of severe flu so please accept my apologies for any inconvenience caused. Of course the events that unfolded on Friday regarding Goldman Sachs have only confirmed my cautious stance hereon.
Tuesday, 20 April 2010
Wednesday, 13 January 2010
GOLD prediction by CEO of US Gold Inc (UBX)
CEO of US Gold Mckewen predicts $2,000pto end 2010 & wait for it....$5,000pto towards 2012/2013
Review 4Q 2009 6th January 2010
“There are bulls, bears, stags, lambs and giddy goats”
– a Market Maxim c/o W. Dennis Heymanson
After the FTSE All-World index had, by mid-November, surged more than +75% from the bottom and the FTSE Emerging Latin America index prospered +123% the global equity rally started to falter in December. With questionable signs of economic recovery in the US that could mean the end of almost zero interest rates and other attempts to stimulate the economy there are clear danger signs flagged in markets worldwide. The FTSE100 ended the year +22% at 5412 and +53% from its March low of 3512; the percentage gain of 2009 numerically matched its loss for the decade -22% having fallen from the all-time dot.com high of 6930 on 30th December 1999 (although if one includes dividend income then the FTSE100 returned a total of less than 7% over the decade). The following factors drove the market in 2009;
• Quantitative easing (QE) and concerted support for banks internationally (TARP) which boosted confidence.
• Dramatically reduced interest rates and increased money supply have enabled companies to borrow very cheaply; capital raisings strengthened balance sheets in the process.
• Drastic cost-cutting has helped stabilise company profits forcing analysts to upgrade previously downbeat projections.
• A change in sentiment from fear end 2008 of a global depression towards more measured concerns merely about the speed of recovery.
It’s clear that many global shares are beginning now to look expensive. If profit improvements and economic recovery don't materialize then the market may surrender some of the 2009 gains. The limited shock from the Dubai debt crisis in 4Q 09 served as a reminder of the fragility of the recovery but more worryingly the recently announced Chinese manufacturing numbers imply an acceleration of GDP growth to circa 10-11% from 7% approx. in 2009. If China is overheating then some knock on effect will be felt in emerging markets and through commodity markets at some juncture. I have been flagging this for some months and still see little real value at this time and continue to maintain high cash reserves. Last year the driving debate was whether the shape of the economy would be a ‘V’ (investors may be misguided for backing the quick fix prescribed by Bernanke), ‘W’ (double dip), ‘U’ or ‘L’. Although the jury is still out it’s clear that international money supplies are over-extended and interest rates may well reverse the trend earlier than most analysts predict. The double dip looks the most likely scenario to me and a sharp correction in China may be the catalyst for this.
Looking forward hereon I continue to focus on oils, precious metals and companies that have relative low gearing and intact business models regardless of the impending tax hikes and slowdown. Clearly the UK domestic scene is far too exposed to a severe downturn when one factors in the scale of the UK government’s problems. Thus I believe that 1Q 2010 is (yet again) one to remain cautious. My favourite stock picks are BP, Royal Dutch Shell ‘B’ (safe dividends), Yamana Gold, Newmont Mining and ASA (US listed closed-end fund focusing on precious metals). I am still avoiding banks/financials (although HSBC & Standard Chartered can be examined on any fallback) and recommend a selective few UK equities (Sainsbury, Greene King/Marstons, Imagination Technology, Dana Petroleum/Heritage Oil/Dominion Petroleum) although generally speaking I remain very cautious and suggest selling into strength where feasible and sensible. The big investment issue really surrounds bonds and when best to offload US$, £sterling and Euro instruments. Sometime in this quarter it will be sensible to diversify into alternative currencies (I have been recommending WisdomTree Emerging Markets Currencies Fund ETF listed on NYSE epic: CEW $22.21) or to hedge one’s portfolio through Proshares Ultra SHORT China (also listed on NYSE epic: FXP $8.02). Gold is likely to re-examine $1,200pto quite soon and possibly test the next resistance level of $1,332pto by the summer; my hunch is that further testing of $1,461pto resistance could be achieved by 3 Q with oil moving up simultaneously to $90pbo+.
Warren Buffett recorded his worst performance against the stock market in a decade last year after committing $44bn to a takeover of Burlington Northern Santa Fe railroad and lowering his expectations for investment returns. Berkshire Hathaway Inc. the company Buffett has led as chairman for more than four decades, rose +2.7% on the New York Stock Exchange in 2009, less than the +23% return in the Standard & Poor’s 500 Index. This year is likely to be the toughest for many years for tax payers and small businesses and I expect unexpected volatility at times. As the Sage of Omaha, Warren Buffett has found out himself it is extremely difficult to measure short-term performance versus long-term strategy. He believes in his acquisition of Burlington in the same way I believe in gold and oil related investments for the first half of this new decade.
– a Market Maxim c/o W. Dennis Heymanson
After the FTSE All-World index had, by mid-November, surged more than +75% from the bottom and the FTSE Emerging Latin America index prospered +123% the global equity rally started to falter in December. With questionable signs of economic recovery in the US that could mean the end of almost zero interest rates and other attempts to stimulate the economy there are clear danger signs flagged in markets worldwide. The FTSE100 ended the year +22% at 5412 and +53% from its March low of 3512; the percentage gain of 2009 numerically matched its loss for the decade -22% having fallen from the all-time dot.com high of 6930 on 30th December 1999 (although if one includes dividend income then the FTSE100 returned a total of less than 7% over the decade). The following factors drove the market in 2009;
• Quantitative easing (QE) and concerted support for banks internationally (TARP) which boosted confidence.
• Dramatically reduced interest rates and increased money supply have enabled companies to borrow very cheaply; capital raisings strengthened balance sheets in the process.
• Drastic cost-cutting has helped stabilise company profits forcing analysts to upgrade previously downbeat projections.
• A change in sentiment from fear end 2008 of a global depression towards more measured concerns merely about the speed of recovery.
It’s clear that many global shares are beginning now to look expensive. If profit improvements and economic recovery don't materialize then the market may surrender some of the 2009 gains. The limited shock from the Dubai debt crisis in 4Q 09 served as a reminder of the fragility of the recovery but more worryingly the recently announced Chinese manufacturing numbers imply an acceleration of GDP growth to circa 10-11% from 7% approx. in 2009. If China is overheating then some knock on effect will be felt in emerging markets and through commodity markets at some juncture. I have been flagging this for some months and still see little real value at this time and continue to maintain high cash reserves. Last year the driving debate was whether the shape of the economy would be a ‘V’ (investors may be misguided for backing the quick fix prescribed by Bernanke), ‘W’ (double dip), ‘U’ or ‘L’. Although the jury is still out it’s clear that international money supplies are over-extended and interest rates may well reverse the trend earlier than most analysts predict. The double dip looks the most likely scenario to me and a sharp correction in China may be the catalyst for this.
Looking forward hereon I continue to focus on oils, precious metals and companies that have relative low gearing and intact business models regardless of the impending tax hikes and slowdown. Clearly the UK domestic scene is far too exposed to a severe downturn when one factors in the scale of the UK government’s problems. Thus I believe that 1Q 2010 is (yet again) one to remain cautious. My favourite stock picks are BP, Royal Dutch Shell ‘B’ (safe dividends), Yamana Gold, Newmont Mining and ASA (US listed closed-end fund focusing on precious metals). I am still avoiding banks/financials (although HSBC & Standard Chartered can be examined on any fallback) and recommend a selective few UK equities (Sainsbury, Greene King/Marstons, Imagination Technology, Dana Petroleum/Heritage Oil/Dominion Petroleum) although generally speaking I remain very cautious and suggest selling into strength where feasible and sensible. The big investment issue really surrounds bonds and when best to offload US$, £sterling and Euro instruments. Sometime in this quarter it will be sensible to diversify into alternative currencies (I have been recommending WisdomTree Emerging Markets Currencies Fund ETF listed on NYSE epic: CEW $22.21) or to hedge one’s portfolio through Proshares Ultra SHORT China (also listed on NYSE epic: FXP $8.02). Gold is likely to re-examine $1,200pto quite soon and possibly test the next resistance level of $1,332pto by the summer; my hunch is that further testing of $1,461pto resistance could be achieved by 3 Q with oil moving up simultaneously to $90pbo+.
Warren Buffett recorded his worst performance against the stock market in a decade last year after committing $44bn to a takeover of Burlington Northern Santa Fe railroad and lowering his expectations for investment returns. Berkshire Hathaway Inc. the company Buffett has led as chairman for more than four decades, rose +2.7% on the New York Stock Exchange in 2009, less than the +23% return in the Standard & Poor’s 500 Index. This year is likely to be the toughest for many years for tax payers and small businesses and I expect unexpected volatility at times. As the Sage of Omaha, Warren Buffett has found out himself it is extremely difficult to measure short-term performance versus long-term strategy. He believes in his acquisition of Burlington in the same way I believe in gold and oil related investments for the first half of this new decade.
John Paulson & GOLD 30th Dec 2009
John Paulson, a presenter at the Grant’s Fall Investment Conference and undoubtedly the richest man in the room. Portfolio magazine dubbed him “The Man Who Made Too Much” after he made $3.7 billion by betting against mortgage-backed securities (MBS). He is one of the greatest hedge-fund managers ever.Gold is his favourite today. As to why, Paulson presented a simple, but compelling case. First, the monetary base has exploded in a way we’ve never seen before. The monetary base is essentially the Federal Reserve Bank’s currency and reserves. The Fed, by buying up securities in this crisis, has pumped a lot of money into the economy.As Paulson explained, that’s because this base money has not yet been lent out and multiplied throughout the economy. Yet the monetary base and money supply are highly correlated, “almost 1-to-1 between the two,” Paulson said.That means that as the monetary base expands, the money supply surely follows, though there is a lag. (Money supply is a broader measure of money than just the monetary base, as it includes personal deposits and more. The monetary base is like a kind of monetary yeast. It makes money supply rise.)If money supply grows faster than the economy, that will create inflation, says Paulson. As it is impossible for the economy to grow anywhere near that vertical spike in the monetary base, Paulson contends inflation is coming The U.S. is not alone in its money-printing exercise. The supply of most currencies is expanding rapidly – even the normally tame Swiss franc. In the race of paper currencies, they are all dogs. Hence Paulson’s interest in gold, which no government can make on a whim. Therefore, in the context of the exploding monetary base, gold seems relatively cheap. In other words, as the money supply rises, so does the price of gold, eventually. As a result, says Paulson, “gold has been a perfect hedge against inflation.” There is some slippage over time. The gold price can change faster or slower than the money supply. But when the market gets worried about inflation, the gold price usually changes much faster – as happened in the 1970s. In 1973 – to pick a typical year – inflation was 9% and gold rose 67%. That was a pattern common in the 1970s. The potential for inflation this time around is greater than it was in the 1970s, given that the growth in the monetary base is so much greater than it was in the 1970s. Gold could do much better this time around, reaching “$3,000 or $4,000, or $5,000 per ounce” as Paulson said. ***my thoughts exactly***
Tuesday, 6 October 2009
Review 3Q 2009 6th October 2009
“Markets have gone up too much, too soon, too fast” - ROUBINI 5th Oct 2009
Nouriel Roubini, dubbed Dr Doom after he predicted the financial crisis, yesterday warned stock and commodity markets will fall as the slow pace of recovery disappoints investors. “Markets have gone up too much, too soon, too fast,” said the New York University professor. “I see the risk of a correction, especially when the markets realise the recovery is not rapid and V-shaped, but more like U-shaped. That might be in the fourth quarter or the first quarter of next year.”
Since March this year the sentiment in the markets has changed dramatically from the dark days of the credit crunch allowing for a thinly traded rally to occur (S&P up around 60%). Many financiers minds have been bewildered somewhat and find it incredulous that Wall Street and Main Street could disconnect so alarmingly. Today the bulls still hold the market by the scruff of the neck but as I highlighted in my ‘market warning’ email of 11th September investors globally have entered dangerous territory. Alarmingly markets and investors are ignoring consumer confidence statistics alerted to the fact that unemployment is actually rising (see US non-farm pay roll numbers recently) and production is suffering as businesses fail to come to terms with lower revenues and fewer customers. These same consumers, many of them cash investors, are hardly showing much faith in the stock market either. Cash net inflows into US equity funds is a measly $2.6bn in the last 6 months whereas bond fund inflows have increased appreciably. Politicians crow about the supposed success of various measures especially the scrappage schemes and yet GM report a drop of actual car sales end-Sept as -47% year on year. This is hardly good news.
In UK banking sector many tax-payers (self-employed & SME’s mainly) complain that lending has stalled or at least when proffered is wholly unreasonable. Despite a bank rate of ½% most banks are still profiteering from their entrapped customers (one can count the number of UK retail banks remaining on one’s fingers leaving the thumbs free). With FSA now calling for 3 x more capital amongst UK banks (to be held in Gov Bonds) one wonders where the money is coming from or how the lending practices and practicality thereof can be improved and ignited. Elsewhere billions have been raised in discounted rights issues where many household names have stiffened resistance by bolstering over-geared balance sheets but as I’ve highlighted since joining Redmayne’s in January 2005 the (dis)trust in universal accounting practices whereby companies are being encouraged (by accountants, consultants and investment bankers) to spuriously withhold detailed information concerning derivative positions and suchlike from shareholders is still very much in evidence. With regulators, politicians and market commentators calling for better transparency in the mature economies the opposite still seems to be the case when it comes to treating shareholders fairly. This and unfathomable corporate governance is the most damaging aspect of the latter stages of the long bull run that encompassed dot-com and then a global base metals stampede. In essence the continued prospects in the BRIC’s and other emerging markets are keeping mature markets alive but the real concern should be that practices adopted by western banks might just be replicated in the final engines of growth which the ‘emerging/emerged’ markets appear to represent. With very little growth in mature markets being translated to the bottom line it’s likely that more dividends are cut in problematic sectors as businesses struggle to manage and profit in an increasingly slowing global economy. Over-regulation could easily kill off many more smaller businesses unless incoming governments can get to grips with curbing the Public Sector and the nonsense that goes with it. Obama, Cameron, and Blair (in anticipation of the Fettes boy’s rise to head boy of the EU Senate) may just find that trying to translate jobs from the public to private sectors is virtually impossible in the current unreal regulatory universe. The domestic outlook for investors and young people is truly depressing and it’s not surprising that the pessimists are suggesting that the so called recession may well migrate towards The Greater Depression.
With £175 billion of Quantitative Easing in UK and some similarly shocking US$ numbers over the pond the real result of all this regulatory and governmental interference in capital markets is that debt levels across the private and public sectors is still spiraling (out of control?). I heard the other day that every citizen in UK may well have to pay directly/indirectly £25,000 per person for years to come just to stall the overall public sector debt. This frightening scenario just hasn’t been taken on board by most of the electorate (yet). Nor by most politicians either nor the vast numbers of spin doctors by the judge of it.
A further major sell-off of global equities is likely quite soon. Multiples (price earnings ratios) and valuations on all accounts appear over-cooked (see 20 & 30 day moving averages). A nasty surprise may come from China very soon as the 10s of millions there embrace all the creature comforts of rapid growth <=Rapidly rising property prices, extraordinary sales in domestic goods -computers, mobiles, iPods, etc, new factories (cars), greater mobility and a stock market in the stratosphere, etc, etc.> Where has one heard that before?
When will equities become attractive (again)? Well, some think they already are but markets don’t just retrace and rise constantly and consistently. It may be a worrying loss of faith in the $, it may be a shock in taxes, it may be a black swan event (Iran, Korea, Afghanistan), an implosion of growth in China &/or emerging markets, a major corporate scandal and failure (& this is quite possible), but something will happen that brings markets back to reality.
Going forward hereon the shrewdest way to position one is to focus on oils, metals (mainly of the precious variety) and the odd gem amongst traditional equities. To date those investors holding blue-chips may indeed have had a good run but when the train slides off the track or enters the siding the repairs or replacements may be very laboursome and cumbersome.
To summarise then I continue to believe that the next quarter is (yet again) one to batten down the hatches! My favourite stock picks are BP, Royal Dutch Shell ‘B’ (safe dividends), Randgold, Harmony Gold and Yamana Gold; the latter 3 are ‘insurance viz-a-viz capital protection’ against a severe downturn predicted. I am still avoiding banks/financials and thinking seriously about pharmas (Glaxo), water (Northumbrian) and grocers (Sainsbury). Whether Noudini is right about the ‘U’ shape is open to conjecture as others predict ‘L’ & ‘W’ patterns but a wake up call similar to what happened when Lehman failed is a virtual certainty. Detroit still is in a mess and western industries are struggling to maintain momentum. The stock markets, of course, aren’t looking at Main Street just yet but I detect an undercurrent of doubt creeping in. As you know I have been advocating high cash positions throughout the last Q and exposure in ‘gold’ where appropriate as inflation can be spotted on the horizon.
Nouriel Roubini, dubbed Dr Doom after he predicted the financial crisis, yesterday warned stock and commodity markets will fall as the slow pace of recovery disappoints investors. “Markets have gone up too much, too soon, too fast,” said the New York University professor. “I see the risk of a correction, especially when the markets realise the recovery is not rapid and V-shaped, but more like U-shaped. That might be in the fourth quarter or the first quarter of next year.”
Since March this year the sentiment in the markets has changed dramatically from the dark days of the credit crunch allowing for a thinly traded rally to occur (S&P up around 60%). Many financiers minds have been bewildered somewhat and find it incredulous that Wall Street and Main Street could disconnect so alarmingly. Today the bulls still hold the market by the scruff of the neck but as I highlighted in my ‘market warning’ email of 11th September investors globally have entered dangerous territory. Alarmingly markets and investors are ignoring consumer confidence statistics alerted to the fact that unemployment is actually rising (see US non-farm pay roll numbers recently) and production is suffering as businesses fail to come to terms with lower revenues and fewer customers. These same consumers, many of them cash investors, are hardly showing much faith in the stock market either. Cash net inflows into US equity funds is a measly $2.6bn in the last 6 months whereas bond fund inflows have increased appreciably. Politicians crow about the supposed success of various measures especially the scrappage schemes and yet GM report a drop of actual car sales end-Sept as -47% year on year. This is hardly good news.
In UK banking sector many tax-payers (self-employed & SME’s mainly) complain that lending has stalled or at least when proffered is wholly unreasonable. Despite a bank rate of ½% most banks are still profiteering from their entrapped customers (one can count the number of UK retail banks remaining on one’s fingers leaving the thumbs free). With FSA now calling for 3 x more capital amongst UK banks (to be held in Gov Bonds) one wonders where the money is coming from or how the lending practices and practicality thereof can be improved and ignited. Elsewhere billions have been raised in discounted rights issues where many household names have stiffened resistance by bolstering over-geared balance sheets but as I’ve highlighted since joining Redmayne’s in January 2005 the (dis)trust in universal accounting practices whereby companies are being encouraged (by accountants, consultants and investment bankers) to spuriously withhold detailed information concerning derivative positions and suchlike from shareholders is still very much in evidence. With regulators, politicians and market commentators calling for better transparency in the mature economies the opposite still seems to be the case when it comes to treating shareholders fairly. This and unfathomable corporate governance is the most damaging aspect of the latter stages of the long bull run that encompassed dot-com and then a global base metals stampede. In essence the continued prospects in the BRIC’s and other emerging markets are keeping mature markets alive but the real concern should be that practices adopted by western banks might just be replicated in the final engines of growth which the ‘emerging/emerged’ markets appear to represent. With very little growth in mature markets being translated to the bottom line it’s likely that more dividends are cut in problematic sectors as businesses struggle to manage and profit in an increasingly slowing global economy. Over-regulation could easily kill off many more smaller businesses unless incoming governments can get to grips with curbing the Public Sector and the nonsense that goes with it. Obama, Cameron, and Blair (in anticipation of the Fettes boy’s rise to head boy of the EU Senate) may just find that trying to translate jobs from the public to private sectors is virtually impossible in the current unreal regulatory universe. The domestic outlook for investors and young people is truly depressing and it’s not surprising that the pessimists are suggesting that the so called recession may well migrate towards The Greater Depression.
With £175 billion of Quantitative Easing in UK and some similarly shocking US$ numbers over the pond the real result of all this regulatory and governmental interference in capital markets is that debt levels across the private and public sectors is still spiraling (out of control?). I heard the other day that every citizen in UK may well have to pay directly/indirectly £25,000 per person for years to come just to stall the overall public sector debt. This frightening scenario just hasn’t been taken on board by most of the electorate (yet). Nor by most politicians either nor the vast numbers of spin doctors by the judge of it.
A further major sell-off of global equities is likely quite soon. Multiples (price earnings ratios) and valuations on all accounts appear over-cooked (see 20 & 30 day moving averages). A nasty surprise may come from China very soon as the 10s of millions there embrace all the creature comforts of rapid growth <=Rapidly rising property prices, extraordinary sales in domestic goods -computers, mobiles, iPods, etc, new factories (cars), greater mobility and a stock market in the stratosphere, etc, etc.> Where has one heard that before?
When will equities become attractive (again)? Well, some think they already are but markets don’t just retrace and rise constantly and consistently. It may be a worrying loss of faith in the $, it may be a shock in taxes, it may be a black swan event (Iran, Korea, Afghanistan), an implosion of growth in China &/or emerging markets, a major corporate scandal and failure (& this is quite possible), but something will happen that brings markets back to reality.
Going forward hereon the shrewdest way to position one is to focus on oils, metals (mainly of the precious variety) and the odd gem amongst traditional equities. To date those investors holding blue-chips may indeed have had a good run but when the train slides off the track or enters the siding the repairs or replacements may be very laboursome and cumbersome.
To summarise then I continue to believe that the next quarter is (yet again) one to batten down the hatches! My favourite stock picks are BP, Royal Dutch Shell ‘B’ (safe dividends), Randgold, Harmony Gold and Yamana Gold; the latter 3 are ‘insurance viz-a-viz capital protection’ against a severe downturn predicted. I am still avoiding banks/financials and thinking seriously about pharmas (Glaxo), water (Northumbrian) and grocers (Sainsbury). Whether Noudini is right about the ‘U’ shape is open to conjecture as others predict ‘L’ & ‘W’ patterns but a wake up call similar to what happened when Lehman failed is a virtual certainty. Detroit still is in a mess and western industries are struggling to maintain momentum. The stock markets, of course, aren’t looking at Main Street just yet but I detect an undercurrent of doubt creeping in. As you know I have been advocating high cash positions throughout the last Q and exposure in ‘gold’ where appropriate as inflation can be spotted on the horizon.
Friday, 11 September 2009
Treating Stockbrokers Fairly (TSF)
OPEN LETTER TO LONDON STOCK EXCHANGE/SECURITIES & INVESTMENT INSTITUTE/APCIMS/FSA/UK GOVERNMENT/MEMBERS OF PARLIAMENT/FLEET STREET/INVESTORS & OTHERS ON THE ELECTORAL ROLE WHO BELIEVE IN DEMOCRACY, FAIR PLAY & THE RIGHT TO WORK
I suppose if you're a builder and have been putting up skyscrapers for a living for 30 years plus you would be pretty miffed if someone told you that in order to continue what you've been doing for most of your adult life you would have to take a degree course. Furthermore this examination would take around 3 months off your work schedule and might lose you some contracts in the process. Without this examination and the assumed certificate you would NOT be able to practice as a self-taught builder. As part of this examination process you might be told that the British way of building was no longer the norm (by someone who has never lifted a brick) and that you must adopt new methods that have only recently been proved to be disastrous for the industry. In addition the reappraisal of the Health and Safety issues surrounding your building activities would be reappraised and a lecturer would remind you of the need to wear a hard hat even whilst sitting inside your wooden shed eating sandwiches and drinking builders tea. READ ON....
My partner, a former Lieutenant in the Russian Army, a daughter of KGB parents (& a friendlier family you couldn't imagine to meet) has ordered me to respond in the appropriate manner. I was brought up in a typical English (actually the roots are Cornish but I wont dwell on that just now) family with strong protestant beliefs and a self-belief that fair play and hard work would pay off in the world of business, a business or profession as it happens that family members have been doing the same way for over 135 years. In the traditions of many apprentice trades the world of stockbroking and investment management has evolved through brokers passing on trading and investment techniques to younger brethren and investors in turn often writing and talking about their experiences sometimes to brokers but usually to all and sundry. I have a letter dated 1986 during 'Big Bang' suggesting that I was deemed back then (perhaps) as someone who they would grant a Registered Representative status to. The letter goes on to say that the LSE would respond in due course. That follow-up letter from London Stock Exchange ("LSE") never arrived and as my father, my younger brother, around 3500 Members of the Stock Exchange can testify the single ownership shares controlled by them were unceremoniously swapped for a pittance, £10,000 each. In order to appease this obvious anomaly in valuation their membership was transferred to a new FREE body (The Securities Institute) who promised to protect their interests and uphold the ethics that once proud Members maintained. In addition those younger brokers and practitioners, then described as the "marzipan layer", were unconditionally offered FREE membership alongside the former Members, some who had taken Stock Exchange Practice Examinations, others simply fathered in. It should be recalled that the "LSE" effectively suspended its examinations around 1986 and The Securities Institute (as it was known then) took on the old Members and a few "marzipan" brokers without any plans to introduce or replace the existing arrangements. My interview with the then CEO clearly stated to me personally at SII offices near the Monument that a waiver for further examination would be accepted at any time in the future. My father, my younger brother, myself and around 3500 stockbrokers and stockjobbers thus became MSI (Members of The Securities Institute). Many brokers back then were alarmed at the way that investment banks were behaving; the rest is history. The Securities Association was formed from the Financial Services Act 1986 and all 'registered representative' licences were administered to those of us deemed competent to give advice. Those that had been simple assistants were given 'registered trader' permits allowing them to take orders rather than actually give advice or transact. Now a peculiar thing happened I recollect prior to the new Act, FSMA 2000, replacing the FSA 1986. All compliance departments reassessed those in the front office and 'control functions' were introduced. I remember being seriously perturbed that my qualifications in banking, my experience as an inter-bank money broker and my experience as a bullion broker & clerk between 1975 (when I left school) and 1980 when I joined a stock exchange member firm would NOT be taken into account. In essence I believe that it was too complicated for my compliance department at that time to processs these functions but ultimately my control functions were (see FSA website register on the internet) CF21 Investment Adviser, CF26 Customer Trading and interestingly CF27 Investment Management dates 1st Dec 2001 to 31st October 2007. These dates are interesting because it would appear now that brokers and investment managers in my position have been suitably stitched up by FSA and all the bodies that have interests in maintaining CPD (Continued Professional Development) and generating vast revenues from providing courses and examinations for younger less experienced capital markets personnel. On 1st November 2007 prior to the June 2009 publication of the 168 page Retail Distribution Review my control function was downgraded like many others to merely CF30 Customer allegedly replacing the previous 3 functions but actually teeing us all up for a new Level 3/Level 4 process. Words like draconian and orwellian spring to mind but it's the sheer ageist attitude here together with the lack of honesty, integrity and ethics that I find extraordinary. No wonder then that many secretly are alarmed at the little white book that was sent to me recently by The Securities & Investment Institute (now with 40,000 members)entitled "Integrity At Work". In addition the FSA have introduced another interesting sideshow called "Treating Customers Fairly". It might be argued, and who could disagree, that the banks have NOT treated their customers fairly but without sounding arrogant or patronising I doubt the same could be said for the remaining UK stockbroking firms nor their personnel. Perhaps if the UK government had listened back in 1983-1985 to the experienced exchange personnel who objected to banks competing head to head with brokers in investment products and trading enterprises then this debate about professionalism and integrity would not have surfaced. It was evident, however, to many that once the Conservative Government had introduced the FSA 1986 and a new regime of regulation and compliance that a monster would be created. I suppose that the great irony is that it was the same Thatcher government who preached PRODUCTIVITY that created this institution, the super-regulator, that meanders from one crisis to the next, preventing established practitioners from driving the investment community. One former broker I know eloquently referred to the compliance industry as THE DEALING PREVENTION UNIT and he wasn't far from reality. Having looked at the RDR myself I find little to commend. It has little mention of what we do daily and seems to forgot the raison d'etre for having stockbrokers and investment managers in the first place. The sheer misundertanding of the word INVESTMENT is the basis of what is wrong with FSA (and New Labour). The likelihood of FSA addressing the need to attract suitable professional personnel is unlikely. In the past few years there has been a deliberate attempt by FSA to replace ex-practitioners with lawyers, accountants, professional bureaucrats and such like. I can't see any reasonable experienced and competent stockbrokers and investment managers moving across to a compliance role.
The Conservative Party should oppose the RDR and all its recommendations as it goes against the grain of what the british end of the market stands for. The sooner the FSA is disbanded the better along with the permanent dissolution of FSMA 2000 and the interference that goes with it. Over the last few years many onshore bucket shops have been granted licences by FSA; if they sat offshore they would be called boiler rooms. A new exchange that is self-regulated like the old exchange that my family were part for over 130 years is long overdue. The SII like many other groups with vested interests needs clearer direction and I think UK broking personnel need to stand up to these orwellian changes. The alternative is to move offshore BUT this would be a great disservice to the many '000s of clients that already have had to put up with monstrous legislation, the costs of which have been passed on to them and are likely to continue to do so. The current millions of complaints outstanding with the banking ombudsman will pale into significance if experienced personnel grandfathered into the process are treated this way.
YOUR EXCHANGE NEEDS YOU TO STAND UP TO THIS HYPOCRISY AND SAY NO TO 'FSA' AND NO TO 'RDR'. WE ALL RECOGNISE THE NEED TO IMPROVE STANDARDS BUT THIS IS ONE STEP TOO FAR LORD TURNER!
CAN I SUGGEST A NEW FSA DIRECTIVE "TREATING STOCKBROKERS FAIRLY" (TSF) FOR THE 5,000+ BROKERS EFFECTED BY THIS NONSENSE?
I suppose if you're a builder and have been putting up skyscrapers for a living for 30 years plus you would be pretty miffed if someone told you that in order to continue what you've been doing for most of your adult life you would have to take a degree course. Furthermore this examination would take around 3 months off your work schedule and might lose you some contracts in the process. Without this examination and the assumed certificate you would NOT be able to practice as a self-taught builder. As part of this examination process you might be told that the British way of building was no longer the norm (by someone who has never lifted a brick) and that you must adopt new methods that have only recently been proved to be disastrous for the industry. In addition the reappraisal of the Health and Safety issues surrounding your building activities would be reappraised and a lecturer would remind you of the need to wear a hard hat even whilst sitting inside your wooden shed eating sandwiches and drinking builders tea. READ ON....
My partner, a former Lieutenant in the Russian Army, a daughter of KGB parents (& a friendlier family you couldn't imagine to meet) has ordered me to respond in the appropriate manner. I was brought up in a typical English (actually the roots are Cornish but I wont dwell on that just now) family with strong protestant beliefs and a self-belief that fair play and hard work would pay off in the world of business, a business or profession as it happens that family members have been doing the same way for over 135 years. In the traditions of many apprentice trades the world of stockbroking and investment management has evolved through brokers passing on trading and investment techniques to younger brethren and investors in turn often writing and talking about their experiences sometimes to brokers but usually to all and sundry. I have a letter dated 1986 during 'Big Bang' suggesting that I was deemed back then (perhaps) as someone who they would grant a Registered Representative status to. The letter goes on to say that the LSE would respond in due course. That follow-up letter from London Stock Exchange ("LSE") never arrived and as my father, my younger brother, around 3500 Members of the Stock Exchange can testify the single ownership shares controlled by them were unceremoniously swapped for a pittance, £10,000 each. In order to appease this obvious anomaly in valuation their membership was transferred to a new FREE body (The Securities Institute) who promised to protect their interests and uphold the ethics that once proud Members maintained. In addition those younger brokers and practitioners, then described as the "marzipan layer", were unconditionally offered FREE membership alongside the former Members, some who had taken Stock Exchange Practice Examinations, others simply fathered in. It should be recalled that the "LSE" effectively suspended its examinations around 1986 and The Securities Institute (as it was known then) took on the old Members and a few "marzipan" brokers without any plans to introduce or replace the existing arrangements. My interview with the then CEO clearly stated to me personally at SII offices near the Monument that a waiver for further examination would be accepted at any time in the future. My father, my younger brother, myself and around 3500 stockbrokers and stockjobbers thus became MSI (Members of The Securities Institute). Many brokers back then were alarmed at the way that investment banks were behaving; the rest is history. The Securities Association was formed from the Financial Services Act 1986 and all 'registered representative' licences were administered to those of us deemed competent to give advice. Those that had been simple assistants were given 'registered trader' permits allowing them to take orders rather than actually give advice or transact. Now a peculiar thing happened I recollect prior to the new Act, FSMA 2000, replacing the FSA 1986. All compliance departments reassessed those in the front office and 'control functions' were introduced. I remember being seriously perturbed that my qualifications in banking, my experience as an inter-bank money broker and my experience as a bullion broker & clerk between 1975 (when I left school) and 1980 when I joined a stock exchange member firm would NOT be taken into account. In essence I believe that it was too complicated for my compliance department at that time to processs these functions but ultimately my control functions were (see FSA website register on the internet) CF21 Investment Adviser, CF26 Customer Trading and interestingly CF27 Investment Management dates 1st Dec 2001 to 31st October 2007. These dates are interesting because it would appear now that brokers and investment managers in my position have been suitably stitched up by FSA and all the bodies that have interests in maintaining CPD (Continued Professional Development) and generating vast revenues from providing courses and examinations for younger less experienced capital markets personnel. On 1st November 2007 prior to the June 2009 publication of the 168 page Retail Distribution Review my control function was downgraded like many others to merely CF30 Customer allegedly replacing the previous 3 functions but actually teeing us all up for a new Level 3/Level 4 process. Words like draconian and orwellian spring to mind but it's the sheer ageist attitude here together with the lack of honesty, integrity and ethics that I find extraordinary. No wonder then that many secretly are alarmed at the little white book that was sent to me recently by The Securities & Investment Institute (now with 40,000 members)entitled "Integrity At Work". In addition the FSA have introduced another interesting sideshow called "Treating Customers Fairly". It might be argued, and who could disagree, that the banks have NOT treated their customers fairly but without sounding arrogant or patronising I doubt the same could be said for the remaining UK stockbroking firms nor their personnel. Perhaps if the UK government had listened back in 1983-1985 to the experienced exchange personnel who objected to banks competing head to head with brokers in investment products and trading enterprises then this debate about professionalism and integrity would not have surfaced. It was evident, however, to many that once the Conservative Government had introduced the FSA 1986 and a new regime of regulation and compliance that a monster would be created. I suppose that the great irony is that it was the same Thatcher government who preached PRODUCTIVITY that created this institution, the super-regulator, that meanders from one crisis to the next, preventing established practitioners from driving the investment community. One former broker I know eloquently referred to the compliance industry as THE DEALING PREVENTION UNIT and he wasn't far from reality. Having looked at the RDR myself I find little to commend. It has little mention of what we do daily and seems to forgot the raison d'etre for having stockbrokers and investment managers in the first place. The sheer misundertanding of the word INVESTMENT is the basis of what is wrong with FSA (and New Labour). The likelihood of FSA addressing the need to attract suitable professional personnel is unlikely. In the past few years there has been a deliberate attempt by FSA to replace ex-practitioners with lawyers, accountants, professional bureaucrats and such like. I can't see any reasonable experienced and competent stockbrokers and investment managers moving across to a compliance role.
The Conservative Party should oppose the RDR and all its recommendations as it goes against the grain of what the british end of the market stands for. The sooner the FSA is disbanded the better along with the permanent dissolution of FSMA 2000 and the interference that goes with it. Over the last few years many onshore bucket shops have been granted licences by FSA; if they sat offshore they would be called boiler rooms. A new exchange that is self-regulated like the old exchange that my family were part for over 130 years is long overdue. The SII like many other groups with vested interests needs clearer direction and I think UK broking personnel need to stand up to these orwellian changes. The alternative is to move offshore BUT this would be a great disservice to the many '000s of clients that already have had to put up with monstrous legislation, the costs of which have been passed on to them and are likely to continue to do so. The current millions of complaints outstanding with the banking ombudsman will pale into significance if experienced personnel grandfathered into the process are treated this way.
YOUR EXCHANGE NEEDS YOU TO STAND UP TO THIS HYPOCRISY AND SAY NO TO 'FSA' AND NO TO 'RDR'. WE ALL RECOGNISE THE NEED TO IMPROVE STANDARDS BUT THIS IS ONE STEP TOO FAR LORD TURNER!
CAN I SUGGEST A NEW FSA DIRECTIVE "TREATING STOCKBROKERS FAIRLY" (TSF) FOR THE 5,000+ BROKERS EFFECTED BY THIS NONSENSE?
MARKET WARNING- & a strong case for Precious Metals exposure
What really is happening in the Stock Market - MARKET WARNING & the strong case for Precious Metals exposure
-Richard Hoblyn FSI
Since 9th March the FTSE100 (S&P and DJIA have similarly rallied) has rallied almost 50%. Why? Well, in essence there has been a strong media drive (spun no doubt by Mendelsohn) that 'green shoots' and recessionary recovery is well on it's way. Recently commentators have suggested that the recovery and speed of it has been remarkable and even efficient. The predictions that the TARP program and Quantitative Easing may cause horrific economic problems in the future has been brushed aside. The old market adage "sell in May...don't come back till St.Leger Day" has been quashed as markets have been rising almost untested. The truth is that volumes have not been that high whilst institutions have sat on the fence. Day traders and active investors have had a field day as SHORTS have been squeezed mercilessly. Hedge funds have gone out of business only to be replaced by new funds, ably supported and funded by the very architects of the credit crunch. Regulation has failed yet again to curb excesses despite political and electoral anger. Guaranteed bonuses and just ordinary bonuses have been spun to death as shareholders get fleeced by the very managers that they effectively control. Balance sheets remain overstretched despite numerous fund-raisings and reorganisations but banks are still not playing the game. Funds raised through QE have not found their way into SME's and the private sector in the UK has been abandoned. The scale of debt amongst banks and large cap stocks is still breathtaking and no-one seems to be getting to grips with the destructive forces surrounding derivatives that many in financial services just don't understand. Many companies with questionable balance sheets should be ignored by sensible investors but sadly many are getting sucked into this rally. The old "Rockefeller shoe-shine boy" effect is back as new investors (just like 1930) clamber aboard the runaway train.
What is going to stop this train from getting to its destination? A major derailment is on the cards as the US$, £stg & Euro come under more pressure as the Chinese Yuen screams for attention. The recent rise in the gold price has got most short-term bulls of precious metals excited. Long-term gold/silver bulls such as myself remain relaxed as daily activity and volatility in precious metals still remains relatively low compared to the early '80s when bullion offices had queues of investors selling scrap or buying krugerrands. Just this week there was confirmation (& this is significant although Bloomberg hasn't yet caught up to speed on this) that the Chinese Goverment have accumulated over 1,000 tonnes of gold in preparation for a pseudo-gold standard attack on the US$. Of course China doesn't want to rock the boat just yet as it needs to accumulate a great deal more tonnage to combat the effect of it's $2+ trillion exposure in US Treasuries. The story goes that once China feels it has enough enabling stabilisation of its own currency it will pull the plug on its Treasury Bills, probably making substantial losses along the way, but of course the $ would spin out of control and gold would rocket to $2,000+++ thus compensating them. The effect would be a swift replacement of the reserve world currency to the YUEN. Let's not forget that the chinese invented the capital markets ideology well ahead of the British in 18th/19th centuries. Another alarming factor in the markets today (again a case for further chinese buying of gold) is the growth rate there of circa 7-8% (well below the 11% but above the recent 5-6% end 2008) that is fuelling chinese property prices (on cheap credit!) and the stock market which is a vast bubble. The chinese authorities are trying to educate their army of investors but like 1929, 1974, 1987 & 2008 it may just be too late. My own take on this is that global investors are expecting a capitulation in the USA (the Obama healthcare program is one step too far and Detroit thinking is dreamy) whereas the likelihood of a major slowdown in China after a burning correction there may put the skids on further western recovery. Emerging markets (ignoring China for a moment) are still growing and there is no doubt the demand will continue regardless so some exposure with Mobius' Templeton Emerging & JP Morgan Emerging seems sound.
The FTSE100 by my calculation will hit resistance around 5133 and I urge everyone to review exposure in property portfolios and equities. The virtual 0% interest rate policies adopted by the west could suddenly change direction (the Economist Intelligence Unit has suggested this) catching everyone out and sending equities and property prices further south. The bulls, however, argue that Kraft's bid for Cadbury's is the beginning of new M&A activity. I don't buy this argument as accounting issues and a lack of genuine investment for new businesses is at an almost standstill. Furthermore the recent GM Opel scenario does not bode well for EU relations as unions smell the flavour of the stale coffee down the road; this could be a repeat of the '70s as UK industrialists ignite ill feeling towards UK (mis)governance.
Throughout the remainder of 2009 I expect oil activity to continue (this is the one sector where some genuine M&A consolidation is likely), would be wary of the base metals story and continue to recommend exposure in precious metals despite further deflationary pressures. The world global markets are like a pressure pot just now. It's just a case of where it will blow next but some alarming f/x rate moves are on the cards very soon.
-Richard Hoblyn FSI
Since 9th March the FTSE100 (S&P and DJIA have similarly rallied) has rallied almost 50%. Why? Well, in essence there has been a strong media drive (spun no doubt by Mendelsohn) that 'green shoots' and recessionary recovery is well on it's way. Recently commentators have suggested that the recovery and speed of it has been remarkable and even efficient. The predictions that the TARP program and Quantitative Easing may cause horrific economic problems in the future has been brushed aside. The old market adage "sell in May...don't come back till St.Leger Day" has been quashed as markets have been rising almost untested. The truth is that volumes have not been that high whilst institutions have sat on the fence. Day traders and active investors have had a field day as SHORTS have been squeezed mercilessly. Hedge funds have gone out of business only to be replaced by new funds, ably supported and funded by the very architects of the credit crunch. Regulation has failed yet again to curb excesses despite political and electoral anger. Guaranteed bonuses and just ordinary bonuses have been spun to death as shareholders get fleeced by the very managers that they effectively control. Balance sheets remain overstretched despite numerous fund-raisings and reorganisations but banks are still not playing the game. Funds raised through QE have not found their way into SME's and the private sector in the UK has been abandoned. The scale of debt amongst banks and large cap stocks is still breathtaking and no-one seems to be getting to grips with the destructive forces surrounding derivatives that many in financial services just don't understand. Many companies with questionable balance sheets should be ignored by sensible investors but sadly many are getting sucked into this rally. The old "Rockefeller shoe-shine boy" effect is back as new investors (just like 1930) clamber aboard the runaway train.
What is going to stop this train from getting to its destination? A major derailment is on the cards as the US$, £stg & Euro come under more pressure as the Chinese Yuen screams for attention. The recent rise in the gold price has got most short-term bulls of precious metals excited. Long-term gold/silver bulls such as myself remain relaxed as daily activity and volatility in precious metals still remains relatively low compared to the early '80s when bullion offices had queues of investors selling scrap or buying krugerrands. Just this week there was confirmation (& this is significant although Bloomberg hasn't yet caught up to speed on this) that the Chinese Goverment have accumulated over 1,000 tonnes of gold in preparation for a pseudo-gold standard attack on the US$. Of course China doesn't want to rock the boat just yet as it needs to accumulate a great deal more tonnage to combat the effect of it's $2+ trillion exposure in US Treasuries. The story goes that once China feels it has enough enabling stabilisation of its own currency it will pull the plug on its Treasury Bills, probably making substantial losses along the way, but of course the $ would spin out of control and gold would rocket to $2,000+++ thus compensating them. The effect would be a swift replacement of the reserve world currency to the YUEN. Let's not forget that the chinese invented the capital markets ideology well ahead of the British in 18th/19th centuries. Another alarming factor in the markets today (again a case for further chinese buying of gold) is the growth rate there of circa 7-8% (well below the 11% but above the recent 5-6% end 2008) that is fuelling chinese property prices (on cheap credit!) and the stock market which is a vast bubble. The chinese authorities are trying to educate their army of investors but like 1929, 1974, 1987 & 2008 it may just be too late. My own take on this is that global investors are expecting a capitulation in the USA (the Obama healthcare program is one step too far and Detroit thinking is dreamy) whereas the likelihood of a major slowdown in China after a burning correction there may put the skids on further western recovery. Emerging markets (ignoring China for a moment) are still growing and there is no doubt the demand will continue regardless so some exposure with Mobius' Templeton Emerging & JP Morgan Emerging seems sound.
The FTSE100 by my calculation will hit resistance around 5133 and I urge everyone to review exposure in property portfolios and equities. The virtual 0% interest rate policies adopted by the west could suddenly change direction (the Economist Intelligence Unit has suggested this) catching everyone out and sending equities and property prices further south. The bulls, however, argue that Kraft's bid for Cadbury's is the beginning of new M&A activity. I don't buy this argument as accounting issues and a lack of genuine investment for new businesses is at an almost standstill. Furthermore the recent GM Opel scenario does not bode well for EU relations as unions smell the flavour of the stale coffee down the road; this could be a repeat of the '70s as UK industrialists ignite ill feeling towards UK (mis)governance.
Throughout the remainder of 2009 I expect oil activity to continue (this is the one sector where some genuine M&A consolidation is likely), would be wary of the base metals story and continue to recommend exposure in precious metals despite further deflationary pressures. The world global markets are like a pressure pot just now. It's just a case of where it will blow next but some alarming f/x rate moves are on the cards very soon.
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