FTSE

[bdw]

Anyone else transfixed with the ticker this morning? Seems to have stabilised for the moment down 180-200 points, though it could go into proper free fall when New York starts trading.

Lehman Bros filing for Ch. 11, Merrills snapped up, AIG teetering on the edge and yet all my workmates seem to want to discuss is that Grange Hill takes its final bow today. Perhaps they are all connected?

[bdw]

Sorry for banging on about this.
HBOS down 34pct, FTSE down 5.22pct so far today (if trading were to close now it would be the largest fall since Sept 11). 5000 threshold could be tested in the next couple of days. New York opening in 2 hours with the dollar sliding back again and Ike probably boosting WTI prices - going to be carnage.

[Frank]

Okay, a bit whimsical, but I'm intrigued. I genuinely can't follow markets with a real sense of knowing what's going on. Anyone care to explain in terms a simple theoretical physicist might understand?

[hr]

"There is only ever one truth. Things are always black or white, there's no such thing as a shade of grey. If you think that something is a shade of grey it simply means that you don't fully understand the situation. The truth is narrow and the path of the pursuit of truth is similarly narrow."
Also, some years later:
"here we are arguing about a few uppity troublemakers with a bee in their bonnet and a conspiracy theory."

[Humphrey]

Quoting Frank from 14:05, 15th Sep 2008
Okay, a bit whimsical, but I'm intrigued. I genuinely can't follow markets with a real sense of knowing what's going on. Anyone care to explain in terms a simple theoretical physicist might understand?

[hr]

"There is only ever one truth. Things are always black or white, there's no such thing as a shade of grey. If you think that something is a shade of grey it simply means that you don't fully understand the situation. The truth is narrow and the path of the pursuit of truth is similarly narrow."
Also, some years later:
"here we are arguing about a few uppity troublemakers with a bee in their bonnet and a conspiracy theory."

Essentially, Merrill Lynch and Lehman Brothers, two banks that ranked among the biggest in the world no longer exist. Alan Greenspan has described it as described the current banking crisis as possibly the worst in a century – including the 1929 Wall Street Crash.

Basically it means we are in for a world of pain, but then we already knew that. My best guess is that the economy will be screwed for the next couple of years.

In real terms, start shopping at ASDA.

[hr]

http://humphreyclarke.blogspot.com/
http://www.livejournal.com/users/humphrey_clarke/

[bdw]

I'm a happy amateur at this lark too but I am given to believe that this high level business analysis of the CDO market begins to explain why everything is heading south:

http://docs.google.com/TeamPresent?doci ... pauth=true

This situation is exacerbated by the banks' exposure to losses in the US mortgage market by their (in Lehman's case, massive) holdings of securitised mortgage debt instruments and by the fact that each bank's share of the total actual losses realised in that CDO market is as yet unquantified (even, as is suggested, unquantifiable). As a result it is practically impossible for a financial institution to make a provision for such losses that would satisfy every investor in the market. This in turn undermines investor confidence in the financial institution (particularly where such financial institution is perceived by the market to have over-invested in the relevant area - here, asset backed securities) and, in the worst case, triggers a mad dash to sell off its shares.

To be honest, though, the AIG situation is the most alarming...

[theshadowhost]

well i am just glad that i am a student, and as long as my loan doesnt get recalled or my funding gets pulled i am happy !

i guess the advice is try to borrow as little as you can and be happy house prices will be cheap when you graduate ? -- that's what i take away from it anyway. though i have no understanding of economics.

[hr]

[bdw]

Quoting theshadowhost from 16:26, 15th Sep 2008
well i am just glad that i am a student, and as long as my loan doesnt get recalled or my funding gets pulled i am happy !

i guess the advice is try to borrow as little as you can and be happy house prices will be cheap when you graduate ? -- that's what i take away from it anyway. though i have no understanding of economics.

[hr]

To some extent you are insulated from the risks of recession as a student (no mortgage, little accrued debt that is likely to be called on or which is to be serviced prior to graduation, no full-time job (and thereby primary income stream) to lose). It is also possible that there will be a correction in the housing market and a cut in interest rates (to stimulate the equity markets) would make home ownership all the more attractive.

However, the effects of a downturn may still be felt.

Even if house values are discounted, there is so little liquidity in the market currently that loans are becoming difficult to obtain at all, let alone at the levels and on the terms offered over the last ten years. Net effect being that lack of access to cheap debt replaces exorbitant house prices as the barrier to getting onto the property ladder.

Allied to this, the more heavily leveraged landlords who have been buying properties for letting purposes and servicing the mortgage partly by rental income may experience negative equity issues and seek to increase rental income as a result to mitigate their risk of default. This could flow into the student rental market, where supply and demand is already constrained by this HMO thing.

I agree with Humphrey that there's going to be a couple of years of rough conditions in the UK job market ahead, particularly in many of the financial services sectors that have flourished over fifteen years of generally cheap debt, light regulation and robust, liquid financial markets. This may unfortunately have a negative effect on the graduate job market in these sectors.

Of course, the whole thing could just be a storm in a teacup and it'll be status quo ante in a week but it does look a bit iffy at the moment. The good news is that oil has nosedived, which both rather undermines the claims that investor speculation has not contributed to its spike and fends off fears of stagflation for the time being.

I'm sure someone with a firmer grasp of economics will correct my misunderstandings on the above, though - I still suspect that the dastardly Hadron Collider is at the bottom of the whole thing...

[Gealle]

Trust me...

The financial sector has been far less concerned with Lehman Brothers today and FAR MORE concerned with AIG.

...I deserve the hot bath I'm about to plunge into.

[hr]

So someone asked me "What is it you do?". I thought about it for a minute. Then I thought about it a little more. All the while I probably looked like I was staring in to space, struggling for an answer. And I was. There was only one response I could really give.

"I make sure the shit stays off the fan."

[James01]

Hey,

I was thinking about this a lot today. Do you think that the current financial climate will cause banks like HBOS to pull the credit they currently extend to us poor students in the form of overdrafts?

I've been perhaps a little over-indulgent and am now about £300 into a (supposed to be) interest free overdraft. Was kind of banking (excuse the pun) on their offer of keeping the overdraft upto a year after you graduate to clear it. Would be rather unfortunate if they decided they want their money back anytime soon.

My understanding is the Student Loans Company is backed and underwritten by the Government? I presume so because they have the power to take your re-payments directly off your payslip? Is this correct? If so that will hopefully stop them calling in the debt during this rough period.

Otherwise, as humphrey said; time to start shopping in ASDA. Or in St Andrews, Aldi.

[James01]

Was just thinking: perhaps students should have their own financial market stock price:

"How much does a pint of Tennants cost in the Union?"

Price goes up = recession
Price goes down = Party time!

To my recollection it was £1.60 last time I was in?

Anyone got an update on the situation?

[orudge]

You've not been in in a while then, I guess. It was up to £1.70 at the start of last year, then went up to £1.80 or £1.90 I think. I gather it's sitting at £2 just now. Spirits are up, too, for the first time in quite a while - a vodka and coke for instance will cost £1.50 now. Dark times are ahead!

[hr]

http://www.owenrudge.net/
http://standrews.facebook.com/profile.php?id=37103734

[bdw]

Quoting James01 from 22:23, 15th Sep 2008
Hey,

I was thinking about this a lot today. Do you think that the current financial climate will cause banks like HBOS to pull the credit they currently extend to us poor students in the form of overdrafts?

My untutored guess is that this would be doubtful, at least in the short term (unless the banks are making provision in anticipation of charging for overdrafts pursuant to an adverse OFT decision on the bank charges docket). Overdrafts are hopefully regarded as relatively small fry by the banks - they ought to have their hands full, managing the corporate debt they have been handling. There is apparently a hell of a lot of maturing debt at the major UK banks (tens of billions of USD) that is falling due in the next couple of months, that cannot be rolled and therefore must somehow be refinanced before year end, which is not going to be a simple task in this market.
Apologies - no idea about the position on student loans, I'm afraid.

[Frank]

I should hope the banks don't go recalling student overdrafts ahead of the time, I only just extended mine today (for emergency use only...I told myself).

Perhaps my ambitious reliance on the banks will reassure everyone and the market'll take an upswing out due to recognition of my upbeat attitude...

Perhaps I'll literally break the bank. Oh my.

Still, thank to the mild explanations of things as it stands. I think I'm almost ready to start reading about it in a little more detail. Any well known/recommended and free 'teach yourself economics' sites?

[hr]

"There is only ever one truth. Things are always black or white, there's no such thing as a shade of grey. If you think that something is a shade of grey it simply means that you don't fully understand the situation. The truth is narrow and the path of the pursuit of truth is similarly narrow."
Also, some years later:
"here we are arguing about a few uppity troublemakers with a bee in their bonnet and a conspiracy theory."

[Gealle]

The funds made available to the Student Loan Company do come from HM Treasury, as far as I'm aware. This in itself doesn't make a huge amount of difference though; the legislation provides that student loans only start being repaid after your gross taxable earnings exceed £15,000 in an individual tax year.

It is not only unlikely that any changes will be implemented to try and recoup this money immediately, it would be a complete volte face from a Govt that has prided itself on getting 50% of British youth through higher education.

I shouldn't worry about it.

I shall be very interested to see what happens in terms of the ongoing availability of student overdrafts. Arguably, it could be a potential suicide move for some banks.

What you have to consider is that even if one bank took on 10% of an incoming student year as their customers (50,000 people) and loaned 80% of them a maximum £2,000 overdraft (40,000 * 2,000 = £80 million) that figure is still relatively miniscule compared to the income that group could generate for the bank over a lifetime.

Believe it or not, you're more likely to change your sexual partner than you are to change your bank... And when you consider an average first-time mortgage of £75,000-£100,000 accruing interest at 7% p.a. (i.e. base +2%) across 40,000-50,000 people, the banks in the longer term from that £80million of lending would potentially develop an income of £60-100 million in the first year alone (not to mention arrangement fees).

I think HSBC learned the VERY hard way what happens when you try to just pull overdrafts from under students noses.

Although this could all very likely change... I don't think HBOS can survive long in its current form; if it were to be broken up, whoever acquired the mortgage companies would quite possibly start offering much more attractive packages for students.

I could go on, but I won't... Mainly cause I have to go to work.

UNDERLYING MESSAGE: Don't panic; we are entering one of the best periods for investing in the stockmarket since 1929. For those who have demonstrated fiscal prudence and played their cards right, a wealth of opportunities lie ahead.

Quoting James01 from 22:23, 15th Sep 2008
Hey,

I was thinking about this a lot today. Do you think that the current financial climate will cause banks like HBOS to pull the credit they currently extend to us poor students in the form of overdrafts?

I've been perhaps a little over-indulgent and am now about £300 into a (supposed to be) interest free overdraft. Was kind of banking (excuse the pun) on their offer of keeping the overdraft upto a year after you graduate to clear it. Would be rather unfortunate if they decided they want their money back anytime soon.

My understanding is the Student Loans Company is backed and underwritten by the Government? I presume so because they have the power to take your re-payments directly off your payslip? Is this correct? If so that will hopefully stop them calling in the debt during this rough period.

Otherwise, as humphrey said; time to start shopping in ASDA. Or in St Andrews, Aldi.

[hr]

So someone asked me "What is it you do?". I thought about it for a minute. Then I thought about it a little more. All the while I probably looked like I was staring in to space, struggling for an answer. And I was. There was only one response I could really give.

"I make sure the shit stays off the fan."

[Humphrey]

Quoting gealle from 19:21, 15th Sep 2008
Trust me...

The financial sector has been far less concerned with Lehman Brothers today and FAR MORE concerned with AIG.

Not looking good for AIG at the moment. Its credit rating is FUBAR.

http://money.cnn.com/2008/09/15/news/co ... 2008091522

Word on the street is that they are going to go bust today.

[hr]

http://humphreyclarke.blogspot.com/
http://www.livejournal.com/users/humphrey_clarke/

[bdw]

Quoting humphrey from 11:57, 16th Sep 2008

Quoting gealle from 19:21, 15th Sep 2008
Trust me...

The financial sector has been far less concerned with Lehman Brothers today and FAR MORE concerned with AIG.

Not looking good for AIG at the moment. Its credit rating is FUBAR.

http://money.cnn.com/2008/09/15/news/co ... 2008091522

Word on the street is that they are going to go bust today.

[hr]

http://humphreyclarke.blogspot.com/
http://www.livejournal.com/users/humphrey_clarke/

Final nail in the coffin, isn't it? They obviously think the market will give them some respite from the assault on their share price if they announce a divestment plan today in respect of their prime businesses. Otherwise they presumably would have filed for Chapter 11 protection last night. The Fed made a statement of intent with their handling of Lehman and Merrills - AIG surely won't be hopeful of receiving any further rescue package of any significance. Pension funds are going to get a real going over if the company is broken up.

[Gealle]

Well, this is something that a few people had cynically suspected would happen.

The US govt has bailed out AIG with an $85billion loan. There was speculation that they allowed Lehman to fail because it was Barclays - a British bank - looking to buy it out; BoA were likely in talks with Merrill Lynch some weeks ago.

From the past couple of weeks' events, we have seen the American government effectively nationalise mortgages and now insurance...

...Remember children, it's only a "free market" as long as Uncle Sam's the one winning.

[hr]

So someone asked me "What is it you do?". I thought about it for a minute. Then I thought about it a little more. All the while I probably looked like I was staring in to space, struggling for an answer. And I was. There was only one response I could really give.

"I make sure the shit stays off the fan."

[LonelyPilgrim]

Free market? Never been a reality; never will be. In the case of AIG, it's too large and too vital to the overall well-being of the market to be just let go.

Incidentally, they've been bailed out by the Federal Reserve, which is NOT part of the US government, per se. Really, gealle, I'd expect you to understand and appreciate the nuances and particulars of our f'd up banking system (courtesy of President Andrew Jackson).

Besides, my auto insurance policy is held by AIG, I'm perfectly happy to see them kept in business...

[hr]

Man is free; yet we must not suppose that he is at liberty to do everything he pleases, for he becomes a slave the moment he allows his actions to be ruled by passion. --Giacomo Casanova

[bdw]

Quoting Frank from 00:00, 16th Sep 2008
Still, thank to the mild explanations of things as it stands. I think I'm almost ready to start reading about it in a little more detail. Any well known/recommended and free 'teach yourself economics' sites?

[hr]

"There is only ever one truth. Things are always black or white, there's no such thing as a shade of grey. If you think that something is a shade of grey it simply means that you don't fully understand the situation. The truth is narrow and the path of the pursuit of truth is similarly narrow."
Also, some years later:
"here we are arguing about a few uppity troublemakers with a bee in their bonnet and a conspiracy theory."

Investopedia.com is excellent for establishing a basic knowledge of terms and market operation.

The books that helped me gain my sketchy understanding of the markets were 'Dot.Con' by John Cassidy (a former FT journalist), which is about the rise and fall of the tech sector in the 90s, and 'Barbarians at the Gate' by Bryan Burrough and John Helyar, which is a terrific account of the struggles over RJR Nabisco in the 80s - this one's obviously also a great introduction to corporate finance and M&A issues.

[KayBee]

Will the investigation of the role of short selling in the Lloyds - HBOS deal affect whether or not the merger is completed or is it a done deal?