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Thursday, August 21, 2008
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chefdave
Activist
Posts:464
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| 27/06/2008 11:33 AM |
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"Global shares have continued their downward path, with New York's Dow Jones showing further declines after key European markets closed lower."
http://news.bbc.co.uk/1/hi/business/7476780.stm
The cumulative effects of the price of oil must be taking its toll on business, there seems to be no safe place for your money these days....
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Asteve
Activist
Posts:917
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| 28/06/2008 2:55 PM |
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We live in interesting times - especially in light of this article about analysis done by RBS. Barclays Capital also have their say. Other commentators of similar credibility are also doing a great impression of headless chickens.
The most interesting thing, in my opinion - and something I was only recently made aware about - is that the recently high price of commodity crude is not being reflected in a strong rise in the price of companies like BP who own significant oil fields - significant enough to swamp the oil already on the market, at least. Oil producers share prices have been volatile - but have not locked in significant gains this year - to date. This, to my mind, is further evidence that the current price of commodities like energy and food and metals are not underpinned by strong demand - but rather a reaction of fear at the outlook for the bond and equity markets... both of which continue to look extremely precarious.
My personal impression is that significant interesting events will continue to unfold this year... commodity prices might continue to rise - or collapse... it is extremely difficult to predict which... turmoil is assured - but one thing is for sure... Christmas 2008 will not be anywhere near as buoyant a time as 2006 or even 2007.
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chefdave
Activist
Posts:464
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| 29/06/2008 2:22 AM |
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"The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks."
Its interesting that the likes of RBS and Barclays are prepared to be so blunt on the issue of financial stability, I would have expected the official line to have been akin to sticking their fingers in their ears and singing: 'la la la, everything's going to be fine'.
If the only thing that are keeping the banks solvent are over valued securities based on real estate then the CB's should raise rates in an attempt to pop this commodity bubble to give individuals at least a fighting chance of paying down some of this debt. However, I feel that they -especially the BofE- may try for a middle way in between fighting inflation and keeping the housing market sky high. I can't see King and his cronies having the balls to become either noticeably dovish or hawkish.
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Asteve
Activist
Posts:917
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| 29/06/2008 6:55 AM |
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It is worth remembering that RBS has just raised £12bn in a rights issue...and, only then does it make its dire warning.
I'd also like to be pedantic - the argument is not that we should expect financial instability - but, rather, economic instability. RBS is saying, essentially, that the monetary system is stable (this agrees with statements by Mervyn King) but that they expect the entire economy to go to hell in a handcart.
It is interesting to note that various contemporary accounts of the Wall Street crash and ensuing depression suggest that a tiny minority of wealthy market participants were able to pull out of the market before it collapsed... forewarned by the credit markets. Today's markets are far more substantial - but, I am left wondering, is a broadly similar event is going to arise? My very first reaction was to think that a credit crisis would lead to substantial stock market falls... and early this year I seemed vindicated as, for example, the FTSE had the worst January on record - then recovered.... before starting a slower decline to the levels we see today.
Oh, and here is some evidence that UBS is also gloomy on the economy.
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lazen
Activist
Posts:246
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| 29/06/2008 12:47 PM |
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Can anyone clarify?Is there a link between the collapse of a Companies Share price and its continuation to trade?
For example Laura Ashley fell to 9p but is still in business in fact it jumped to 20p a 100%increase!Not bad.
But last time M&S shares plummeted they reacted by shutting scores of branches-was this because their capital
or financial ability to run stores was affected?
Jessops shares have fallen from £s to 10p yet they are still trading all guns blazing their stores packed with goodies.
If shares fall to 1p or 10p each from ££££s it doesnt mean people will buy them.
They could stick like that for years.
Woolworths are around 30p.
Takeovers are not always forthcoming.
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Asteve
Activist
Posts:917
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| 29/06/2008 1:06 PM |
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At the risk of teaching grandmothers to suck eggs, I'll try to do a bland introduction to the relevance of share prices (especially of banks.)
First of all, unless you own a fixed number of shares, the share price itself is all but irrelevant. A company with 1,000 £1 shares is in a far better position than a company with 100 £5 shares - and the number of shares is arbitrary... For example, when RBS did it's rights issue recently, the number of shares increased. The product of the share price and number of shares outstanding is something called the "market capitalisation" - or, in layman's terms, the valuation. A company is a complicated asset - and by trading shares is the most effective way we have on establishing a market valuation.
If the market valuation of a company drops to zero (or even very close to zero) then this is a very bad sign... it suggests that:
1. Any unanticipated business expense would likely see the company bankrupt - since it would have no suitable capital to use as security for a loan and no spare cash.
2. There isn't any incentive to work for this company (because there's a big risk that wages can't be paid) and the board of directors will not be motivated by share options or bonuses - hence they're likely to simply give up.
3. As the value of the company falls, so too does it credit rating - in the same way that a home owner can get better terms on a £10,000 loan than can an unemployed bum (assuming the credit markets are functioning sanely) and this results in a spiralling swap-rate on any bonds they have issued. Creditors will demand larger returns to lend to a riskier business.
4. The directors are under the spotlight... it is criminal for them to continue to run a company that can't pay its bills... a collapsing share price is a clear indication that this is a risk.
5. Sometimes a share price collapses - but there is a takeover... Sometimes this is because another company values some asset (for example, a client list) sufficiently to offer a good price. Sometimes this is an activity of asset strippers - who speculate that by making all the staff redundant and selling off the fixed assets (possibly having negotiated partial repayments of debts - like with an IVA) that there's a profit to be made.
Anyone with a modicum of sense treats any company with rapidly falling share prices as a warning about potential insolvency. Credibility evaporates and is extremely difficult for companies to recover.
In the case of banks, there's a double whammy... banks are required to hold substantial collateral to guard against the risk of loss. This is reflected in the share price - unless, of course, the market believes that losses, that the collateral is required to offset, already speak for this value. Under such circumstances, unless the bank can raise more capital - it will either have to downsize - or admit defeat and throw itself at the mercy of the treasury and Bank of England - the equivalent of bankruptcy, but for banks... where the consequences of normal bankruptcy proceedings would be too dramatic for the state's finances... and state intervention is the only option.
There are similar problems for insurers... if there are doubts that the insurer can cover claims then there is a big question mark hanging over whether regulators should allow them to continue to trade.
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lazen
Activist
Posts:246
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| 30/06/2008 3:57 AM |
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Hmmm,some good points there excellently put,so you wouldnt reccommend buying quite a few plummeting companies on the Footsie then...so whats the scenario,?Im too young to remember what companies like M&S shares were at in the 1980s or early 1990s but I suspect they as was the Footsie very much lower than today?They must have been about 50%or more lower than now?I think the Footsie was about 1000 when Thatcher was starting?Everyone had given up and the gloom and doom around 1986 was very heavy.The prevailing consensus was the end of the world is coming.But amazingly it turned around and everything went sky high.Both housing and Footsie.This caught a lot of the gloom and doomers out in the cold and not surprisingly the optimists had some cause for triumph for having stuck on and having been derided.
So it now looks like this great boom of 1986-2002/3 was really a massive bubble that was not fully understood as such until its latter phases.
And now a huge correction is ocurring?
So its headed in the direction back down to 1986?
Which is everthing in the bargain basement.
The problem is that in 1986 broadly speaking it was very hard to get credit just at the time that money was needed to take advantage of the opportunities.
As an example to you young timers-you could be a single bloke in steady work for 2 years on £12,000 pa and go to The Midland Bank and theyd look at your record and hum and haw over a £250 loan to buy some stuff for the kitchen and then turn you down!Usually with some excuse like oh you are too young for a loan your only 25 and 4 years out of University.It was that difficult to borrow money.Credit cards were out of the question-only super rich luxury business people or long working persons over 30 or so had one or two.Probably about 10-15%of the economic population.
No internet.No online shopping.No DVDs,only 3-4 TV stations.
You'd feel really desperate.If you needed £100 you'd be at your wits end and really had to think hard or use your wits to obtain it by hard work
The unemployment was rising by around 100,000 per month at one point!
Youd pick up a newspaper and it would say 20,000 jobs lost at this factory,15,000 at this one,75,000 at this Govt.Dept. There was an atmosphere of absolute despair,violence and fear bordering on panic amongst the masses.
People were scratching their heads and asking what is happening?
Tory elements of the masses approved of this "tough"situation for they generally had never like the Swinging Sixties approach to life.
I think youll find that although there will be loads of bargain basement houses and stocks it will once again be very difficult to get any money to buy them as most people will be maxed out and banks wont lend anew.
Until the next big expansion 2020?
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Asteve
Activist
Posts:917
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| 30/06/2008 4:33 AM |
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First things first, ABSOLUTELY NOTHING that I post here should be considered a recommendation... I've merely pointed at interesting current affairs articles and tried my best to explain my academic understanding of terms.
I would not buy any plummeting shares today - be they banks or builders... the former I can imagine repeatedly diluting their stock with rights issues for many years to come - and I feel that it is entirely reasonable that many of the latter could be bankrupt... or, at least, the risk is such that I'd expect a net loss.
I think you're missing 3 critically important issues if you compare the price of companies today with the price of companies in the 1980s.
1. The money supply used as a measure of value has changed significantly over this time. M0 expansion has been running at about 5% and M4 at about 10-15%. Admitted price inflation (ignoring real-estate) has been running between 1% and 10% - depending upon metric chosen. £10 today is not the same thing as £10 in 1988!
2. The nature of finance has changed radically where corporate debt is absolutely critical today - as are leveraged investments. The latter allow a speculator armed with £1 to pay £20 for an asset - this leverage has exploded - particularly over the last decade - as banks reassured each other that they were very much more clever about their risk management. This risk management substantially consisted CDS contracts which focused on the business risk to individual financial services companies - and yet completely ignored the actual risk of lending. Some commentators today are predicting imminent systemic failure in the CDS markets - and, even if you think this to be uninformed scaremongering, many respectable organisations are reporting widespread "deleveraging" - i.e. withdrawal of borrowed funds from direct investments... for example, in terms familiar to average-joes, people selling their stock portfolios to repay their mortgages. This small effect on a consumer level, however, is only a analogy for what appears to be happening on an industrial scale with hedge funds and the like.
3. Globalism has lead to a situation where companies in high-cost western states have to compete directly with companies in low-cost eastern states. This is a new phenomenon - and a significant burden for western corporates. This problem is compounded by the fact that western currencies have become significantly over-valued with respect to their eastern cousins. As/when this corrects, there will likely be a double-whammy as the offshore/outsourced cheap labour and goods become dramatically more expensive... while exports to these newly buoyant economies remain uncompetitive to Western markets.
The critical point, however, is this: you can't simply compare the nominal price today with the nominal price in the 80s - the money itself has changed radically... as has the business of the corporates - and their debts.
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lazen
Activist
Posts:246
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| 03/07/2008 6:20 AM |
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Hmm but that makes it even more scary!I mean UK reatail stocks are
nearly on the ropes already and theres only been a 20% decline in
Footsie highs.
Thus M&S are now around £2.50 from £7.50 a 66% drop.
Did you hear about the big 25%in one day drop yesterday?
What if the Footsie "really"decides to plunge down to 2000-3000
levels taking all those retail stocks with it?
Why theyd be reduced to literally Pennies!
Were possibly looking at 1000s UK companies being reduced
to 1p or 2p per share with no future.
Only about 1:100 companies from 1922 ever survived into 2000.
One day the company names we take for granted around us might well just be forgotten history?
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Asteve
Activist
Posts:917
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| 03/07/2008 6:37 AM |
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"Only about 1:100 companies from 1922 ever survived into 2000."
I don't think you need to worry about that - mergers and takeovers are normal - as is bankruptcy.
I think that the prospect for a stock-market meltdown is, actually, quite plausible. Delivered this morning was a book I've intended to read for several months:
"Bubble Economy, The: Japan's Extraordinary Speculative Boom of the '80s and the Dramatic Bust of the '90s"
From the introduction that I couldn't resist reading as soon as I opened my Amazon parcel I note that the catastrophic collapse of the Japanese stock market in 1990 which gave rise to 18 years of economic contraction with no recovery to date... was caused by "only" a 50% fall in the stock market. Bearing in mind that we've seen ~30% of the FTSE250 and ~20% off the FTSE100 already... and we're yet to declare a technical recession... I don't think it implausible to think that something similar may happen to the western markets as a whole.
The book, of course, was rather upbeat - that while the economic shock was unpleasant for the rich, it was clearly necessary in order to correct a misallocation of resources.
Anyhow - the ECB has raised interest rates - to keep the game interesting... I wonder if this will force the hand of the BoE to raise next meeting or the one after that? |
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lazen
Activist
Posts:246
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| 04/07/2008 3:05 AM |
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M&S are continuing to fall!So sudden!In one week they have lost approaching 50%of their value.I just hope they are cash rich because last time this happened to them they were forced to close numerous of their stores.One of their bosses made a slip of the tongue on radio when he lamented over all the money theyd spent re vamping their stores in a disgruntled sense of entitlement sort of tone.
M&S are not some sort of Holy Grail.
They are just another bland High Street store chain that has many deficiences
Their ready meals arent up to much they discard 10,000 unsold ones every day.
In fact M&S are one of the biggest wasters in UK.
They make men walk up 4 floors of womens clothes to view Mens clothes that are often old fashioned grey and boring.
They have no 1 hour alteration service.
They appear to emply on their tills predominately part time middle aged women
and in Inner city areas too high a preponderance of ethnic background staff compared to France on minimum wage perhaps for the comfort of upper middle class and aristocratic shoppers.At times one gets the feeling that you are in a Black Power organisation rather than a shop!Compared to Kent and France.
Often they mark food as "new"when its not.The other year we saw plain old potatoes marked as "new!".They werent even "new"potato variety.M&S potaoes have been around for 400 years.They still vainly and blindly smugly radiate the image that "they are no.1/top dog".
We were amused to see how the French dealt with these up comers.M&S used to have a little store in Lille-part of their great big worldwide expansion takeover plan-first it shut in the last round of cuts then the French totally bulldozed the entire site flat to rubble where it rested like some sort of V1 rocket casualty a big gap in the line of French shops!
Apparently their "equal opportunity"and mediochre merchandise methods did not go down too well over there.
And now it looks that they are not going down too well over here either.
My tips to get M&S into sucess again.
1)Put Mens clothes 50/50 with women on the ground floors.
2)Place womens lingerie on the top floor
3)Get rid of all the cafeterias.
4)Donnt have 30 something women as conspicuous managers.Instead have
Continental European and American women of intellect.
5)Axe about 75%of your stock.
6)Have about 80% young public school guys and girls on all the tills.
7)Adopt the entire stock range opf Auchan,CArrefour,Prisunic,Champion and Match for your food instead of any of your current stuff.
Sack all your UK factories and su-ppliers.
8)Dont even think about selling sandwiches
9)Allow your Bureau de Change to trade in INDIAN currency once again |
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Asteve
Activist
Posts:917
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| 04/07/2008 6:05 AM |
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The whole point about M&S is not whether you like their business model or their products - it is simply this:
M&S targets the at-least medium-affluent in society. If M&S can't turn a profit, this is indicative of a far wider retail malaise.
You can argue that the problem is that M&S are rubbish - but they always have been.
BTW - I don't think it appropriate to slag-off the employees either in terms of intellect or race or gender.
An interesting observation about M&S in recent years has been the proportion of their stock sourced from Italy... As Sterling devalued against the Euro, that - too - must have hurt profit margins.
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