[Archived] The End Of Global Capitalism?

[philipl]

It is terrifying that there are a group of people let loose with the ability to commit such vast amounts of money but the systems around them are so weak that they were either totally unaware of the rules of the market (the DAX) they were working in or even more astounding were shorting stocks of a company (VW) they were unaware was in the process of being taken over.

Their response seems to be that they have been caught out by inadequate regulation of the Frankfurt Stock Exchange which enabled the German families (and their bankers and brokers) to work against them.

As somebody who has held directorships governed by the rules of the Nasdaq/SEC, London Stock Exchange Yellow Book/FSA and the DAX, I had to know what I could and could not do but seemingly if you are a City-type those sorts of things were an optional extra. At the very least, it shows a stunning lack of knowledge on the part of the backroom boffins in research.

With regards to interest rates, I guess a globally co-ordinated cut is coming again but the markets have probably already priced it in. The MPC is practically redundant although at some stage the UK will have to cut rates to bring its interest rates more in line with the rest of the world- that differential reduction seems to be already priced into sterling.

[AussieinUk]

... 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.

That should say 'overbought', not 'oversold'.. long day for me here.

.... they were either totally unaware of the rules of the market (the DAX) they were working in or even more astounding were shorting stocks of a company (VW) they were unaware was in the process of being taken over.

Their response seems to be that they have been caught out by inadequate regulation of the Frankfurt Stock Exchange which enabled the German families (and their bankers and brokers) to work against them.

At the very least, it shows a stunning lack of knowledge on the part of the backroom boffins in research.

Bad research & technical analysis philip.. plain and simple.

Take overs in Germany have never had HF managers looking this puzzeled before. What I don't understand, was everyone within private equity, following anothers lead? ...backroom research couldn't possibly fail on this sort of scale, as rumours of a takeover has been in the wind, for quite a while..

[philipl]

Robert Peston on the VW hedge fund debacle.

Sensible move to release 5% into the market to create some liquidity. Takes some pressure off the HFs- lucky boys.

Being a bit more serious, surely the correct response is not to ban shorting, naked or otherwise, but to make all such trades market transparent in the same way that trades in real shares are transparent?

It is the ability for the herd all to do the same thing without knowing all the others are doing it as well that caused the VW embarassment and ultimately the failure of Lehman Brothers.

I see that an investment company in Singapore has pretty well effectively wiped out the life savings of 10,000 previously wealthy Singaporeans by being heavy in Lehman paper at the wrong moment. There are going to be a lot of stories like that all round the world.

[JAL]

Some great insights into things going on in the worlds financial markets from especially Philpl and AussieinUK, cheers guys but what i'd like to ask is who was behind this global credit crunch and was there any link to the pulling down of the world trade centres on 9/11.

I presume it began in America but was it led by the Jewish community over there and what if there is any was the motive behind it ?

[jim mk2]

cheers guys but what i'd like to ask is who was behind this global credit crunch and was there any link to the pulling down of the world trade centres on 9/11.

I presume it began in America but was it led by the Jewish community over there and what if there is any was the motive behind it ?

The credit crunch is the result of 10-year plus global borrowing binge caused by greedy bankers, supine regulators, incompetant governments and overstretched and mendacious consumers who borrowed more money than they could afford. 9/11 is irrelevant. It's all been faithfully recorded in the better newspapers for the past 2 months.

The end of the party started more than 12 months ago in the US subprime (ie, those who should never have been given a mortgage in the first place) market (Northern Rock was the first casualty here) and slowly gathered pace until the US govt's decision to let Lehman Brothers collapse a few weeks ago led to the collapse of banks round the world and the recent global economic meltdown.

Not sure why you ask about the Jewish community (is it relevant ?) but if in doubt blame the Muslims. The numbskulls on here usually do........

[AussieinUk]

Robert Peston on the VW hedge fund debacle.

Sensible move to release 5% into the market to create some liquidity. Takes some pressure off the HFs- lucky boys.

The article by Peston is not very insightful..

Porsche, will make a tidy sum (approx EUR9-11Billion) on selling that capped 5% back to the HF's...

Just read on Bloomberg that BaFin will now step in and investigate..

Note - I see that VW has dropped like a brick, as I mentioned earlier this morning.. currently down 40% from yesterdays close.

[Al]

I can't resist a smile at the Bears who make a living out of driving down the value of the stock market and thereby the values of our pension funds getting caught with their pants down over the VW situation. Serve the barstewards right.

[philipl]

At last, the mugging by the bankers might end.

From the New York Times:

Representative Henry A. Waxman, who is leading a House investigation of the financial crisis, asked nine big banking companies on Tuesday to explain why they are paying billions of dollars in compensation and bonuses after they accepted cash injections of $125 billion as part of the government's $700 billion bailout program.

"While I understand the need to pay the salaries of employees, I question the appropriateness of depleting the capital that taxpayers just injected into the banks through the payment of billions of dollars in bonuses, especially after one of the financial industry's worst years on record," Mr. Waxman wrote in letters to the chief executives of the nine banks, which include Citigroup, Bank of America, Goldman Sachs and JPMorgan Chase.

"Some experts have suggested that a significant percentage of this compensation could come in year-end bonuses and that the size of the bonuses will be significantly enhanced as a result of the infusion of taxpayer funds," Mr. Waxman wrote.

Mr. Waxman asked the banks to provide considerable details on their employee compensation, especially for people paid more than $500,000 a year, from 2006 through 2008.

[philipl]

Tucked away in this Times article- most of the losers in the Porsche/VW squeeze are proprietary funds of the large banks.

So the tax payer takes the hit.

But the biggest hits are in German banks tracking the DAX.

And Porsche are going to have to sell a whole load of VW shares to pay the tax bill on their huge profits.....

Lets just hope the outcome is a strengthening for sensible regulation of Hedge Funds which in reality do a lot of good but make their huge profits out of exploiting their freedom from regulation deemed necessary for more traditional companies and banks.

[AussieinUk]

Tucked away in this Times article- most of the losers in the Porsche/VW squeeze are proprietary funds of the large banks.

So the tax payer takes the hit. Not actually true, as Commerz, DB and Soc Gen are not fully owned by local govts to the extent of UK banks. Please also note, that the tax bill, to be paid by Porsche, will offset this 'hit' somewhat.

But the biggest hits are in German banks tracking the DAX. It actually depends on whether those 'banks' have either overweighted or underweighted their tracking of the DAX index. Remember, before the jump on VW it was 6% constituent of the DAX weighting. This rose to 27% at one stage on Tuesday, due to the market cap of VW.

And Porsche are going to have to sell a whole load of VW shares to pay the tax bill on their huge profits..... Those 'call' options held by Porsche, have not actually been exercised yet (note, these are Cash-settled options), which still means Porsche owns 39.1% of VW (I have heard that this is actually 42.6%) outright. Porsche is using these cash settled 'call' options, to fund the takeover of VW at market prices. Think about this.. the strike price on those call options, would be in the region of $220-$240 EUR. The close price on VW yesterday was $512 EUR. The unrealised profit on those remaining options (30%) is over $25.3 billion EUR! Yes, I do agree that Porsche will need to pay corporate tax on this $25.3 billion EUR.

Currently, that 5% sell-back (of the original 35%) will translate at just over $1.1 billion EUR in a tax liabilty. This on the back of a profit of more than $7.5 billion EUR and those figures are REALISED. That means no phyiscal shares or 'call' options will need to be sold at all! Kind of leaves Porsche in a very strong position

In all honesty, I would take that article by the Times, with a grain of salt. Some of the figures expressed within, are grossly exagerated to fit the 'view' of HF mangaers and to minimise the actual damage on themselves. The whole article is quotes from HF managers..

Lets not forget that;

- 20% of VW is owned by the German state, of Lower Saxony

- 39.1% of VW is physically owned by Porsche

- That leaves approx 41% owned by the institutional & retail market. Included in this figure, is the stock lending of 11% that were 'short sold' by financial institutions (i.e. banks and HF's).

At the end of the day, the stock price of VW is nearly 270% above Fridays close price (24/10 VW = $210 EUR, Currently VW = $560 EUR). So the only losers in this huge market movement, are the idiots who short sold on VW and have been caught out by the increasing margin positions, on their DTC (days-to-cover) requirement. The winners obviously are both Porsche and those asset management funds (incl pension funds) that actually lent shares to the HF's & banks (to cover the short selling) by providing them with a stock lending facility and earning fees. Any silly buggers that actually 'naked short sold' are in the real poop, due to the small amount of shares available on the open market.

EDIT: Oops - The other winners, are those who also bought/held VW shares, BEFORE the jump and have now sold their long position.

Anyway, lets see what BaFin come out with when there is more clarity on their prelim findings. Porsche (in theory) could be punished quite heavily, if market manipulation is found to have taken place.

[AussieinUk]

Forgot to mention earlier, that those 'call' options held by Porsche are likely to be 'European' type, which means the holder can only exercise the options at expiration date and I don't think that will be 3-4 days after strike date...

EDIT: Moving on from the VW issue - US third quarter GDP comes out today (in a few hours) and many will be watching these figures with focused anticipation.

In other news, China cut interest rates today..

[philipl]

Thanks for those two posts.

The interesting thing about the VW/Porsche saga is that it creates a small What's in it For Me for the Hedge Funds to benefit from the coming talks on global regulation.

[AussieinUk]

Yesterday's US GDP figures for the 3rd qtr has come in above market estimates of -0.5%, at -0.3%. The better than expected GDP figures, seems to have eased the worry from some investors and they are now looking for further global interest rate cuts, to brighten the market outlook. On the back of these figures it needs to be mentioned, that the projected 4th qtr numbers will be alot lower (est at -0.6%) and there is now an expectation that the U.S. economy will shrink by 1.5 percent next year alone, with no growth forecasted in the year 2010. Personally, IMO that is a little too pessimistic for 2010.

Today's market movements look flat somewhat (as a whole) or taking a slight dip in some specific countries. Current index futures are illustrating very little positive/negative market sentiment (although UK and US are dipping a bit at the moment at around -1%), which could be considered a relief to some, based on recent volatile swing movements. Maybe my hopeful post last week was a little premature in its timing. Lets hope the generalised markets, have now begun to 'bottom out' and those massive swings, can now begin to smooth themselves out, with a general trend upwards. If today, can end flat or on a slight gain, it would be the first time in 4-5 weeks running. IMV this is a positive.

On UK banking front, I noticed and read in a few places that at least one UK bank, may emerge from this current financial downturn, looking quite favourable in the long term and thats Lloyds. The deal on the table to acquire HBOS (yet to be approved by OFT), will actually place Lloyds in a position with a 29% share of the UK mortgage market and a 35% market share of UK bank deposits. Bank deposits are key, when looking at recent issues of wholesale funding and liquidity problems. Another plus, that needs to be looked at, is the discount factor on the deal. HBOS' shares are currently trading at 94p (up 6.8% yesterday) and although this is nearly 15% below the Lloyds' 109p share offer and could be considered overpriced, it needs to be compared against the tangible book value of HBOS of £20 billion (Lloyds are paying £5.9 billion for the takeover). The last noticable positive on this deal, is the combined synergies that overlap between the two. It is believed that through the aquisition & eventual merger, Lloyds will save more than £1-2 billion (est).

Generally, market conditions on UK banking front (in the short term), don't look like attractive invesments at the moment (especially with news that the UK govt is taking a 40% stake in the merged company), but for long term investment views, the fundementals look stong and Lloyds may emerge from the current turmoil, as quite a large player within the UK retail banking market. I guess this is a wait & see.

EDIT: Other news - BoJ (Japan) has dropped their base interest rate to 0.3% (a drop of 0.2%).

[philipl]

I agree with your analysis that long term fundamentals for Lloyds/HBoS look very strong. Britain was over-banked anyway.

In many ways a period of calm in the stock markets is almost more important than the precipitate rebounds we have been seeing recently; at least it would indicate that something other than a terrified herd was at work.

However, the crisis has not yet worked through fully into emerging markets, the depressive effect of the big credit card credit cut-backs are yet to be felt nor the pain felt by older consumers relying on interest from their capital to tie them by. Consumption figures will inevitably still fall further.

UK does have a massive devaluation boost to stimulate export-led economic activity whilst the massive drop in commodity prices should cushion a lot of the inflationary effect of imports suddenly being 20% more expensive.

In the USA, there is plenty of evidence that Paulson's implementation of the rescue package is giving him zero leverage over the banks (unlike in Europe) so the taxpayer's cash is either going in bonuses or being stashed away but not finding its way to the banks' customers.

And the Serious Fraud Office looks like it is going to have to be embarassed by the Feds sending over requests for co-operation before it looks into what has been going on in the City and Lehmans and AIG in particular.

[JAL]

The credit crunch is the result of 10-year plus global borrowing binge caused by greedy bankers, supine regulators, incompetant governments and overstretched and mendacious consumers who borrowed more money than they could afford. 9/11 is irrelevant. It's all been faithfully recorded in the better newspapers for the past 2 months.

Incompetent governments jim mk2 is that really true?

Was not the British and the American governments in this all along facilitating a building boom over the past ten years or so creating conditions were everyone pays for it (other than the governemnt) and just to keep their interest in paying for it create an environment were they can add value and make money from it (the government also earns money at this point) then when it all comes crashing down the Government takes it over for a nominal price whilst others have done all the hard work - seems far from incompetent to me jim.

The reference to 9/11 is it was a world trade centre that was attacked and now the global markets are attacked whilst the real culprits whoever they are carefully manipulatively deflected their motives by blaming it on terrorism and some other fanatics.

Put the original question out to see if anyone had any alternative motives to the propoganda being put out in our media.

Cheers Jim mk2 for the reply though.

[philipl]

We have got a situation at Barclays where they have taken vastly inferior terms from Gulf sovereign wealth funds (ie Governments) to those offered by the Treasury just so they can carry on paying these completely unjustifiable and ludicrous bonuses as though these guys are actually doing something particularly brilliant compared with high performers in any other industry (if they are high performers).

The reality is they are close to huge amounts of money and have sticky fingers to the enormous detriment of their shareholders and society in general.

To what extent the party will be allowed to continue now their excesses have brought Governments centre stage in world banking is a moot point.

It looks like the centre of action is switching back to the USA where the independence of the legislature and enforcement from the executive is going to bring a heck of a lot of these guys to account.

[JAL]

We have got a situation at Barclays where they have taken vastly inferior terms from Gulf sovereign wealth funds (ie Governments) to those offered by the Treasury just so they can carry on paying these completely unjustifiable and ludicrous bonuses as though these guys are actually doing something particularly brilliant compared with high performers in any other industry (if they are high performers).

The reality is they are close to huge amounts of money and have sticky fingers to the enormous detriment of their shareholders and society in general.

To what extent the party will be allowed to continue now their excesses have brought Governments centre stage in world banking is a moot point.

It looks like the centre of action is switching back to the USA where the independence of the legislature and enforcement from the executive is going to bring a heck of a lot of these guys to account.

Peston of the BBC says they've done this so as to protect their own salaries and bonuses rather than let the government have more of a say in their bank which could lead to pressure in reducing their incomes - very sad if that was the case.

[thenodrog]

Peston of the BBC says they've done this so as to protect their own salaries and bonuses rather than let the government have more of a say in their bank which could lead to pressure in reducing their incomes - very sad if that was the case.

Sad is the wrong word. 'predictable' being far more accurate.

[philipl]

Barclays arrangement under fire plus a picture of Amanda Staveley

[thenodrog]

Barclays arrangement under fire plus a picture of Amanda Staveley

Dunno who she is but whats she wearing? And does she know that that Arabs following her around and gawping at her arse!

[philipl]

Dunno who she is but whats she wearing? And does she know that that Arabs following her around and gawping at her arse!

She's the lass who bought Man City for ADUG and is trying to buy Liverpool for DIC.

[AussieinUk]

Was not the British and the American governments in this all along facilitating a building boom over the past ten years or so creating conditions were everyone pays for it (other than the governemnt) and just to keep their interest in paying for it create an environment were they can add value and make money from it (the government also earns money at this point) then when it all comes crashing down the Government takes it over for a nominal price whilst others have done all the hard work - seems far from incompetent to me jim.

Put the original question out to see if anyone had any alternative motives to the propoganda being put out in our media.

Honestly, you're giving the government far too much credit on this. Remember, a government in power suffers during an economic downturn and risks a political swing against them. Going on with what you have posted, the 'building boom' (as you put it), was created not so much by governments, but by lack of realistic investment, for those with (both individuals & institutions) huge amounts of uninvested cash, left behind from the tech wreck back in 01'. This is obviously a very simple synopsis, as there was a myriad of other factors that have contributed to today's economic problems, but IMV this is where it started.

As I said a month or so ago, the main reason for today's problems are;

- Financial derivatives and the ever increasing use of extended leverage

- Increasing reliance of public & private debt & lack of national saving

- Lack of financial govt & private regulation & compliance

- Minimal investment opportunities over the last 6-7 years for institutional & retail markets

- Record global GDP growth, causing economic overheating and the allowance of cheap money

Remember, it's always better to have continual conservative growth than aggressive.

Not being critical, as I can see the angle you're driving at, but your views seem too conspiratorial for my liking JAL.

[AussieinUk]

Barclays arrangement under fire plus a picture of Amanda Staveley

I can see this issue, going against Barclays in the long run..

[AussieinUk]

And here is a nice little article from the latest online edition, that will confirm my analysis, on what I had posted relating to the VW saga a few days ago...

The Economists view on the VW/Porsche saga

EDIT: Also have a look at the good article, on how emerging markets are suffering in this current climnate

[thenodrog]

And here is a nice little article from the latest online edition, that will confirm my analysis, on what I had posted relating to the VW saga a few days ago...

The Economists view on the VW/Porsche saga

EDIT: Also have a look at the good article, on how emerging markets are suffering in this current climnate

The biter bit.......

"Even Porsche may come to rue its coup. 'They may struggle to sell 911s to hedge-fund managers for years and years to come,' says one investor. "