Category Archives: Markets

2014 Predictions – PART ONE

Predicting the future has always been a mug’s game. For instance, I continue to believe that the markets are all in the wrong place and overpriced and I predicted the FTSE at about 4500 – but then again, I could not have predicted the collective madness of Quantitative Easing and the real fear that politicians have of the banks. I used to understand investment…but not any more. Cheap virtual cash continues to fund the markets and to keep them artificially high.

The politicians feel that they have to please the banks first and only then the voter. Governments are no longer in control of events. Nowadays, finance drives politics and politicians have become the bankers’ lackeys.

For as long as banks and governments continue to mutually gorge themselves on virtual cash and governments do not have the courage to increase interest rates and taxes in order to join us in the real world, there is a very real possibility that the current economic situation will become the status quo.

These predictions are in no particular order.

1. The disconnect between economic data and the quality of life is fueling populism. It is also fueling right-wing extremism and anti-government sentiment. I fully expect the equivalent of the Arab Spring sometime during 2014 , in the UK and some other European states.

2. South Sudan will provide the next African bloodbath.

3. The Scots will vote “No” to independence.

4. The recently-adopted self-congratulatory air will desert both UK and European politicians as it is realised that the “virtual” economic recovery is unsustainable.

5. There will be a substantial increase in China’s birth rate (the new “one child plus” policy), contrubuting TWO MILLION children to the 2014 economy, boosting consumer motivation.

6. China will continue to build and accelerate its natural resource monopoly in Africa. (One million Chinese already live there).

7. As the West cuts its military budgets, China will continue to do exactly the opposite.

8. David Cameron will continue to tell us what MUST and SHOULD be done, one a whole range of issues.

9.  Anaemic growth in the advanced economies will see government debt continue to climb.

10. The US $ will continue its decline. Instead of Quantitative Easing Infinity accelerating economic growth, its effect will be to shrink the $’s buying power.

11. The sudden (and unexpected) pick-up in UK growth, followed by the indication of a reversal in the final quarter of 2013 suggests that businesses were adding to their inventories rather than selling their goods. Expect the reversal to continue in 2014.

12. Germany currently represents approximately 30% of the Eurozone economy and will continue to enjoy the fruits of a weak euro and ramp-up exports.Germany has the world’s highest current account balance as a percentage of GDP. During 2014, Germany’s economic success will continue to accelerate and will represent over ONE THIRD of the Eurozone’s output.

13. Japan will continue to prosper. Its economic output is not 75% of China’s. although it is 4% of China’s size with 9% of China’s population. “Abenomics” has provided the “jump-leads” which Japan needed.

14. The USA will enter another recession in 2014. Currently it is still on “below-2%” growth.

15. A Populist movement will become increasingly vocal here in the UK (and in certain Eurozone countries), with sudden impetus being generated AFTER the European Parliamentary Elections when the main traditional parties will be decimated by the Left and Right.

16. In spite of the Eurozone’s economic “recovery”, unemployment will remain at current record heights (Over 12%).

17. Deflation will accelerate within the Eurozone and economic forecasts will once again be downgraded.

18. The European Court of Auditors (ECA) will publish the 2013 EU accounts and once again, confirm that the continuing “errors” in all of the EU’s spending  areas have finally crossed 5%(!) of expenditure.

19. The UK government will do well to prepare for the possibility of social unrest which is driven by the rapid growth of the “have nots”. The financial hangover caused by  Christmas 2013 will be far more extreme than in previous years.

20. The Federal Reserve will announce and implement the end of its  massive bond-buying programme. This will have a substantial effect on the markets.

21. The full-extent of the banking industry’s Pension and Life Assurance mis-selling will become apparent.

22. There will by an explosion in Teacher Militancy as the government continues to fiddle with our childrens’ education.

23. The price of Crude Oil will fall to about $75 per barrel. The decrease will be primarily caused  by oversupply as a result of new production methods.

24. The European Union will fail to deal with its members’ collective debts. Again.

25. The Global Recovery will falter.

26. On January1st, Greece will take over the Presidency of the EU – at a cost to itself of €50 MILLION. This exemplifies the madness of the European Union when a de facto bankrupt state with zero clout is allowed to be burdened such a “spend”. Prediction: Greece will make a “pig’s ear” of its Presidency. Hopefully Subway and MacDonald’s are bidding for the catering contract.

27. Twitter, Amazon etc will be recognised as part of yet another totally unsustainable bubble.

28. In the UK, there will be yet more calls for House of Lords reform. Hopefully, as more and more of their Lordships’ financial “indiscretions” come to light, the debate will snowball, eventually leading to an elected Upper House. Turkeys may well HAVE to vote for Christmas.

29. Once South Africa has recovered from Mandela’s death, there is a real danger of  a return to what I can only describe as “Reverse Apartheid”. Violence.

30. Syria will continue to generate substantial profits for the world’s Arms producers as it has become increasingly apparent that there is NOT the political will to even attempt to end this butchery.

(I am NOT a Global Warming mullah but the image above shows all the world’s water and air to scale.)

Economic Recovery: Fact or Faith?

Whenever man has struggled with solutions to big problems, he has turned to his God, who has consistently said that if man endures deprivations and suffering on this Earth, he will get his just reward in Heaven.

The weird thing is that here we are in the Year 5PL (Post Lehman) and our politicians are behaving just like those prophets of old. WITHOUT any proof and relying solely on faith, they say “Endure the austerity and soon you will be transported to the economic heaven.” Meanwhile they (the prophets) search for “signs”. For instance, a small statistical variation in economic data is seized upon as a “sign” that all will soon be well. (Chancellor Osborne did it again yesterday when he announced “encouraging signs that the economy is healing” HERE In fact, he repeats the holy phrase.)

Is that true? Have we been offered any proof? Do we have to accept the words of the prophets without question or are we being heretical and behaving like Doubting Thomases?

If the New Religion is true, then we have been witnessing the longest Resurrection ever!

There is much talk of “positive sentiment” and Central Bankers accept gifts and many sacrifices from the people and prophets….but, is there really room for faith in economic thinking?

Currently, it would appear that it is all we have.

(As you listen to the Chancellor, notice the total lack of numbers and dates in the affirmation of his faith)

Government Debt: “We’re all in this together.”

Never mind all that “Debt as a percentage of GDP” nonsense. Here’s a picture of government debt on a simple picture, courtesy of ukpublicspending.co.uk.

It is OUT OF CONTROL.

All steep graphs are scary, no matter which way they’re pointing. Make no mistake, the above graph is so scary and the Chancellor is running out of options so fast, that we are about to reach a very significant and critical moment in Britain’s social and economic history.

Because Chancellor Gideon has well-and-truly painted himself into a corner and is greedy for cash, he will soon become like a schoolkid with his nose pressed up against the sweet-shop window. But what will he be looking at? Surely, there’s nothing left to plunder.

Currently, our savings are languishing in banks, gradually losing their value. Investment rates are lower than inflation and currently it seems as if the differential will continue to increase. THAT will erode our savings at an accelerated rate.

Dormant bank savings accounts have already been looted in order to fund one of the Chancellor’s rapidly growing array of “schemes” to stimulate the economy. On this occasion, the booty (up to £400 MILLION) will be destined for the Big Society Bank (remember?) which has now been rebranded BIG SOCIETY CAPITAL (BSC). Forty percent of  BSC shares are owned by Barclays, HSBC, Lloyds Banking Group and RBS (They are preference shares which means that in the event of a collapse, the banks will have preference over other shareholders).

So what could the Chancellor and the banks be planning next? What happened in Cyprus ought to give us a clue.

As a country, we are not spending enough. One way to encourage us to spend would be to threaten our savings either by way of a levy (tax) or seizure.

You may be thinking “Yes, but surely, our savings are protected?” Yes, they are. The capital is protected  but our cash is not protected against taxes.

Within four to five years, the government will have to find about £70 BILLION per year JUST in order to fund the interest payments on the money it owes. So where will it find the money?

It is there somewhere. Here’s a clue:

The richest 1% of our population, many of whom famously squirrel away  their cash offshore, won’t be affected and neither will the large corporations  – they pay tax when they want to plus they are also lucky enough to be able to decide how much to pay.

That leaves the ordinary Saver and Depositor.

The only thing that the government needs to decide is how to present the raid on our money so as to disguise what essentially will be a tax. There are several ways in which the exercise can be delivered.

For instance, a Cyprus-like levy. Simple and straightforward.

There may be some sort of government share-offer, designed to relieve us of our cash or even a mandatory Government Bond which those with a certain level of savings will be bound to purchase.

I would suspect that even Pension Funds are no longer safe.

But the really scary thing is that because this will be a concerted and choreographed international assault by governments and banks, there will be nowhere to run.

We are well and truly “All in this together”………well….most of us.

The Eurocrisis isn’t just Financial.

The Eurozone crisis has managed to morph from a plain old currency crisis to a debt crisis, an economic crisis and now, a full-blown political crisis – although no-one seems to have noticed…….. and it’s not just the Eurozone:

In the United Kingdom, people are making increasingly indiscreet noises about the Prime Minister’s leadership capabilities and the Chancellor’s questionable competence, as the cold hand of political instability makes a (so far) half-hearted grab for No 10. Currently it looks as if there is already a swing to the right. Nigel Farage and UKIP no longer look like a bunch of extremist Right-wing loonies and as they gain respectability and seats, they will pose a genuine threat to the status quo.

Here’s a quick Grand Tour:

Greece’s political problems are well-documented and this is where the recent polarisation of national politics began with the success and increasing support of the right-wing Golden Dawn Party. Greece is on its knees.

In France  there’s the scandal of a Minister and his secret Swiss Bank account with the consequent  investigation of all Ministers – shades of the UK’s MP expenses outrage. President Hollande is keeping a very low profile because , let’s face it….he came to the table without any ideas. His mere presence has allowed Marine le Pen and her Right-wingers to re-emerge blinking into the sunlight, ready to build on her father’s legacy.

Germany’s Bundeskanzlerin Merkel is no longer odds-on to win her autumn election and so, in order to placate her detractors, countries such as Cyprus are being put through the debt-wringer and effectively having to bail themselves out! All in the cause of extra Brownie points for the Merkelator.

Many are anticipating more resignations from within the Cypriot government. Michalis Sarris, the Cypriot finance minister who negotiated Cyprus’s bailout agreement with international creditors has already gone.

Portugal’s Constitutional Court has kicked into touch some of the austerity measures imposed on the country by the Eurozone moneylenders. Now the politicians are wondering about how to plug the fiscal gap and Prime Minister Coelho may resign.

Belgium took 535 days to form a government after its last election and now has a 6-party Cabinet.

Italy is struggling to form a government and will most likely hold another election after President Napolitano comes to the end of his tenure as Head of State on May 15th. Goodness only knows what the reaction of not only the Eurozone but of the Markets would be  should Silvio Berlusconi (again) rise from the dead! Italy’s political scene has become so surreal that  ONE QUARTER of the vote in the recent election went to a protest movement headed-up by Beppe Grillo – a comedian!

Spain’s politicians, including its Prime Minister are mired in corruption scandals – and now there are anti-Royalist demonstrations as a direct result of the king’s daughter being implicated in a government financial rip-off. Mind you, affluent Spaniards have already pulled about $100 billion out of their Spanish bank accounts. They started running early. It’s only a matter of time before the Basques and Catalans start to make their separatist noises.

The difficulty is that one would normally expect the emergence of the Right to be counterbalanced by a strong showing from the political Left. But what Europe has are weak governments , compounded by even weaker oppositions. No European political party in government has over 50% of the vote……. and the less said about the European Union’s politicians, the better! They seem to have elevated ineptitude into an art form.

Currently, Britain’s Left is being driven by Ed Miliband and the New-Old-New-Who-Knows-Who-Cares Labour Party. They earn their salaries through the medium of being critical. They have shown themselves to be totally bereft of a coherent, cohesive strategy and will be directly responsible for the future success of UKIP.

Leadership (or a lack of it) within Germany’s Social Democratic Party will be the main factor which could give Merkel another few years of power. If that happens, the rest of the Eurozone should begin to consider itself as no more than a motley collection of Vassal States……there to do Germany’s bidding. Unless of course, Germany accepts George Soros’ advice and leaves the Euro.

France does not enjoy having a Socialist President and it is right to be sceptical. President Hollande is now totally ignored by Merkel and is doing what he does best – he keeps out of the way as Germany tightens its stranglehold.

Hollande could have been the Eurozone’s great hope but unfortunately is way out of his depth. France now has a negative bond rating  by all three rating services and has lost much of its international respect. It’s precarious banking system is just waiting (like many others) to go “pop!”

The Main Event this year will be Merkel’s re-election so the Eurozone states must not expect any major policy changes until then – and when she wins? More of the same – but without the compassion!

What of Europe’s medium to long-term future? Without some sort of political quantum leap, it will inevitably  descend into a collection of  Third World states but with running water, TV and a banking system totally independent of its economy and probably with its own flag.

Maggie’s Big Bang.

Although, in common with many others, I feel a sadness for the passing of Margaret Thatcher, there is one major part of her legacy which recent history has shown to have been an over-sold concept – The Big Bang.

That was the day – 27th October 1986 –  when London Stock Exchange rules changed.  Jobbers and Brokers became one and the stock market free-for-all began.

It also signaled  the coming of the modern Investment Bank.

That was also the day that the City of London became Americanised. The day that the MBAs and the suits showed up and eventually turned an old marketplace into a money-circus.

In 1986, I remember walking into an old Stockbroking firm called Scrimgeour Vickers as part of a Citicorp acquisition team. We had bought it and wanted to see exactly what it was that we had bought! I remember lots of frightened pale-looking people sitting in a sea of dark mahogany and typed paper, looking at us as if we had landed from another planet.

The contrast between us in our sharp suits with our management jive talk and these honest folk was striking.

One of them attempted to break the ice by saying: “This building was condemned in 1948!!” How he and his friends laughed! We didn’t. We were far too important for all that!

We fired most of them and installed new procedures, modern desks and computer screens. We were Gods and, without realising it at the time, a real metaphor for what was happening to the whole of financial services; an almost indiscriminate “Out with the old and in with the new!”

A white collar Revolution!

Margaret Thatcher had been unhappy about TWO main things. Firstly, London was in very real danger of losing its position as a major world finance hub and secondly, the City was ruled by an “Old Boys Network”. In place of the elitist public school stranglehold, Margaret Thatcher meant well when she had dreamed of it being replaced by the mythical “Meritocracy” – a place where people with talent and not necessarily “connected” could play their part.

She also wanted unrestrained competition and ultimately total deregulation, leading to more product innovation and the establishment of London as THE world’s financial centre.

Twenty seven years later, London is still the place to make deals and invest …..and still is the world’s biggest financial centre – but at what cost?

The Labour Government’s deregulation of the banks in 1997 unleashed a Frankenstein which was not recognised by the Financial Services Authority (FSA) until all the damage had been done. The FSA had been too busy looking through the filing cabinets of provincial insurance brokers whilst the banks had been trusted to carry on being as honest and straightforward as they had always been.

No-one appeared to appreciate that those Bankers were different bankers. In fact, most of them weren’t bankers at all.

They were a strange hybrid of Corporate Entrepreneur, pre-programmed to take risks with other people’s money as if it was their own…..and…..they are still doing it!

The global financial crisis certainly cannot all be blamed on Margaret Thatcher’s hopes and aspirations for Britain. But the creation of increasingly complex and convoluted financial products, deregulation and a total failure of successive governments and their regulators to spot bank wrongdoing, is very much part of her legacy.

We could go down so fast that you’ll get a nose bleed!

European stock markets slumped and the euro dropped under $1.28 for the first time in four months Wednesday owing to concerns over fallout from the Cyprus bailout and a disappointing bond sale in Italy, analysts said.

London’s FTSE 100 (FTSE: ^FTSE news) index of leading companies fell 0.69 percent to stand at 6,355.10 points in afternoon deals, as Frankfurt’s DAX 30 (Xetra: ^GDAXI – news) shed 1.44 percent to 7,766.11 points and in Paris the CAC 40 (Paris: ^FCHI – news) slumped 1.46 percent to 3,693.95 points.

Madrid tumbled 1.90 percent and Milan lost 1.59 percent. The Athens stock exchange, a low volume market, plunged 6.83 percent.

Italian borrowing rates fell slightly in a 10-year debt auction on Wednesday, but borrowing rates were higher for five-year debt and demand was weak amid concerns of political deadlock in the recession-hit country following inconclusive elections.

Stock indices were falling “as the ongoing issues in Cyprus continue to weigh on sentiment,” said Alpari trading group analyst Craig Erlam.

In foreign exchange deals, the euro dropped to $1.2751 — the lowest level since November (Xetra: A0Z24E – news) 21 — compared with $1.2861 late in New York on Tuesday.

Gold prices slipped to $1,591 an ounce from $1,598 Tuesday on the London Bullion Market.

The foreign exchange market “is concerned about medium-term contagion effects” of the Cyprus bailout, said Commerzbank (Xetra: 803200 – news) analyst Thu Lan Nguyen.

Troubled eurozone nation Cyprus on Wednesday scrambled to finalise capital controls to avert a run on banks, a day before they are due to reopen after a nearly two-week lockdown while the island secured a huge bailout.

Meanwhile there are fears that the controversial terms of the bailout could be mirrored in any future financial rescues of indebted eurozone members.

Nicosia early Monday agreed a last-minute deal with its international lenders that will see it receive a $13 billion rescue package to help pay its bills.

And while the decision to tax bank savings above 100,000 euros raised fears of a similar move in future rescues — reinforced by comments from the head of the Eurogroup of finance ministers — officials have since insisted that Cyprus is a special case.

“The negative sentiment is also enhanced by rumours that this format will be adopted as a template for any further bailout schemes,” said Currencies Direct trader Amir Khan.

“Although top officials deny any such move in the future, markets are still wary that this format will leave the banks with fewer deposits and in turn will allow them to lend less, shrinking growth.”

Elsewhere on Wednesday, in indebted eurozone member Italy there was weak demand at an auction of 5- and 10-year bonds, with bid-to-cover ratios of 1.2 and 1.3.

Ratios of above 2.0, where submitted bids are double those accepted, are considered strong.

The Italian treasury took in 3.91 billion euros at a rate of 3.65 percent, a five-month high.

However the yield on 10-year bonds dipped 4.66 percent, compared with 4.83 percent at the last similar auction on February 27, with three billion euros raised.

The European Commission meanwhile said its key business and consumer confidence index for the eurozone fell 1.1 points in March to 90 points, reflecting a downturn in the manufacturing and service sectors while consumer sentiment was steady overall.

Amid the gloom in Europe, US stocks moved lower Wednesday in early trading.

The Dow Jones Industrial Average gave up 0.33 percent, the broad-based S&P 500 sank 0.36 percent, while the tech-rich Nasdaq Composite Index dropped 0.26 percent.

The retreat followed strong gains Tuesday that resulted in a record high for the Dow and a near-all-time high to the S&P 500.

“Follow-through has been lacking this morning for reasons that are both convenient and clear,” Patrick O’Hare of Briefing.com wrote. “Headlines out of Europe are largely to blame.”

— Dow Jones Newswires contributed to this report —