China; not more threatening than Greece

Interesting to see the Chinese Government so swift to act to stop a large stock market rout. Not sure that  Capitalists would approve of banks being asked ot lend money to companies to buy their own shares - seems a bit gamey perhaps?

Still, it has done the trick of stopping the share collapse. The Chinese are struggling to allow stock market trading into their retail trading base. Much like we do with AIM etc, the propensity for the newbies to get robbed is high and as a Communist state this has some downsides.

They seem to have licked it for now and the impact on the UK is minimal, far less than a Grexit or indeed huge EU bailout of Greece could be,

In time China will go pop big time. The Government have decided to print money at an alarming rate to keep up the growth profile. The money is printed in the back of the $5 trillion of US Dollar T-bills that the US is never going to redeem. They are merely playing the game according to the rules they have learned.

Of course, this leads to massive over-investment and poor investment choices, as well as rampant asset inflation. All in all, a disaster, but the underlying strength of economic growth will provide a big shock absorber. The rise of the US did not stop in 1929, neither will China's crisis in 2015.

Open Thread: Deflation, Am I Bovvered?

And so it has come to pass: nearly eight years after the financial crisis started, and despite years of QE, the UK is suffering deflation.

Or are we really suffering at all?  With the election safely behind them, will Osborne + Carney let rip?  Is this the strategy for 2020?  Or will the oil price take care of any slack in the economy?

Go for it, C@W people!

ND

BRICS Up Against The Wall

As the Turkish Lira sets slowly in the west ...

Well, not so slowly.  And investor sentiment turns on a sixpence (strange - they always know these things can happen ...)  - I am aware of one big private equity power plant deal that has foundered because of this very recent currency volatility: and the Turks need power plants - lots of them.  These are the kind of crises-in-confidence that spiral downhill quickly.

Ambrose in the DTel paints an ugly picture:

World risks deflationary shock as BRICS puncture credit bubbles As matters stand, the next recession will push the Western economic system over the edge ... Eurostat data show that Italy, Spain, Holland, Portugal, Greece, Estonia, Slovenia, Slovakia, Latvia, as well as euro-pegged Denmark, Hungary, Bulgaria and Lithuania have all been in outright deflation since May, once tax rises are stripped out. Underlying prices have been dropping in Poland and the Czech Republic since July, and France since August.  

Wow:  here we go again ?  One could imagine quite a flight of capital (to the extent people can get it out of places like China and Russia in times of crisis) and we all know where that ends up.  UK house price bubble, anyone ?

And a holiday in wonderful Istanbul ?  By-passing Taksim square, perhaps.  

ND

The Moody Blue's Chancellor

UK loses top AAA credit rating

 "Moody's cited the "challenges that subdued medium-term growth prospects pose to the government's fiscal consolidation programme, which will now extend well into the next parliament". It added that the UK's huge debts were unlikely to reverse until 2016"

Are we surprised?  Well, a little bit. Because it should have gone a while back and thought maybe they had forgotten about us.

Does Cameron now regret that 1st year 'cuts holiday' where the government sounded tough, took the political pain, but didn't do very much? 

 We did warn you.

Does a loss of borrowing capacity strengthen or weaken  Ed Balls' calls for more spending, more borrowing? Or does a chop make that strategy look even more kamikaze?

Or should George Osborne have been super radical and actually cut taxes, taking the Moody's hit early whilst going for growth,  rather than later, after years on an austerity path?

"Pensioners The Biggest Winners" !?!

Property prices stirred up the comments in no uncertain terms  - so how about another incendiary topic:  the Bank of England thinks that pensioners are the biggest winners from QE.

Discuss, as they say.  Or, in the vernacular - WTF ?

I'll start the ball rolling with a modest kick.  At a basic level it is surely obvious that pensioners (and savers generally) have been, and will continue to be, afflicted by dreadful depredation as the can is booted ever further down the road.

However ... the fact is, pensioners as a class are generally the least-well placed to survive a serious outbreak of social breakdown. Imagine, for example, how granny will fare as she wheels her trolley out into the supermarket carpark when the anarchy really starts. Or when the shelves are actually bare ...

So - to the extent that pensions and savings are raided and raided again to keep the show on the road, rather than confront the Dreadful Truth in a decisive showdown (as some C@W commenters advocate) - perhaps it is in the old dears' best interest after all.  

What do we think ?

ND

Priorities For Our Time

IfL, the Institute for Learning, is “the professional body for teachers, tutors, trainers and student teachers in the further education and skills sector” - a spurious closed shop imposed on the adult-teaching profession a few years ago. Its slogan is Benefits, Status, Voice.

It has a new President, one Beatrix E Groves, who comes into office at a time when adult & further education is under enormous pressure from t’Cuts: courses and teaching posts are being axed the length and breadth of the country. So, what is Groves’ number one priority ?

Yes, it is Equality and Diversity, or to be even more precise:

“Bea has concerns about how people enter the profession and how open it is to ‘non-traditional’ entrants. Transgender people are one of the most persecuted groups, and one of the reasons Bea stood for president was to show that a transgender woman could hold public office”

Bea, there are no new entrants ! How about having concerns about that ?

ND

Trading Update: Tale of Two City's

Never let it be said that we push a consistent party line here. On the one hand, CU shares his up-beat fortunes (and occasional misfortunes) in the equities. I on the other offer doom, gloom and precious metals. In the middle, Mr Q keeps our spirits up with tales from the High Street and the doings of Brownadder.

Following CU's latest update, a quick word about the preciousss. Things were looking toppy at the start of the week, and so it proved. I have come to view silver as the vehicle for in-and-out moves, and for once I sold at the top (having missed that trick on 1 May): the Drew silver account is a bit more than 40% up on the year. As anyone can figure out, that is by no means optimal, proving I am no trader.

But I have left the longstanding gold position in place, and thus missed out on the 20:20-hindsight 10%-in-2-days on offer. Why ?

Because from where I am sitting, gold looks inexorable. Look at the chart (source: 'economicfreefall') - what is a 10% twitch against that trend ? Less than the previous 2 weeks gains, that's what. The bottom line approximates very closely to the 144-day moving average, the significance of which is that silver bottomed on the 144MA after the May massacre, and then resumed its bumpy ascent.

There was, in my view, no way that 2008-9 was just a nasty bout of recession. The only trick up the sleeves of Gordon 'PFI' Brown, or Ben 'helicopter' Bernanke or whomever, is that dealing properly with problems can generally be postponed. For a bit. Theories of what is happening abound: here's one you may care to read.

Sometimes, to quote Brute Anderson from the DTel yesterday, what's needed is "some old-fashioned Tory pessimism".

ND

The C@W Real Economy Index: The End ?

For the past three years we have been tracking the year-on-year decline in advertising space (by page area) in local trade directories and, yes, it's that time of year again !

The results are in: and the Thomson local for Croydon has declined by ... a further 29.2% ! This makes for a cumulative 62% decline over 3 years - causing Thomsons to take the dramatic step of reducing the format to hand-book size this time, instead of just thinning it down as before.

It's pretty clear, of course, that most printed media are going the way of the dinosaur (see all newspapers) so there may not be too much to be read into it. Indeed, this may well be the last time we bother to count the column-inches on behalf of our loyal readership (Kev and Doris Bonkers).

The end of an era. All things must pass, eh ?

ND

Not a happy December

Today so far the FTSE has fallen 1.6% and is not showing much sign of a recovery. True the market has not collapsed in recent weeks; but it has been going sideways for some time. The sickly banks of RBS and Lloyds are well down from their recent highs, in fact RBS is only 30p down from 50p recently. That is quite a haircut.

Why so bad today - well where to start, possible UK ratings downgrade, tax hikes forecast in the tomorrow's PBR, Dubai debt default not as easy to get past as people had hoped.

All in all a horlix - my whole portfolio is red today, not a single winner! sadly, I think this is the shape of things to come next year. We avoided the expected October crash, but I fear the bear will be back early in 2010.

Was it right to let Lehman's die?

We were worried this time last year that failing to bail out Lehman's might cause a financial collapse; well we were right. We also said the UK would be in deep trouble in short order because of HBOS and RBS - yup spot on.

We also said Lehman's should have been allowed to go under as Northern Rock should have been. One year on, I still think on balance this is correct. I wanted AIG to go too, but did not understand that if it had done it would have taken several banks and countries with it; good on Paulson for saving them.

Although allowing Lehmans to go was a terrible experience, it was cathartic, people faced up to the true enormity of the crisis and Government's reacted. Without it we would have soldiered on into a prolonged down patch which may have lasted for years and years. Instead we got a short, sharp shock. Plus the unwind from Lehmans is not the end of the world either that many had made it out to be. In fact, it encourages me to think it would still have been right to let Northern Wreck sink; that business is going to cost the taxpayers billions instead of the bondholders and shareholders.

A failure like Lehmans won't happen again though and that is also a good thing; lessons have been learned the hard way. Better than not at all.

Short the Bear

Whilst (Prime Minister) Putin has been making great hay on the world stage about resilient Russia and the need for a new currency to replace the Dollar, the truth is also out there.

Russia's economy is collapsing at 7.6% a year; it is a performance worthy of Newcastle United.

Now, only two years after trying on the game of resource nationalisation, it seems Russia is retreating by inviting Shell back in.

Desperate Shell will take the bait; but the bear is very wounded right now. Any further collapse in commodity prices will utterly wreck the economy. I fully expect commods to re-trench later this year after their current spike. Industrial demand is just no there right now.

Russia is in for a tough time. Sadly this means more diversionary foreign wars and intervention to distract Mother Russia's masses.

Big Companies UK in Big Trouble

We have seen Woolworths finally disappear from the high street as a result of this recession (and not replaced with any new place yet on my local high street).

However, for all the green shoot talk, the economy remains in a very dark place. Car production figures out this week were spun as being good because the rate of decline was reducing. The top line though is that demand is 50% down year on year. Similarly in the housing market, much is made of property prices stabilising a little; but the facts are sales are 66% down on the levels of last January.

These figures show that many people have their jobs and livelihoods threatened, as the economy moves to operate at a new, lower level of productivity. Let alone the Government who will be collecting fare less taxes to try and pay back its newly minted debt.

In the corporate world, here are 3 household names whose market and finances suggest they could not last another year of this in their current form:

1. British Airways - like Woolies, BA has been in trouble periodically for years. Massive unionisation leaves it very exposed to the competition of Easyjet and Ryanair. It has lots of cash, but is burning through this very quickly. Its pension deficit is twice the size of the company and is hampering attempts to merge with Iberia. BA has strong management, despite what bitter staff say and this is a big bonus, but with demand at these levels, the company has a tough time ahead. (Shareprice wise, I can't see any value until their shares go to nearly £1).

2. Vauxhall - Part of GM Europe that has now been sold to Manga of Canada/Russia. Vauxhall makes good cars but for a small market that is suffering from huge drop in demand. With a global corporate looking to reduce its capacity in line with the new market realities, there will be big cuts and Vauxhall is top of the list. I can't see Luton remaining open and Ellesmere port must be under threat. When Longbridge was shut its factory was moved to China, perhaps a similar fate awaits Vauxhall vans and maybe cars too.

3. Comet - This UK retailer is owned by French company KESA. It was spun out of Kingfisher (now B&Q) a few years ago. High street electrical retailers have been struggling for a long-time. Main rival DSG is though still just profitable and has recently raised cash to pay down debt. Comet is in a worse position, with the parent company unlikely to risk all to save the business; in addition with a bad recession in Europe there are a myriad of ways for KESA to be losing money across its businesses. All this before US chain Best Buy comes in and starts shaking up the market this year.

Budget 2009 Reaction: Spin and more Spin

There are many, many reasons to be disappointed with the current Government. That they manage to cram all of them into a single budget is phenomenal.

50% top tax rate for £150k plus earners - really, this raises a pittance. Pure politics to play with the Tories.

'Investment' - in sundry green initiatives, an industrial policy, non-jobs for those who can't get real ones. All very costly, all will have no impact.

£15 billion in public spending cuts - out of over £600 billion. That is like not buying chocolates with your families weekly shopping money; ooh, what a saving!

But worst is the really big lies, the whoppers that are going to mean MASSIVE spending cuts from next year and huge tax rises:

• Economy forecast to shrink 3.5% in 2009 - Um, at least 1/2% out on the downside

• Growth expected to pick up in 2010, expanding by 1.25%. - heroic, be surprised if we manage more than 1/2% in total

• Economy to grow by 3.5% annually from 2011 - Long term trend in 2.5%, so again, pathetic assumptions.

• Public borrowing to increase to £175bn this year - Gulp

• Borrowing levels to rise by £173bn, £140bn, £118bn and £97bn in years after - 4x gulps, plus all wrong as the growth predictions are way off, so these numbers will all expand hugely.

• Consumer price inflation to fall to 1% by end of year. - So QE won't work then, Alistair?

All the hard decisions have been ducked and left to the next Government which Darling knows won't be him. It is the most political budget ever, Labour have betrayed their own country.

I am flying out of the country on business tomorrow - is it worth coming back?

Death Spiral, the sequel

Back in September and October last year, the markets crashed on the collapse of Lehman Brothers. Th governments of the world decided that it would not let that happen again, so now we have round after round of bailouts to keep zombie companies like AIG and Northern Wreck going.

But this week is a new turn for the worse, markets are falling precipitously since last Friday, the FTSE is down over 10% in 3 days; many are saying they see little support for prices until they hit 3000 or less. Even gold is falling again as deleveraging kicks-off with renewed vigour.

In the midst of this, Ben Bernanke is sounding off about US Fed policy, Brown is being snubbed by Obama and throwing his phones at the wall in the Whitehouse ante room.

Meanwhile, the markets fall and fall. The Government intervention is cack-handed and ill-though out. Look at the current Lloyd's debacle, the company was set to announce the Government asset insurance terms on Friday, here we are 3 trading days later and the share price is down nearly 50% on no news. Terrible PR handling, terrible Government.

The markets are the telling the UK Government what it thinks of its plans, just wait until the bond markets catch-up. We need a concerted plan, waiting for the G20 in April is a bad option.

Lucky post 888 or Disaster Capitalism?

This is post number 888; which if I were Chinese would be very lucky indeed. However, capitalists tend to deal in cold hard facts rather than wishful thinking.

Instead, the report today is that a very gloomy week has taken a decided turn for the worse; and I am not talking about the mist and fog covering the City of London today.

The DOW closed down at a new bear market low last night of under 7445. This effect of this has dragged the FTSE down 2% this morning so that it sits at just under 4000.

7 weeks into the new year and we are already 12% down on the main market; by contrast Gold shoots ahead up by 25% (huge overshoot on the upside but still...).

The main reason for all of this a combination of government hyperactivity across the world coupled with total ineffectiveness of said activity. Brown, Obama all of them need to calm down and start announcing thought through policies rather than knee jerk reactions; the current medicine is not working. There are seeds of good ideas in bank recapitalisation, regulating CDS, cutting interest rates...let's hope they get done properly.

The wounded Bear; Russia's economic crisis

Russia has been having an economic meltdown to make Gordon Brown jealous. The foreign cash reserves, built up and crowed about, have been depleted by over 30% in just a few months.

The economy, based on extraction (i.e. selling mother nature), is in freefall. The budget, set to expand for military use, has been severely undermined. It is set for oil to be $95 a barrel and not $35. Some big changes will need to be made and Putin is pushing his President forward to take the flak. Even the Oily-garchs are out with their beggin' bowls in Moscow.

Last summer, Russia invaded Georgia, the height of hubris it has proved. Not only did the world shun Russia for its act, but the resource boom failed at the same time. The Rouble has collapsed and continues to do so, the economy may go from 10% growth to 0% or even recession.

There is a dangerous side to this though, as demonstrated by Georgia. Russia is prone to acting out nationalist fantasies; a re-run of Galtieri? The wounded Bear is also very unpredictable. It may make for an interesting challenge to the new US foreign policy. Ukraine beware.

All clear sounded, Barclays up 73%?

Well, my post on BARC yesterday proved to be right. Today was a day the markets decided that perhaps Barc and its muckers are not quite as screwed as we thought. Interesting to note that Barc's write-down loss was actually as much as RBS, sans ABN-Amro.

Even Lloyds perked up. As the US is steady tonight in terms of close I would not be surprised to see the rally continue a bit tomorrow before profit taking on Wednesday or later in the week.

So the question in the media will be, is this it? Did 'we' just win the high-noon shoot-out?

Sadly, I think not. There is another delay until the next leg of the crisis in a few weeks. I note Gold and Silver have spiked to over $900 and $12 respectively and are staying there. In the US another bank went down on Friday - there is a long-way to go yet. The UK Government's insurance plan is not a bad one, albeit very late in the day. However, if banks balance sheets deteriorate again there are no bullets left. Nationalisation will make us vulnerable as Iceland has been.

A good battle, but the war is not going well overall.

FSA in mercy killing of UK bank shareholders

Well, that could be one view of the FSA's decision to allow the banning of short selling UK financial shares to lapse on 16th January.

I don't subscribe to the view that it was shorting that caused the bank share prices all their pain; it was their dodgy balance sheets.

Sadly, these are not improving very fast and so the situation remains that shorting may re-commence with a vengeance.

Perhaps the one chink of light for the Bank Shareholders is that the Hedgies are a bit shorter of ammo than they used to be.

In reality, let us hope that the FSA and the Treasury are speaking about this; there will need to be some sort of shoring up announcement from the Government to help support their own shareholding position. I expect that to be announcing some guarantees for future, erm, non-dodgy?, loans made by the banks. As an outlier there is the chance a 'bad bank' (AKA Northern Wreck) will be created to stiff taxpayers for generations to come.

Either way, if the Government announces nothing expect a wild times in financial shares from mid-Jan...

No government target for the pound

"Sunny Jim" Callaghan must be spinning in his armchair. After a long struggle with Harold Wilson, who refused to even discuss the matter, Callaghan was forced to devalue the pound in November 1967. The devaluation of the pound ended his time as Chancellor of the Exchequer. He went on to make matters worse elsewhere, especially in Northern Ireland and with the Trades Union reforms that never materialised. And he had to get the IMF to bail out the country too. Forced to hold an election after losing a vote of no confidence in his Premiership in 1978, he lost heavily to Margaret Thatcher.

So poor old Jim must be fuming that the sterling crisis that began his ruin has become such a non story. His cut of around 14% forced him from his office. Today the pound is already below the Euro {£0.99} at any bureau de change, and has lost around 25% of value, yet it seems few seem to mind. Least of all the government who don't even acknowledge that the weakness of sterling is in any way a bad thing.

Yvette Cooper said "We've never had a policy of targeting the pound. Our policy is to target inflation. And that I think has been the right one." David Cameron agreed.

No doubt the strategy is a bit Fawlty Towers, "Don't mention the Euro." Then options remain open, unlike 'Big Jim' who had promised no devaluation. Defending the currency would be near impossible anyway.
What other options there are is unclear. What could happen when the next interest rate cut is announced?

This is the sale advert of a major furniture retailer in the newspaper. It is 1/4 page on the front and a full colour, full page, on the back.

Massive Savings
beat the $ price rise
As well as our legendary claim to be "the best prices in the UK" by forward buying certain ranges, for a short while, we can "beat the significant rise" following the currency fluctuations.
BUT ONLY WHILE STOCKS LAST!

Whatever the wisdom of this sales campaign I have never seen a January sale advert that says "buy it now because it will be more expensive later."

We will all see much more of this sort of thing in the new year.
Will a public, who are enjoying a level of price cuts not seen for years, be tempted into the spending our way out of debt policy, when prices not only revert to their pre-sale levels, but actually increase?

As James Callaghan himself said
""We used to think that you could spend your way out of a recession, and increase employment by cutting taxes and boosting Government spending. I tell you in all candour that that option no longer exists"

Madoff - Could it happen in the UK?

Madoff, a name few on this side of the Atlantic will have heard of until the last few days. For those who have not read this amazing story; effectively a top wall street firm has been found out to be a Ponzi scheme. $50 billion has been lost to investors, and maybe much more as the investigation is only just starting.

Mr Madoff contributed a lot to politicians and even was an adviser to the SEC, the US regulators. Over the weekend, the victims are being announced. Many already stricken banks and hedge funds who will now face possible disaster in the coming week. Santander has said its clients have lost $3.1 billion. Bramdean, run by high profile city slicker, Nicola Horlick, has lost hundreds of millions and the share price will no doubt be pummelled further tomorrow.

The story is amazing and another sign of the height's to which Wall Street excess had been allowed to reach. Madoff's company had been on the SEC list for a check, but they had not round to it.

So could it happen in the UK? The answer is yes. There are many similarities here with Northern Rock. A business with a flawed model, totally unable to operate in a market. The staff all working hard not knowing the true crisis at the business. The Finance Director resigned and nothing was done. The auditors ticked all the boxes, the FSA looked on without taking any real action.

Yes, the FSA regulator has sacked the staff and tightened up its act now. But how much more could come out in the future? The reviews they do are on a 3 yearly basis. Hopefully nothing on the scale of Madoff will come out here, but the world has turned up some pretty strange stuff in recent months.