Posts from — March 2009

One of the bright sparks at the moment is that banking stocks seem to have finally hit levels that are just too attractive to miss. Barclays is back up to 100p this morning after the latest analyst and rumour based falls peter out.

There has been considerable concern at the continued snipping at Barclays over their debt valuations as one has to assume that the company has proved to both their auditors and the FSA that their numbers are true and fair. HSBC are still low by historical standards but, at 429p, are still 40% above their lows of the 9th March.

Also see today’s market update, Spread Trading.

Good Luck!

DB

The above comments do not constitute investment advice Clean Financial accepts no responsibility for any use that may be made of them.

So the regulators are about to release their pearls of wisdom to a breathless audience and already the sound of incredulity is being heard across the city.

Huge limitations, restrictions, rules, reporting criteria etc always sound great to regulators as this justifies their existence. Some of the proposals leaking out are either exaggerated so that the final document is almost a relief or one of the longest economic suicide notes in history.

Asking banks to store up capital in times of feast sounds great but who decides what is feast and what is famine? How bad will the next downturn be? Reducing risk, means reducing lending, means lower growth, means higher structural unemployment…permanently.

Limiting lending on mortgages to 3 times salary also sound prudent on paper but have they really thought this through. Average salaries are around £26k, average properties are above £150k…following this rule of thumb condemns property prices to a sudden sharp correction to the downside. The chances of any ‘key employees’ buying a property will recede even further as nobody is going to build houses for such small sums. This rule would (in general) move the UK towards the European renting model.

With the state now owning two of the biggest lenders it will be rather nice to see them regulating themselves. While at the same time HSBC and Barclays will probably be eying the exits. In these days of electronic banking a head office can be almost anywhere and there are plenty of stable nations who would kill for an opportunity to take the Financial baton away from London.

Tax income from the Financial Sector is expected to be £23bn less this year than in 2007, for all the vast sums poured into the banks, the economy would suffer far more from a permanent loss of this magnitude than from the cost of the bailout.

Also see today’s market update, Spread Trading.

Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

Good Luck!

DB

The above comments do not constitute investment advice Clean Financial accepts no responsibility for any use that may be made of them.

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Markets are sitting uncomfortably at the highs as finance leaders try to achieve a united front in response to the Global turmoil. Comments from regulators such as Lord Turner that what we need is ‘more oversight’, ‘more restrictions’, ‘much higher stress testing’, ‘higher usage of capital against off-balance sheet exposures’ etc make for great sound bytes until you realise that this means ‘more costs’, ‘less lending’, ‘more costs’, ‘less lending’ etc. And this just when world leaders are trying to get the financial sectors to open the purse strings.

And this leads to the great catch-22 over the current system. The various political leaders want banks to lend more (at virtually any price or risk) while at the same time blaming those very same bankers for inappropriate lending decisions in the past. The regulators want them to lend more responsibly whilst at the same time requiring greater capital use against existing and future lending. I am afraid that the numbers just do not add up.

Much of the world does not understand this dichotomy but is willing to just castigate the bankers as the architect of all our woes. In the absence of liquidity perhaps more people might start to ask how much of the growth of the past decade was actually driven by the banks lending rather than any policy decisions made by politicians?

We all benefited from the huge surge in available funds and now we are all suffering on the downside.

Also see our new Daily Spread Betting update.

Good Luck!

DB

The above comments do not constitute investment advice Clean Financial accepts no responsibility for any use that may be made of them.

The failure last Friday to push resistance versus the dollar at $1.4340 was not helped by the overall view taken about the ‘quantitative easing’ policy of the BoE.

With no other central bank going down this route just yet we may find that our Government will have ended up buying its own debt off a few investment banks at what may prove to be the highest ever price for UK gilts.

That would actually make rather a neat end to the Labour Governments disastrous mismanagement of the UK economy.

History might well show that Gordon Brown sold half the Gold reserves at the lowest (in value terms) price for Gold in history at the start of his regime. It may also show that he topped even this by buying £75bn of its own debt at the highs.

At some point the government will have to stop buying, issue more or sell off the purchases. When the market gets wind of this you will not see a buyer of Government debt this side of Mars. The price will fall like a stone.

Given that the BoE is buying Gilts some 5% above the price last Wednesday and on a comparable basis will probably have to sell at a price at least 5% below that level we are probably looking at a loss on the deal of some 10% (£7bn) for the taxpayer. A price worth paying if it works…if it doesn’t…just another few pence on income tax.

(yes I know this blog is sometimes very anti-Gordon Brown and anti-Labour. However I would say that Mr. Brown seems to deserve pretty much all of the comments. All senior politicians will make some mistakes. Gordo is simply seems to be creating a catalogue).

Also see Spread Betting on Gold.

Good Luck!

DB

The above comments do not constitute investment advice Clean Financial accepts no responsibility for any use that may be made of them.

Unfortunately, just as we thought it was safe to go back into the water quite a few respected commentators are warning about the prospects of the rebirth of inflation as economies climb out of the mire.

This warning is quite simply based on the massive increases in money supply as major nations start to effectively print huge sums of money. It the moment this seems a distant prospect as prices (aside from currency induced effects) remain moribund and, with consumers pulling in their horns over fears for the future, 2009 and moving into 2010 are probably not going to pressure too much.

Central Banks will be walking a very thin tightrope between the Japanese ‘lost decade’ scenario and the high inflation seventies and eighties of the Southern European model. Fortunately that is an argument for a later date.

Also for the daily headlines, the indicators and company results we now give a daily run-down in our new Daily Spread Betting update.

Good Luck!

DB

The above comments do not constitute investment advice Clean Financial accepts no responsibility for any use that may be made of them.