Tuesday, Jan 20, 2009
More bailouts to come, so keep selling sterling
MoneyWeek: More bailouts to come, so keep selling sterling
Britain’s not finished with bank bailouts yet. With the spectre of nationalisation hanging over the sector, and the Bank of England ready to start printing money, the outlook for the pound is grim.
Posted by damien @ 11:10 AM (1677 views) Add Comment
17 Comments
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1. inbreda said...
and so, therefore, is imported inflation.
2. greytornado said...
Sell sterling and buy gold - so easy anyone can do this one if they want to.
3. mark wadsworth said...
Sterling will bounce back once all the other countries start bailing out their banks, or in the case of hte Eurozone, once they start bailing out whole countries.
4. greytornado said...
Taking on from Mark, Eire is one to watch......................As I type this, gold is in a vertical climb this morning - price now up to £612 an ounce and climbing...................
5. stillthinking said...
The second comment on this,
http://www.fool.co.uk/news/investing/2009/01/20/time-to-take-a-punt-on-a-bank.aspx
is interesting. He suggests that the write-downs are partly fake. When I thought of a writedown I always tend to think that means they give up on recovery, and the opposing side is that the defaulting party is bankrupt. But this guy suggests that they are writing down debts which are, in fact, not likely to default. In other words pretending that they have no hope of recovery when actually they do, just to exaggerate profits in the future, and presumably also squeeze the government for cheap funding and offload their truly bad debts.
Whether that is true or not I have no idea. Just talking about Barclays also.
6. plato said...
There is no escape for all. Once the dilution of inflated wealth reaches its proper level and overall correction has taken place, things will calm down. There will always be the divide between rich and poor as there always has been,but the created Nouveau riche who have become so for no genuine economic reason will lose most.
I would guess that the UK has the highest proportion per capita of these, being an over expensive and fashionable place. This is why the symptoms are are so obvious and lead the way in Europe. Other countries in Europe will surely follow. It is purely a question of time.
7. bellwether said...
If the banks are not nationalised they are hopelessly undervalued and offer a genuine once in a lifetime opportunity. I guess the market thinks it is a big if.
Market Cap of Barclays hit estimated 2008 profit at a point this morning ie you could buy the whole thing for a years profit (cf RBS who bought ABM Ambro for 32 times forward earnings!).
The banks are technically insolvent (as they always are when asset prices drop) because they have to write down all assets against which debt is secured but the asset only actually matters in the event of default.
8. icarus said...
mw @3. Yep, the eurozone is heavily exposed to the financial mess too. And the EU project has encouraged banks to grow too big for individual states to save them and forbids state aid. The Achilles heel there is that a banking system arguably needs to be underwritten by a state with tax-raising powers and the authority to print money (in return for ensuring that credit is chanelled into broadly 'productive' rather than 'speculative' directions - a quid pro quo that broadly worked in much of the world before the US/UK banks drew all economic activity under the sway of speculative financial capital). In addition, western European banks control eastern European banks - will we be seeing the latter increasingly starved of credit as the former fight to deleverage and survive?
9. techieman said...
bellwether yes - thats why i said in another thread that a punt on RBS was worth considering even if they are 100% nationalised for 11p, there probably will be some speculation that they wont be nationalised first! Thats not a recomendation btw.
10. 51ck-6-51x said...
If Lloyds, for example, is not not nationalised, then when does one buy - just before the market thinks the assets have finished declining in value ...would that be now, or is there more to come?
11. bellwether said...
51cj - investment is about working out likely forward earnings relative to your capital. Short of nationalistaion any of the financials look to be at fire share prices over the long term .
Of UK banks I prefer Barclays because it didn't take govt money first time round and made a good profit in 2008. It is worth remembering that banks can make money by doing nothing ie just sitting there and having loans repaid. I'd note also that the banks are the biggest beneficiaries of intrest rates going to zero.
That said people were touting as bargins when they were 4 times current price and outright nationalisation possible although I don't see what that would solve and would I suspect cause a proper run on sterling as it would be evidence that the govt were wanting to support assett prices at any cost.
12. inbreda said...
I think there is far more pain to come for banks. We all now that people have hardly started handing their keys back to the banks yet. House prices still haven't dropped anywhere near enough. Unemployment is heading the wrong way.
Although RBS might look cheap, it is very easy for the biggest of the big to die completely in this environment. And thinking that profits will ever be the same again is optimistic. Much of the profits for the last 10 years have been on the back of speculation on a one way bet (that is no longer one way!). If anything, new banks will be started or building societies will grow and banks like RBS will never regain market share.
13. bellwether said...
Inbreda I'd have agreed with you on prices a couple of months ago but I'd suggest everything short of armageddeon/nationalisation is now written into the price. Not that these are impossible.
Bear in mind that markets move way ahead of the economy and providing financials survive they will be first to rise and long before we are out of the woods economically.
14. bellwether said...
Ps I wouldn't touch RBS other than as a small short term trade, and probably not even then, like you I think its finished
15. Dohousescrashinthewoods said...
I heard on the Today Programme on Radio 4, around 8-8:30 this morning that an unnamed credit rating agency is rumoured to be about to downgrade UK sovereign debt. Apparently it's front-page news in the Telegraph or Times, but I can't find the story.
That would put us at the back of the class with Spain and Greece.
Has someone else spotted it?
16. 51ck-6-51x said...
@bellweather - "markets move way ahead of the economy" - exactly.
"I wouldn't touch RBS" - sure, why I asked about Lloyds really, it looks like RBS is a new experiment now, the gradual nationalisation.
17. flintster1994 said...
My tuppence worth;
I wouldn't touch any bank or financial organisation due to my moral stance. The current global banking system has been horrendiously destructive for humanity as a whole. A better system must exist and hopefully one will emerge from this sorry current state of affairs. Down with the banks!