Thursday, March 12, 2009

Is it time for the unthinkable?

Should the Bank of England buy shares?

Instead of buying bonds, city gurus are now advocating buying shares. What next, houses?

Posted by iblewitlasttime @ 08:58 PM (1176 views)
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16 thoughts on “Is it time for the unthinkable?

  • I can’t believe I’m actually reading this

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  • Comment #14 in Peston’s blog touches on an interesting point:
    “Perhaps HMG should be buying shares in companies that […] are utilities”

    So basically we would undo Thatcher’s privatisations of the 1980s and re-nationalise the water companies, the power companies, the telecoms, the train operating companies, etc. The soon-to-be-privatised post office would be re-nationalised too (obviously the bankers have to collect their hefty fees for handling both the privatisation and the re-nationalisation).

    Comrades, rejoice in our new socialist paradise….

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  • Classic HPC comment at #50:

    I think the BoE should buy houses instead of shares or gilts. There’s no safer investment than good old bricks and mortar. If the BoE can buy enough houses to get the market going again, confidence will return and house prices will start rising again. Banks will lend more because house prices are rising and people will feel wealthier and borrow more. This will lead to further house price rises, at which point the BoE can sell its houses for a tidy profit (it could even fit a new kitchen or strip the floorboards to maximise profits). The MPC could start a TV series following their property developments and charting their profits. Eventually, we can all buy and sell houses to each other and no-one need ever be poor again. Remember, we do live on an Island and there is a shortage of housing supply. That’ll put a stop to boom and bust.

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  • Iblewitlasttime says:

    Re: “I can’t believe I’m actually reading this”
    Real Alice in Wonderland stuff. I think I will wake up tomorrow standing on my head.

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  • Welcome to the Democratic Republic of Great Britian drewster.

    Oops! I meant Democratic Republic of Gordon Brown.

    DRGB is a new paradise where no business can ever fail. Never ever. There is no failure. Have you got that comrade?

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  • I believe the rot started in our education systems. For decades now people have been complaining about slipping standards – everyone gets a dozen A* grades no matter how little knowledge they have. As the first cohort of pupils grew up and entered the world of business, they saw it wasn’t like school. A few quick words to their chums in government and before long the banks turned on the easy-cash taps. When the banks ran out, the BoE stepped in – failure is now a taboo word in our society.

    How long will it be before Gordon decides that the Labour party deserves A* grades forever more?

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  • dohousescrashinthewoods says:

    Still my favourite phrase in these times – “don’t listen to the propaganda, focus on what you see”.

    A year ago the treasury said it was forecasting growth in the economy.
    Yet in the last few months the government has slammed interest rates to the floor and is printing money like it is going out of fashion (and it soon will be at this rate).

    If you close your eyes to the gradual blood-letting of bad news on state sponsored media, (the same media that “Pollyannaed” us into this) I see a failed economy and a government that has punched every emergency self-destruct button in the house to no avail. I’m seriously thinking we could be in a screaming nosedive with seconds left till we hit the deck.

    More and more people I talk to are eyeing pigeons and rabbits with interest, thinking about how they’d catch one if they were going hungry (I work with level-headed professionals). People have begun to notice that CDs and TVs are essentially worthless compared to a good pair of boots and a warm coat.

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  • mark wadsworth says:

    Drewster, fair points, but look at it from the cosy viewpoint of a BBC employee – that is a state-owned enterprise and they do all right, don’t they? I mean, not necessarily in terms of quality of output per £ spent, but they get good salaries, nice pensions etc, so why wouldn’t an average BBC employee think that everybody should have the same cushy taxpayer funded lifestyle?

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  • little professor says:

    Mandelson also wants them to buy cars – or at least provide financing for people to buy cars.

    In return the BoE issued this uncharacteristically blunt rebuttal:

    The Bank of England is puzzled by Lord Mandelson’s comments yesterday. At working level, talks have taken place with the relevant Government departments and representatives of the motor finance industry at which the Bank explained the liquidity support it is providing to the banking sector. Since last Autumn, the Bank has extended the collateral that it accepts to include securities backed by consumer and corporate loans, including those for motor vehicle finance, and the new Asset Purchase Facility is open to all non-financial companies that meet the eligibility criteria. It is not the role of the Bank to provide sector-specific support. That is clearly and properly a matter for the Government.”

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  • dohousescrashinthewoods says:

    Re Failure, I think reality is coming up fast and it doesn’t give a flying monkey about sensitivities and taboos.

    I think it’s going to be hard, unpleasant and good.
    Since when did something have to be pleasant to be good?

    Which brings me back to failure. It’s not pleasant, but it is good. There is limited change/improvement without failure. I suspect if you think of times you’ve failed, they are probably times when you had to stop and think, get stronger, become more resourceful and, hopefully, eventually came out better for it.

    Learning to deal with the unpleasantness of setbacks in life develops character, which I think it is uncontroversial to say has been lacking in most of us in recent years because life has been too easy. Like a tea bag, you only find out how strong you are when you land in hot water.

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  • “Should the Bank of England buy shares?”

    crunchy-Should the bank of England buy it’s own currency?

    We are heading for the mad house now. It is all going to get crazy.

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  • MarkW,

    I’ve heard some fairly remarkable tales about waste at the BBC. The story which sticks in my mind involves the filming of a scene which required a taxi. They simply hailed a black cab on the street and left the meter running all day. Nice work if you can get it!

    Peston is (I presume) thinking purely in financial terms – raising asset prices – rather than seeing this as the thin end of a wedge which leads straight back to Old Labour and the 1970s. The problem is that if the government buys up a small chunk of every company then it won’t be seen to have much effect. Instead they are likely to buy stakes in so-called “key industries” (whoever begs loudest and has the most UK-based employees). If the government buys 20% of e.g. BAE Systems, then all the staff at BAE will think they are very important and will start getting too big for their boots. They’ll go on strike demanding better pay and conditions, protection from redundancies, final salary pensions, etc, and the government will lack the willpower to fight back. Before we know it the whole country will be grinding to a halt in another winter of discontent.

    The whole idea is mathematically unsound anyway. If a company issues a new block of shares, and the government buys them straight up, then it should have no effect on the share price – the new capital raised is offset by the new shares issued.

    Giving money to companies (for that is what this amounts to) cannot make their business models more successful. Not all companies are doing badly – sales of Hyundai cars are up 5%, even while other brands fall 30%.[1] Picking winners is not Gordon Brown’s main talent – cf. the gold sales at the market nadir.

    Stop this madness forthwith!

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  • IF they do have a go at will be met with some jubilation and then – quickly – the markets will take on the government because whats almost certain is their timing will stink! But basically i think its a non story.

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  • Techieman on subject of shares thought I’d clarify what I was saying yesterday. Basically wondering if some US banks are a serious buy.

    For a long time it was the radical thought that the problem with banks wasn’t liquidity but solvency. This view was accurate at the time but it has been ramped to a point where banks are generally seen as insolvent to a point that they cannot be repaired or bought at any price.

    This doesn’t seem right. There is the express support of government via zero % interest rates and capital injections and are banks assets (various forms of property related debt in the main) really worthless as the market has been inferring I seriously doubt it.

    I say US banks because property is nearly 3 years into its crash and started from a less inflated point than here in terms of average income or GDP. It may not be done dropping but excluding the most extreme scenarios it must be getting close.

    I’m begining to think it is overplayed ie are the banks had a massive solvency

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  • Also thinking that the breadth of the rally in the US yesterday so soon after Mondays ooks significant. Reading a lot of even bearish deflationists looking at a rally up to say 850/900 on the S and P based maybe on the story that financials aren’t so bad afterall. A further crash after that would be ripe but wondering if we have already seen absolute lows in financials ie it would be other sectors taking things down – retail and leisure eg still looks hugely overpriced.

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  • funnily enough the Us Homebuilders look like they may have a recovery judging by the patterns (this was pointed out to me by another techie). In terms of market sectors i really have no interest. In terms of the general market – the Footsie back up was no surpise.

    “7. techieman said…

    ok so its looking a bit overdone to me. A bit more downside tomorrow and then picking the bottom (or to be more accurate covering nearly all of the remaining shorts). We are near the bottom of a trend channel – expect a little overthrow of that to the downside perhaps mid to low 3500s; we have a technical target of around 3600 (reached) , we are very oversold (RSI – 11day around 20; lowest since the top last year, although i would like to see divergence before liquidating the rest of the shorts and there isnt any).

    Wouldnt rule out a violent bear squeeze, but wouldnt expect to see 3950 breached before a new swing low that breaks this low we are establishing now. After that it looks boom boom for a while to me.Monday, March 2, 2009 08:46PM”

    Now the interesting thing is during this bear squeeze (because its violent) people start to think “thats it” – the low is in (whereas before they were expecting the bear squeeze and expecting it to be violent) Funny old game innit!

    This also might be of interest (although as always from EWI tinged with some marketing).

    http://www.elliottwave.com/freeupdates/archives/2009/03/12/Okay-It-s-a-Rally-But-How-Large-and-How-Long.aspx

    particularly : “Yet if historic levels of negative sentiment are no surprise, here’s what should be even less surprising: The stock market will mount an authentic rally. As for why this is no surprise, the short answer is quite simple: Everyone who wants to sell has done so. At least for the time being.

    Do the point gains in this week’s market suggest a rally of the “authentic” kind? Well, several measureable and anecdotal indicators suggest strong skepticism about whether the rally can last, which increases the likelihood that it will. The more important question is, how large and for how long?”

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