I think the new saying should be “beware prime ministers bearing gifts”. The next time Gordon Brown sidles up to someone, opens his great coat, and says “got a nice line in Retail Banks hot from the city, don’t worry about competition or the FSA, I have them covered” perhaps the little rabbits caught in the headlights of associating with him might deign to look under the lid.
You occasionally hear of company mergers being complete disasters, mainly due to fraud on one part or the other, but this must be the first I have heard of where a major acquirer did not do sufficient bog standard due diligence. Not only this, but the final merger date was only a few weeks ago, I find it difficult to believe that they ‘discovered’ £10bln of doubtful debts in just a couple of weeks. It is not clear whether the losses in HBOS are actually ‘toxic’ debt (as in sub prime derivatives) or whether they are real loans to real businesses in the UK that have gone belly up. HBOS was a big lender to the Baugers of the world but to have lost some 10pc of your loan book indicates a lack of risk analysis that is startling.
The continued bleat from the Lloyds press liaison team that the deal represents ‘good value’ to share holders seems to indicated that they employ the same PR firm as the Labour Party who continued to say that the UK was in a much better position to weather any downturn than other nations. I suppose Joseph Goebbels’ comment that if you tell a lie big enough and keep repeating it people will eventually come to believe it is still alive and well. What particular bit about a share price of 58p (currently) with no prospect of a dividend and the promise of possible further write downs represents good value, precisely?
The markets are in something of a quandary at the moment as we all try to ‘look through’ the huge stimulus packaged offered variously across the globe. Will they work? What will be the legacy? Does Claudia Schiffer have my telephone number? These are the questions investors are struggling to answer. What we do know is that the consequences, if it all goes wrong, could be truly appalling. The small unlit route through the current crisis seems very narrow and dark just about now. On one side is the hidden abyss of asset destruction via hyper-inflation caused by the massive injections of cash into the economy and on the other the soul destroying prospect of long term stagnation and deflation.
Oddly enough things were looking a bit more hopeful on Thursday last week. The markets had a solid bid behind them, sterling was recovering some of its losses and Oil was creeping up (indicating demand might be returning). This was brought to a shuddering halt firstly by the muted reaction to the Obama package and then by the huge loss declared by HBOS.
Dealers were looking quite comfortable after the solid bounce on Thursday defeated the break of major support in the Dow and the sky definitely seemed a bit bluer. Chartists are now anxiously watching to see if the States can recover the 7850 level once again, we closed bang on it at 21.00 on Friday but are now indicating 7785 in pre-market action. On the plus side the FTSE is remaining solidly above the 4100 to 4150 region with no real attempts to challenge its support and the S&P is still above trendline support. For the senior US index there are three supports at 815, 808 and 800/802 all of which are reasonably strong. A break of these may indicate a renewed downturn but until this actually happens there is hope for a rebound once again.
Currency markets continue to wing all over the place but the losers this morning are the Pound (naturally) and the Euro. The Euro continues to suffer stresses associated with the EC group and the rumours that Germany might be asked to bail out Ireland will not exactly have helped. The fact that the UK government might have to dip into its pockets once again to help out the banks has harmed sterling and there does appear to be some value at the 1.4150 region versus the dollar. Unfortunately there is no getting away from the fact that the pound remains, at the moment, in its long term downtrend but we need to confirm this with a move below 1.3500 soon. The longer we remain in the 1.4000 to 1.5000 range the better chances for a serious pull become. We are seeing buyers of the pound at these levels and it is difficult to completely disagree with their analysis of a potential move higher.
With the fear of huge money supply numbers Gold remains at high levels and while I have generally been nervous of the argument about the value of Yellow Metal this was before the current spending plans were unveiled. I am not a buyer myself but the argument that if you double (slight exaggeration) the number of Dollars, Pounds, Yen etc on the planet then Gold, which is rather difficult to double overnight should go up in purely number terms.
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