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As mentioned into day’s Daily Trading Comment “Markets in the Far East seem to have been rather more circumspect with the Hang Seng refusing to budge from Mondays closing levels at around 15,300 and this might give longs in the Dax and FTSE cause to take profits in early action and await events”.

In truth there is very little information to play with just at the moment with virtually no corporate announcements and precious little economic data either. Retailers are gearing up for the Christmas sales (I saw my first Xmas ad on TV last night, can’t remember who for) and for many of the smaller chains we may be seeing, literally, a do or die scenario. Even the big boys were kicking up a fuss over rent reviews in September so spare a thought for the struggling smaller retailers. The quarterly payments due in December may kill off quite a few ‘names’.

RBS seem to have bounced from the lows of last week when the share price seemed to indicate that it was touch or go whether the company would survive. With the stock closing last night at 85p and the Government underwriting the right issue at 65p this might attract a big private uptake and limit the state influence but the emphasis here is on the word ‘might’. It is tempting to suggest that the bank would welcome a bit of state holding as the government would then also be in hock and therefore likely to be ‘supportive’ in the event of any further problems. Unfortunately, in the back of everyone’s minds will be the disastrous £12bn issue just a few months ago back up at the 200p level. Anyone getting involved in this has seen a short sharp lesson in equity value destruction.

The announcement yesterday on the Governments finances will also be of concern to watchers from the sidelines. The finances of the UK are swiftly deteriorating and this is before the downturn really starts to bite. Government expenditures are rising by 6.1% even prior to any stimulus packages having been announced. And also prior to the huge dislocation from tax payers becoming tax recipients…and corporation tax receipts drive into the ground.

For all the opprobrium poured onto the banks they were huge contributors to the exchequer (billions a year) it will be many years before these revenues are replaced (if ever). The falling price of Oil will also not be welcomed by some in the Treasury.

The reason that this is a problem for investors is that the more the State needs from the private sector to balance its books the slower growth will be and the more profit margins will fall. The problems built up in Government finances over the last ten years will, I fear, be with us for decades to come. Boring items like keeping the funding going on current expenditure will run into the completely unfunded pension’s liability. Local Taxes will have to rise exponentially to pay for council employees final salary entitlements just as the economy looks to be struggling.

Good Luck!

DB

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Good Luck!

DB

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The markets seem to believe the hype so I suppose that is the main thing. The entire problem, sorry, the majority of the problem, has been the lack of confidence in the interbank lending markets. There have been huge funds sitting on the sidelines, not willing to risk depositing with banks which might not be secure. The effective nationalisation of three of the major banks in the UK and the huge addition of liquidity elsewhere might get these funds moving again.

For all of the euphoria in the equity markets it is important to note that Libor rates are still considerably higher than base rates. This is even though we are anticipating rate cuts in the coming months. 3 month Sterling Libor is likely to be around 6.25% this morning and that is with base rates at 4.5%. This is lower than the end of last week but is still extraordinarily tight by historical standards. Unfortunately for those talking about the end of the current financial crisis this does not quite indicate such a rosy scenario. Outside of the major trading nations (who can afford, for the moment, to stand behind their financial institutions) the rest of the globe might well start to experience a sharp decrease in available liquidity.

Many corporates and wealthy individuals may well reallocate assets to the G8 nations.

The nature of this crisis might well be that as we attempt to extract ourselves from the mire all we succeed in doing is stepping on someone else and pushing them further down. In desperation they then grab hold of us and pull us back in.

The loan books of the big banks are truly massive and we have all grown fat on the back of easy credit. Much of this debt is built into the value of our property and I am very much worried that the well meaning attempts of the government to prop up the housing market by adding liquidity will backfire spectacularly. The idea that we are in a better position than others on the housing front “because we have excess demand” presupposes that there are jobs available that pay well enough to afford housing at the current levels. The falls in general values of around 12% from the highs can be seen as just ‘the froth’ being knocked off we have still to see real asset depreciation on a par with other asset classes. Equity markets dropping by almost 50% might well trigger a similar (not 50% but maybe 25 to 35%) long term depreciation in property values. If this happens then the injection of £50bn into the banks might not be enough especially if they are forced to start lending at 2007 levels once the Government assumes control.

Good Luck!

DB

For any users new to Clean Financial, please note that on Mondays we update a series of weekly articles including:

• Spread Trading - The Week Ahead
• Online Trading News - A Review of Last Week

We also have an update of this week’s Economic Indicators and Company Report releases and a quick review the weekend’s financial press, see ‘In the papers’.

Good Luck!

DB

Another new spread betting feature for you:

“The wild swings in markets over the past few weeks have not been conducive to sensible decision taking and the advise continues to be ‘sit on your hands and do nothing’. It is all very well for the Sage of Omaha to be entering the market but not many people can have his time horizon. Nearly all hedge funds get…” read full article >> Freaky Friday, Payroll and Lloyds HBOS.

Good Luck!

DB