One more thing before I go…

Once upon a time our parliamentary system was the model for all others. Now we have reverted to the days of “rotten boroughs” or should it be “rotten politicians”. At least it has taken the heat off the investment bankers who were also guilty of milking the system. Much talk of reform in both spheres – it seems they just won’t leave laissez faire alone. With every crisis the legislators determine to change the rules so it “wont happen again”; but it always does…There is arguably too much legislation not a lack of it but where would the legal profession be without it? There are just too many vested interests to prevent true parliamentary democracy from working. Enough of politicians! Markets have done pretty well since March but before we get too excited we are only back to where we were at the end of December and I don’t remember too much bullishness around back then. The truth is that a lot of people have missed this rally and the latecomers are keeping it going, but there is a distinct lack of momentum lately, which is a less positive sign. Bond yields are moving up as is gold so for the moment the inflationists have the upper hand aided by the glut of government paper coming…


Debtor’s prison

The budget has pretty much killed off any chance of Labour getting another 5 years; not that the odds were very good anyway; or that the Tories would have done much better. Politicians are in denial as are many investors who think it’s all over. Well as much as I would like to believe that, the tea leaves (charts to those of you who think you can do without them) tell me we are still in a long term downtrend and that wont change until the Dow gets above 10,000 and the FTSE 100 above 5,000. A very profitable rally but experience suggests that most people will climb on board as we reach those targets rather than the 6,600 and 3,500 lows, when Armageddon seemed the only option The big issue is still debt; government, corporate, personal; there is too much of it and its getting bigger. On Tuesday the Fed spent $10 billion buying 7-10 year Treasuries yet prices still fell on the day and both the US and the UK have huge funding programs to come; the UK will be issuing £175bn of gilts this year alone. Their only salvation is that deflation is still centre stage in the short term. In the 90’s Japanese bond yields fell from 8% to sub 1% (at…


Stay very nimble…

There seems to be a quiet regaining of confidence in the markets from the January lows; not surprising given the very oversold conditions back then. The huge sums earmarked for government inspired bailouts are slowly improving liquidity and reducing interest rates; the emphasis being on “slowly”. The G20 meeting ended in some sort of consensus and the amendment to the mark to market rules in the US (albeit minor tinkering at the edges) have both helped confidence. The “failure” of the last UK gilt auction was not exactly a big surprise but 10 year yields are still below 3.5 per cent which perhaps is to some. The gold buffs are also facing the prospect of IMF sales and the “recycling” of scrap which has turned India from a net importer to an exporter. On the other hand hedge funds are getting some traction again as figures show improving performance for the long/short brigade with lower volatility as an added bonus for the doubters. Risk adjusted returns have long been the mantra for the shrewd asset allocators and no more so than right now. Short term equity returns have been mouth watering in some markets but high volatility remains a concern. “Betting it all on black” is tempting but avoiding getting whipsawed will be only for the…


The Great Experiment

The Great Experiment continues with “our” money being spent on any business model claiming to be too big to fail. I have to say, in my “humble” opinion, that Fred Goodwin’s pension is irrelevant given the trillions being thrown into the lame ducks’ pond. There will be a time for retribution but that is in the hands of a power far higher than those of our regulators and politicians, who have yet to come to terms with their part in this debacle and, in all probability, never will. When was the last time you heard the words “mea culpa” from that unhappy band? The Bank of England has embarked on quantitative easing, which is the same as printing money, despite what you may read in the papers. (You don’t still believe them do you?!) Buying gilts increases the money supply. They don’t have to physically print money as so many transactions are made “electronically”. Think about the number of purchases you make by credit/debit card or bank transfer. It’s cash by another name. Even my tab at the local goes on a card. They have said they don’t want to “pay up” for their gilt purchases but that rather defeats the object. If they can flatten the yield curve, ie the yield on longs gets closer…


It’s all in the mind…

The fatal assumption made by many economists, who have now persuaded politicians to believe it too, is that we all act rationally when faced with the same set of circumstances. Rational for whom? Take the myriad bail out programmes being touted by governments and central banks all over the world. They all come with promises to “increase liquidity in credit markets”, “facilitate banks to amend existing mortgages and grant new ones” with the end goal of increased non –governmental spending which “will pull the economy out of recession”. That’s all on top of earlier “loans” just to prevent banks, insurance companies and the “Fannies” of the world from going bust, which would have resulted in “complete financial meltdown”. It may still happen of course. The “Great Experiment” continues apace with the passing of HR1 into law in the US. HR1? The mnemonic for the $787,000,000,000 Obama “Make Work Pay” plan. “Make Work Pay”? That’s really going to confuse a lot of people who already thought it did! For all the money being pumped around it is still very hard for businesses to borrow and potential homeowners to get mortgages. The banks are being encouraged by their new owners – aka the Government – to lend, often to the same people who couldn’t afford the repayments the…


Send in the clowns…

I don’t watch much television these days, but the drama series I have been viewing recently has been enthralling. On Tuesday the great and not so good of the banking industry were taken to task by the Treasury Select Committee and what a “sorry” bunch they were. At least they managed to utter the “S” word which is more than the politicians and regulators, who are pretty much equally culpable in this “sorry” mess, would ever dream of doing. Has it ever occurred to them that not one of us is perfect and that a little bit of humility goes a long way? Prime Ministers question time has descended into farce and is quite frankly a waste of everyone’s time, especially that of the two main protagonists. A line or two from “Send in the Clowns” would not be inappropriate. “One who keeps tearing around (Brown); One who can’t move (Cameron); Send in the Clowns…” Not much difference in the US. Tim Geithner, who was heralded as the saviour of Wall Street, (as opposed to “the World” which of course is Gordon’s territory) has announced the latest $2 trillion bank bail out “plan”, which is very light on detail. It would be fascinating to watch the “Great Experiment” unfold, as a detached observer, if it weren’t…


Another day – another scandal

This is how politics works in Thailand. Whether it is a general accused of taking bribes for re-equipping the air force with Saab Gripens (although compared with the Al-Yamamah contract – loose change in a bucket) or a lowly official who bought air conditioning units that didn’t work there is always something for the Thai’s to chew on. The opposition party is the PAD (the pro-Thaksin red shirts) – Peoples Alliance for Democracy – but not democracy as we know it. In Thailand the military and the royal family have ruled the country up until about 25 years ago when the first “democratic” elections were held. So trying to compare Thailand or in fact any “new” democracy (pretty much most of the world!) with our ideas of democracy in Western society isn’t going to work! Churchill would have understood – “democracy is the worst form of government apart from all the others” as he was wont to say. Bribery, corruption and democracy are synonymous in much of the region. In Korea 67% of people polled were happy for politicians to take bribes as long as it didn’t affect them! Maybe there isn’t a phrase for “vested interests” in Korean? Unfortunately for Thaksin he was convicted, in absentia, by a military court for “abusing power”, sentenced to…


Poll of polls

The voting is over, the result is in and by an overwhelming majority no one has the foggiest idea about what actually comes next, which is a small vote for sanity as those who profess to “know” are due a good “shipwrecking on the laughter of the gods”.  There have however been some excellent ruminations. In the red corner the supporters of the end of the world include Robert Prechter of Elliott Wave fame (www.elliottwave.com) whose targets I wont trouble you with for fear of apoplexy (at best!). He is also one of the founders of the study of Socionomics of which more anon. For the rabidly bearish I can also recommend the Daily Reckoning (www.dailyreckoning.com) writ large by Bill Bonner who is both plausible and terrifying at the same time.  In the blue corner the doyen of value investors and sometime Yorkshire man Jeremy Grantham at GMO (www.gmo.com) is a steady buyer of equities, but admits that the curse of the value manager is to be too early. My good friend David Fuller (www.fullermoney.com) is also siding with the bulls but would be a lot happier if a touch of confidence returned to the market; after all, as he points out to the battered and bruised investors of the class of 2008, “bear markets don’t…


All I want for Christmas

Just a small government hand out would do nicely. After all the banks have had largesse pored on them one way or another and now car manufacturers and even hedge funds are getting into the line up. But is this benefiting the average “Joe”? Well some mortgage rates have come down but as with the falling crude oil price what you pay at the pump hasn’t quite matched up. In January crude was $110 a barrel so at $2 to the pound as it was then that’s the equivalent of £55. Today with crude at $40 and sterling at $1.50 that makes it £30 a barrel a fall of 45% in sterling terms. Back in January the average pump price for petrol was 110p; today 90p, a fall of 18%. I am sure there is a logical explanation…please let me know unless you work for an oil company. In fairness to the banks (not a phrase you hear often these days) mortgage rates for those lucky enough to be on trackers have tracked Bank of England rates reasonably well. For those on fixed our sympathies, but in future remember that it is never safe to make assumptions particularly about interest rates. The “top” in government bonds has been called every month since the middle of last…


“Soul” Searching

 At this “festive” time of year we pundits like to look back on the year that’s gone and ruminate about the one to come. Not that the market cares for calendar years or any other marker in the sand and never has it been so hard to divine the tea leaves, so it is tempting not to try; in fact knowing that we know nothing about tomorrow is getting to be strangely comforting. Even looking back is an experience that almost defies belief. There are unfortunate folk who used to work at Bear Stearns, Lehman Bros and a whole raft of other financial institutions who are still shaking their heads and we feel for them deeply as many were innocent bystanders. Some of course were not but it is difficult, and in the short term pointless, to point the accusing finger, but there will be a day of reckoning and the Book of Revelations will seem like a fairy story for a number of the heroically greedy. The tech bubble in 2000 threw up some guilty parties and this time around we have the mother of all Ponzi schemes as your starter for ten; there will be more revelations…and worse to come. The “prize” for drawing the shortest straw in 2008 has to go to Barack…