Improving Markets and UK Housing
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Trading Features / Strategies from Simon Denham of Capital Spreads.
Markets look to be finally attempting the 6100 level this morning as we expect an opening level 35 points up at around the 6125 mark. After two weeks of refusing to even contemplate a pitch above 6090 it might be that a unilateral move higher, effectively in ‘out of hours’ trading, is what is needed to make the move.
The weekend press was relatively benign as, aside from the HBOS move, most sectors have tried to distance themselves from the woes of the London financial centre. Surveys tend to indicate that only a minority of companies have been affected by the credit crunch, not an amazing illumination as most companies have very little or no serious borrowing requirements. Unfortunately it is in the minority that we will probably have to concentrate.
In a recent survey ‘only’ some 26% of businesses have found problems with raising funds whilst 36% have amended future growth plans. If this percentage of UK business actually goes into reverse gear then it is difficult to see how it will not negatively affect the remaining 74%. The future will then become a straight tussle between the majority doing reasonably well and the marginal slowing down of the minority. As I have mentioned many times in this comment the answer is almost certain to be found in the prospects of those seeking employment and assurance of current security of those already in a job.
Employment continues to be the major ‘winner’ out of the last fifteen years. For much of the UK there is little reason to not be in work of some form or another. And, as has been mentioned ad-nauseam from various ‘interested’ quarters, there is even enough work to accommodate a huge swathe of foreigners as well (I cannot even remember the last time I was served in a London Restaurant or Bar by anyone other than an Antipodean or European). Problems over an ill educated and work shy local workforce are plainly for another day.
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It is easy to let the current slowdown in housing to assume crisis proportions in many investors’ minds but in reality it would have been difficult to find anyone who thought that prices were anything other than over heated. A period of cooling or at least stagnation is probably well overdue but, unfortunately, as we live in a country where for many people the value of their house defines their wealth it is easy for any slowdown to affect the national psyche. If we enter a five year slump as per 1989 to 1994 then the economy will find it very difficult to ignore.
The financial sector seems to be taking the (expected) HBOS rights issue in its stride. With only Barclays to come, and even that is not certain, this is likely to be amongst the last of the big calls. Punters are now trying to look through the current problems to the uplands beyond. For many this may appear to be rather premature as most of the write offs etc over the past six months have been nothing to do with the situation in the UK but more aligned with investment problems in the US. If, and it is still a big if, there is a serious mortgage repayment problem in the UK then the banks may well find further heavy write offs are just around the corner. The last housing problem was notable for the fact that many people in negative equity just gritted their teeth paid the mortgages and fought their way through to the other side.
Unfortunately since that date the laws on bankruptcy have been lightened considerably and all in favour of the bankrupted. In the US, banks have been very used to people just handing their keys in and walking away. In the UK this would have affected your credit rating, virtually, for the rest of your life. Now, however, the social stigma and financial implications are negligible so banks may find far more properties handed back than in previous slowdowns especially in the huge numbers of flats sold to younger buyers over the past five years or so. It is expected that this area will be the heaviest hit in any price reversals and it is just this area where the buyers are most able to just ‘move out’ and ‘move home’.
The above comments do not constitute investment advice and neither Capital Spreads nor Clean Financial accept any responsibility for any use that may be made of them.
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'Improving Markets and UK Housing' edited by SD, updated 28-Apr-08
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