Thursday, 29 January 2009

Rights and wrongs

In November 2007 I switched my investments from a mix of equities and bonds to cash. The FTSE 100 was around 6000 at the time while the credit markets were tanking; the future did not look pretty.

Turned out the timing was OK - equity markets have since gone down and investors are now pouring into cash. My holdings have gone up around 15%. Lucky me.


So now I'm looking for what next. Corporate bonds are the obvious, but the market has already moved. Might have to wait for the next dip. Equities also look interesting, but have to be oh-so-careful, given the market conditions.

Moreover, equities are getting increasingly risky given the recent spate of equity raisings, which is expected to continue.

Market volatility means share prices are all over the place anyway. Throw in equity raisings, which usually lead to massive falls in share places, and it is even more problematic.


For now, I am being slow about placing my bets and am happy leaving the cash in the bank. Every day of such caution I grow both more impatient and very slightly wealthier.

Wednesday, 28 January 2009

Aaargh-MBS

A truly startling article has appeared in IFR. (Am afraid it is subscription only.)

Apparently the liquidity facilities on two securitisations vanished because of slip-ups. These are AAA notes, and are already under pressure.

It then says:

"Some investors just want to open the legal proceedings, however spurious the reason is, to get access to the full documentation. The assumption is that they will always be able to find something that is wrong in the drafting," the lawyer said."

If they can,

"This is especially the case because some hedge funds are investing in structured deals with the specific intention of finding discrepancies in documentation that they can use to launch legal action [and then force an accelerated repayment]."

Model behaviour

John Kay is on fire again with another fantastic column.

His latest is a paean to individual judgement and financial models, as well as some snappy analysis.

"In the new economy bubble of the 1990s, equities roared ahead while property languished. But during 2003-2008, the availability of underpriced credit, followed by its abrupt withdrawal, affected property and shares in similar ways. Anyone in the financial world knew these things: but computers, churning through reams of data, did not."

Tuesday, 20 January 2009

Choices, choices

How to get out of debt? Bankruptcy or inflation.

There is not much government can do to accelerate the real rate of growth. The remaining option is to tolerate, even encourage, a faster rate of inflation to improve debt-service capacity. Even more than debt nationalisation, inflation is the ultimate way to spread the costs of debt workout across the widest possible section of the population.

Thursday, 15 January 2009

Gotta love private equity

Here's an interesting thing. The trade body representing private equity say that half of the profits made by the industry came from debt.

Or, the bulk of the gains made by PE were by taking advantage of excess liquidity stiffing the banks, and now defaults are set to rise (to 18% if Moody's are to be believed).

Thursday, 1 January 2009

(Un)happy New Year

My new job is to write about large companies going bust, or are close to going bust, and so this year will be full of bad news from me.

However, I am wary of the doom and gloom that seems to have infected certain sections of the media. This is not to say things are going to be great, but comparisons with the Depression of the 1930s, for example, are close to nonsensical.

Of the rubbish I've read recently, this piece by David Gow in the Guardian merits special mention for being so sensationalist as to make the Daily Mail appear the voice of calm and reason. Everything bad in the world ever has either just happened or is just about to take place. It is a 'bloodbath', a 'bottomless financial crisis', 'dark, depressed and downtrodden', 'apocolyptic', people celebrating Christmas were 'deluded' and further riots are around the corner.

It is easy to understand why journalists write in such a way. David Gow's story is largely about how forecasts are for Europe's economy to contract by around 2% this year, and there is political division about how to proceed. Well, economists' forecasts are both dull and usually wrong, and European politicians usually argue, so that is hardly news either. So, to liven up the story, the journalist has injected a string of sensationalist claims and fearful scenarios.

Here is Peter Preston writing about the boom in gloom. Such cultural pessimism appears popular and difficult to criticise, if you take a read through the comments below Preston's article. And while elements if it are true, many that repeat such facts are doing so because of a particular agenda - political or social.