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I fear the markets are ahead of me
Jan. 20th, 2009 10:38 amI was going to write this piece earlier, but that irritating fact of life, work, got in the way. Now, a mere four hours later, what I was planning to say is already somewhat out of date.
I know that I should be following the herd and reporting the bank bailout (and share price crash), but, to be honest, that isn't very interesting. The banks will continue to function, in one way or another. The holders of debt with those banks (most of us via our bank accounts) will lose nothing. That means that the losses will be attributed elsewhere -- on the shareholders (most of us via our pension schemes). The puzzlement that the bailout caused a collapse in the share price was in itself somewhat puzzling. D'uh, the state now owns 70% of your company; you are very much a minority shareholder with only 30% of stock in free float. Stocks where only a small amount is in free float always trade at a discount to those with a large proportion of stock in issue, because a majority shareholder (in this case UK plc) can take decisions that do not benefit the minority shareholders. If the majority holder is the company founder, at least there are certain rules that he or she should obey (no 1830-like company asset stripping, in theory). But if the 70%-owner is also the government, well, let's face it, you are fucked.
But of more interest to me was the £50bn facility for the BoE to buy "high-quality corporation assets". This is a quite cunning move -- not in the sense of clever in its own right, but clever in that it conceals what is really happening. This, in fact, is a remit to print £50m in cash and pour it out of the helicopter. Even better, this was spun with the caveat "should the monetary policy committee conclude that this would be a useful additional tool for meeting the inflation target" -- thus implying, but not actually saying, that this move could "control" inflation. Well, yes, in the sense that if we have 2% deflation it will cure it. But that's not how the layman would interpret it.
The US has already undertaken this move, with greater transparency and less cunning, creating money to buy gilts and thus causing the current very temporary gilt/bond bubble. It's this move that is dollar-weak in the medium-long term. However, the UK has now eliminated its own advantage against the dollar, because it is following the same economic toolkit path as (the FT noted) espoused by Weimar Germany and Robert Mugabe. Not exactly the finest of recommendations, I think you will agree.
Amazingly, the markets spotted this straight away, and the pound tanked against the dollar, down five cents as I write, to $1.40. My prediction of $1.27 may come true sooner than I thought.
+++++++++++
The first tentative discussions are taking place about the reliability of UK government debt; Wake Up To Money this morning observed that the markets had credit default swaps for UK debt at a higher level than, I think, for Unilever. That gap may widen over coming months -- although, if it doesn't, it will because the CDS outlook for the private sector will get worse, rather than government credit getting better.
I also read some interesting comments on the euro in various places. One that stuck in my mind (although not the source, unfortunately) was that the one country that has a mechanism in place for quitting the euro is Germany. This is an important point, for if the euro is to fail at a stroke, it would be because Germany left it, rather than because Greece, or Ireland, was ejected. However, once again politics surely takes control. Even if it made economic isolationist sense for Germany to say "fuck this for a game of soldiers", it's hard to see them upping and quitting unless it had become extremely clear from outside Germanyland that the euro was disintegrating at the seams. At the moment Euroland is actually less economically disjointed than it was a few years ago, when booming countries such as Ireland had interest rates far too low in order to accommodate stagnation in, yes, Germany. It would seem a strange decision to leave a party just at the time that everyone agreed what CD should be put on the stereo.
++++++++
Brief further point on something I meant to mention but for which I ran out of time. John O'Malia has quit as MD at PartyGaming. "Managing Director" is a fairly nebulous title when there's an active CEO in place. O'Malia came from GameBookers when Party bought it more than two years ago. It seems as if he was the driving force turning Party Poker from a pile of shit into what is, now, a not bad operation. OK, the support is still laughable, but at least the rewards system now makes some kind of sense, the interface is much improved (with the exception of the "Speed Table" farce where you often have to wait 10 minutes to be dealt in -- once I missed two rounds because you can't be dealt a hand until you are in the Big Blind).
O'Malia was also, by all accounts, brainy -- a rare facet in the upper echelons of board rooms these days, where marketing, sales talk, schmoozing and generally being a friendly bloke is considered far more important than knowing what you are doing and having the brains to know how to set about doing it. A serious worry is that the poker will start to be ignored again (as it was under scopepot Mitch Garber) and the quality will gradually deteriorate.
20 minutes this morning on Pokerstars before coming to work necessitated four tables of truly mind-numbing pointlessness. Average pot sizes of about $4 at all of them ($100 buy in). However, I casually strolled away with $20 without going beyond a flop bet. The sequence goes like this. Your first raise is passed round and you steal the blinds. Your second raise, if a fraction too soon after the first raise, generates either a planned float from the button or a defence from the blinds. However, a CB takes it down.
_________
I know that I should be following the herd and reporting the bank bailout (and share price crash), but, to be honest, that isn't very interesting. The banks will continue to function, in one way or another. The holders of debt with those banks (most of us via our bank accounts) will lose nothing. That means that the losses will be attributed elsewhere -- on the shareholders (most of us via our pension schemes). The puzzlement that the bailout caused a collapse in the share price was in itself somewhat puzzling. D'uh, the state now owns 70% of your company; you are very much a minority shareholder with only 30% of stock in free float. Stocks where only a small amount is in free float always trade at a discount to those with a large proportion of stock in issue, because a majority shareholder (in this case UK plc) can take decisions that do not benefit the minority shareholders. If the majority holder is the company founder, at least there are certain rules that he or she should obey (no 1830-like company asset stripping, in theory). But if the 70%-owner is also the government, well, let's face it, you are fucked.
But of more interest to me was the £50bn facility for the BoE to buy "high-quality corporation assets". This is a quite cunning move -- not in the sense of clever in its own right, but clever in that it conceals what is really happening. This, in fact, is a remit to print £50m in cash and pour it out of the helicopter. Even better, this was spun with the caveat "should the monetary policy committee conclude that this would be a useful additional tool for meeting the inflation target" -- thus implying, but not actually saying, that this move could "control" inflation. Well, yes, in the sense that if we have 2% deflation it will cure it. But that's not how the layman would interpret it.
The US has already undertaken this move, with greater transparency and less cunning, creating money to buy gilts and thus causing the current very temporary gilt/bond bubble. It's this move that is dollar-weak in the medium-long term. However, the UK has now eliminated its own advantage against the dollar, because it is following the same economic toolkit path as (the FT noted) espoused by Weimar Germany and Robert Mugabe. Not exactly the finest of recommendations, I think you will agree.
Amazingly, the markets spotted this straight away, and the pound tanked against the dollar, down five cents as I write, to $1.40. My prediction of $1.27 may come true sooner than I thought.
+++++++++++
The first tentative discussions are taking place about the reliability of UK government debt; Wake Up To Money this morning observed that the markets had credit default swaps for UK debt at a higher level than, I think, for Unilever. That gap may widen over coming months -- although, if it doesn't, it will because the CDS outlook for the private sector will get worse, rather than government credit getting better.
I also read some interesting comments on the euro in various places. One that stuck in my mind (although not the source, unfortunately) was that the one country that has a mechanism in place for quitting the euro is Germany. This is an important point, for if the euro is to fail at a stroke, it would be because Germany left it, rather than because Greece, or Ireland, was ejected. However, once again politics surely takes control. Even if it made economic isolationist sense for Germany to say "fuck this for a game of soldiers", it's hard to see them upping and quitting unless it had become extremely clear from outside Germanyland that the euro was disintegrating at the seams. At the moment Euroland is actually less economically disjointed than it was a few years ago, when booming countries such as Ireland had interest rates far too low in order to accommodate stagnation in, yes, Germany. It would seem a strange decision to leave a party just at the time that everyone agreed what CD should be put on the stereo.
++++++++
Brief further point on something I meant to mention but for which I ran out of time. John O'Malia has quit as MD at PartyGaming. "Managing Director" is a fairly nebulous title when there's an active CEO in place. O'Malia came from GameBookers when Party bought it more than two years ago. It seems as if he was the driving force turning Party Poker from a pile of shit into what is, now, a not bad operation. OK, the support is still laughable, but at least the rewards system now makes some kind of sense, the interface is much improved (with the exception of the "Speed Table" farce where you often have to wait 10 minutes to be dealt in -- once I missed two rounds because you can't be dealt a hand until you are in the Big Blind).
O'Malia was also, by all accounts, brainy -- a rare facet in the upper echelons of board rooms these days, where marketing, sales talk, schmoozing and generally being a friendly bloke is considered far more important than knowing what you are doing and having the brains to know how to set about doing it. A serious worry is that the poker will start to be ignored again (as it was under scopepot Mitch Garber) and the quality will gradually deteriorate.
20 minutes this morning on Pokerstars before coming to work necessitated four tables of truly mind-numbing pointlessness. Average pot sizes of about $4 at all of them ($100 buy in). However, I casually strolled away with $20 without going beyond a flop bet. The sequence goes like this. Your first raise is passed round and you steal the blinds. Your second raise, if a fraction too soon after the first raise, generates either a planned float from the button or a defence from the blinds. However, a CB takes it down.
_________
