Firms Under Pressure From Debt

[canny man]

In today's Times:

'HSBC gave a warning yesterday that a growing number of British firms were struggling to repay their debts'.

Next they described how they are tightening credit:

'We are being more selective in a weaker economic environment about the amount of credit we give out and who we give it to'

Finally the article goes on to quote a KPMG report:

'in the third quarter in London, 70 retail businesses fell into critical difficulty, threatening their survival - up 40% on the same period last year'

Well that should underpin HPI nicely...I don't think.

[OnlyMe]

So much for debt driving the economy. Stupid companies borrowing more money so that they could bid up ever higher values for propetry and ever higher rent. Just like Joe public.

What a nightmare for the economy in general and what a stupid short-term policy the low rate limbo will be seen to have been.

[FTBagain]

In today's Times:

'HSBC gave a warning yesterday that a growing number of British firms were struggling to repay their debts'.

Next they described how they are tightening credit:

'We are being more selective in a weaker economic environment about the amount of credit we give out and who we give it to'

Finally the article goes on to quote a KPMG report:

'in the third quarter in London, 70 retail businesses fell into critical difficulty, threatening their survival - up 40% on the same period last year'

Well that should underpin HPI nicely...I don't think.

This is indicative of the second phase of the slow down, kicking in. Consumer debt leads to reduced spending (and you do not need much reduction to have an impact), which in turn hits business profits, retailers first. They start to shake out excess fat (namely jobs, usually starts in the back rooms middle management and the like), which reduces spending further. That reduces retailers profits again, who start to buy less from their suppliers (having been left with lots of unsold stock in the previous phase of the cycle). Retailers start laying frontline staff and closing stores, whilst suppliers and manufactures start laying people as well.

It is the vicious circle and it is close to being closed! When it is, we run head long into HPC and recession!

[canny man]

Only Me/FTB

You are so right.

BY coincidence the story next to the HSBC article is about how Caledonia Investments (the £1.2bln Cayzer family investment trust) is sitting on a bigger cash pile than at any time since the 87 stock market crash. They are quoted as 'exploiting the 'eagerness' of others to buy assets at high prices by selling out of some long term investments.' THey go on to say that the wall of private equity money and M&A fever has driven up asset prices to alevel that isn't conducive to making investments.

The hangover from this debt fuelled party is going to be a stinker

Edited December 2, 2005 by canny man

[FTBagain]

So much for debt driving the economy. Stupid companies borrowing more money so that they could bid up ever higher values for propetry and ever higher rent. Just like Joe public.

What a nightmare for the economy in general and what a stupid short-term policy the low rate limbo will be seen to have been.

It is driving the economy! Down! There is always a day of reconing. We have to pay for our excesses at some point, it is the law of nature, let alone economics.

Pay back time is here and the banks are getting nervous. If they are talking about these problems out in the open now, you can bet the problem has been building for awhile.

I wonder how long it will be before they start screaming to the government to bail them out of a mess of their own making!

Edited December 2, 2005 by FTBagain

[Mushroom]

When the banks start pulling back on lending to business there are risks for the future in that even potentially good startups, in for example new technologies, may find it hard to get funding at a reasonable rate.

So that can help delay any recovery.

[FTBagain]

Only Me/FTB

You are so right.

BY coincidence the story next to the HSBC article is about how Caledonia Investments (the £1.2bln Cayzer family investment trust) is sitting on a bigger cash pile than at any time since the 87 stock market crash. They are quoted as 'exploiting the 'eagerness' of others to buy assets at high prices by selling out of some long term investments.' THey go on to say that the wall of private equity money and M&A fever has driven up asset prices to alevel that isn't conducive to making investments.

The hangover from this debt fuelled party is going to be a stinker

Like DrB says the smart money moves first. They would not have gone public with that information unless it was safe for them to do so, ie they are no longer so exposed to the threat. I wonder what the banks are thinking? They ar eexposed because they are left holding the bad debt.

Good post by the way. Where did you find that little nugget?

[booked_it_packed_it]

This is indicative of the second phase of the slow down, kicking in. Consumer debt leads to reduced spending (and you do not need much reduction to have an impact), which in turn hits business profits, retailers first. They start to shake out excess fat (namely jobs, usually starts in the back rooms middle management and the like), which reduces spending further. That reduces retailers profits again, who start to buy less from their suppliers (having been left with lots of unsold stock in the previous phase of the cycle). Retailers start laying frontline staff and closing stores, whilst suppliers and manufactures start laying people as well.

It is the vicious circle and it is close to being closed! When it is, we run head long into HPC and recession!

Ive been thinking about this: how does the virtuous circle ever restart?

[Ritters]

It'll be weird browsing these posts when it all kicks off.

We'll have an overdose of Déjà vu

Edited December 2, 2005 by Ritters

[FTBagain]

Ive been thinking about this: how does the virtuous circle ever restart?

It could be that when people get out from under the debt they relax a little and start spending a little more. The builds confidence companies take on a few extra staff and on we go! Regaining confidence is a slow process so that would explain the steep spikes and long drawn out troughs on the economic cycle graphs.

[the_duke_of_hazzard]

Ive been thinking about this: how does the virtuous circle ever restart?

People fear losing their jobs, work harder, fat in business is trimmed, productivity improves, savings/investments increase, confidence increases, people take on more debt.

So it goes.

[canny man]

Good post by the way. Where did you find that little nugget?

It was in the business pages of Today's Times - Page 68 of the Scottish edition

They went on to say that ' higher oil prices, faltering consumer spending and high levels of personal debt were likely to dampen share markets'

Caledonia shares rose 9p to £18.19 on the announcements.

[booked_it_packed_it]

People fear losing their jobs, work harder, fat in business is trimmed, productivity improves, savings/investments increase, confidence increases, people take on more debt.

So it goes.

therefore the industries to be in are ones that offer services that increase productivity or supply basics that cannot be avoided?

[canny man]

Precisely - thats why I sell cost saving advice to the Public Sector. There's a long way to go til they stop needing this service

[erranta]

People fear losing their jobs, work harder, fat in business is trimmed, productivity improves, savings/investments increase, confidence increases, people take on more debt.

So it goes.

What about a whole new generation - wiped out in debt?

Graduates offered lower and lower 'starter' salaries (if they can even get offered a job) - can't pay off student debt = no spending in the economy, no house buying, absconding from debts > mass emmigration?

The future outlook is abysmal for Hundreds of Thousands

AN HPC is the final straw!

[oracle]

It'll be weird browsing these posts when it all kicks off.

We'll have an overdose of Déjà vu

it has kicked off already!!!!.......think of it like a hangover!!!

....we've skipped the liquid lunch in favour of a j2o,while all and sundry around us have gone on a 24 hour bender!!!!!

...we know how they will feel in the morning,and have seen them making total arses of themselves during the night......but for now it's drunken slumber time.

.....it's now about 6am and the first of the victims is waking up and realising they have a sore head,and they have just raided the last of the paracetamol out of the medicine cabinet!

.......I do feel sorry for the rest of them....NOT!

....shall we cook up a good-old full english to make them feel REALLY qweezy?!!!!

for what it's worth watching people with hangovers is hilarious,partaking in the hangover is not such a laughing matter.....let's wind these little f***ers up!!!.......it'll be so much fun!!!

Edited December 2, 2005 by oracle

[the_duke_of_hazzard]

What about a whole new generation - wiped out in debt?

Graduates offered lower and lower 'starter' salaries (if they can even get offered a job) - can't pay off student debt = no spending in the economy, no house buying, absconding from debts > mass emmigration?

The future outlook is abysmal for Hundreds of Thousands

AN HPC is the final straw!

Welcome to recession. The future's bleak. The future's Tory.

[Fancypants]

Welcome to recession. The future's bleak. The future's Tory.

ooh that stings!

[mbga9pgf]

ooh that stings!

Hate to point it out, its always the tories that get called in to sort out the sh*t that the commies leave behind... happened in the 40's the 70's and now likely the 00's. Bit of a pattern emerging hey? by this logic, the commies wont see leadership for another 30 years, and thank F*CK for that. They truly have ballsed this nation up on their watch this time all right!