Wednesday, 9 July 2008

Bad news round-up

The jig is up. The UK is hurtling towards meltdown. The bubble is so, so over, and now it is payback time.

Bovis and Redrow fire 1,000

The two homebuilders are downsizing. Remind me again, didn't Mr. Broooon have some kind of socialistic target on homebuilding? No workers, no homes methinks.

High street banks save the B&B

And about time too. With the B&B sinking 19 percent a day, someone needed to step in and sort things out. Someone, somewhere must have been screaming at the FSA "do something, pleeeeezzzze before the B&B thing brings the show crashing down." So the FSA leaned on the high street banks. who are going to pony up the cash to recapitalize Britain's busted buy-to-let bank. A nice touch; the FSA forces other banks to cover up its regulatory failures.

Is the B&B saga over? Perhaps it is time to move onto HBOS.

UK breaks EU budget ceiling

Darling, you naughty boy, you have been breaking the EU's fiscal deficit ceilings and they have caught you out. The deficit is above 3 percent and EU finance ministers want you to reduce it.

Barclays dives out of the secured lending business

There will be no more homeowner loans from the UK's fourth largest bank. What does this mean for Carol Vorderman?

US pending home sales down almost 5 percent

What, you call this news?


London estate agent said...

More early morning misery from A. Cook.

Things really are not quite that bad.

electro-kevin said...

I like your jauntiness in this post despite the gloominess of it all, Alice.

Any chance of a smiley shaped graph to accompany my breakfast for once ?

Anonymous said...

On HBOS - it's the tenth of the month and we have not seen the Halifax index yet... I guess the massaging isn't quite done yet... What possible could HBOS have for delaying it...? :) B.

Mark Wadsworth said...

Anon, they're timing it to come out just before MPC meeting (if news is worse than expected) or just after (if news is not so bad). Only time will tell.

I must admit, although I have been saying for ages that house prices would tank, I didn't realise quite how bad the knock on effects would be.

Anonymous said...

Colour me unsurprised by any part of this other than the speed. I was watching the Goblin King on channel 4 news last night speaking from the G8. Apparently the UK slowdown ("not recession, please don't use that word") is due to 3 factors:

1) Rising oil prices
2) Rising food prices
3) A global credit crunch.

Thank christ for that. Here's me thinking that it might be Gordon Brown's fault.

Funny to see the fool newscaster trying to do a "tough" interview with the labour flunky by pressing her on interventions to "help" FTBs get onto the housing ladder.

Jesus christ, having not watched TV news for several years I'd forgotten just how bad it is. It's said that the media reports the car crash after it's already happened (and after previously cheering the drivers for the thrill of their risk taking). It's becoming apparent to me that they haven't even heard the car crash happened.


Anonymous said...

I am bemused by the Downing Street line both for its attribution to external factors of the particularly disastrous UK situation (our housing bubble went higher than theirs, proportionally) and the rhetoric that people should not 'talk' the country into recession. In parliament again today. As if.

Then of course, we have numerous politicians and commentators currently saying the UK might have a 'slowdown' rather than a recession! Are these people just dim? Have they no idea how bad the 'credit crunch' is, how reckless the City have been in lending?

This will be worse than the early 90's, since the peak was proportionally higher, the lending more reckless, and the damage to the financial system profound.

The trinity of causes? The FSA, the Bank of England, and Downing Street - all in a tradition of insufficiently regulated lending first tried in the post-war era with the Heath/Barber dash for growth and the 73-75 Secondary Banking Crisis.

Add to those causes extremely top-down management structures which brook no criticism and short-term (e.g. annual) targets for financial rewards, which meant it didn't pay to be an experienced and rightly cautious mortgage assessor, or even CEO or Executive Director.

B. in C.

Anonymous said...


The mortgage market has suffered a virtual collapse, with only 42,000 new home loans being agreed in May—less than half the number for May 2007 and lower than the level in the early 1990s. Housing starts fell by 24 percent in the first quarter of 2008 compared to the same period in 2007 and have since fallen even further.

The Economist cite a macroeconomic consultancy, Capital Economics, who are predicting house prices to decline by a further 15 percent by December 2008 and by a further 12 percent in 2009. Such falls in house prices would force millions into a position of negative equity—homes being worth less than the loans on them—as in the early 1990s or worse.

The credit crunch continues to hit those paying mortgages. According to the financial comparison website, about £30 billion of mortgage deals will be renegotiated at higher levels of interest this month. Just how desperate the situation has become is shown in their survey, which shows that more than four million households have resorted to using either credit cards or taking out personal loans to cover mortgage or rent repayments.

For the rest of this article please go to:

asteve said...

And the FTSE responded with a rally... lead by banks and builders.

Barratt up 29%
B&B up 24%
T. Wimpey up 10%
A&L up 8%
Lloyds up 6%
Barclays up 5%

Even M&S are up 1.4% as 94.1% vote to oust CEO Stuart Rose.

I'm not concerned... I expect paranoia to ravage these bulls in denial within the week. It is, however, hard not to wince at these sudden changes in sentiment.

Anonymous said...


There's a positive side to such rallies. Anyone with a half-functioning brain has had ample time to exit the market. Even amateur retail investors have seen enough warnings in the MSM to let them know they should think very seriously.

Thus when it collapses, the ONLY people who'll suffer will be greedy reckless fools who thoroughly deserve it.

I shall have no conflicting emotions to ruin the satisfaction of gloating!

('course I'm just refering to stockholder losses here, not the inevitable consequences on the real economy)


aSteve said...

If those in the market were all reckless speculators, I'd accept your point, Nick... but - I suspect - a sizeable proportion of the participants are institutional investors who can improve the appearance of their beleaguered portfolios (short term) by moving the market using their client's investments in pensions and the like.

BTW - my factual error above was that M&S's CEO was re-appointed not that he was let go. I'd misread the reuters ticker. ;)

Anonymous said...


That sounds like reckless speculation to me. People invested in funds really ought to have been redeeming their units by now. Even the MSM is telling them the market is tumbling, so they should be using these rallies to get out.

Anyone who stays is accepting the risk.


CityUnslicker said...

Nick if everyone pulls out then the economy collapses??

I think the advice is to think hard about what will not be affected and invest there.

Sure investing in financials is tearing up your money; but the pensions funds have to put our money somewhere.

it is not safe on deposit at HBOS is it?

Nick Drew said...

hey, asteve you ungrateful bugger, I posted an answer to your oil trading question (in comments on Drivers are always ready ... below)

last time I dig out stuff for you !

aSteve said...

Thanks for pointing me back - or I might have missed that.

Very, very interesting. The next question that we should ask is this:

If the contracts for crude oil are, say, ~80x the number of barrels delivered - then there are two potential lucrative strategies:

1. Shock the market by bringing more oil to the table having taken short positions. (Hard to achieve.)

2. Shock the market in the other direction. Buy in large, quantities contracts for physical delivery and cash settled OTC contracts - say in the ratio 1:5. The long cash settled OTC contract will pay for the physical contract including storage for a significant period - say - a year if the price of oil rises - say 25% in a year. This is much easier than finding new oil... and it is dependent only upon significant liquidity and credit.

While #2 sounds like a conspiracy theory - which it is - I wonder how outlandish it really is?

Nick Drew said...

Shock the market by bringing more oil to the table having taken short positions

You've lost me there. Is it your oil that you plan to "bring to the table" ? Because if so (i.e. you're long to start with), and you've taken short positions (say in equal amounts) then what you've done is hedge !

Or are you assuming you (quietly) go short to a much greater extent than you are long, but that the lesser amount you "bring to the table" is nonetheless sufficient to jolt prices downwards ? and that you then try to profit by buying into the resulting down-tick, to clear your huge short position, without moving the market back up against yourself ?

That's a big *err, maybe* in my book

aSteve said...

I think you misunderstand me. I was doing a gedenken experiment - "how can you make money out of oil."

Strategy 1 requires you to have control of oil; strategy 2 does not.

Strategy 1 requires that you go short and then release the oil to the market. This is a strategy only open to those who can dictate the availability of physical oil.

Strategy 2 requires access to nothing more than credit. It involves going long both in a physical future (settled in real oil) and long positions in a number of OTC contracts settled in cash. The idea is that if you can drive the price of oil up sufficiently, the OTC long positions will pay out sufficient to never need to sell the oil... allowing a speculator to stockpile oil for free while dramatically restricting access to the commodity from the 'real economy'.

For strategy two, if done on a great enough scale, financial success would be assured... while the rest of the economy suffers. If you had inside information on such a plot, you could also make a small fortune shorting stocks dependant on cheap fuel - for example, budget airlines.

Nick Drew said...

OK, let's look at #2. You plan to drive the market up (combination of physical longs, and even more CFD longs). Let's accept that the volume you've bought is indeed enough to move the market up.

You'll certainly show a good MTM gain, on the whole portfolio (maybe even show this in earnings). But when you try to realise this gain, i.e. translate MTM profits into Hard Cash, you'll be selling in equally large, market-moving quantities !

However long your line of credit, this strategy (known traditionally as 'trying to corner the market') is fundamentally flawed. And not just for legal reasons.

(you might like to keep your trading 'experiments' strictly hypothetical for the time being !)