Jump to content
House Price Crash Forum
Sign in to follow this  
laurejon

Is Business Being Affected By The Collapse Of Banking

Recommended Posts

Business must be suffering as a result of the crash, yet I can find little information with regard to this.

Most Business'es are highly leveraged at this point in time having invested heavily in order to clean up over the past few years economic miracle. I am guessing that Business is finding it much harder to find funding, and much harder to service the interest payments on their loans as they would not be fixed in most cases.

There have been a huge number of private equity takeovers over the past decade, all funded with cheap cash from the banks who have been happy to throw it in by the wheelbarrow load with little understaning of the concept of "Rainy Days" feast and famine.

If there were to be a failure in a large UK bank, the money lost for savers would be a problem, but for business's reliant on the funding, and cashflow would be sunk overnight.

Share this post


Link to post
Share on other sites
Business must be suffering as a result of the crash, yet I can find little information with regard to this.

Most Business'es are highly leveraged at this point in time having invested heavily in order to clean up over the past few years economic miracle. I am guessing that Business is finding it much harder to find funding, and much harder to service the interest payments on their loans as they would not be fixed in most cases.

There have been a huge number of private equity takeovers over the past decade, all funded with cheap cash from the banks who have been happy to throw it in by the wheelbarrow load with little understaning of the concept of "Rainy Days" feast and famine.

If there were to be a failure in a large UK bank, the money lost for savers would be a problem, but for business's reliant on the funding, and cashflow would be sunk overnight.

This is wrong. At this point in time our leading companies have never had more cash, including some of the banks!

Waste of a post my friend.

Share this post


Link to post
Share on other sites
This is wrong. At this point in time our leading companies have never had more cash, including some of the banks!

Waste of a post my friend.

OK, thats encouraging to know.

However, where is this cash ?

From my limited business education, cash in a business has to work somewhere and it is never stashed away and left idle.

Where do you think the cash is hiding ?

Share this post


Link to post
Share on other sites

A young couple in Kansas find they over-reached themselves with that $200,000 mortgage on a new home last year, and default on the latest monthly payment.

On the other side of the Atlantic, executives at Cadbury Schweppes are informed that the planned $16bn sale of the company's US drinks division is not going smoothly and may even have to be scrapped.

Extraordinary as it may seem, the first leads directly to the second. It is global finance's version of the butterfly effect, the idea that the flapping of tiny wings in one part of the globe could lead to a chain of events that culminates in hurricanes elsewhere.

And there are hurricanes in the debt markets at the moment. After years when companies and private equity firms have been able to get their hands on trillions of dollars of debt at very low interest rates, suddenly the money is drying up.

"You have had a big meal, and you are suffering indigestion afterwards," says Mark Howard, co-head of research at Barclays Capital in New York. "Sometimes it takes one pill for the indigestion to go away, sometimes it takes several pills. It doesn't mean the system doesn't work, but it just means everything will be at a different price. It has taken the stock market a long time to come round to understanding that."

The turmoil in the debt markets has been building for several months, and some players have suffered eye-popping losses running into tens of billions of dollars. Until very recently, these losses have been confined to some esoteric corners of the financial world. But in the last few days, the effects have been bleeding into the real world.

The reason is that if access to cheap debt is cut off permanently, it will mean an end to all the activity that has been funded by the cheap debt. Share buy-backs that have propped up company share prices - over. Big bets on the financial markets by highly-leveraged hedge funds - over. Most worrying of all, the wave of takeovers by private equity firms - over.

Cadbury Schweppes has been hoping to sell its drinks business, which includes 7Up and Snapple, to one of a number of interested private-equity buyers, but suddenly none of them may be able to afford it. Cadbury's banks are offering to lend buyers the money, but they have been forced to offer substantially less generous terms on the loan. The company's shares were down 4 per cent yesterday, and it was hardly alone. On both sides of the Atlantic, many share prices are inflated by hopes that private equity may come to take over the company. These are beginning to deflate.

Also skidding downward yesterday were shares in the Wall Street banks, who have profited handsomely from lending to private equity, trading on behalf of hedge funds, and advising companies on takeovers, and who may bear the brunt of the losses from the current debt market storm.

We're not in Kansas anymore. But how do we get from there to here? In years gone by, our young couple may not have been able to get a mortgage at all, since they are clearly risky, "sub-prime" borrowers. Now, though, they are vital cogs in global finance.

Their mortgage lender actually sells the debt almost straight away to the big Wall Street banks. Millions of these mortgage debts are pulled together, into collateralised debt obligations (CDOs), which are sold on to investors such as hedge funds. Our couple's new home, then, is in fact collateral for some fragment of a debt that might be held anywhere in the world.

CDOs perform something akin to magic. Because their mortgage is lumped in with other, different types of debt, our couple's individual default shouldn't affect the ability of the CDO to pay interest. The CDO has a higher credit rating than our couple ever would, and investors will pay handsomely to hold it. By last year, demand for CDOs reached $489bn, three times as much as in 2004.

But our young couple is just one of tens of thousands of American homeowners defaulting on their mortgages, and arrears are at all-time highs. Meanwhile, in many parts of the US, house prices are slipping, reducing the value of the collateral. Suddenly, investors have lost faith in the magic of CDOs, and are questioning whether they are really worth paying handsomely for.

Demand has slumped, the values of the CDOs held by hedge funds have collapsed, and many of those funds are sitting on huge losses. Last month, two hedge funds run by Bear Stearns admitted they had lost all of their value - a massive $20bn wipeout.

Equity market investors started worrying about "contagion" from the US sub-prime mortgage market in March, but persuaded themselves the panic wouldn't spread. After the spring dip, global stock markets resumed their upward march. Investors were too sanguine.

The Bear Stearns trauma has caused a big rethink throughout the system. The Wall Street banks that lend money to hedge funds have stopped doing so as freely, and everyone has become a lot more risk-averse. The hedge funds now have less cash - and less nerve - for holding other types of collateralised debt, including the debt used by private equity firms to fund corporate takeovers.

The risk-taking hedge funds that have been the end buyers of debt in recent years are "in a world of hurt", says Barclays' Mr Howard. The question is whether they have gone for good, in which case borrowers will have to rely on traditional banks, finance companies and institutional investors to fund their takeover activity - and these traditional lenders will be demanding much higher interest rates and business guarantees.

At the moment, financiers in the City of London and on Wall Street are taking a wait-and-see approach. Earlier this week, the banks underwriting KKR's £11bn takeover of Alliance Boots postponed their sale of £5.1m of debt. Banks for Cerberus, the private-equity firm buying US car maker Chrysler, also postponed a $12bn fundraising. Both will come back again in the autumn, in the hope of getting better terms then. In neither case are the bankers yet panicking that they won't be able to sell the debt at all. Even if they can't, keeping the debt on their own books is not necessarily a disaster.

However, the Wall Street banks are already drawing in their horns, reducing the amount of money sloshing about the system. Until they are certain that the end buyers have returned, they are not advancing bridging loans to private-equity firms on such generous terms. There is also anecdotal evidence that they are refusing to bankroll the creation of some new collateralised loan obligations (CLOs), which are sliced-and-diced debt products similar to a CDO, which parcel out debt in private equity-owned companies. In other words, throughout Wall Street, the taps are being turned off.

Tobias Levkovich, Citigroup's chief strategist, is in the camp that says it is temporary. After all, company profits and cashflows are still very strong, the global economy robust. Debt may not be dirt cheap again, but interest rates are still low by historical standards. The private equity-fuelled mergers and acquisitions boom will continue as long as the underlying company is able to generate substantially higher returns from its business than the interest rate that must be paid on its debt.

"To be sure, when this gap closes, we will become more concerned about the M&A activity support structure beneath the market, but we simply are not there yet," he told clients yesterday. "There may be more fuss than substance to the recent step-up in investor anxiety."

Mr Levkovich is joined by pretty much everyone on Wall Street in keeping his fingers crossed. As for our couple in Kansas, they may be left wondering about the connection between Wall Street's voracious appetite for debt, and the fact that they were lured into a risky house purchase that has caused them such personal misery.

Alliance Boots

KKR's £11bn takeover of Alliance Boots, owner of the chain of high-street chemists, is the biggest private equity deal ever in the UK. KKR is paying cash, using a bridging loan put up by a consortium of investment banks including Deutsche Bank, Royal Bank of Scotland and Barclays. Their attempt this week to sell a £5bn tranche of the loan in the debt markets was met with little interest, at least at the price they were hoping, and they will keep it on their books instead.

UBS

In May the Swiss bank shut its Dillon Read hedge fund business, run by John Costas, left, a humiliation for the bank and one of the reasons it sacked its chief executive, Peter Wuffli, two months later. Dillon Read had been given $3bn of its parent company's money to play with in the financial markets, and quickly suffered $124m losses, mainly through wrongheaded bets on debt instruments backed by sub-prime mortages.

Manchester United

The cash-guzzling football club, which has been on a spending spree on new players this summer, is believed to have put plans to refinance its £660m of debts on hold, due to choppy conditions in the global credit markets. The football club had been talking to a number of banks, including JP Morgan and the Royal Bank of Scotland, over a potential refinancing. A spokesman for the Glazer family, who own Manchester United, said that the club was not under any pressure to complete a refinancing this summer.

Chrysler

Daimler, the German car giant, will have to stump up still more money to offload its loss-making American division Chrysler after Cerberus cancelled a $12bn (£5.85bn) debt fundraising with which it was hoping to cover restructuring costs at Chrysler. In May, Daimler agreed to part with Chrysler in return for €1bn (£670m) in cash from Cerberus, a token sum that was not enough to cover losses from that date until the deal's expected closure next month. This week, it emerged that Daimler and Cerberus will jointly hand Chrysler a $2bn loan, money that Cerberus had hoped to find in the debt markets. A further $10bn in loans will be kept on the books of the Wall Street banks which are underwriting the deal.

Bear Stearns

The high-flying Ralph Cioffi, a respected veteran of the mortgage-backed bond market, was running two hedge funds for Bear Stearns, in which some $20bn of bets had been placed on the direction of the sub-prime market. The bets went wrong, and banks which had lent most of that money demanded it back. Outside investors in the fund also clamoured to take their remaining cash out. An attempt to raise cash by selling the collateralised debt obligations inside the funds found no buyers and Mr Cioffi had to admit his funds had been wiped out.

New Century Financial

The Californian mortgage lender filed for bankruptcy protection in April. As house prices have fallen in some parts of the US, arrears have soared. New Century is the largest of three dozen non-bank lenders to sub-prime customers who have either gone under or had to put themselves up for sale.

Share this post


Link to post
Share on other sites
Guest vicmac64
This is wrong. At this point in time our leading companies have never had more cash, including some of the banks!

Waste of a post my friend.

Well actually I think you are wrong! I think you will see many businesses go to the wall this year regardless of bank falls.

As lending shrinks as it is and as the the Credit Crunch tightens you will see the lending environment that some of these businesses depend on shrinking as well.

Never forget that our economy is now a 1 trick pony - it depends upon rising house prices....... tell me do you see the house building and hpi engine of our economy doing well in the near to medium future?

Share this post


Link to post
Share on other sites
Guest vicmac64
A young couple in Kansas find they over-reached themselves with that $200,000 mortgage on a new home last year, and default on the latest monthly payment.

On the other side of the Atlantic, executives at Cadbury Schweppes are informed that the planned $16bn sale of the company's US drinks division is not going smoothly and may even have to be scrapped.

Extraordinary as it may seem, the first leads directly to the second. It is global finance's version of the butterfly effect, the idea that the flapping of tiny wings in one part of the globe could lead to a chain of events that culminates in hurricanes elsewhere.

And there are hurricanes in the debt markets at the moment. After years when companies and private equity firms have been able to get their hands on trillions of dollars of debt at very low interest rates, suddenly the money is drying up.

"You have had a big meal, and you are suffering indigestion afterwards," says Mark Howard, co-head of research at Barclays Capital in New York. "Sometimes it takes one pill for the indigestion to go away, sometimes it takes several pills. It doesn't mean the system doesn't work, but it just means everything will be at a different price. It has taken the stock market a long time to come round to understanding that."

The turmoil in the debt markets has been building for several months, and some players have suffered eye-popping losses running into tens of billions of dollars. Until very recently, these losses have been confined to some esoteric corners of the financial world. But in the last few days, the effects have been bleeding into the real world.

The reason is that if access to cheap debt is cut off permanently, it will mean an end to all the activity that has been funded by the cheap debt. Share buy-backs that have propped up company share prices - over. Big bets on the financial markets by highly-leveraged hedge funds - over. Most worrying of all, the wave of takeovers by private equity firms - over.

Cadbury Schweppes has been hoping to sell its drinks business, which includes 7Up and Snapple, to one of a number of interested private-equity buyers, but suddenly none of them may be able to afford it. Cadbury's banks are offering to lend buyers the money, but they have been forced to offer substantially less generous terms on the loan. The company's shares were down 4 per cent yesterday, and it was hardly alone. On both sides of the Atlantic, many share prices are inflated by hopes that private equity may come to take over the company. These are beginning to deflate.

Also skidding downward yesterday were shares in the Wall Street banks, who have profited handsomely from lending to private equity, trading on behalf of hedge funds, and advising companies on takeovers, and who may bear the brunt of the losses from the current debt market storm.

We're not in Kansas anymore. But how do we get from there to here? In years gone by, our young couple may not have been able to get a mortgage at all, since they are clearly risky, "sub-prime" borrowers. Now, though, they are vital cogs in global finance.

Their mortgage lender actually sells the debt almost straight away to the big Wall Street banks. Millions of these mortgage debts are pulled together, into collateralised debt obligations (CDOs), which are sold on to investors such as hedge funds. Our couple's new home, then, is in fact collateral for some fragment of a debt that might be held anywhere in the world.

CDOs perform something akin to magic. Because their mortgage is lumped in with other, different types of debt, our couple's individual default shouldn't affect the ability of the CDO to pay interest. The CDO has a higher credit rating than our couple ever would, and investors will pay handsomely to hold it. By last year, demand for CDOs reached $489bn, three times as much as in 2004.

But our young couple is just one of tens of thousands of American homeowners defaulting on their mortgages, and arrears are at all-time highs. Meanwhile, in many parts of the US, house prices are slipping, reducing the value of the collateral. Suddenly, investors have lost faith in the magic of CDOs, and are questioning whether they are really worth paying handsomely for.

Demand has slumped, the values of the CDOs held by hedge funds have collapsed, and many of those funds are sitting on huge losses. Last month, two hedge funds run by Bear Stearns admitted they had lost all of their value - a massive $20bn wipeout.

Equity market investors started worrying about "contagion" from the US sub-prime mortgage market in March, but persuaded themselves the panic wouldn't spread. After the spring dip, global stock markets resumed their upward march. Investors were too sanguine.

The Bear Stearns trauma has caused a big rethink throughout the system. The Wall Street banks that lend money to hedge funds have stopped doing so as freely, and everyone has become a lot more risk-averse. The hedge funds now have less cash - and less nerve - for holding other types of collateralised debt, including the debt used by private equity firms to fund corporate takeovers.

The risk-taking hedge funds that have been the end buyers of debt in recent years are "in a world of hurt", says Barclays' Mr Howard. The question is whether they have gone for good, in which case borrowers will have to rely on traditional banks, finance companies and institutional investors to fund their takeover activity - and these traditional lenders will be demanding much higher interest rates and business guarantees.

At the moment, financiers in the City of London and on Wall Street are taking a wait-and-see approach. Earlier this week, the banks underwriting KKR's £11bn takeover of Alliance Boots postponed their sale of £5.1m of debt. Banks for Cerberus, the private-equity firm buying US car maker Chrysler, also postponed a $12bn fundraising. Both will come back again in the autumn, in the hope of getting better terms then. In neither case are the bankers yet panicking that they won't be able to sell the debt at all. Even if they can't, keeping the debt on their own books is not necessarily a disaster.

However, the Wall Street banks are already drawing in their horns, reducing the amount of money sloshing about the system. Until they are certain that the end buyers have returned, they are not advancing bridging loans to private-equity firms on such generous terms. There is also anecdotal evidence that they are refusing to bankroll the creation of some new collateralised loan obligations (CLOs), which are sliced-and-diced debt products similar to a CDO, which parcel out debt in private equity-owned companies. In other words, throughout Wall Street, the taps are being turned off.

Tobias Levkovich, Citigroup's chief strategist, is in the camp that says it is temporary. After all, company profits and cashflows are still very strong, the global economy robust. Debt may not be dirt cheap again, but interest rates are still low by historical standards. The private equity-fuelled mergers and acquisitions boom will continue as long as the underlying company is able to generate substantially higher returns from its business than the interest rate that must be paid on its debt.

"To be sure, when this gap closes, we will become more concerned about the M&A activity support structure beneath the market, but we simply are not there yet," he told clients yesterday. "There may be more fuss than substance to the recent step-up in investor anxiety."

Mr Levkovich is joined by pretty much everyone on Wall Street in keeping his fingers crossed. As for our couple in Kansas, they may be left wondering about the connection between Wall Street's voracious appetite for debt, and the fact that they were lured into a risky house purchase that has caused them such personal misery.

Alliance Boots

KKR's £11bn takeover of Alliance Boots, owner of the chain of high-street chemists, is the biggest private equity deal ever in the UK. KKR is paying cash, using a bridging loan put up by a consortium of investment banks including Deutsche Bank, Royal Bank of Scotland and Barclays. Their attempt this week to sell a £5bn tranche of the loan in the debt markets was met with little interest, at least at the price they were hoping, and they will keep it on their books instead.

UBS

In May the Swiss bank shut its Dillon Read hedge fund business, run by John Costas, left, a humiliation for the bank and one of the reasons it sacked its chief executive, Peter Wuffli, two months later. Dillon Read had been given $3bn of its parent company's money to play with in the financial markets, and quickly suffered $124m losses, mainly through wrongheaded bets on debt instruments backed by sub-prime mortages.

Manchester United

The cash-guzzling football club, which has been on a spending spree on new players this summer, is believed to have put plans to refinance its £660m of debts on hold, due to choppy conditions in the global credit markets. The football club had been talking to a number of banks, including JP Morgan and the Royal Bank of Scotland, over a potential refinancing. A spokesman for the Glazer family, who own Manchester United, said that the club was not under any pressure to complete a refinancing this summer.

Chrysler

Daimler, the German car giant, will have to stump up still more money to offload its loss-making American division Chrysler after Cerberus cancelled a $12bn (£5.85bn) debt fundraising with which it was hoping to cover restructuring costs at Chrysler. In May, Daimler agreed to part with Chrysler in return for €1bn (£670m) in cash from Cerberus, a token sum that was not enough to cover losses from that date until the deal's expected closure next month. This week, it emerged that Daimler and Cerberus will jointly hand Chrysler a $2bn loan, money that Cerberus had hoped to find in the debt markets. A further $10bn in loans will be kept on the books of the Wall Street banks which are underwriting the deal.

Bear Stearns

The high-flying Ralph Cioffi, a respected veteran of the mortgage-backed bond market, was running two hedge funds for Bear Stearns, in which some $20bn of bets had been placed on the direction of the sub-prime market. The bets went wrong, and banks which had lent most of that money demanded it back. Outside investors in the fund also clamoured to take their remaining cash out. An attempt to raise cash by selling the collateralised debt obligations inside the funds found no buyers and Mr Cioffi had to admit his funds had been wiped out.

New Century Financial

The Californian mortgage lender filed for bankruptcy protection in April. As house prices have fallen in some parts of the US, arrears have soared. New Century is the largest of three dozen non-bank lenders to sub-prime customers who have either gone under or had to put themselves up for sale.

great post

Share this post


Link to post
Share on other sites
Guest Steve Cook
Erm, where all companies 'hide' their cash. On their balance sheets (these aren't like bed sheets). :lol:

I'm afraid you will have to be a little more specific than that. You seem have decided from the off to take a very supercilious, high handed position with the OP of this thread. This can only be for one of two reasons as far as I can see. Either this is all so obvious to you, in which case you should have little difficulty explaining it in simpler terms to all of us lesser mortals. Alternatively, you may be adopting that well worn rhetorical tactic of mocking someone else's position on the basis that it gets closed down before any real debate occurs and before you need to provide specific evidence to back up your position.

I am hoping your position is the former because this can be easily resolved by taking the small amount of time and trouble to explain your reasoning in slightly more detail. If it is the latter, this should shortly become fairly obvious by the deafening silence of your response to this post.

Edited by Steve Cook

Share this post


Link to post
Share on other sites

Thanks for the posts that point out the companies with high leverage - who of course could well be in trouble during the credit crunch.

I meant to say in general terms, the worlds leading companies such as S&P Industrials, FTSE 100 etc etc have rarely been in a stronger position than they are now and are certainly in a stronger position than in any of the other 'financial crises' of the last century.

Technological advancements in supply chains, financials etc have led to much leaner, flexible companies that I'm sure will weather the storm. There will of course be casualties, but these will simply get gobbled up by vulture investors. That is the beauty and the beast of the capitalist system.

Share this post


Link to post
Share on other sites
Business must be suffering as a result of the crash, yet I can find little information with regard to this.

Most Business'es are highly leveraged at this point in time having invested heavily in order to clean up over the past few years economic miracle. I am guessing that Business is finding it much harder to find funding, and much harder to service the interest payments on their loans as they would not be fixed in most cases.

There have been a huge number of private equity takeovers over the past decade, all funded with cheap cash from the banks who have been happy to throw it in by the wheelbarrow load with little understaning of the concept of "Rainy Days" feast and famine.

If there were to be a failure in a large UK bank, the money lost for savers would be a problem, but for business's reliant on the funding, and cashflow would be sunk overnight.

My understanding, from what I've heard from people in the commercial lending business, is that there hasn't been that much impact in that sector so far. The really big firms - e.g. most of the FTSE 100 & FTSE 250 - have had several very good years and, as a result, have paid down debt and accumulated cash. Smaller firms have always found it very hard to borrow and nothing much has changed so far. The main impact at this point is likely to be at the very small end where people are financing their companies by extending their own mortgage or running up debts on personal credit cards. It was a few years into the last recession before banks started pulling overdrafts on small firms.

There must be a few small business owners on here who could comment on this with some direct experience though.

Share this post


Link to post
Share on other sites
Well actually I think you are wrong! I think you will see many businesses go to the wall this year regardless of bank falls.

As lending shrinks as it is and as the the Credit Crunch tightens you will see the lending environment that some of these businesses depend on shrinking as well.

Never forget that our economy is now a 1 trick pony - it depends upon rising house prices....... tell me do you see the house building and hpi engine of our economy doing well in the near to medium future?

Our economy is a one trick pony dependent on rising house prices - at the moment. But economies and the market have ways of evolving to cope with times when it is too dependent on one area of capital appreciation. Over the last 5 years we've seen enormous capital creation in the housing markets. When that bubble deflates, others will inflate, such as the one we are seeing in commodities, that excess capital will be reinvested in other areas and so on and so on. Over the next few years our utility companies will have a boom as more people stay in at home leading to capital creation which lets hope will be reinvested to create more capital and with it jobs for those who lost their jobs when XYZ financial firm went bust.

That is the ebb and flow of life, has always been and will always be. If a business fails another business will take it's place. Call it evolution, natural selection, whatever you like just don't have such a short term view!!

Share this post


Link to post
Share on other sites
My understanding, from what I've heard from people in the commercial lending business, is that there hasn't been that much impact in that sector so far. The really big firms - e.g. most of the FTSE 100 & FTSE 250 - have had several very good years and, as a result, have paid down debt and accumulated cash. Smaller firms have always found it very hard to borrow and nothing much has changed so far. The main impact at this point is likely to be at the very small end where people are financing their companies by extending their own mortgage or running up debts on personal credit cards. It was a few years into the last recession before banks started pulling overdrafts on small firms.

There must be a few small business owners on here who could comment on this with some direct experience though.

Any SMB's relying on overdrafts, mortgages and credit cards are deluded. The day I run my business from my overdraft is the day I send off my CV to a prospective employer!

Share this post


Link to post
Share on other sites
I meant to say in general terms, the worlds leading companies such as S&P Industrials, FTSE 100 etc etc have rarely been in a stronger position than they are now and are certainly in a stronger position than in any of the other 'financial crises' of the last century.

Indeed a number of FTSE players are struggling to find useful opportunities for their cash and simply buying their own shares to mop-up the cash.

Share this post


Link to post
Share on other sites

The big problem comes as CUSTOMERs stop buying.

This leads to a cash flow issue for MANY MANY companies.

What happened in GC1 was this.

A small firm would have an overdraft of say £10,000.

everything fine, except when customers stop paying so quickly, or at all, the firm would dip deep into its OD.

Fine: except the banks were also in trouble.

So the firm deep into the OD, gets a check for £2000. pays it in. OD now £8000 for example. Bank needs cash, so ON DEMAND, cuts the facility to £8000.

Firm now cant pay its supplier. The crunch passes on.

THIS is what happens. It will happen again.

Share this post


Link to post
Share on other sites

Its all very well having lots of cash. However, with high inflation you have to remember that the cash value will be eroded over time. A large part of the FTSE companies "wonderful" growth over the last few years has come from consumers and socities credit cards and home equity withdrawal. They have probably expanded their business and probably over expanded in many cases and could well end up with deflationary pressures, as the consumer spending base will be declining.S the consumer spending power declines, I guess lots of companies will lay off workers, and unemployment will rise, which will continue the downward spiral, leading to more stagflation. Infact this whole boom has been created through debt. There is nothing great about these companies having lots of cash now. Its just cash that has been transferred from the public credit card.Dbet levels here are more than the GDP,and the Government is bankrupt also. Remember the UK current account deficit has been growing at an ever increasing rate. This shows that we have been consuming without producing. We have no surpluses and no savings, and debt. Its also a precursor for a weaker currency, which means more imported inflation. The sterling is over valued now, and will decline.

Remembers consumers dont have any money now, so where will the future growth in these companies come from....?

Share this post


Link to post
Share on other sites
Its all very well having lots of cash. However, with high inflation you have to remember that the cash value will be eroded over time. A large part of the FTSE companies "wonderful" growth over the last few years has come from consumers and socities credit cards and home equity withdrawal. They have probably expanded their business and probably over expanded in many cases and could well end up with deflationary pressures, as the consumer spending base will be declining.S the consumer spending power declines, I guess lots of companies will lay off workers, and unemployment will rise, which will continue the downward spiral, leading to more stagflation. Infact this whole boom has been created through debt. There is nothing great about these companies having lots of cash now. Its just cash that has been transferred from the public credit card.Dbet levels here are more than the GDP,and the Government is bankrupt also. Remember the UK current account deficit has been growing at an ever increasing rate. This shows that we have been consuming without producing. We have no surpluses and no savings, and debt. Its also a precursor for a weaker currency, which means more imported inflation. The sterling is over valued now, and will decline.

Remembers consumers dont have any money now, so where will the future growth in these companies come from....?

I would agree, business has had a bumper time as consumers have been happy to build up huge debts to mak purchases that they could not otherwise make. The sums of money involved are huge, with many people running up 20k in debt a year without blinking an eyelid.

The consumer borrowing boom is over, its back to basics and business is going to suffer as a result of reduced revenue flows, and a recorrection of their cashflow forecasts, and future investment/growth plans.

Share this post


Link to post
Share on other sites

when credit it tight, it is actually a good thing speaking economicly.

it means the efficent.stron/profitable business survive and the weak ones pop

Share this post


Link to post
Share on other sites

I can't speak for larger companies, but I am hearing anecdotal evidence that the banking collapse is having an effect on SMEs.

This is primarily from customers but also from my business bank manager. He has said to me that companies (my own included) are hanging onto whatever cash they have and the activity in accounts seems to be a lot lower than this time last year.

From my experience in advertising and dealing with customers, the downturn at the moment seems to be happening with non-IT-related B2B sectors.

I dread to think what will happen in the next 12-18 months with businesses that regularly used debt-finance (overdrafts, etc) that haven't slimmed down already. All our staff were made redundant in late October - if they hadn't, we'd have run out of money by now.

If there is going to be a recession, and I believe there will be and it will be a deep one, I still believe that it won't become reality in people's minds until the New Year.

Share this post


Link to post
Share on other sites
when credit it tight, it is actually a good thing speaking economicly.

it means the efficent.stron/profitable business survive and the weak ones pop

It also means that tax revenue is greatly reduced and many many senior public workers are going to have to go out and do an honest days work.

There is no place for champagne socialism when it comes to hard times, its every man for himself.

Share this post


Link to post
Share on other sites

If there's a real collapse in banking, loads of businesses will be affected. OK, some might be sitting on piles of cash - but where is that cash kept? - Investments (which will go down) or banks (which might self destruct). Many businesses which have loans might find lenders trying to rein them in, while ones needing new loans won't be able to get them.

Share this post


Link to post
Share on other sites
Our economy is a one trick pony dependent on rising house prices - at the moment. But economies and the market have ways of evolving to cope with times when it is too dependent on one area of capital appreciation. Over the last 5 years we've seen enormous capital creation in the housing markets. When that bubble deflates, others will inflate, such as the one we are seeing in commodities, that excess capital will be reinvested in other areas and so on and so on. Over the next few years our utility companies will have a boom as more people stay in at home leading to capital creation which lets hope will be reinvested to create more capital and with it jobs for those who lost their jobs when XYZ financial firm went bust.

That is the ebb and flow of life, has always been and will always be. If a business fails another business will take it's place. Call it evolution, natural selection, whatever you like just don't have such a short term view!!

errr so your saying economic bubbles are good?? If you are, all evidence points/says you are seriously wrong. The problem is all your talking about is non-productive activity which speculation in commodities and increased utility use is. These do not increase the wealth of the uk, and indeed, lead to outflows out of it.

Share this post


Link to post
Share on other sites
It also means that tax revenue is greatly reduced and many many senior public workers are going to have to go out and do an honest days work.

There is no place for champagne socialism when it comes to hard times, its every man for himself.

I pray you are right but I didn't see any of that in the 90s. Council tax skyrocketed and I didn't see any council executive losing any sleep over it.

Share this post


Link to post
Share on other sites
This is wrong. At this point in time our leading companies have never had more cash, including some of the banks!

Waste of a post my friend.

I think you were too quick to react this way. I've read in the FT just this week end that Factoring companies are reporting increased cash pressures in the SMB area.

And you forget private equity deals that have forced target companies to borrow to the hilt. These are facing serious pressures. Have you heard about BAA recently? They can't raise cash hence the 20% increase of landing fees (which _you_ will pay for BTW).

I've read somewhere that a surprisingly large proportion of UK companies have gone into private equity. If true then the UK economy could be very weak indeed.

Share this post


Link to post
Share on other sites
And you forget private equity deals that have forced target companies to borrow to the hilt. These are facing serious pressures. Have you heard about BAA recently? They can't raise cash hence the 20% increase of landing fees (which _you_ will pay for BTW).

I've read somewhere that a surprisingly large proportion of UK companies have gone into private equity. If true then the UK economy could be very weak indeed.

I don't think that there is disagreement here but it's not hard to scan the accounts of the FTSE constituents and pick out businesses with less exposure to credit availability.

I am undecided about the fall-off in consumer spending. I hear screaming headlines of predictions of falling high street sales implicitly on the back of house prices as if EVERYBODY financed their new car/dishwasher/tv with MEW/CC; this MAY be the case but I need to see some reliable/convincing statistics to back that up. I also have this nagging thought that anybody that has bought property in the past five years would be out of the spending loop altogether as all their income would be committed to their loans. What does this say of the people without new mortgages and still buying products? What proportion of consumer spending does this group represent? Provided they still retain their income and that by some action high street prices for consumer goods don’t suddenly rocket??

Edited by Knut

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 295 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.