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Everything posted by Sebastian

  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?
  16. I'm not so sure what they have done is illegal. We have only the perpetrators and the inept Financial Regulator (who should also resign or if he does not should be sacked with immediate effect) stating what happened was not illegal, but all of these people are frantically trying to cover their respective backsides and why should we believe them. The shareholders of Anglo Irish Bank should sue the entire former Board of the Bank for every cent they are worth to part compensate for the massive losses incurred by the shareholders as a result of the Board's corrupt practices. In addition the regulatory authorities that govern accountancy and auditing standards should act immediately and strike off the auditors that stood over this corrupt sham for the past 8 years. The auditors have seriously damaged the reputation of their practice and their complicity in this case could potentially end up costing the Irish taxpayer billions of euros. This is not a small auditing firm and they could be made to pay very big for their shameful role in all of this. As the Government of Ireland has taken a 75% stake in Anglo Irish today, they should really press forward with a plan to break it up and amalgamate it with other institutions as it is impossible to see how the Bank can survive in its present format. The entire Board should be sacked and replaced as a matter of urgency (including the reversal of last week's appointments made within the bank itself), to at least allow the Bank present a more acceptable face to the wider business world.
  17. This is the end for Anglo Irish Bank I fear. It was probably never going to survive anyhow but the fact that the bank's executive management has been exposed as an outfit that deliberately deceived investors and its own shareholders for 8 years on such an important financial reporting item as directors loans is totally unforgivable. And as to how the management of any bank could see it appropriate for a single Director to have loans totaling €87 million beggars belief. And then to cover this up in such an extraordinary manner must surely be criminal. How can the state guarantee the debts of a bank that has been managed in such a shoddy and irresponsible manner? And how can what they have done not be illegal? Surely there is a requirement for urgent legislation if bank deception of this nature is deemed to be legal. There are serious questions also to be asked of the Irish Nationwide Building society, whose management facilitated this heinous loan swap for 8 years. It makes it look as if the top management of both banks have been running some sort of cowboy cartel designed to deceive shareholders and financial markets alike. The Auditors of Anglo Irish Bank have also done their reputation irreparable harm, by being so conveniently blind. To overlook something of this nature one year might be put down to carelessness, but to do it for 8 years running just smacks of something altogether more rotten. If Anglo Irish Bank goes down the tubes, the auditors may well follow them. Shame on the lot of them!
  18. Liquidity is drained out of currency markets in the run-up to year end and currency moves can be quite wild. There is nothing fundamentally different today than there was yesterday, so the euro sell-off has nothing to do with economics. The same can be said for the euro's 20 cent rise over a 2-week period, from Dec 4 to Dec 18. EUR/USD would be lucky to move 20 cents in year under normal conditions, let along in just 10 trading sessions. Trading was becoming thin and the euro was getting fat, that is primarily what has been happening. This euro rally is very much an exaggerated move and the level of profit-taking seen over the past 24 hours essentially confirms that. When last did we see EUR/USD decline 8 cents. Answer = Never.
  19. In a way I guess it should not be a huge surprise that the first $350 Billion has been allocated but the confusing part is the differentiation between this $350 Billion and the separate $600 Billion that the Fed has allocated to buy back mortgage debt. On top of this there is the $320 Billion the Fed has used to bail out Citigroup. Does this mean that the actual total spend to date on what was the original TARP program (Congress approval of only $700 Billion) is in fact $1.27 trillion? Another $350 Billion will take this total to $1.62 Trillion. And this does not take into account the bailout cost of AIG and Bear Stearns, fiscal stimulus packages and the $17 Billion aid to GM and Chrysler, not to mention the Fed's additional plans to start helicoptering down further new money drawn from the print press.
  20. Very interesting analysis and alternative perspective. I like it. What I find extraordinary about all of this is how undemocratic the US system is. In fact it is akin to a quasi dictatorship in the shape of one Ben Bernanke (and his fellow propellers at the Fed). If the US Congress votes down an economic proposal that requires some economic stimulus, the Fed can simply veto the Congress ruling and provide the stimulus anyway. I am surprised the Fed was so direct, so soon, in terms of its intent on pursuing quantitative easing, while at the same time cutting interest rates to an all-time low. It smacks of desperation rather than acute rational judgement. And the Fed's presumption that rates can remain close to 0% is a very brave and somewhat foolish call. It means the Fed foresees and predicts prolonged recession, or something even worse. Why would anyone want to invest in US-denominated assets against such an appalling vista. Of course if they don't, the Fed will simply print the needed cash. And why is the Fed talking about purchasing Treasurys at a time when the auctions are so over-subscribed. Could there be a cunning plan between the Fed and the Treasury to increase the regularity of the auctions , or possibly to reserve so much of the issuance for the Fed that it forces other investors to place their cash into other areas of the economy.
  21. Sorry about that, I should have said that bond yields were moving in a smaller market capital base, as in meaning the broader financial market base. I do not think the issuance has changed much, in that the auctions for T-bills occur at much the same time intervals and the actual volume auctioned also has not altered much. The yields have narrowed owing to the auctions being over-subscribed in the short-term, though that does not effect the volume that is actual issued.
  22. The UK's biggest exports lie within financial and business services, not manufacturing. One can make good without a physical end product. You play to your strengths and not your weaknesses.
  23. The view that there are masses and masses of Institutional funds moving into short-end bills and gilts is a myth. The reality is that a huge wave of institutional wealth has been lost during this crisis. Liquidity levels dried up so the yields on bonds are moving on a much smaller volume than they were previously. Hedge funds that sold shares at $50 a pop this time last year to shift their funds into bonds may now be selling them at $10 a pop, so even in a panic situation there is far less repatriation funds flowing into T-bills than there might have been previously. Also, if an investor had zero confidence in the $US, US Treasury notes is the last thing they would be buying. Why would you buy a 10-year note with a yield of just 2.5% if you thought the dollar might depreciate by 30% in the next year. It is only a few months since the US dollar index was hovering around 70 and not 82, so the index is still a long way away from the cliff's edge. I do believe however that the policy of quantitative easing will be a big test for the dollar, but it is impossible to say how this might play out in the medium term, let alone the long term. What we have seen to date (December) is a knee-jerk reaction during a time of minimal market liquidity and it is also based on the assumption that no other jurisdiction will resort to money creation, which is a big if in the current climate.
  24. I do not work in the City, William. That comment was meant tongue in cheek and I can assure you my sympathies do not lie with the banks at all. Very much the opposite.
  25. I know all about the bailouts, every one of them. I follow the Fed & Co. religiously. I'm not sure I grasp what your point is with respect to GBP/USD. This is merely a single currency pair, but currency values are all relative and are more important as the levels of trade between respective economies grow. The sharp decline in GBP/USD is not nearly as problematic as you seem to suggest. It would be a completely different scenario of course had dollar-denominated commodity prices not fallen as far as they have. The pace of food and energy commodity price depreciation has been much faster than the depreciation in GBP/USD which means that the net result is cheaper imports into the UK. A weak currency in a non-inflationary global economy is not a bad thing at all. It makes the country's exports much more competitive on the international market. There are many currencies across the globe that could become the target of speculators in the current climate, but because it is difficult to know exactly which currencies have the better outlook, currency speculators have essentially been on the sidelines during this broader financial market rout. Commodity output is in decline owing to falling demand and with prices in retreat, there is absolutely no reason for anyone to build up a stockpile of commodities at the present time. House prices are falling because the average house price remains > x times the average industrial wage. The very fact that x was allowed to become an ascending variable over the past decade is the very reason why we are in the current mess.
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