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Sebastian

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About Sebastian

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  1. If you bought in the last 2 months I would exit now and reap the gains. May is traditionally a selling month for stocks and there is plenty of reasons to heed that tradition now.
  2. The answer is a resounding NO! This is a classic bear market rally and while stocks may have risen 30% since early March, the very fact that global stocks have risen at such an unprecedented pace, against what was supposed to have been the worst recession since 1930, is evidence enough that this cannot reflect reality. There is this massive hoodwinking campaign underway, primarily in the US, which is designed to try and stimulate the economy through the use of positive spin. This spin should not be believed though and the talk of green shoots are almost entirely premature at this stage. Many companies earnings in quarter 1 have beaten market expectations simply because their overheads have been reduced through deflationary prices and massive layoffs. There isn't a single country in the developed world that has experienced growth in either its manufacturing or services sectors between Janaury and March, so any upticks in company earnings in quarter 1 has had nothing to do with economic expansion. And following on from quarter one, by Wednesday of next week we will have confirmation that no economy in the developed world experienced growth in either the manufacturing or services sectors in April. Some points to ponder which help demonstrate that the optimism is exaggerated: 1) The US Federal Reserve has doubled its balance sheet over the past 12 months, essentially pumping an additional 1.2 trillion dollars into the system, yet the economy has continued to shrink and not grow. This money has not made its way into the wider economy because it has effectively been used to buy bad debts off banks and essentially pay for the wealth created and squandered in the past, rather than the future. 2) The dogs on the street can tell you that the ability of attaining credit is worse now than it ever was. The story that credit markets are easing is really to do with the fact that banks are now paying each other for loans rendered previously and that is it. They are not using the money afforded to them by Governments and Central Banks to lend to individuals or to businesses. The vast majority of businesses across the globe don't have access to enough credit to open a lollipop stand, not to mention engage in expansion programs or M&A. 3) The economies of every major country (i.e. US, Japan, France, Germany, UK, Spain etc.. etc.), with the notable exception of China, continue to shrink. While the pace of shrinkage may have slowed, they are still shrinking, which means the situation is actually getting worse, not better. 4) There was a big play last month in the US about the fact that housing starts rose 22% in the month of February, over January. It was widely suggested a bottom was in place in the US housing market and this as the evidence. However, when the report for New Home Sales in March came out last week, the figures showed that the sale of new homes had crashed during the month, with the annual rate of new home sales sinking to the lowest figure on record. One has to beg the question as to why new homes are being built in a situation where nobody is buying them. February's figure for housing starts was an anomoly, because of seasonal factors and because of the very fact we were coming off historic lows, where it couldn't get any worse. 5) US employment is falling at an accelerated pace. While changes in employment tend to be lagging indicators, an economy will not grow in a situation where more and more people are losing their jobs. Today it was reported that the number of people seeking jobless claims for the first time in the US fell 14,000 last week. When one looks more carefully at the report though, one finds that the previous week's initial jobless claims number was revised higher by 5,000, while even this week's actual figure of 631,000 is still very close to the historic highs for the indicator. What didn't gain any media attention at all was the report that the number of people seeking unemployment benefit overall actually rose by 133,000 in the week. The employment situation in the US continues to get worse, much worse. 6) US Personal income and expenditure both fell in March. Income has now fallen in 5 of the past 6 months and annual income (at 0.3%) is now running at the lowest level since records began. Consumer spending in the US fell in March for the first time in 3 months and with the annual rate of spending now down 0.9% (the lowest on record), it is clear that there are no green shoots coming from the consumer side, to offset against the shrinking industry sectors. 7) Inflation rates are falling across the globe and the current annual rate of 0.6% in the euro zone (for both March and April) is the lowest rate of inflation seen since the euro came into existence. Indeed many of the countries within the euro area are actually experiencing overall deflation in their economies. Deflation has also returned in Japan. Falling prices are caused by falling demand and for as long as inflation rates depreciate, it means demand is ebbing away and that the economy is essentially getting smaller. This is hardly a cause for optimism. 8) The stimulation packages launched in each of the major economies has done little to stimulate growth as of yet. This is deeply worrying because it means the actual extent of the problem is much worse than what the figures appear to be telling us. The US economy shrank by over 6% in both quarter 4 and quarter 1, despite the hundreds of billions of dollars of extra money thrown at it. The stimulus packages launched elsewhere have had the same lack of success. 9) Lack of consensus on what the solution should be. The US and the European Unions have adopted largely contradictory policies for taking us out of the mess. Germany, and by way of proxy - the ECB, do not (thus far) believe in quantitative easing to solve the economic crisis, while the US Federal Reserve is prepared to cut down a countryload of forests to print and helicopter whatever level of cash it might take to remedy (or temporarily bandage?) the crisis. While Germany does have resources to pour its own 'earned' capital into the German economy, a little euro minnow like Ireland believes it can grow its economy by wholesale cuts in spending and imposing higher taxes (i.e. shrinking the economy even further). While the Irish may not be at the races at all, the other protagonists remain a long way away from the checkered tape. The UK has a US mindset, but rather fewer friends (investors) to believe in it. I could go on, but it's getting laboured.... May could be the month to short the markets. Seb
  3. All the indices are the same. The Dow and the Dax have performed ever better. Stock markets have been stimulated a hungry breed of fund managers that have been very anxioud to get on the train and that are ready to believe any report that a bottom has been recorded and that we are well on our way to economic recovery. Anyone close to the coal face and the 'real' day-to-day business, upon which our paypackets and futures are determined, will tell you otherwise. Things are actually getting much worse and credit is non-existent, not only to house hunters, but to all facets of business. Most banks are offering zero level of refinancing to existing businesses. Many of the companies, which fund managers have been eager to support in the stock market over the past month, will not survive the crisis, including many of the banking institutions that no longer operate as 'real' banks. The UK has followed the same policy objectives as the US, but the UK attempts will not succeed because the UK economy does not command the same historic and longer-term appeal to outside investors, as does the US. Darling & Co. are stoking an inflationary blizzard through their rather complacent policy of QE. They had better hope that the ECB follows suit (Q/E), otherwise sterling might well capitulate and the UK government will have to be rescued by Europe. The European economy is in fact in a diabolical state and with the ECB so far behind the curve in terms of economic reality, the most desperate basket cases of Europe may yet turn out to be a core number of members of the euro brigade, ahead of the UK.
  4. I wouldn't! The base Bank of England rate is just 0.50%, so why should you pay 5.69%. In Ireland, the base rate is 1.25%, yet the 2 year fixed rate is 3.60%, with the 3 year rate offered at 3.96%. In the UK, the banks have yet to adjust their rates to reflect the rates charged to them by the Bank of England. This is because of the financial crisis. Before any economic recovery occurs (and base interest rates start rising again), UK mortgage rates will have to narrow significantly towards the Bank of England base rate. Wait! It is a bad time to lock in to a fixed rate if those are the rates on offer.
  5. You are right. There is an international-wide PR exercise underway to try to lure investors back into the market and boost stocks and confidence. The reality is however that things are worse than in living memory and available credit has not been as tight as it is at present. Most banks are essentially closed for business and are not operating as banks, even if some people believe their stock is worth a punt. GDP contraction in Europe for quarter one is going to make for scary reading and with Europe well behind the US in terms of the unemployment impact, Europe has a lot more pain coming its way. The US policy of berating us with plan after plan and plans about plans is soon going to lose its effectiveness and we are soon going to witness a major sell-off in financial markets, as reality takes root once again. May could be be a graveyard month for many stocks and indeed many currencies, including the euro.
  6. An interesting concept although it is an unlikely event. The US Federal Reserve has indicated it is considering buying back US Treasurys in a bid to inject fresh cash into the system. Why would Japan ditch its holding of Treasury notes, when the US is going to print money to buy back these Treasurys? It would be better to take the cash and invest it in the US economy in a bid to stimulate it, even if Japan ultimately ends up losing on that investment. Better still, take the money and invest it in developing the market for Japanese companies in China, as China looks set to become the key economic powerhouse over the coming decades. The current US consumer is significantly in debt and current US fiscal policy looks set to ensure future generations of Americans will inherit even greater debt, so the dynamics in terms of where global economic consumption is going to be concentrated in the future is shifting away from the US.
  7. This is the bigger picture. A country does not and cannot maintain a widening current account deficit indefinitely. You cannot continue to import goods you cannot pay for. One reaches the end of the economic cycle and a sea change has to happen, otherwise the economy will sink into a multi-year recession and will fall significantly behind its rivals. You are wrong in your assumption of what exchange rates mean for the cost of imports. In the last 18 months the Japanese yen has appreciated nearly 45% against the pound but you will not find that the cost of imported Japanese cars are 45% higher. In fact they probably have not moved up in price at all. What this means is that it is the Japanese manufacturers that are currently taking the hit, reflected in the fact that Toyota has just recorded its first quarterly loss in its history. If the yen remains as strong as it has, Japanese manufacturers will struggle to survive if they are to remain competitive and it will mean they may have to shift their manufacturing around to cut their costs. this is just one example. Last year when the Canadian dollar rose to above parity against the Us dollar, it put enormous pressure on Canadian manufacturers who all of a sudden had to massively drop their margins or operate at a loss if they were going to be able to compete in the US market. One of the reasons why China has been the most successful manufacturer and export leader in the world over the past 5 years is because the Government pegged their currency to the US dollar. The recent resurgence in the US dollar has had a negative impact on the Chinese economy, because it means they are no longer as competitive as they were on the international market. It needs a government with a vision to work through the advantages of a weaker currency. Weak currency policies have done very well in the recent past for Japan, China and even Switzerland.
  8. One has to look at the economy at large and the wider economy is currently seeing a significant slowdown in price inflation, something which is gathering pace. Price fluctuations in various resource types is very common, regardless of the exchange rate. Oil prices fell from a high of $147 in July to a low of $34 last week. That is a fall of over 70%. In this time, the pound has fallen 25% against the dollar, so there in sterling terms oil prices are now approx. 45% cheaper than they were just over 5 months ago.
  9. In fact it is very relevant. While initially it is a case of a British pig on an Irish plate, eventually the same British pig will beat the Irish pig in a race to the plates in France, Italy, Germany, Estonia, Russia etc., because the British version will offer much better value.
  10. The facts are actually showing that producer costs are falling at record levels (decelerating at a speed never seen heretofore) and while producers have thus far been slow to pass on the full cost reduction to consumers, they will be forced to and the inflation outlook is something the Bank of England has now cast aside as a concern. Indeed the overriding concern is that inflation may undershoot the target rate by some considerable extent over the next year, which is shy UK interest rates are on their way to 0% over the next couple of months.
  11. Above $2 for ages? No, you are wrong! Sterling has closed above $2.00 in just 6 months across the past 15 years and if you go back before that, each time the pound did happen to reach $2, it was followed by a spectacular decline. Sterling has been significantly overvalued for at least the past 3 years and it has now return closer to its longer run average exchange rate against the dollar. In terms of non-dollar denominated imports from other countries, consumers will be quick to realise there are disproportionate costs between UK produce and imported produce and this will help encourage the production of more home produce. I mean why buy a Danish pig when you can make your own? The longer run laws of economics tell us that a country cannot indefinitely widen its current account deficit and the chickens will always come home to roost at the end of an economic cycle. An economy cannot keep importing more than it can afford, especially when overseas investors are not prepared to invest in the economy to help pay the difference. The fundamentals of one's economy need a sea change when we reach this point.
  12. Good for Northern Ireland no doubt but not so good for retailers across the border in the Republic. I personally believe that a 1:1 exchange rate will be good for the UK economy, so long as both currencies do not weaken dramatically against the dollar. If the pound can hold its own against the dollar (maintain an exchange rate above $1.35) then imported inflation (of commodities and food denominated in dollars) should not be an issue and the UK could gain a significant advantage against the euro area on trade within the EU. UK consumers are depressed economically and with domestic indebtedness running at such high levels, the UK's economy will need to use the export market to help fuel an economic recovery. A weak currency will also help to attract major long-term investment funds into the domestic economy.
  13. Irish or not, If only it were funny. Personal Banking indeed. It is rather incredulous how a major bank could be corrupt to the point that individual Directors were able to just take massive personal loans from the Bank with the blessing of the Board and then to conspire with the auditors to hide this from the shareholders.
  14. Unlikely in the present form, but if they are broken up and absorbed into other banks, as least some people will keep their jobs. The board of Anglo Irish betrayed their own staff as much as they did the shareholders and one has to feel for these staff as their future is now uncertain.
  15. The company's shares are pretty much worthless at present and with everything that has gone before, it is difficult for investors to get excited about holding an equity share in Anglo Irish Bank. Few expect them to survive and it is hard to see how they can. The Bank's Market cap value is only around €200million now and with Director's loans = 75% of the Bank's current value and almost certain write-downs totaling billions in the coming years, what investor in their right mind would want to touch them. And what international Banks would want to lend to them?
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