[Archived] The End Of Global Capitalism?

[jim mk2]

If you are looking for a safe haven, this is now looking very serious. I know a City Lawyer and an insurance broker who have been working in this sector for a long time and both are doing extremely well.

Dont let Enoch see that (when he's back from his latest ban).

[Ste B]

Dont let Enoch see that (when he's back from his latest ban).

I may be wrong, but I dont recall Phil being banned at all. However, you have been a couple of times for personal insults, but are the first to complain when somebody has a pop back at you.

[dave birch]

It may be the end of global capitalism but apparently not the end of inventiveness in the financial sector. Heard this one recently as a method for obtaining a 100% mortgage, supposedly no longer available in the general market.

Seller has a property on the market at £100k but cannot sell and is prepared to drop price by 10% to £90k. Buyer can only get a mortgae for 90% of property price and must have 10% deposit. Therefore simply dropping the price by 10% doesn't help the buyer as the mortgage provider still requires a 10% deposit. The seller maintains the house price at £100k agrees to "lend" £10k to the buyer who now has 10% deposit plus £90k to complete the purchase. After the purchase the buyer repays the £10k to the seller. End result is the seller has sold for £90k and the buyer has a 100% mortgage.

Exactly how this is worked out I don't know but it's apparently done by the solicitors and concluded at the time of the sale and is happening locally now.

Paul, whilst it might happen, I'd imaging it's not exactly legal.

There are problems with the valuation. If it can be found that the valuation was incorrect, then, if the valuation was done by someone registered (as is here in NSW), that person could be on the wrong end of a lawsuit. Having said that, if the seller "lends" and expects back that difference, then that's another matter, but could cause other problems if difficulties arise in the immediate future.

[yoda]

Paul, whilst it might happen, I'd imaging it's not exactly legal.

There are problems with the valuation. If it can be found that the valuation was incorrect, then, if the valuation was done by someone registered (as is here in NSW), that person could be on the wrong end of a lawsuit. Having said that, if the seller "lends" and expects back that difference, then that's another matter, but could cause other problems if difficulties arise in the immediate future.

I once bought a house for £5k less than the valuation, that caused uproar at the bank and at the estate agents!

They tried to make me pay the valuation price but my solicitor (nicknamed Rotwieler) told them where to go.

The house was on the verge of repo and I agreed a price direct with the owner.

both the bank and agent thought they had missed out on a bagain

There will be a lot wheeling and dealing going on behind the scenes now, with some agents putting some properties at the back of the drawer until the owners are so desperate to sell, they will step in with a 3rd party bid and buy the property and sit on it for a while till the market picks up

[dave birch]

Why would it cause "uproar", why would it cause consternation anywhere?

If you've agreed a price with the vendor, then there's no problem.

The problem occurs when the valuation is wrong, either by a registered valuer or by the real estate agent. If it can be found that they deliberately gave an incorrect valuation, then there is a case for litigation.

There might be a problem between the vendor and the real estate agent and/or the bank, but that will only be because of any agreement that they had, and doesn't affect any deal that you may have arrranged.

[yoda]

Why would it cause "uproar", why would it cause consternation anywhere?

If you've agreed a price with the vendor, then there's no problem.

The problem occurs when the valuation is wrong, either by a registered valuer or by the real estate agent. If it can be found that they deliberately gave an incorrect valuation, then there is a case for litigation.

There might be a problem between the vendor and the real estate agent and/or the bank, but that will only be because of any agreement that they had, and doesn't affect any deal that you may have arrranged.

It caused uproar because they thought I was pulling a fast one and was some how in league with the seller.

The property I suspect was about to go to the back of the drawer until the owner had no option but to sell at a vast reduction or had it repossesed by the bank, in which case the agent/bank would have stepped in and got a bargain.

I think I spoiled their party

ps a manager from the bank who held the mortgage actually telephoned me and said that I could not pay less than the valuation!

[AussieinUk]

Article from Warren Buffet

Quoted from Reuters and NYT

"A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful"

From my understanding, the 'Oracle from Omaha', has only ever made one mistake in the market and even that panned out well, after a period of time.

Wise words, if not obvious.

Thanks for that- presumably the desire for a Bretton Woods 2 is to create precisely the global central repository you are talking about.

Excatly what I am referring too

An explanation of derivatives and how to get to crazy numbers.

Nice piece to bring up philip, but still wont allay the fears of some...

QUOTE (Ste B @ Oct 17 2008, 10:24 ) <{POST_SNAPBACK}>

I may be wrong, but I dont recall Phil being banned at all. However, you have been a couple of times for personal insults, but are the first to complain when somebody has a pop back at you.

[philipl]

Nervous day coming up Monday.

Apparently it is the deadline for the insurers to pay up on the defaults by Lehman Brothers.

If we get through this with nobody falling over we will be very fortunate.

Then the worry is whether Pakistan, Argentina, Hungary, the Baltics and Ukraine join Iceland in their own particular financial dog houses.

[AussieinUk]

On the back of yesterday's decent gains, it looks as though both Euro and UK markets, should post at least another 1-2% gain today.

Interestingly, the current LIBOR (£) is down by nearly 1% (83bps) over the past week, as credit begins to loosen. The 3M ($) rate yesterday alone, dropped the most in almost nine months, down from 4.46% to 4.06%. It seems that the recent concerted and timely efforts, by the various central banks, have given the confidence to the financial institutions, to start lending again. We should also see a 'knock-on' effect in the retail market soon.

If markets can end this week on consecutive gains, maybe (and only maybe) we have seen the 'floor' to the recent issues...

Another piece of new news, is the US Fed (Bernanke) is proposing another fiscal stimulus package. Question is how much is this one going to be?

Then the worry is whether Pakistan, Argentina, Hungary, the Baltics and Ukraine join Iceland in their own particular financial dog houses.

EDIT: Philip, I think you may see Pakistan defaulting on foreign debt payments very soon - A dramatic drop in FX reserves (AFAIK its down nearly 65-75%) and a depreciating rupee, is affecting their current balance of payments. This is coupled with current inflation figures at more than 24% (first time in nearly a decade), and GDP expectations, below the 5% (it was 6.5% last year) marker.

[philipl]

Iceland seems to have got its IMF $6bn package in place and the EU has sensibly said the counytry can be fast tracked into the EU and by extension, the Euro.

Pakistan, fortunately, is not that expensive to bail out at the moment but the IMF and G7 had better get there quickly before an incipiently unstable situation develops into a full on failed state with nukes.

Ukraine really bothers me. The wrong western institution- NATO has been in the lead when it should have been the EU which lead the political outreach. Strategically, having the Ukrainian bread basket and other basic resources that country possesses inside the EU in the face of a pending ecological crisis should be of the highest priority but instead we allowed the Bush regime to play soldier games on the map and screwed everything up.

Back to derivatives and it seems that counter-transactions means that the Lehman CDS settlement is going to spread the losses around very broadly. No doubt we will find some less sophisticated banks/insurance houses on the wrong side of a substantial loss though. India as a whole has lost some $600m through Lehman collapsing.

I think this short Canadian article on the history of derivatives is very good.

[dave birch]

It's still 'ere, this capitalism thing.

It must be a bugger to kill off?

[AussieinUk]

On the back of yesterday's decent gains, it looks as though both Euro and UK markets, should post at least another 1-2% gain today.

Well, considering overnight index future's market didn't agree with US opening market sentiment (apart from CAC & AEX)*, the Aussie and Asia Indicies will be down tomorrow..

*UK and Euro index's did hit a daily high well over 2% from mid morning to midday, then tailed off towards US opening positions.

[philipl]

A couple of goofs today:

The Fed admitted that all the money they had used to re-capitalise banks had simply gone into the banks' coffers and is being held as cash and that Paulson's wonderful powers cannot oblige the banks to start lending money again.

The IMF predicted that more banks will fail.

If there is any bad news coming out of the insurance derivatives settlements on Lehman, I can see markets dropping like a stone tomorrow.

[philipl]

Markets gittery- trying to recover and being slapped back by each piece of bad news from the real economy eg Sony's forecast that profits will halve hit Japan hard today.

The looming collapse of countries such as Hungary explains the urgent need for Bretton Woods 2.

There is nothing in the current world economic and political system that is going to stop a raft a newly developed economies failing simply because the central Government has not had time to build sufficient reserves to be credible backers of their banks.

Unfortunately we have a non-race between economic meltdown and 21 January when America will finally have a Government again.

[dave birch]

Want a bet, philipl?

[American]

The dollar is gaining steam. A good time to be re-locating to Europe, now I just have to wire my cash over here.

[jim mk2]

How about this?

Dan Gross, senior editor and columnist at Newsweek, has identified a new economic indicator: that a country’s number of Starbucks stores inversely correlates with its economic health—the more Starbucks stores, the greater the financial crisis.

“Starbucks has always been a symbol of caffeinated, American style capitalism,” said Gross.

“[starbucks stores] are usually located around financial centers [in the U.S.], and in financial centers around the world," he said. "When you look at the cities where the banking systems have been held or had to be nationalized—like London, Madrid or Paris, South Korea—very high concentrations of Starbucks.”

“[However,] the places where the financial system isn’t connected to the U.S. at all—like the entire continent of Africa—where their banks are holding up OK, there are only three in that entire continent,” noted Gross. “Italy’s banks are doing OK—Italy has no Starbucks whatsoever.”

Interestingly, Gross also discovered that similar to the housing market, Starbucks peaked in the spring of 2006.

So there you have it : when Britain's Starbucks outlets start closing down the economy is bottoming out and heading for recovery.

[American]

Interesting that Luxembourg doesn't have a single Starbucks and the economy is going into the crapper. Kinda disproves the theory, especially considering the number of banks doing business here.

[AussieinUk]

Interesting that Luxembourg doesn't have a single Starbucks and the economy is going into the crapper. Kinda disproves the theory, especially considering the number of banks doing business here.

American - the idea raised on this so called 'theory', has so many other flaws, its pure sophism.

[blue phil]

QUOTE (Ste B @ Oct 17 2008, 10:24 ) <{POST_SNAPBACK}>

I may be wrong, but I dont recall Phil being banned at all.

Cheers , Ste .

The strange thing is I've been a bit quiet on the messageboard due to working overtime

Nice to know jim's missing my contributions ........ I always suspected he was a secret admirer

[AussieinUk]

Iceland seems to have got its IMF $6bn package in place and the EU has sensibly said the counytry can be fast tracked into the EU and by extension, the Euro.

Pakistan, fortunately, is not that expensive to bail out at the moment but the IMF and G7 had better get there quickly before an incipiently unstable situation develops into a full on failed state with nukes.

Ukraine really bothers me. The wrong western institution- NATO has been in the lead when it should have been the EU which lead the political outreach. Strategically, having the Ukrainian bread basket and other basic resources that country possesses inside the EU in the face of a pending ecological crisis should be of the highest priority but instead we allowed the Bush regime to play soldier games on the map and screwed everything up.

Going on from this point you have made. It would seem that the IMF is now starting to pull its finger out and take some action.

It stated yesterday (Sunday), that it had reached an agreement with Ukraine for a $16.5 billion loan package to ease the effects of the current financial crisis. Iceland, is to also receive a further $1 billion (from the $6 billion package already posted above. This was directly from from Nordic countries and Japan) to stablise. The Hungarian government said it expects to sign a deal with the IMF and the European Union this week, that would include access to funds, if required. More such deals are expected, as other emerging market governments start to worry.

Note, Ukraine has close to £37 billion in FX reserves and Hungary has close to $25 billion. Although it should be mentioned that change in currencies Vs the USD both lost 13% and 19.2% respectively.

It looks like another bleak day in finance markte place, with current Euro, Uk and US future index markets, all looking 3-5% down, on Friday's close.

EDIT: Can't believe the massive rise in the Yen FX rate today, its up 4% against the AUD and others?

[philipl]

There are three massive issues in the system now:

- the near total collapse of the hedge funds

- the lack of credit for emmerging economies

- the USA administration suggesting that non-US banks do not qualify for the rescue package

HSBC dropped more than 10% today which is worrying.

Russia is in one heck of a mess again with the over-extended oligarch's now effectively being nationalised and the price of oil below the $70 base case for the Russian budget.

Austria which is within the Euro zone is looking very sick with its exposure to lending to Eastern Europe. Spain has massive exposure to Latin America.

So potentially the UK's two strongest banks- Santander and HSBC might be headed for rocky times.

[neekoy]

“Italy’s banks are doing OK—Italy has no Starbucks whatsoever.”

Can't imagine the Italians could stomach a luke warm styrophome cup of American coffee.

[philipl]

Hm, the Hedge Funds have taken a £20bn hit on shorting VW shares (and no doubt we will find some UK taxpayer-backed banks in with the crowd as well).

I don't work in the banking industry but I knew that

1) The Porsche family were so keen to get hold of VW they had even had an internal falling out between themselves last year and the buy control of VW any way we can faction had won, and

2) Frankfurt Stock Exchange rules are rather loose when it comes to requiring disclosure of buying stakes in listed companies and allow for shadow share purchases, and

3) The free float of VW was unusually small for such a vast publicly quoted company

Now I wouldn't have shorted VW so what the **** were these guys playing at?

It seems to me with the huge rearguard action to try to pay about 10% of the amounts Governments have ploughed into bank capital as bonuses (for what exactly???) and the short-selling mob having descended on VW given they cannot play at busting financial institutions any longer, there is a big chunk of the banking fraternity who think they can carry on as usual whilst the rest of the world can go to hell in a handcart.

[AussieinUk]

Hm, the Hedge Funds have taken a £20bn hit on shorting VW shares (and no doubt we will find some UK taxpayer-backed banks in with the crowd as well). I don't work in the banking industry but I knew that

1) The Porsche family were so keen to get hold of VW they had even had an internal falling out between themselves last year and the buy control of VW any way we can faction had won, and

2) Frankfurt Stock Exchange rules are rather loose when it comes to requiring disclosure of buying stakes in listed companies and allow for shadow share purchases, and

3) The free float of VW was unusually small for such a vast publicly quoted company

Now I wouldn't have shorted VW so what the **** were these guys playing at?

Bang on philip! Complete numpties IMO, my QT (quant) model got VW on the rebound*, so these guys were either paying to much attention to their 'in-house' daily research and not enough on the actual technicals or were caught short holding too many put options! I mean the 120 day volatility is around 170%, which is very, very high, for an equity in its sector

*I have to make a point on this, that I have Volkswagen dropping today, as the RSI & Bollinger bands are signalling a downward shift, as these are now quite oversold... I guess we will see, when markets close this afternoon.

Just on Volkswagen - For the previous two weeks, VW had been dropping significantly, moving on occasion, against daily market sentiment. Both the Porsche and Piech famalies had already come to an agreement last Friday (24/10), with Porsche potentially taking a 75% stake by 2009.

Moving on and looking at today, the modest gains made (in most markets yesterday - except the Italian & Spanish), look to continue, with equity index futures around 3-4% up currently. Having said that, US based markets are teetering just below par as we speak, although this might end the day on a small gain.

EDIT: Other news - it appears as though the Fed is defin going to drop their base rate again by at least another 25bps (could be even as higher 50bps)...