The fallout of the credit crunch

In this post we will examine some of the likely fallout from the credit crunch. What we have seen developing in the world has shown that the international aspects of finance as well as the magnification of leverage are at the root of many of the problems. There has never been a more exciting time to be alive in the finance industry and while some pundits cite the Great Depression in every second sentence I believe that while the numbers and percentages might thwart every record hit, that the actual real economy fallout will not rival that of the Depression era.

Regulation: Regulation is likely to feature much more heavily in business, in particular in financial services, last week Patrick Neary called on all Stockbrokers to give the Financial Regulator an audit of their firms, they can do the audit themselves but they must get it done ASAP in order to demonstrate that client funds are fully protected.

In the mortgage and personal finance field we are likely to see increased regulation, …

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Calling the bottom, a time to put your money where your mouth is

Perhaps the best way to show your sincerity is to show your hand, and by that I mean giving the people who are influenced by you an insight into what you are doing. So for all of the people who are saying that ‘now is the time to buy property’ then please step forward and show me evidence of deposits on property being paid or of contracts being sent to your solicitor (where you are the buyer not the seller!).

For some time our firm has been bearish on property, that is a total contradiction for a brokerage as we clearly have a vested interest, but there is one tenet that lies above that of day to day business and that is the rule of honesty, we believe that if we simply give our honest interpretation of the market that when proven correct (assuming we are right) it will let clients in the market know that we stand for something beyond our own interests, and that is an issue we have with many commentators on property who are crying out …

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ECB Base rate increased 0.25% to 4.25% today

The ECB (European Central Bank) changed its base rate today to 4.25% which is an increase of 0.25%, the previous base rate of 4% had been left unchanged since its inception in June of 2007.

The move, while not favoured by borrowers, is vital in order to control Eurozone inflation which has been running well above the ‘at or just below 2%’ level that the ECB has intended to adhere to. In the first quarter of the year many commentators were saying that they believed we would see a rate reduction in the summer, this blog on the other hand argued otherwise in articles which were posted in mid March and again in mid April. As recently as May professional commentators (our crew is more along the line of humble observers!) …

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Chinese Property and US Manufacturing, what does it mean for 2008?

There are times when you get caught by surprise, there are times when you get dazzled by the headlights but you know something is coming then there are times when you see the smoke signals in the distance and there is plenty of advance warning. Chinese REITS are of the latter ilk. In fact the whole Chinese Stock Market at 37 times earnings seems to represent a giant bubble.

The acronym BRIC (Brazil, Russia, India, China) has been the road to profit for many investment managers but this all looks set to change. The growth in developing markets has attracted speculative money, and lots of it, China would be the most extreme example of this, their largest companies are now ranked in the top ten in the world (by market capitalization), as far as I am currently concerned now is the time to pull out.

Since the beginning of November Hong Kong property stocks have fallen 40% mostly in the area of REIT’s.

[REIT’s: This stands for ‘Real Estate Investment Trust’, this is an investment vehicle that is used for …

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Stagflation 2008, what's the good thing about recessions?

2008 looks like a year where we will (we being the EU, USA, and likely Asia) will face a recession, in America the fears are even a little bit more as they might suffer from Stagflation which is the mean-eyed just got out of prison older brother of recession.

Stagflation [just to be clear] is where you have the decreased or negative GDP in an inflationary environment. This could happen in the US because currently the GDP there is reducing, America is not really a manufacturing nation any more, so it relys on services and consumer spending, actually about 2/3’s of the US economy is based on consumer spending. So picture that fact, and then picture a world where the Dollar to Euro is at $1.50 and oil is at $100+.

That means that anything imported is much more expensive, so people will not continue spending at the same rate. Then to exacerbate that situation you have expensive gasoline and a country where car engines are only getting bigger, whether or not people can no longer afford to drive to …

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Stagflation 2008, what’s the good thing about recessions?

2008 looks like a year where we will (we being the EU, USA, and likely Asia) will face a recession, in America the fears are even a little bit more as they might suffer from Stagflation which is the mean-eyed just got out of prison older brother of recession.

Stagflation [just to be clear] is where you have the decreased or negative GDP in an inflationary environment. This could happen in the US because currently the GDP there is reducing, America is not really a manufacturing nation any more, so it relys on services and consumer spending, actually about 2/3’s of the US economy is based on consumer spending. So picture that fact, and then picture a world where the Dollar to Euro is at $1.50 and oil is at $100+.

That means that anything imported is much more expensive, so people will not continue spending at the same rate. Then to exacerbate that situation you have expensive gasoline and a country where car engines are only getting bigger, whether or not people can no longer afford to drive to …

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Things can only get better

Don’t be too unhappy, because although January was the worst stock market since the January of 1990, the S&P was down by 6.1% and the MSCI world index said goodbye to 7.7% of its value, markets in India and China are down (at one stage India actually had to suspend trading on their market), despite all of these things the good news is that bad times don’t last forever.

Market commentators sometimes remind me of psycho ex-girlfriends who just can’t let go, (if you want to see one of the old Internet comic phenomenons type ‘psycho ex-girlfriend into your search engine) they are the type where by the time they realise whats happened its like the whole world is falling and its never going to get any better, they’ll NEVER love anybody again! Keep the faith.

Around the world the reaction was indeed just that, a reaction, it was reactive to results and not pro-active. The fed held an emergency meeting and slashed 75 basis points off rates and then at a regular meeting they cut another 50 basis points. …

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the Dead Cat Bounce of 2008

There is an expression called a ‘Dead Cat Bounce’ and it is where a market or stock take a fall and then as people see it going down they believe it then represents value and buy in causing a temporary upswing, There is a moderate rise in the price followed by a spectacular fall. This is the ‘bounce’ but alas, if the cat is dead it continues shortly there after to fall. It comes from the reasoning that ‘even a dead cat will bounce if it falls from a great height’. Good school playground reasoning I suppose!

Is this what we are witnessing in the rally? I think that given all of the recessionary indicators present that it may be the lesser of the two evils to let a recession come in and run its course, the average recession is about a year, the average boom is about 5 years.

there is a belief out there that recessions are the ultimate evil, I can tell you that they are not, George Bush is …

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