Dec. 23rd, 2008

peterbirks: (Default)
Look at that, a headline that's true both physycally and metaphorically at the same time. I love English as much as I love the English (I exclude the Cornish here, as, indeed, I assume, would they).

At the beginning of the year I "reprice" my stocks to a loss and profit of zero. This helps me to look at the stocks in a rational fashion, rather than worrying about how much I paid for the things in the first place. It eliminates irrational actions such as "it's doubled in price -- I'd better sell" and promotes rational decisions based on yield and estimated future prospects. Worrying about how much you have paid for a stock is a bit like worrying about how much you already have invested in a pot.

However, the repricing will have the nice side-effect of taking away the sequences of red. I have precisely three stocks in profit this year, all of which I have bought since January. Stand up and be proud William Hill (up 26%), Ladbrokes (up 12%) and Royal & SunAlliance (up 5%). Also there's Genuine Parts Co in the US (up 4%) and my index-linked treasurties in the US (up 8%). Wooden spoon for the year goes, ridiculously, to Senior (down 71%). Indeed, I may invest more cash in this company, whose exposure to a collapse in one of GM and Chrysler is not as great as people think. The 53% decline in Headlam (on top of a bit of a fall last year) is less surprising, given its debt levels and exposure to the housing market. Halma proved my great defensive stock in bad times (as it did in 2002), dropping just 6%. My great "non-dividend payer", SportingBet, might actually come good in 2009.

Of stocks that I hold that concern me, Office2Office causes the most worry, mainly because of the fall in share price this year (46%), a competitive market, and the fact that it's a recent buyout. A high proportion of management buyouts might struggle this year to service their debt.

And then there's my employers, whose debt covenants tighten this December and in whom I still have a fair amount of cash invested. I sold all my last lot of options (at considerably higher prices than the amount I paid and also far higher than the share price today - whipeee!) but I'm still accumulating shares at an ever-increasing pace (see "share price, declines") as part of my current tax-efficient deal.

This morning I had a little re-read of my blog for the week to Monday October 13th, because Robert Peston this morning features interviews with four of the main players. Darling, sadly, does not come out of it well -- spouting one paragraph that, when put in cold print, is pure gibberish:

Peston had asked whether there was any fundamental reason for Royal Bank Of Scotland being the focus of such panic (money was being withdrawn at such a rate that it was just hours from insolvency).

Darling replied thus:
I
Darling: There's lots of things been happening over the last few weeks and months that are you know, on one level you can say they're irrational [Peston interjects: "I think he meant "rational" here"] because as it turned out, RBS needed an awful lot of capital. It's one of the biggest banks in the world and we now own 57% of it. And when people had seen, you know, giant banks in the US collapse, everything that, that's happened, you can say on one level it's irrational. On another, another, the other level you can understand why people began to lose confidence. What we had to do, though, is to say "well never mind that, let's you know really take some decisive action - let's make sure that we can maintain the banking system" - and that's what we did.


Unfortunately, applying the adjective "rational" doesn't make sense either. Whatever Darling has said, it doesnn't seem to annswer Peston's question.

In an earlier post, an extremely revealing statement is put forward by the deputy governor of the BoE, John Gieve, explaining why interest rates were not used to suppress the asset price bubble:
So why didn't he and his colleagues raise interest rates to attempt to stem the growth in lending and the rise in the price of houses and other assets?

"If we'd used interest rates to try and address this asset-price credit growth, we would have been holding down the level of activity elsewhere in the economy, in manufacturing, in other services, holding down the level of employment at a time when consumer price inflation and earnings were stable and reasonably low. And people would have said, you know, 'this is a wilful reduction in the prosperity of the country'."


What Gieve seems to miss here is that he is admitting that an unsustainable credit splurge was being used to maintain an unsustainable level of employment. Jobs today could only be kept in existence by spending tomorrow's earnings (see General Motors). He is, in effect, admitting that the madness was approved because to do otherwise was politically unacceptable ("People would have said...") rather than economically unwise.

The more I read of this stuff the more it worries me that so many people at the top either don't really understand what is going on or, if they do, they are prepared to sacrifice that knowledge at the fount of keeping their job and political expediency.

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