Markets live chat transcript for the chat ending at 12:01 on 20 Mar 2008. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH) Robert Orr (RO) Helen Thomas (HT)
PM: Hello!
PM: Welcome to Markets Live.
PM: This is FT Alphaville’s daily markets discussion.
PM: Neil’s here AND Rob and maybe even Helen.
PM: Cos we are angry.
NH: morning Sheriff
NH: Deputy Hume reporting for duty
RO: We are going to get him.
PM: Assuming it’s a him.
NH: he/her must be caught before he does it again
NH: a danger to society
RO: Indeed, we are raising the Alphaville posse this morning.
PM: Getting horses
PM: And guns
PM: And hats
PM: Rob’s got a knife from when he went camping.
NH: and spurs
PM: Helen’s got some suitable boots, apparently, that she purchased in the US last year
HT: actually my boots came from a shop on the King’s Road
HT: but they were US inspired
HT: and I do have a cowboy hat
PM: We are going after this robber that STOLE £100m from the London equity market.
RO: That’s real money nicked from real people
NH: we gonna nail him
PM: Innocent people that were holding shares in HBOS when this gangster came along and robbed them blind.
NH: and we have a description of him
NH: dark glasses
NH: trilby hat
NH: dirty raincoat
NH: if you see him
NH: dial 999
NH: or 911 if you are in the states
RO: Yep, everyone’s on the case.
PM: This has got to be stamped out – apparently it’s called “trash and cash”
RO: Yeah, that’s what the professionals call it.
RO: Professional subeditors working on tabloid papers, that is.
NH: 
PM: Not City professionals. They call it “life.”
PM: Anyway, this gangsta stuff has got to stop – people spreading false rumours and PROFITING when share prices fall.
PM: One commentator said it all for me this morning:
PM: The front door was left unlocked and, as night fell, share prices ransacked for value.
PM: 
RO: Er, right.
PM: Anyway, this market is a CRIME scene.
HT: and we have the evidence
PM: The Telegraph reported this morning:
PM: An email circulated in the City by an anonymous banker, seen by The Daily Telegraph, falsely alleged that a newspaper was to run an article today on problems at HBOS which “will raise the spectre of a run on the bank”.
RO: Well we have tracked down that email!!!!
PM: We’re gonna deliver it to the police. They’ve got sophisticated ways of tracking these things.
RO: I wasn’t hard – we all got sent it too
PM: Here you go:
PM: - We are hearing that tomorow’s FT will write a piece on HBOS tomorrow.
- It won’t be pretty as likely to focus in on the GBP128bn of non customer
liabilities that MUST be rolled in the next 3 months.
- This will raise the spectre of a run on the bank.
- Ironically, much NRK money went into the Halifax, ie HBOS
HT: oh dear
HT: The malicious, false, bank robbing evil email concerned an alleged story that was going to appear in the FT
RO: Have you EVER seen anything like that before.
PM: Yes
RO: No, I said — you EVER seen anything like that before.
PM: Yes – I’ve seen hundreds of emails and letters like that.
PM: Maybe thousands.
RO: But what shall we do with the robber when we catch them?
RO: Smash their face in?
RO: Lynch ‘em?
PM: Well we could a ask them whether they are gonna write a book or something.
PM: Or maybe see whether they are starting up a new hedge fund that we could invest in.
HT: ?????
PM: Well, if they managed to make £100m from HBOS yesterday by circulating a couple of scuzzy emails and shorting the stock then they must be magic.
HT: Magic Capital Accumulation LLC
HT: anyway – it’s only criminal if you make money – everyone knows that. Like rogue traders
PM: Yes, well to make £100m from the HBOS squall yesterday you would have had to short at least £600m of HBOS perfectly at the open – closing the position perfectly when the shares dipped below 400p.
PM: Any leeway and you would have had to have billions on the trade.
RO: And what, you’re questioning whether some one who has billions to play with are unlikely to have been circulating the stupid little email published above?
PM: yep
PM: Anyway, let’s get on with some proper news.
NH: before we do
NH: I loved this par from Jermery Warner in the Indie
NH: The bottom line is that the speculators are playing with the livelihoods of countless thousands, as well as putting in danger the savings of millions of ordinary people. They will have been quaffing champagne at Mayfair’s best restaurants last night out of the killing they made yesterday at the expense of the country’s wider economic interests.
HT: ah yes, only criminal if you rake in the cash and then quaff champagne
PM:
PM: And thank you Monkey below
HT: sorry – forgot that crucial aspect of the criminal mastermind
NH: this all reads like something out of this Martin Baker novel – Meltdown
PM: 
NH: good point from Foxclub below on margin
NH: real squeeze going on at the moment
PM: Actually, what is HBOS doing today?
RO: Up 19.5p at 466p
RO: Comes ahead of the big UK banks meet with Mervyn King, head of the Bank of England.
PM: Scheduled meeting of course.
PM: Nothing to worry about.
RO: The thing with all these malicious rumours is – they only work if they might turn out to be true.
RO: And truth is the garden at HBOS is far from rosy.
RO: Got a note here from Ian Gordon as BNP Paribas.
RO: Entitled – Market Abuse?
RO: HBOS has not been without its challenges in 2008 – most
graphically evidenced by the effect of a sharply expanding
LIBOR/Sonia spread, with 3m LIBOR fixing at 5.98% yesterday
morning, despite renewed speculation about an early base rate cut.
We continue to see the furore over HBOS’ GBP7bn credit
enhanced Alt-A exposure as broadly irrelevant. Moreover, HBOS
remains the only UK bank to avoid any credit impairment in relation
to US subprime exposure – a unique status that we expect it to
retain.
RO: While liquidity, funding costs, consequential ongoing margin
erosion and fear relating to treasury assets have represented
investors’ principal concerns, (in addition to the old favourite,
commercial property), we increasingly suspect that market abuse
has become a major factor driving down the HBOS share price.
Yesterday, the UK Financial Services Authority was moved to
comment that “there has been a series of completely unfounded
rumours about UK financial institutions in the London market over
the last few days, sometimes accompanied by short-selling”
Leaving the liquidity scare stories on one side, our earnings
forecasts have been cut reflecting deteriorating funding conditions
which will feed through in the form of ongoing margin erosion and
reduced asset growth aspirations. In 2008, we forecast 107p on an
“HBOS underlying” basis vs 106p in 2007.
RO: While we expect very strong earnings growth to resume in 2009 –
9% underlying on our basis, 14% on an “HBOS underlying” basis -
we cut our target price to 900p (from 1250p).
But we freely acknowledge that any discussion of earnings or
conventional valuation metrics remains a sideshow while baseless
rumours of a liquidity crisis at HBOS are permitted to drive panic in
the market.
RO: Fear and loathing!
HBOS shares tumbled 13% in a day on 17 March while the FTSE100
crashed a mere 4% – though opinions remain divided as to the real driving
force for the move. HBOS failed to fully participate in the next-day
correction for an oversold market and then liquidity panic set in yesterday
(19 March), with wild rumours circulating about HBOS and Lloyds TSB
both facing funding crises. Evidently some of the mud stuck to HBOS,
driving its share price to new lows.
Our view is that the real issues facing HBOS are all about liquidity, but
absolutely not an inability to fund itself. Illiquidity continues to have a
significant direct and indirect impact on earnings, but earnings
expectations ceased to be relevant to the near-term market valuation of
HBOS several weeks ago.
The inevitable consequence of the current liquidity environment is ongoing
margin erosion (already assumed in our numbers) and slower asset
growth, but if the monetary authorities continue to (largely) stand idly by
when much more significant injections of liquidity are required (the 17
March GBP5bn emergency 3-day facility was five times oversubscribed)
then the threat posed by de-leveraging – starving the real economy of
funding – will become much more real.
Too much disclosure?
Before the more recent focus on liquidity as an all-consuming issue,
arguably the two current issues primarily concerning the market in relation
to HBOS have been margins and the potential for treasury asset
writedowns.
The Company response has been to produce copious disclosure – but
rather than helping the popular perception of HBOS, it has merely sparked
a new array of concerns. Modern day thinking is that all disclosure is good
disclosure – the more the merrier – but be careful what you wish for.
Whereas disclosure provides increased scope for analysis, not all analysis
leads to rational conclusions. We suspect that HBOS must now be wishing
that it really hadn’t bothered trying to be helpful!
Indeed, we’ve been here before with HBOS. When it significantly
expanded its risk disclosures for its mortgage business several years ago,
far from “informing the debate”, it inadvertently sparked off over-analysis of
arrears trends and coverage ratios within its mortgage book – themes
which then dominated analyst debate for more than a year, despite their
relative insignificance to total Group earnings or the Group impairment
charge.
As we have argued many times before, accepting that secured
impairments will rise from the insignificant level of GBP28m (or 0.01% of
average advances) seen in 2007, with or without the keenly anticipated UK
house price crash, any bear case for retail impairments must still be built
around the unsecured book.
RO: There is more of that note in there but that’s enough for now.
RO: I’m innocent foxcub!
RO: I tell you what – did you see the figures from the Council of Mortgage Lenders.
RO: Gross lending down 6.2 per cent in February.
PM: That is a big fall.
RO: It is. BBC were also running a story this morning that two mortgage lenders – Bath Building Society and Earl Shilton Building Society – have pulled nearly their entire mortgage ranges from the market.
RO: Small lenders obviously but still very worrying.
RO: Apparently, they are being swamped with applicants.
PM: Clearly getting harder each day to find a mortgage.
RO: Bit of personal insight here. I looked at the rates being offered by my mortgage lender online the other day and I was staggered by how much they have risen since I last did mine about a year ago
RO: So I rang up to complain why the rates were going up when interest rates were coming down. . . .
PM: And what did they say?
RO: Dunno. I never got through. Was held in a queue that long that I got bored and hung up.
PM: They were probably too busy dealing with all the people asking the same question
RO: Probably. Anyway, here’s the ever-reliable Howard Archer of Global Insight on the state of the housing market. Look away now if you are a homeowner.
RO: The Council of Mortgage Lenders (CML) reported that gross mortgage lending fell 6.2% year-on-year to £24.0 billion in February. This indicates that the housing market was already being pummeled by the combination of stretched affordability and tighter lending practices even before the recent escalation of the credit crunch.
House buyers are being pressurized by elevated house prices, modest real disposable income growth and the marked rise in mortgage rates since August 2006. Furthermore, many home owners are currently having to re-fix their mortgages at significantly higher rates.
RO: Although the Bank of England trimmed interest rates in December and February, the overall downward impact on mortgage rates is effectively being negated by a lack of funds for lenders and and high money market interest rates, as well as lenders wanting higher margins due to increased risks. In addition, the credit crunch and subprime mortgage concerns have made lenders much more careful about whom they lend to, and on what terms.
The current escalation of the credit crunch is deepening these problems, with the number of mortgages on offer being slashed and the terms available becoming increasingly less favourable. First time buyers are being particularly hard hit as mortgage lenders reduce the amount that they are prepared to lend to them and demand increased deposits.
RO: Global Insight currently expects house prices to fall by 5% in both 2008 and 2009. We believe the downside for house prices will be limited to some extent by the rising number of households, an overall shortage of supply, high employment, further gradual but steady interest rate cuts over the coming year and the fact that few vendors are currently having to sell for “distressed’ reasons.
Nevertheless, the current escalation of the credit crunch means that there is an increased risk that a significantly sharper housing market correction could occur. Housing demand will be hit by fewer and more expensive mortgages being available. Furthermore, there is a growing danger that the U.K. economy will suffer recession, or extended weak growth, and that unemployment will increase significantly. This would be liable to lead to a marked increase in the number of people having to sell houses for distressed reasons, particularly given the extent to which many households have had to stretch themselves to the limit to buy a house.
RO: A sharp housing market correction could also be triggered if both sellers and buyers start expecting prices to fall sharply. This could prompt a flood of sellers putting their houses on to the market to try and sell their houses before prices fall markedly, while at the same time prospective buyers hold off in the expectation that prices will fall. Under such circumstances, a growing surplus of supply over demand would undermine prices. Finally, growing pessimism in the City about jobs and bonuses are likely to hit the top end of the housing market in London.
PM: thanks for that
PM:
PM: just ot some points below
PM: Interesting from majormajor….
PM: On partygaming — intersting idea that it is linked to margin hikes at the spreadbetters
PM: News there is that MF Global and others have hiked
PM: Typically from 5-10% for a good quality footsie stock
PM: But anything up to 90% for a v iliquid aim stock
PM: Real mess — clients being told to put up more collateral immediately or close their positions
PM: Youve got to remember also that a lot of brokers at spreadbetting firms are on half commission arrangements
PM: And they will be losing a lot of their clients…
PM: I fear
PM:
PM: So what’s happening in the non-banking/broking world?
RO: FTSE 100 is down 36.6 points, or 0.7 per cent, to 5,508.5.
RO: We’re seeing some big falls in the mining and oil sectors.
Rio Tinto (RIO:LSE): Last: 4,880, down 190 (-3.75%), High: 4,945, Low: 4,790, Volume: 5.14m
Vedanta Resources (VED:LSE): Last: 1,863, down 147 (-7.31%), High: 1,930, Low: 1,844, Volume: 1.90m
Anglo American (AAL:LSE): Last: 2,754, down 155 (-5.33%), High: 2,808, Low: 2,731, Volume: 8.05m
Xstrata (XTA:LSE): Last: 3,620, down 96 (-2.58%), High: 3,661, Low: 3,525, Volume: 6.35m
Antofagasta (ANTO:LSE): Last: 633.00, down 33.5 (-5.03%), High: 656.50, Low: 626.00, Volume: 3.55m
RO: In the oils
Cairn Energy (CNE:LSE): Last: 2,545, down 168 (-6.19%), High: 2,700, Low: 2,492, Volume: 957.82k
Tullow Oil (TLW:LSE): Last: 638.00, down 20.5 (-3.11%), High: 650.00, Low: 636.00, Volume: 4.13m
RO: This was in response to some large falls in mining stocks in Asia overnight.
RO: Stole this off the wires
RO: PetroChina, Asia’s largest oil producer, down 6.8 per cent
CNOOC, China’s largest offshore oil producer, slumped 10.5 per cent
Gold miner Zijin Mining plunged 13.7 per cent
Aluminum Corp of China slid 7 per cent
Jiangxi Copper down 7.8 per cent
RO: And sharp falls in metals prices.
RO: Gold down 3% to $912.10/oz
Silver down 5% to $17.40/oz
Lead down 5.5% to $2,655/t
Copper down 2.4% to $7,740/t
Nickel down 3.3% to $28,300/t
US crude down 2.3% to $100.
RO: Thanks to Neil Dennis for emailing that to me
PM: This is all rather worrying
PM: What do you are reckon?
RO: Clearly some big unwinding of commodities positions going on.
RO: Which also relates to moves in currency markets.
RO: This was sent out by Cazenove this morning.
RO: UK Miners: Overweight – relatively relaxed as funds unwind positions
RO: Screen traded commodity prices have been falling as we suspect macro funds unwind long positions in the metals (and presumably short positions in the US dollar). Whilst this will no doubt induce further selling in the short term in the miners we remain relatively relaxed since:
1) The stocks never tracked the metal prices up. The chart below shows the sector versus the copper price – normally a v. close correlation (92% in the last five years), this has broken down this year (77%).
RO: 2) This has resulted in exceptionally cheap spot valuation metrics. Even if we inject technical floor prices for the screen traded commodities the valuations look relatively unstretched versus historical “peak” price earnings multiples of over 10x. It should be noted that we have used a Rand assumption of 8:$ in this analysis which is clearly a powerful driver for Anglo American and Lonmin.
Price assumptions used for valuation table above
We would also add that with iron ore prices now effectively settled for the year and coal prices close to settlement c.30% of the sector’s earnings are now “in the bag”.
3) Meanwhile for copper, which together with the bulk commodities make up 66% of EBIT for 2008E on our assumptions, it is also clear that the current supply demand environment remains tight as seen by low and falling global inventory, increasing premia being paid for the metal and ongoing supply constraints.
We would therefore suggest that for those whose investment horizons are measured in months rather than weeks to view this sell off as a buying opportunity.
RO: So, Cazenove may be relaxed about it, but the main point is clear – marco funds unwinding long positions in metals.
PM: People seems to be waking up the fact that if the global economy is going to slow then, guess what, raw materials prices will fall.
RO: This is aiding a rally in the dollar.
PM: I am surprised by gold coming off tho
RO: Profit taking?
PM: sure — moves in an inverse to the dollar at the mo
RO: Some analysts said there might be something of a more fundamental shift occurring in the currency markets.
RO: Simon Derrick at Bank of New York Mellon said the apparent cause of the severe pullback seen in the commodity markets appeared to have been part of a general flight to liquidity in the aftermath of the Bear Stearns collapse and rescue over the weekend.
RO: However, he said it was also possible to see the move as a rational response to the growing prospects of a significant global economic slowdown through the remainder of this year.
RO: Derrick said if this were true then this could have significant implications for the currency markets.
RO: “In particular, given the euro’s role as an anti-inflationary counter, this suggests that a reversal could develop from here Given how dramatic the run up in euro/dollar proved to be, the risk is that the reversal could prove particularly significant.”
RO: Of course the commodities markets will say they are being driven lower by the dollar and currency markets will say they are being driven higher by the metals. Chicken and egg situation.
PM: Any more research on commods — i think there is lots of interest
RO: Also got a note here from Liberium Capital – mining specialists.
RO: Sliding traded commodities hitting the miners: implications
Commodity prices across the board (energy, metals, softs) slid for a second day yesterday on strongly negative fund flows reacting to the Fed rate cut/rallying dollar. It is too early to say whether this is mean reversion trading or the beginning of something more secular – however, we would make the following observations: Demand fundamentals for most commodities have unquestionably weakened since the beginning of the year on mainly declining OECD growth expectations.
However, for a surprisingly long list of mined commodities such as aluminium, platinum group metals, copper, ferroalloys, steam and coking coal, this has been met by seriously a deteriorating supply outlook (mainly on weather and power availability).
This commodity price volatility is something we should expect more of given the growing importance of commodity investment funds – but we feel this particular sell-off is a routine pull back in a secular bull trend.
RO: The FTSE mining Index is at the same levels as last Sept, implying a material de-rating for mining shares. This feels anomalous as most commodity prices are materially higher than in Sept and since then we have had potential bidding situations emerge for XTA, RIO and KAZ.
From a risk perspective, we would prefer those companies with exposure to bulk commodites (commodity prices less vulnerable to speculative money flows) or those commodities where prevailing prices are close to marginal cost (aluminium and nickel). Bid targets where the seller wants a high cash component to agree to sell (such as Kazakhmys or Xstrata) are likely to underperform in this period of uncertainty – as they are unlikely to be able to agree satisfactory take-out terms. On the other hand, we feel Rio Tinto may be a bargain here as it becomes more attractive on absolute terms for any Chinese led consortium bid. We note yesterday’s comments by Chalco that they were considering putting their non aluminium investments (including RIO?) in a newco – perhaps his company could be used as a bidding vehicle for the remainder of RIO with other new shareholders (Alcoa, Anglo, Shenhua other SWFs etc?). RIO trades on 10x 2008E earnings 7.7x in 2009E with very material marked to market upgrade risk.
PM: Thanks for that
PM:
PM: Note the stuff below on spread betters and margin
PM: MF Global put out a statement yesterday, insisting their capital position was fine
PM: Claimed margin moves reflected market volatility
PM: of course
PM: The bear — below — make your own mind up
RO: paul is on the phone. . . . .
PM: Sorry about that
PM: had to arrange lunch
RO: long lunch for murphy today
PM: no no
PM:
PM: Where were we?
PM: shall we move to Rentokil Initial.?
RO: We can. Huge shake up at the royal ratcatcher this morning.
RO: Brian McGowan, Rentokil’s chairman, and Doug Flynn, chief executive, both resigned with immediate effect.
RO: The men brought in to turn around Rentokil have, well, failed.
PM: Not the first time we’ve heard those words in the same sentence
PM: Could say the same thing about most of the management teams round there in the last few years.
RO: Rentokil issued another profit warning recently of course.
RO: So. In comes a new management team – all from ICI.
RO: John McAdam, formerly chief executive of ICI, will become non-executive chairman. Alan Brown, who was finance director at ICI, will be chief executive, and Andy Ransom, ICI’s senior lawyer and head of its mergers and acquisitions team, will be in charge of corporate development.
RO: You’ve been around a few years Murphy – you know any of these names?
PM: Well McAdam has a pretty starry reputation after ICI
PM: Which had become previously become something of a hospital pass
PM: Turned around ICI then broke it up and sold it off.
RO: Just checking that. Sold ICI’s chemicals and coatings business to Akzo Nobel for £8bn.
PM: The key here is that they are not afraid to sell businesses.
PM: So Rentokil is ratehr likely to get dismembered
PM: in my view
RO: Which will explain the share price rise this morning.
RO: Rentokil up 15p to 88p.
PM: rise of 20%
RO: Got this from Evolution Securities this morning.
RO: ALL CHANGE AT THE TOP
Hail the arrival of the ICI triumvirate
EVO TAKE – A change of leadership is what the market wanted and now, in remarkably quick time, is what the market has got. But more than that: this is a team fresh from success in creating value at ICI, and not just through the final exit but over years through an effective change programme. There is good cause for Rentokil optimists.
RO: DETAILS – Out go Brian McGowan, Chairman, and Doug Flynn, CEO, with immediate effect. In come the former leadership team of ICI: Dr John McAdam, until the Akzo takeover the CEO of ICI from 2003, will take on the role of Chairman, after the mid May AGM; Alan Brown, the former CFO of ICI until the Akzo deal, will become CEO of the business, joining on 1 April; the final member of the triumvirate is Andy Ransom, who was head of the M&A team at ICI. He joins from the beginning of May. This is a team fresh from a remarkable period of shareholder value creation. They come as a no-nonsense team that has the experience and quality to get to grips with the Rentokil portfolio and build shareholder value both through operational actions and reshaping of the mix.
VALUATION AND RECOMMENDATION – We expect shareholders to be delighted and the market to respond positively with the team appointed and the speed of change achieved after last month’s profit warning.
RO: And this is from Oriel Securities.
RO: • Rentokil has today announced significant boardroom changes
• Doug Flynn (CEO) has followed Brian McGowan (Chairman) out of the door with
immediate effect
• Dr John D.G. McAdam has been appointed Chairman, Alan J Brown will assume the
CEO position with Andy M Ransom taking the executive director of Corporate
Development. Andrew McFarlane will continue as CFO
• John Adam was formerly CEO of ICI, Alan Brown was the CFO of ICI and Andy Ransom
was ICI’s executive vice president of mergers & acquisitions
• All come with a successful track record in terms of the turnaround seen at ICI – clearly
there is a significant amount of work to be done
• Whilst we welcome these changes we will retain our REDUCE recommendation until we
see evidence of the planned turnaround strategy. We continue to believe the best way
forward for this business will be a break up – if this becomes a likely route, then there
may well be a time to get involved in this stock.
PM: Finally some good news for good news Rentokil shareholders then.
PM: thanks for that
PM:
PM: Right — Neil — who had wandered off — has just returned with a copy of the Evening Standard today
PM: This is not online yet, so will have to type….
PM: Headline:
PM: Rogue Traders in £1.4bn BONUS SCANDAL
PM: The story there is the Credit Swiss blokes that mispriced CDOs
PM: Governor and Banks in crisis meeting to head off financial hysteria
RO: That’s the scheduled meeting today with Merv and the bank bosses
PM: They’ve got more on the HBOS situ
PM: Whild Shark, Killer …the boys with no shame
PM: Their idea of relaxatin is to forget about the stockmarket and bet on football or the dogs instead
PM: That’s from Simon English
PM: he’s a friend
PM: And a good hack
PM:
PM: we are still waiting for a Libor fix
RO: sterling 3-month to hit 6 per cent?
PM: Dunno — the BoE was injecting more money earlier
PM:
PM: Moving on….
PM: Heard you mention Toscafund earlier. What’s the story?
RO: Toscafund – run by activist investors Martin Hughes – has announced a 10 per cent stake in Redrow, the housebuilder.
RO: Housing stocks are having a bit of a bounce of this.
RO: Redrow up 8p to 270p and Bovis up 23p to 522p.
PM: Hughes is an aggressive investor.
PM: With a strong track record.
PM: Definitely worth nothing.
RO: Yes, worth looking at the Redrow chart over last 18 months. Come down from above 720p a share at the turn of 2006/07.
RO: As has the rest of the sector.
RO: Housing market may be hitting the buffers but clearly some people think there is value in there somewhere.
PM: Doom and gloom everywhere.
PM:
RO: NEWS JUST IN!
RO: RAC Predicts Worst Ever Easter Congestion – Credit Crunch Fears Expected To Increase Domestic Travel
PM: Someone ran that below
RO: RAC today predicts the worst ever Easter for traffic congestion with up to 16 million cars taking to the roads over the long weekend. The peak is expected from midday on Maundy Thursday when motorists are advised to allow 50% more time to their journeys. Economic fears leading Brits to shun foreign shores for holidays in the UK, the timing of Easter and the predicted rail chaos are key factors for the surge in car usage pinpointed by RAC.
RAC research has revealed that the credit crunch is taking its toll with nearly half (43%) of motorists less likely to travel abroad this Easter compared with last year. With Visit Britain predicting an increase on 2007 UK holidays at Easter, more motorists then ever are expected to take to the roads.
As Easter this year falls outside many school holidays, traffic is also expected to be more concentrated; with midday on Maundy Thursday pinpointed by the motoring organisation as the time when roads will be at their most congested. Traffic is also expected to be heavy late on Easter Monday as families rush back for school starting again on Tuesday.
An additional factor set to cause chaos on the roads is the wintry weather caused by a Siberian cold snap due to hit the UK on Thursday, just as the Easter getaway gets underway. If the weather conditions are bad, motorists are advised to only make journeys that are necessary and if they are travelling to take extra precautions. Motorists should carry spare warm clothes, food and drink and ensure that mobile phones are fully charged in case of emergency
RO: the credit crunch is really biting
RO: *DJ 3-Month Sterling Libor Fixed At 5.9875% Vs 5.98% Wednesday
RO: Short of 6 per cent
PM: only just
PM: And that is despite the Bank action
RO: Doom and gloom all round
RO: I’m depressed
RO: 
PM: Oh — before I forget
PM: The felts have started to whinge
PM: Apparently Tulcan are upset that we tarred them with the Misys brush yesterday
PM: Over Whitebread Travelodge stuff
PM: Apparently they ran by the letter of the rule book
PM: We need to do some proper work on how exactly the FSA and Panel are briefing PRs etc on when to release news
PM: But for now we will remove Tulcan from Alphaville “Bad Felt” list
PM:
PM: Now Rob — you are right — too much doom and gloom
PM: As the readers point out
PM: What have you got to cheer us up
RO: This just popped into my inbox from UBS.
RO: Entitled Ready to rally.
RO: MIght cheer you up a bit
RO: Volatility in financial markets has continued to ratchet higher in recent weeks.
With expectations for a US recession still on the rise and concerns about the
stability of the financial system acute, markets have reeled amid the uncertainty.
The collapse and buy-out of Bear Stearns over the last several days was the most
recent source of uncertainty and anxiety for markets to grapple with.
Yet, despite all of the angst, perhaps there is a silver lining. While fundamental
pressures on the US economy stemming from the decline in house prices persist,
the policy reaction to financial market turmoil has become increasingly
aggressive, particularly from the Federal Reserve. To be sure, response has been
necessary. Credit markets are under strain, banks have been under associated
stress, and pressures have seemed unlikely to abate on their own. But, the
nearing of a potential ‘bailout’ suggests that more of the current crisis is behind
us than ahead. This does not imply that the days of worry and volatility are
things of the past. It does, however, suggest that the uncertainty that has
depressed overall equity market valuations is likely to dissipate, leading to a
more sustainable rally than has appeared probable in recent months. Thus, we
are getting ready for a shift in markets to a more positive assessment of nearterm
prospects based on the policy response we’ve seen so far and what may yet
be coming.
RO: In this report we outline our expectations for global equity markets in coming
weeks and months and look at historical sector and regional performance in a
recovery. We present a summary of work done by our Global Banks team that
looks back at a history of bailouts of the banking system to provide some
context about where we stand in today’s environment. We also look at prospects
for the sustainability of a rally given the underlying macro environment. Finally,
we address our current regional and sector allocations. Our conclusions follow:
RO: * Expectations for the arrival of concerted policy response should help to
alleviate pressures on the financial system and result in a broad equity
market rally. Indeed, a reduction of risk premiums is likely and will help
boost overall valuations which have room to rise materially.
* Past examples of banking system bailouts should offer hope to investors.
Performance of domestic bank stocks following inception of a banking sector
bailout is usually robust, with an average gain of nearly 30% in three months.
* The historical pattern of a market rebound suggests that the sectors that have
been under the most pressure also rebound the most. Therefore, we have
lifted our allocation to Financials and Consumer Discretionary. A long-term
sustainable rally in these sectors will require signs of more sustainable
growth potential. In that vein, challenges will persist. For consumers, balance
sheet repair is still needed. Meanwhile, financials face continued questions
about growth potential in coming years given shrinking balance sheets.
RO: * The rally in stocks we envisage is more about falling risk premiums (rising
multiples) than about a change in fundamental expectations. Therefore, we
are trimming our exposure to defensive sectors which we upgraded in
January. In particular, we are trimming Consumer Staples and Healthcare to
Neutral. We retain overweight positions in Technology and Telecoms.
* Regionally, we are keeping our current recommendations unchanged. We
remain overweight in the US, neutral in Global Emerging Markets and Japan,
and underweight in Europe and the UK.
* We are making several changes to our Global Top 40 stock list. We add
Prudential Financial, News Corp, BNP Paribas, and Barclays. We remove
State Street, Sumitomo Mitsui Financial Group, BAT UK, and Novartis.
* We recognize that a move to get less defensive still could be somewhat early.
Uncertainty may linger for the financial sector and for the equity market as a
whole as details about further policy action are debated. Moreover, overall
economic conditions remain challenging and recession in the US appears
probable. To that end, sustainability of overall earnings growth may remain a
concern. This suggests that a prolonged rally requires signs that a slowing in
US growth will be relatively short-lived and mild. For financials, long-term
growth prospects for the sector will continue to be questioned.
RO: Calm down Monkey
PM: yes , yes.
RO:
PM: Right — we have got to go
PM: Thank you all for joining us
PM: Thanks for all the comments
PM: Have a good extended weekend
RO: Happy easter all round.
PM: We will be back on TUESDAY at 11am