Markets live chat transcript for the chat ending at 12:11 on 23 Dec 2008. Participants in this chat were: Neil Hume, FT (NH) Paul Murphy, FT (PM)
NH:
Good morning and welcome to Markets Live
NH:
Alphaville’s daily stock market chat
NH:
although today we might have to rename
NH:
Tumbleweed Live
NH:
there is no one around this morning
NH:
Paul is still ill
NH:
he may or may not grace us with his presence
NH:
Izy is also home ill, but still postinig
NH:
Sam and Stacy are on hols
NH:
Tracy is here
NH:
but is not feeling too well
NH:
and should have left hours ago
NH:
which leaves just Alida and I
11:05AM
NH:
so
NH:
in change to our normal schedule we are replacing
NH:
ML with
NH:
“The Year Britain’s Bubble Burst” a review of this cataclysmic year for the UK banking sector
NH:
or
NH:
the Robert Peston story – or how I became the most important reporter in the world ever
NH:
and for those of you who missed, yes last night’s Panorama really was that bad
NH:
Paul said it was some of the worst BBC editorial I he had ever seen.
NH:
I am not sure it qualifies as editorial
NH:
more like a huge puff for their star reporter, who is now so important that he does not even present his programmes
NH:
someone else does it for him
NH:
in fact if you want to see the programme
NH:
it is available on iPlayer
NH:
here’s the link
PM:
Am here, belatedy
NH:
actually, I thought bits of the programme were really good
NH:
the bits that did not feature Peston
NH:
according to his blog lots of the interviews with Varley, Gieve and Sants
NH:
had to be left on the cutting room floor
NH:
because there was just too much to fit into 30 minutes
NH:
including a trip to Peston’s school
NH:
which is a comprehensive
NH:
he is a man of the people really
NH:
A chat with his dad
NH:
and his protestations that he has no party allegiance
NH:
anyway
NH:
the bit at the end made me laugh
NH:
when he disappeared into Darling’s office
NH:
that sort of said it all
NH:
of course
NH:
we are not the only people left dumbstruck by last night’s programme
NH:
some of blog world are also stunned
NH:
this is from BurningOurMoney
NH:
just watched a jaw-dropping BBC Panorama prog. “The Year Britain’s Bubble Burst” was billed as a review of this cataclysmic year for our banks and the economy. In reality, it was a 30 min puff for our old chum Robert Peston, and that remarkable series of scoops he’s credited with.
NH:
Indeed, so important has Peston now become, he himself didn’t actually present the show at all. No, this was a show about him – a reporter and camera crew trailing him around the corridors of power on his mission to save the nation from evil bankers.
NH:
In reverential tones he was asked about this vital work, and invited to opine on “the way forward”. We were treated to a potted life history, snaps of his early life, and even a glowing testimonial from his old dad – who just happens to be old Labour peer Lord Peston.
NH:
And what about those scoops, eh? What a cracking journo he must be, to ferret out all that secret info denied to the less talented:
Breaking the news that HMG was going to prop up the Crock
Breaking the news that HMG was going to allow Lloyds to take over HBOS
Breaking the news that HMG was going to prop up the rest of the banks
Breaking the news that HMG was going to prop up the Crock
Breaking the news that HMG was going to allow Lloyds to take over HBOS
Breaking the news that HMG was going to prop up the rest of the banks
Readers may also know this former bank as Northern Rock.
NH:
Hang on a sec, though… when you list them out like that, it’s funny how they all seem to involve him breaking news of some fresh new HMG initiative just before it gets announced by HMG.
You’d almost think…
You’d almost think…
NH:
No… surely not… surely HMG wouldn’t be using him as a tame pre-announcement conduit.
NH:
I mean, why would a pre-eminent journo like Robert Peston need to get involved in anything as devious and downright shite as that?
Just because he’s the son of a Labour peer, doesn’t mean he’s a Labour supporter. In fact, he took the opportunity on this very programme to tell us he’d given up supporting any specific party when he became a financial journo: apparently, it’s not appropriate.
Just because he’s the son of a Labour peer, doesn’t mean he’s a Labour supporter. In fact, he took the opportunity on this very programme to tell us he’d given up supporting any specific party when he became a financial journo: apparently, it’s not appropriate.
NH:
And just because he and Darling were shown relaxing together, laughing about how they’d put one over on the evil bankers, doesn’t mean Peston is in Darling’s pocket.
And just because everyone we know in the City thinks Peston is little more than Labour’s deniable propaganda arm, doesn’t mean it’s true.
Any more than those rumours of Santa’s death are true.
PM:
I was busy watching Ascent of Man — b Niall Fergerson on Ch 4
PM:
Which was excellent as usual
PM:
Tackling some seriously complex issues like Black Scholes
PM:
etc etc
NH:
morning
NH:
how are you feeling?
PM:
Hi
PM:
Ill — but hey ho
NH:
So, you missed Pesto
PM:
No i switched over at about 20 to nine and just couldnt believe it
PM:
I mean Pesto is a v good hack
PM:
ive known him for year — i would call him a firend
PM:
Years
PM:
He’s a very good hack — but which BBC producer thought that a profile of pesto constituted a panorama piece
PM:
???????
PM:
This is supposed to be the flagship BBC investigative programme
PM:
Jus slush
NH:
yeah, the prog did not fit that remit at all
PM:
anywa, enough
NH:
and I should say that there were some very good interviews on the programme
NH:
just ashame we could not have seen more of them
NH:
Varley was very smug
NH:
perhaps which should rename Barc, Smug Bank
NH:
OK, I think that is more than enough on Pestowire
Top News from Top Sources. The BBC’s Business Editor, Robert Peston, has played in important role keeping the British public fully informed during these difficult times.
11:15AM
PM:
Season of goodwill an all!
NH:
OK, to the wider market then
PM:
What is happening — i ahvent seen anything yet
NH:
well it is two days before Xmas
NH:
what do you think is happening
PM:
Err
PM:
Not a lot i guess
PM:
Santa rally?????????????
NH:
well, we are up
NH:
32 points at 4,281.3
NH:
volume is woeful
NH:
around 250m shares changed hands when I looked earlier
NH:
and there is tumbleweed blowing through the FT newsroom
NH:
the main risers and those stocks which got whacked yesterday
Xstrata (XTA:LSE): Last: 622.50, up 25.5 (+4.27%), High: 627.00, Low: 589.50, Volume: 1.75m
Home Retail Group (HOME:LSE): Last: 212.75, up 8.75 (+4.29%), High: 212.75, Low: 196.70, Volume: 1.13m
NH:
That said, BAE Systems is on the move
NH:
up 13.5p at 356p
NH:
which makes it one of the bigger risers in the FTSE 100
NH:
think this is down to a Goldman Sachs buy note
NH:
which I have just got hold of
NH:
some confuusion as to whether this came out yesterday or not
NH:
but there it is anyway
NH:
Defence stocks look attractive entering 2009
We believe defence stocks offer good visibility for the next two years, strong
EPS growth in 2009 and further growth in 2010, healthy balance sheets,
robust cash flow, and attractive valuations in the majority of cases.
We believe defence stocks offer good visibility for the next two years, strong
EPS growth in 2009 and further growth in 2010, healthy balance sheets,
robust cash flow, and attractive valuations in the majority of cases.
NH:
Many potential catalysts in 1H2009
(1) In 1Q2009, the new US administration is likely to request a fiscal 2009
‘war supplemental’ budget and fiscal 2010 core defence budget, and we
expect both to be robust. (2) We expect a strong results season in February
and March 2009. (3) There is potential for a US troop surge in Afghanistan
and related equipment orders. (4) Despite lower commodity prices, we
note a surprising amount of defence export activity still being announced.
(1) In 1Q2009, the new US administration is likely to request a fiscal 2009
‘war supplemental’ budget and fiscal 2010 core defence budget, and we
expect both to be robust. (2) We expect a strong results season in February
and March 2009. (3) There is potential for a US troop surge in Afghanistan
and related equipment orders. (4) Despite lower commodity prices, we
note a surprising amount of defence export activity still being announced.
NH:
Prime contractors could outperform suppliers in 1H2009
While we like the strategic positioning of the defence suppliers over the
longer term, the prime contractors have significantly underperformed their
smaller supplier peers in 4Q2008. Prime contractors such as BAE Systems
and Finmeccanica are now trading on very low valuations relative to their
history, and we believe they should respond positively to the above catalysts.
While we like the strategic positioning of the defence suppliers over the
longer term, the prime contractors have significantly underperformed their
smaller supplier peers in 4Q2008. Prime contractors such as BAE Systems
and Finmeccanica are now trading on very low valuations relative to their
history, and we believe they should respond positively to the above catalysts.
NH:
Resuming coverage of Finmeccanica; adding to Conviction Buy List
Despite a recent rally, Finmeccanica has been the weakest performing
European large cap defence stock so far in 2008, in our view reflecting the
acquisition of DRS, a rights issue and the Italian government cutting its
stake by 4%. Business fundamentals are solid and recent initiatives have
addressed concerns over the balance sheet. We see potential upside of 31%.
Despite a recent rally, Finmeccanica has been the weakest performing
European large cap defence stock so far in 2008, in our view reflecting the
acquisition of DRS, a rights issue and the Italian government cutting its
stake by 4%. Business fundamentals are solid and recent initiatives have
addressed concerns over the balance sheet. We see potential upside of 31%.
NH:
Cobham off Conviction Buy List, now Neutral; Ultra down to Sell
We believe Cobham is well managed and has strong growth prospects and a
low valuation relative to its own history. However, we downgrade it to
Neutral (was Conviction Buy) after significant outperformance. We also
downgrade Ultra to Sell from Neutral based on relative valuation.
We believe Cobham is well managed and has strong growth prospects and a
low valuation relative to its own history. However, we downgrade it to
Neutral (was Conviction Buy) after significant outperformance. We also
downgrade Ultra to Sell from Neutral based on relative valuation.
11:20AM
PM:
Thanks for that
PM:
To coments below on tips
PM:
We’re not allowed to give tips out in FT land
PM:
We’ll get in trouble 
PM:
But we can set up a competition
PM:
Should have done this in advance — but was ill
NH:
we could do several
PM:
OKay — little of questions
NH:
when RBS, HBOS and Lloyds will be fully nationalised.
PM:
Which month will the announcement be made on natinalisation
PM:
And where will the following end 2009…..
PM:
GBK/EUR
PM:
FTSE 100
PM:
Spt Brent
NH:
US 10-year treasury yield
PM:
Gold (london fix)
NH:
S&P 500
PM:
ph ueah
NH:
dollar/yen
PM:
We need a while card
NH:
how many ML’ers will be moderated next year
PM:
Moderated as in banned?
NH:
yep
PM:
For a period of a day or more
PM:
Lunch at my club as prize
NH:
your club. Where’s that? Soho House, RAC Club???
PM:
The Ivy
PM:
Just got the invite thru
NH:
(very funny Fisty)
PM:
Cover price of the FT at 31 December 2009? — very good idea
NH:
hang on, the Ivy Club
NH:
is that the new members club above the restaurant?
PM:
Well its been open 3 months now
PM:
Bit A list for me 
NH:
how much?
NH:
and the perks are?
PM:
Dunno yet — might be out of my league
NH:
Soho House memebership for all of the clubs is £1,500 a year
NH:
probally better value than a season ticket at the Emirates right now
NH:
but expensive
PM:
PM:
More fun certainly
11:28AM
PM:
Anything else happening??
NH:
well Taylor Wipeout has issued a statement
NH:
basically confirming everything that was said by that joker Peter Redfern in his email to staff last week
NH:
quite why it has taken days for Wipeout to confirm what had already been leaked, I just don’t know
NH:
anyway
NH:
Wipeout are saying that
NH:
talks with its lenders are going well
NH:
there should be an agreement with its lenders before the year end
NH:
basically Wipeout is going to breach its interest cover covenants
NH:
which is a bit of a mouthful at the year end
NH:
and its needs some breathing space to complete a revised covenant structure
NH:
now what will probably happen here is that Wipeout will pay a fee to have the interest cover waived temporarily
NH:
and this fee will probably be shares equivalent to 10% of the company
NH:
that anyway, it what we have written before
NH:
well, the FT has
PM:
Any reaction in wipe paper? The shares
NH:
none whatsoever
NH:
down 0.25p at 14.75p
NH:
but as I said, it was all known
NH:
and in the price
NH:
that said, there is some more gloomy news out of the housebuilding sector this morning
PM:
go on
NH:
it’s the mortgage data for November from the British Bankers Association
NH:
and mortgage activity remains dead
NH:
mortgages approved for house purchases mortgage sank to just 17,773 in November from 20,767 in October
NH:
and before you ask that is record low
NH:
and net mortgage lending retreated to £2.9 billion in November from £3.3 billion in October
NH:
and was well below the already relatively low average level of £3.5 billion for the previous six months.
NH:
here’s Howard Archer of IHS Global Insight on the figures
NH:
The outlook for the housing market remains bleak. Ongoing very tight credit conditions, still relatively stretched housing affordability on a number of measures, faster rising unemployment, muted income growth, widespread expectations that house prices are likely to fall a lot further and an unwillingness of many people to commit to buying a house when the economic outlook and job prospects look so bad form a powerful set of negative factors weighing down on the housing market. It is still very difficult for many people to get a mortgage or find the required larger deposit.
NH:
Even if the government measures to tackle the financial crisis work on a sustained basis, it will clearly take time for confidence to improve and mortgage lending to pick up significantly. These factors are likely to continue to outweigh the beneficial impact of lower mortgage interest rates resulting from the Bank of England slashing interest rates, particularly as it is still very difficult to get a mortgage
NH:
Consequently, IHS Global Insight forecasts house prices to fall by a further 15% on the Halifax measure in 2009 after a likely decline of some 18% in 2008. As a result, house prices are seen falling 31% in nominal terms from their August 2007 peak of £199,612 on the Halifax measure to stand at £137, 423 at the end of 2009. A reduced fall of 5% in house prices is expected in the first half of 2010, taking them down to a low of £130,551, which would be 35% below their August 2007 peak. House prices are then seen flattening out in the latter months of 2010.
NH:
and I also picked up this today
NH:
it is not on the mortgage figures
NH:
but it is Deutsche Bank’s prediction for UK house prices in 2009
NH:
In our UK Outlook for 2009 published last week we discussed the need for
further adjustment in house prices following the 16% fall to date
(Nationwide/Halifax measure). We now see prices falling by a total of 35% in
nominal terms from peak (end-2007) to trough (end-2010). That translates
into a real decline of around 40% over the period.
further adjustment in house prices following the 16% fall to date
(Nationwide/Halifax measure). We now see prices falling by a total of 35% in
nominal terms from peak (end-2007) to trough (end-2010). That translates
into a real decline of around 40% over the period.
NH:
• Housing overvaluation has been one of the largest imbalances to build up over
recent years in the UK. House prices broadly tripled between 1997 and their
peak at the end of 2007. As a corollary, the household debt/income ratio has
risen, from less than 100% of gross disposable incomes in 1997 to over 175%
in H1 this year. It stands higher than that of any other G7 economy – even the
US (see top chart).
recent years in the UK. House prices broadly tripled between 1997 and their
peak at the end of 2007. As a corollary, the household debt/income ratio has
risen, from less than 100% of gross disposable incomes in 1997 to over 175%
in H1 this year. It stands higher than that of any other G7 economy – even the
US (see top chart).
NH:
Forecasts for house prices are subject to error for two key reasons: i)
estimating fair value of housing is tricky – one would come to a very different
conclusion about the scale of the necessary decline if it were assumed that
affordability ratios were trended upwards rather than static over time (see
bottom chart right), ii) even if we knew where equilibrium was, there is nothing
to stop prices from overshooting this level on the downside, as has been the
case in previous boom and bust episodes.
estimating fair value of housing is tricky – one would come to a very different
conclusion about the scale of the necessary decline if it were assumed that
affordability ratios were trended upwards rather than static over time (see
bottom chart right), ii) even if we knew where equilibrium was, there is nothing
to stop prices from overshooting this level on the downside, as has been the
case in previous boom and bust episodes.
PM:
So Deutsche saying 35 per cent peak to trough
NH:
While the Crosby report’s recent proposal for government guarantees to senior
RMBS could provide the impetus for a revival in the RMBS market, the
economics of mortgage origination remains stretched. In addition, demand for
structured paper has shrunk considerably and is unlikely to be fully restored by
such guarantees. Indeed since our last Housing Watch UK RMBS/covered
bond issuance has been entirely made up of retained issuance for the purpose
of accessing central bank liquidity.
RMBS could provide the impetus for a revival in the RMBS market, the
economics of mortgage origination remains stretched. In addition, demand for
structured paper has shrunk considerably and is unlikely to be fully restored by
such guarantees. Indeed since our last Housing Watch UK RMBS/covered
bond issuance has been entirely made up of retained issuance for the purpose
of accessing central bank liquidity.
PM:
I actually think that is optimistic
NH:
Credit performance in securitised pools has weakened further and we see
signs of rising losses on possessions. Rate cuts should help affordability, but
will stop short of restoring the marginal bid for housing. Moreover, rising
unemployment against a backdrop of a deteriorating economy will likely be a
key driver of collateral performance over the coming months.
signs of rising losses on possessions. Rate cuts should help affordability, but
will stop short of restoring the marginal bid for housing. Moreover, rising
unemployment against a backdrop of a deteriorating economy will likely be a
key driver of collateral performance over the coming months.
PM:
Genuinely
NH:
• In the secondary market RMBS spreads have widened in sympathy with other
asset classes and on the back of Granite’s (Northern Rock) trigger breach.
Typical year-end liquidity concerns will likely exacerbate already extremely
weak technicals. However, 2009 may prove to be a less volatile year for ABS
prices. More specifically, bad bank initiatives should help reduce distressed
sellers, while government-guaranteed bank debt should act to anchor
financials, creating a better benchmark for ABS.
asset classes and on the back of Granite’s (Northern Rock) trigger breach.
Typical year-end liquidity concerns will likely exacerbate already extremely
weak technicals. However, 2009 may prove to be a less volatile year for ABS
prices. More specifically, bad bank initiatives should help reduce distressed
sellers, while government-guaranteed bank debt should act to anchor
financials, creating a better benchmark for ABS.
PM:
The final spike in house prices was so dramatic
PM:
I think peak to trough will be closer to 50 perecent
NH:
think you will be right
NH:
should have included that question in the quiz
11:34AM
NH:
Lots of comments on the retailers again this morning
NH:
Whittards looks doomed
NH:
mind you, given its offering and Icelandic backing probably inevitable
NH:
anyway
NH:
a number were weak yesterday on trading fears
NH:
and concerns about what all the discounting is doing to margins
NH:
anyway, this looks like being the worst Christmas for many years
PM:
says who??
NH:
Freddie George at Seymour Pierce
NH:
now, his predecessor
NH:
the late Richard Ratner
NH:
made a similar call a few years back
NH:
and while I do notwant to speak ill of the dead
NH:
got it totally wrong
NH:
anyway Mr George – who Seymour’s PR tells me used to be at Goldmans – has spoken to most of the major retailers
NH:
and it is official, this Xmas is going to be a stinker
NH:
here’s the note
NH:
Having spoken to most of the retailers, which will be issuing Christmas trading
statements in our universe over the next month, (22 companies in all), its official – this will be the worst Christmas for many years.
statements in our universe over the next month, (22 companies in all), its official – this will be the worst Christmas for many years.
NH:
Almost all the retailers reporting will disappoint based on our figures. Sales will typically be down by 6% to 9% on a like for like basis over the Christmas period in apparel, 10% to 13% in electricals and over 10% in home related products. Gross margins will have also weakened from the third quarter.
PM:
Hmm — if we see like for like declines of 6-9 per cent i think people will take that as a positive actually
PM:
onkey notes below that footfall numbers have been good
PM:
But what about all the discounting?
NH:
The weak sales trend and the intense discount activity will continue well beyond January 2009, and will lead to a further step down in 2009/10 profit forecasts. The retailers will also be impacted by a stronger dollar as well as pension and supplier credit concerns
NH:
More worrying, looking ahead, as in previous cycles, it will take time, in our view, for the retailers to rebuild profitability from these lower levels.
We continue to maintain that it is too early to buy the sector. January 2009 is likely to be a re-run of January 2008 with the year beginning with a profits warning from M&S, followed by a decline in the sector and a late recovery towards the end of the month.
We continue to maintain that it is too early to buy the sector. January 2009 is likely to be a re-run of January 2008 with the year beginning with a profits warning from M&S, followed by a decline in the sector and a late recovery towards the end of the month.
PM:
ah ok
NH:
2009 will, in our view, be much more of a trading market with some measure of
confidence returning during the year.
confidence returning during the year.
NH:
Our main Sell concerns are the following.
NH:
• Groups that are highly leveraged including Debenhams (Sell), Topps Tiles
(Sell) and Findel (Hold).
(Sell) and Findel (Hold).
• M&S (Sell) – As with last year, we believe the trading statement will
disappoint, 2009/10 profits will be downgraded and the 2008/9 dividend will
inevitably be cut. The debt covenants are now becoming an issue.
• All apparel retailers will see some revision to forecasts including Debenhams
and M&S above, but also Next (Hold) and Ted Baker (Sell).
NH:
• Home related spending is expected to be particularly weak in the first quarter
2009 and we expect an acceleration in discount activity (Home Retail (Sell),
Carpetright (Sell)).
2009 and we expect an acceleration in discount activity (Home Retail (Sell),
Carpetright (Sell)).
Companies that will just about meet expectations over Christmas include ASOS (Buy), Mothercare (Hold), WH Smith (Buy), Game Group (Buy) and HMV (Sell).
Happy Christmas from the Retail team at Seymour Pierce.
PM:
This Abercrombie & fitch thingy
PM:
Yeah
NH:
excellent quality shirts
NH:
and I mean v good
PM:
Queuing round the block yeah
PM:
Well i have a kid source on hand here at home
PM:
Expert source — she ‘s called Lili
NH:
and
PM:
And she says you should go to Hollister
PM:
One being buuilt at Shepardds bush
PM:
Apparenlty it is exactly the same gear — but with tiny different logo
PM:
Instead of a moose a seagull
PM:
Lili thinks its the same company
NH:
that’s interesting
PM:
Same garments — half the price with a slightly different tiny logo
PM:
Anyway taht’s what lilio says
NH:
thanks for that
NH:
I have some more comment on the retailers
NH:
from Nick Bubb
NH:
he thinks Marks & Spencer and Home Retail will both cut their dividends next year
NH:
General retailers – has this been the worst Christmas ever – for the non foods, well yes! We’ve seen unprecedented levels of discounting and after a brief flurry of hope from the last minute panic buying we think things will get worse again and carry on through the bulk of 2009, in terms of LFL sales and also gross margins. We think that both MKS and HOME will cut their dividend for next year. MKS have structural problems and HOME remain a pure-play on big ticket UK spending with much of the products being sourced from overseas (weak Sterling not helping). Remain confident Sellers of both.
NH:
For the food retailers- it’s a bit of a different story – for the big 3, whilst not immune, are in better shape and we have not seen any profit warnings. Food price inflation remains the issue – deflation would be unhelpful but, whilst too early to call, we don’t see this happening at the moment. We maintain one of the things you should look at is the freehold property backing – Tesco announced yesterday that the food retailer property market remained robust. Share prices have rallied nicely and we will review price targets etc.
NH:
There is much talk in the morning press that Whittard of Chelsea is the next retailer on “death row”. Landsbanki, their bankers, have pulled funding and the company has appointed E&Y as administrators in waiting. Comment of talks ongoing with possible buyers for the Baugur owned company. This follows on the heels of news yesterday that up to 15 national retailing chains are in “pre pack” administration mode (IE swift orderly wind-up/ sale) post the Christmas trading season
PM:
thanks for that
11:43AM
PM:
Any LIBOR as yet
NH:
sorry, nothing on retuers as yet
PM:
Remember this time last year year-end money was going mad
PM:
praxis22 thank you for that
NH:
A very bold call.
NH:
but how well they get our of the leases or sell the town centres stores
PM:
What might Stanley say?
NH:
I think it is the high street ones that are giving the company the most gief
PM:
Sir Stan
NH:
the out of town boxes are more profitable
PM:
Anything but Kalms
PM:
Hmm
DSG International (DSGI:LSE): Last: 16.75, no change, High: 17.50, Low: 16.75, Volume: 1.97m
11:47AM
PM:
Let’s turn to the currency markets
PM:
and have a quick look at the GBK
PM:
how has it taken the GDP revision?
NH:
well, it is weaker
NH:
recovered a bit earlier
NH:
but cable now back at 1.4785
NH:
and 0.9465p against the euro
NH:
for those of you who missed the GDP update
NH:
contracted 0.6% in the third quarter
NH:
the flash estimate was 0.5%
NH:
and contraction of 0.6% in the third quarter was the largest drop in GDP since the fourth quarter of 1990.
PM:
And what about the break down??
NH:
sorry I have not had time to go through that
NH:
but fortunately Howard Archer has
NH:
On the expenditure side, the breakdown of the GDP was particularly unappealing with consumer spending and investment contracting and exports only edging up despite the weakening pound.
On the output side, service sector activity contracted at the deepest rate since the third quarter of 1990. The financial crisis and credit crunch is obviously hitting the business services and finance sector hard, while the sharp housing market slowdown and falling consumer spending is also weighing down heavily on the services sector. Meanwhile industrial production and construction output both contracted.
NH:
The household savings ratio edged up to 1.8% in the third quarter from 1.1% in the second quarter and -1.3% in the first. This was due to households’ real disposable income rising by 1.3% quarter-on-quarter in the third quarter. However, the savings ratio remains extremely low by long-term norms, highlighting the pressure on consumers’ finances.
While the revised GDP data still do not show the UK technically into recession yet (as defined by two successive declines in quarter-on-quarter GDP) we are entering into it big time in the fourth quarter. Indeed, GDP looks like contracting by around 1.0% quarter-on-quarter in the fourth quarter as the heightened financial crisis increasingly feeds through to hit an already seriously damaged economy. We now expect the economy to decline through 2009, resulting in overall contraction of 2.4% next year. Recovery is then expected to develop only very gradually in 2010, resulting in GDP growth of just 0.2%.
NH:
Meanwhile, we expect the Bank of England to reduce interest rates by at least a further 75 basis points from 2.00% to 1.25% in January. We believe that the Bank of England may moderate the pace at which it is cutting interest rates as they near zero and the previous large cuts take time to feed through. Even so, another 100 basis point reduction is certainly possible in January if the data show further serious deterioration. Further out, we expect interest rates to fall to a low of 0.50% in the second quarter of 2009 and then stay there for the rest of the year. However, it is far from inconceivable that interest rates could come all the way down to zero.
11:51AM
PM:
Monkey mentions GM and Ford being downgraded to junk by S&P
PM:
I was kinda surprised that had not happened already
NH:
i was just looking in the archive
NH:
that last time this had happened
NH:
in the summer of 2005 is caused chaos in the bond market
PM:
Ah yes
NH:
Fears that a potential downgrade of General Motors’ credit ratings would result in bond market chaos subsided yesterday after Lehman Brothers said it would add Fitch Ratings to its bond index calculations.
GM, the struggling car maker, is one of the biggest debt issuers in Lehman’s investment-grade credit index, the most widely tracked index in the corporate bond market. Over the past week fund managers have dumped GM’s debt amid fears that Standard & Poor’s is moving closer to lowering its “BBB-” rating. Under present guidelines a downgrade of GM’s rating into “junk” territory by S&P or Moody’s Investors Service would be enough to push the company out of Lehman’s investment-grade index into its high-yield index, forcing many fund managers that hold its debt to sell.
NH:
GM accounts for 2.25 per cent of the credit index, with $45.5bn of corporate debt.
But yesterday Lehman said that from July 1 it would also consider ratings from a third agency, Fitch Ratings, when deciding which companies to include in its credit index.
This means that if S&P lowers GM’s ratings to junk – as many investors expect – it will remain in the index as long as the other two ratings agencies continue to consider it “investment grade”. On January 14 S&P said it was considering changing its rating outlook on GM to “negative.” A change in outlook typically pre-empts a ratings downgrade.
NH:
that was back in 2005
PM:
Be interested if there is technical fall out this time.
PM:
Surely, their situation had become so dire …
NH:
yeah, would be interested to hear of any technical implications
PM:
See those CDS prices from Aussie pup below
PM:
Hello?
NH:
wow
11:55AM
NH:
Some things to finish up on
NH:
Cattles
NH:
we put the 1p note on the ML yesterday
NH:
it was penned by James Hamilton at Numis
NH:
and the conclusion was
NH:
Will Gordon “saviour of the world” save Cattles? With the group forecast to breach
its banking covenants in 2009, its junk credit rating and the lack of willingness of the
banks to lend, we do not believe that Cattles can be saved unless the government
steps in. Without depositors or a nationally known brand name we believe the
government will be less willing to save Cattles as much as it would like to continue to
see finance provided to the structurally over indebted. We believe the most likely
outcome will be a debt for equity swap which will leave shareholders with very little but
will see the company survive.
its banking covenants in 2009, its junk credit rating and the lack of willingness of the
banks to lend, we do not believe that Cattles can be saved unless the government
steps in. Without depositors or a nationally known brand name we believe the
government will be less willing to save Cattles as much as it would like to continue to
see finance provided to the structurally over indebted. We believe the most likely
outcome will be a debt for equity swap which will leave shareholders with very little but
will see the company survive.
NH:
also Merrill Lynch have been making some negative noises
NH:
although they have a 50p target price, they also see the possibilty that the company goes to the wall
NH:
Cut PO to 50p, focus on covenants and funding
We continue to see Cattles as a binary outcome, if it obtains its banking licence; it
could be worth 6x09E or 100p. However, if Cattles does not get a banking licence,
Cattles would be at a significant risk of breaching its covenants. It could then be at
significant risk of going into administration, in which case there could be no value
for equity holders. Based upon the risks of no license being awarded, we apply a
discount to our fair value and set our Price Objective at 50p. We reiterate our Buy
recommendation.
We continue to see Cattles as a binary outcome, if it obtains its banking licence; it
could be worth 6x09E or 100p. However, if Cattles does not get a banking licence,
Cattles would be at a significant risk of breaching its covenants. It could then be at
significant risk of going into administration, in which case there could be no value
for equity holders. Based upon the risks of no license being awarded, we apply a
discount to our fair value and set our Price Objective at 50p. We reiterate our Buy
recommendation.
NH:
I love that phrase – binary outcome.
11:57AM
NH:
we also have Libor
NH:
DJ 3-Month USD Libor Fixed At 1.46625%, Vs 1.46625% Monday
NH:
DJ 3-Month Sterling Libor Fixed At 2.9025%, Vs 2.935% Monday
NH:
DJ 3-Month Euro Libor Fixed At 3.01125%, Vs 3.04938% Monday
NH:
THREE-MONTH EURO LIBOR/OIS SPREAD AT 128 BPS VS 131 BPS, STG AT
NH:
THREE-MONTH DOLLAR LIBOR/OIS SPREAD AT 126 BPS VS 127 BPS ON MON
NH:
LIBOR THREE-MONTH STERLING RATES FIX AT 2.90250 PCT
11:58AM
NH:
actually going to back to Numis
NH:
did you see that Michael Spencer stuff earlier
PM:
I did
NH:
he had done a David Ross
PM:
Doesnt Mr Spencer have people that advice him on such things — and do ALL the paper work
PM:
????
PM:
Why pay lawyers, etc??
NH:
he does when it concerns Icap
NH:
any loans/packages there have been properly disclosed
NH:
do you think they have different rules on Aim
PM:
Surely not
PM:
And Numis should know about it, given that it is broker to enough AIM companies
PM:
Neil did a post on that earlier — you will find on the AV home page
12:00PM
PM:
Are we done?
NH:
just one more thing on GM
NH:
i think the company’s last reamining supported
NH:
chucked in the towel last night
NH:
General Motors Corp’s (GM.N) equity may be largely if not entirely wiped out as it complies with the restructuring targets laid out in the federal auto bailout, an analyst at Credit Suisse said as he cut his price target to $1 and rating to “underperform.”
GM shares fell as much as 18 percent to $3.68 in morning trade Monday on the New York Stock Exchange.
“Over the next two months… it will become increasingly clear that the enormous sacrifice of value on the part of the union and bondholders will require the complete or near-complete elimination of the existing GM equity,” analyst Christopher Ceraso wrote in a note titled “Game Over for Existing Equity.”
12:01PM
NH:
Well, I think that is it for today
PM:
Sorry ive been ill
NH:
and indeed 2008
PM:
Thank you everyone for supporting us this year
NH:
a big thanks
PM:
Been lots of fun — if tough on the finances
PM:
Certainly better than working for a living — from our side
PM:
Im told Tracy has a special Advent calender tree treat today
NH:
she has
PM:
Think that will be published a little later
NH:
a special prize
PM:
Special opportunity, anyway
PM:
Ive got to do a best-of-the-year
PM:
which i havent done yet — but will do
PM:
Other than that — the Long Room will remain open over Xmas
PM:
So you can go and play there if bored with Xmas tv etc
PM:
We will be back in the saddle on Jan 5
NH:
(No chance Tuna)
NH:
and one final thing before we go
NH:
the bull market is still alive
NH:
23 rd December 2008
AUCTION RECORD OF £2.35M FOR FERRARI 121 AT BONHAMS IN GSTAAD
A 1955 4.4litre Ferrari 121 LM Spyder Corsa, racing two seater, made the top price at Bonhams Gstaad Sale on December 20th, at CHF 3.9m (£2.35m), achieving a new auction record for this model.
PM:
NH:
The car in question. Lot 205, came from the late Antoine Midy Collection in France and was bought post sale by a fellow European car collector.
James Knight, Head of Bonhams International Motor Car Department said: “Although the car just failed to sell under the hammer at the Palace Hotel in Gstaad, the interest expressed pre-sale remained and we have had a happy outcome following the sale.”
Bonhams hosted their annual Ferrari and other prestigious Italian marques auction sale at the magnificent Palace Hotel in the Swiss ski resort of Gstaad where clients and collectors attended from all over the world.
NH:
In the packed saleroom (at full occupancy), collectors saw a lower than average sell though rate but for those motorcars that sold, healthy prices were achieved. The 1967 Ferrari 275GTB/4 Berlinetta at CHF1,000,000, (£696,060) 1933 Alfa Romeo 6C-1750 Cabriolet by Castagna at CHF398,000 (£241,248), 1965 Ferrari 275GTS Convertible at CHF623,168 (£377,677), and the 1961 Maserati 3500GT Vignale Convertible at CHF349,168 (£211,616) being notable highlights. Automobilia continued to surprise with Lot 58, original documents relating to the Le Mans GT winning Ferrari 250GTO selling for CHF11,500 (£6,969).
NH:
and the quiz, will be closing when Paul?
PM:
Quiz hasnt got off the ground — bar FKA
PM:
Maybe do it as a separate post
NH:
Paul has had a call
PM:
Christie’s
NH:
arh
NH:
could be sticky
NH:
we can normal site for the quiz
NH:
will try and have it put up later
NH:
Paul is off the phone
PM:
Not sticky == just someone offering some further info and context
PM:
Will post something if i get it later
NH:
that’s good
PM:
Anyway — are we done — ive got to lie down
PM:
Sick boy
PM:
Need pills
PM:
Curious onlooker — just that Christies may well be up for sale
PM:
Pinault is under pressure to sell assets
PM:
Right — thank you and good bye
PM:
Good Xmas, year end etc
PM:
NH:
Thank’s everyone. Your comments over the year are much appreciated. And in many cases have been educational.
NH:
cya
NH:
Happy Xmas all