Oct. 3rd, 2008

peterbirks: (Default)
Am I the only person to see a certain farcicality an a situation whereby Northern Rock, which was forced into the arms of the government because it could not raise enough in funding, is now in the position of having to turn away retail customers because it is in danger of gaining more than 1.5% market share?

Yes, I know the underlying reasons, state aid, unfair competition to other domestic players, etc, but it still must be a bit galling for anyone still working there.

I'm typing this on the Google Chrome browser, partly because I've got a currency position open in the Internet Explorer browser, and Cantor Index's totally crap online system (the interface is fine when it works, but the (Pulse?) background system is a pile of shit) has a penchant for crashing IE for unknown reasons.

Senator Harry Reid, the Majority Leader, no less, showed the acute sensitivity that politicians have for the markets when he said on Wednesday that he knew that one big-name insurer was on the verge of bankruptcy. Needless to say this led to a virtual stampede out of Hartford, MetLife and US Prudential (because, of course, politicians don't know the difference between non-life insurers and life assurers). MetLife issued a statement saying that, the last time it looked, it was solvent.

Harry Reid later issued a 'clarification' (i.e., a contradiction) saying that he was not personally aware of any one insurer on the verge of insolvency. Apparently he'd just heard some gossip in the Senate Caucus, and thought he could use this as a 'frightener' on Democratic politicians. Next thing you know, market panic.

"Oh, I wasn't expecting that"...

The funny thing about all this is, his comment rang true to me and the Hartford was the company that sprang to my mind. Of course, he shouldn't have said it (lucky that he couldn't hold a short position!) but he may well have heard it from some reliable sources.

+++++++++++

I hesitate to predict anything in the political world these days. Palin failed to implode last night, playing the "I speak for middle America" line that served Nixon and Reagan so well. It's a bit like having a political version of "I'll Do Anything", with Simon Cowell and Sharon Osbourne joining Tony Blair and Bill Clinton to decide what member of the ordinary public should be chosen as vice-president.

Will the House pass the "revised" bail-out bill (for 'revised', read, other things attached to it which a few Democrats who voted against might like)? Will the markets respond positively even if they do? I kind of have my doubts. We are now reaching the stage where non-financials are going to get hurt, with loans coming up for a rollover and a lot of highly leveraged/indebted companies (including, I fear, my own) looking at a tough task to find new money.

Robert Peston observed astutely that in the past six years, the gap between bank lending in the UK and bank deposits grew from zero to more than the equivalent $400bn, with the gap being filled by the wholesale markets. This role is now being "covered" by the BoE, but there's no real long-term plan, just a vague hope that the wholesale markets will get going again. The BoE has taken many of the "good" assets as security and Mervyn King now faces the difficult decision on whether to take stuff that might be considered, er, less desirable. This, as Peston pointed out, is a kind of nationalization of UK Banking PLC by stealth.

I've tentatively dipped a toe back into UK equities, trying a bit of judicious stock-picking in damaged sectors (Household Goods, if you want to know, which I doubt that you do). part of the reason was that it was a neat way to reduce my exposure to a single bank to a level where I was guaranteed 100% compensation in the case of a failure. I'm still a bit of a fan of a fair amount of cash, in various currencies. Poker players could, all of a sudden, find that having a hundred grand in cash sitting around wasn't such a waste of return on equity at all.

Here's a hand from yesterday. It's interesting because I made three decisions in the hand and each one could have been different. Although I was 75% when all the money went in, it's a bit worrying that opponent was willing to put in his money with a hand at the near-bottom of his range. Matt opined recently that the object in this game was to get people to pay you off rather than to get them to fold. Up to a point, up to a point. My EV is higher here is opponent folds rather than "pays me off" in more Sklansky dollars.


an interesting hand )

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