If this was a financial website that could give advice, we would probably say “buy alternative fuel companies”. But we are not, we just broadcast information on what is happening in the markets. Now over to President Obama of the USA.
UK banks will not be allowed to buy Northern Rock, or to take up the taxpayer stakes in RBS and Lloyds TSB, if they have an existing significant presence in the UK.
In a speech made at a dinner for UK business group CBI on Thursday night, Chancellor Alistair Darling signalled that when government support for these companies is scaled back, it would be done so in a way that ‘proactively encourages new entrants’ to the market.
As we reduce and ultimately remove government support in the banking sector, we will do so in a way that proactively encourages new entrants, to build a competitive and healthy banking sector.
Alistair Darling 3/9/9
So what does this mean?
An obvious conclusion would be that Virgin would look to beef up their Virgin Money brand by buying Northern Rock. Another potential buyer is Tesco, who have been working hard on their Tesco Finance brand since buying RBS out of their partnership in July 2008.
For RBS and Lloyds TSB, they will have to find acceptable suitors who are willing to invest in their business, or more likely break themselves up, hiving off parts of the business to third parties (although given RBS’s protracted efforts to offload their insurance division last year, this could be easier said than done).
However, the question remains – who wants to be a bank, or a major investor in a bank these days?
With regulation being tightened by the minute, howls of anguish when large profits are reported and the scrutiny of politicians and the general public watching your every move, a rational investor might conclude that there are greater, and less stressful, returns available elsewhere.
‘Sell in May, go away, come back on St Leger’s Day.’
This old stock market saying has been around for donkey’s years, the main problem with it being that not many people know when St Legers Day actually is.
St Leger’s Day this year falls on Saturday 12th September, the date of the St Leger horse race at Doncaster.
The inference in the saying is that brokers and fund managers will all be on their holidays and living the high life at Ascot and Wimbledon during the summer months, so the market is likely to drift.
It is, of course, complete drivel. The global nature of markets and the computer-driven functions of investment banks mean that the world continues to turn during the summer months. And anyone who spent most of this summer on a 3 month jolly would be finding themselves signing on at the dole office long before St Leger’s Day.
Indeed, this year the FTSE 100 opened at 4243.7 on May 1st, but now, with just over a week to go to St Leger’s Day, finds itself over 4800, a gain of over 13%.
Looking to the US, September is notoriously the worst month of the year. Since 1929, the S&P 500 has delivered an average performance of -1.3%, compared to an average monthly advance of +0.5%.
One explanation for this is that the US tax system encourages underperformance. The tax year in the US ends in September, so fund managers may look to sell assets with losses to offset any gains made during the year.
This theory does have a vague air of credibility, although one could consider any number of other factors – company results are likely to be reporting on traditionally quiet periods, the hurricane season could result in compromised energy supplies, the crash after 9/11 may have an adverse effect on the long-term trend, and so on.
Ultimately, markets go up and down, and you can cherry-pick one of the many theories to justify any market behaviour in retrospect. The key is to understand the current and future risks and issues and make a rational investment decision based on them.
Halifax today announced that house prices are on the rise again, up 1.1% in July, with the average house now costing £159,623.
They also say that prices are up in the three months to July by 0.8%, with this being a more useful statistic in terms of quantifying underlying trends. This is the first increase in this figure since October 2007.
So, everything’s OK again and we should all be building buy to let empires with our lovely unsolicited bank loans? Not so fast…
Northern Rock announced earlier this week that 1 in 25 of its mortgage customers are in arrears, so not all is well.
Unemployment is expected to get worse before it gets better, and the banks are getting their usual hard time in the media, this time for (amongst other things), not lending enough.
So, how are these figures improving?
One theory is that the housebuilders (Barratt, Taylor Wimpey, et al) spent the end of 2008 and the first half of 2009 clearing their stock of new build properties, often at silly discounts.
This had the effect of creating a false market for houses and artificially pushing down the average cost. With little activity in the secondary residential market as people fretted about their jobs and ability to secure a mortgage, these fire sales of new build houses had a disproportionate effect on the figures.
With the supply of houses at very low levels, you can expect the figures to continue to get better, but a sustained increase in the number of completions will be the key to the market fully recovering.
Until people are confident about their jobs and the banks decide to loosen their lending criteria, tedious dinner party boasts about making a killing in the housing market look a way off yet.
I had some good news come my way this morning. While hearing on the radio about Barclays Bank’s 8% rise in profits, to just short of 3 billion pounds for the year, a letter fell onto the door mat. It was from Barclays Bank, who I have been banking with since 1990, and it was for a Guaranteed Loan of £25,000.
Now, usually I would not even consider such offers, however seeing that I was made redundant only last week from my City job (that I had been loyally doing for 11 years) this lump sum is now very tempting indeed. Of course, I do not have the means to pay it off, as currently I am living off the meagre earnings of a freelance journalist, which barely pays the bills.
However, if Barclays Bank, one of the World’s richest banks, who are making record profits, is offering me £25,000, then they must be confident that the credit crunch is indeed over, and that the job market will spring to life any second, and the city jobs agencies will be clawing at my door to get their hands on my outstanding CV. So maybe I will take up their offer, and buy a new BMW 318d ES.