Friday 12 February 2016

Talking your way into a recession...BS alert

"Are we talking ourselves into a recession? John Botham thinks it's possible. He tells Today that although markets are volatile and lower oil and commodity prices are a cause for concern, other parts of the UK economy are doing very well. The danger, he says, is that consumers might put off a purchase because of the volatility in stock markets or that banks, becoming fearful as their share price takes a beating, stop lending. He doesn’t believe we are repeating 2008 again." BBC

Always a warning sign for me this, only true idiots can think it is possible that recessions are entirely induced by the collective state of mind of the markets and human population the world over.

On the other hand, people making these kind of statements were rife in early 2008. I recall clearly day after day hearing vested interests - from bankers to recruitment consultants, saying all was fine and we should be happily spending and changing jobs etc.

Of course, none of this is true; but at the same time this is not 2008. As much as the Banks are having a nice little run on them in share price terms they are not as exposed as they were in 2008 to crazy derivatives or sub-prime mortgages. Also the low commodity prices have upsides as well as downsides, in 2008 commodity prices were at all time highs and managed to start both the Great Recession and then the Arab Spring in due course.

Yet, business cycle wise, we are due a slow down in the next year or two and the world is full of intractable geopolitical issues. So a mild slow down could happen although it feels unlikely in the UK services based economy.


Demetrius said...


Electro-Kevin said...


Anonymous said...

" ... they are not as exposed as they were in 2008 to crazy derivatives or sub-prime mortgages."

You want to see some of the crazy debt some of the American banks are trying to conceal for their fracking clients.
How much of it have they unloaded onto European banks with-out revealing the full extent of the problem?

CityUnslicker said...

anon - $250 billion of fracking debt. it is a lot, but it aint trillions like 2008 and is mainly US held.

Property - the interest payments at the moment keep it looking OK for me. You cant default on a 0% loan....

Steven_L said...

The last time I saw markets like this - with lots of big stocks moving 5% - 10% + every day - was 2008.

I think it will just take one negative quarter in the USA to see 1,000 points wiped off the FTSE 100.

But that said, I think there are a lot of reasonably priced stocks right now.

hovis said...

CU; that wasnt me under sime other moniker but that did raise a smile - as the the Dallas Fed (and several other) have suspended marking to market on energy assets. Of the US banks Wells Fargo is in balls deep in bad energy.

I think it doesnt matter the volumes I sense a system and psychological fragility in the air.

As to your comment on property I presume you are referrng to 0% cetral bank loans to banks rather than rates to firms / individuals banks lend to ..

That is before we get to the functional system failures, decrepitudes and other things wrong with many internal bank systems - I have direct experience of two large (now quasi UK govt banks who's numbers I simply wouldnt trust knowing their (still) system infrastructures which are not fit for purpose.

I am as ever far from sanguine that this time it's different, we are all Wile-E-Coyote.

Anonymous said...

I don't want to gainsay your analysis CU, I hope in fact, that your estimates are correct mate.

But, I think the biggest problem is the fact that free markets are no longer allowed to adjust.

Malinvestments are always in vogue and the Socialists are still blaming neoliberalism when anything but - is the truth of it Corporatism.......

If you keep pumping funny money in, and allow dodgy banks, corporations, businesses and economies to carry on being inefficient - zombies. As we observe another, and a massive asset bubble rising up to the heavens. With China going down the tubes - it's command economy cannot "just bounce back".
Then, Britain, not a pretty sight and mass immigration keeps on apace with George rolling out carpets, and the welcome mat "step right this way and help yourselves to the UK infinity credit card while you're here££££££".
All the while, the UK is shutting down its only reliable generating plant just at the wrong time!

Plus, God knows how much debt the US is in but it's reckoned to be in order of $140 Trillions...I dunno but no wonder Gold is looking a good bet.

Sebastian Weetabix said...

Doesn't Warren Buffett have a big chunk of Wells Fargo?