Archive for February, 2009

Should the Government put the banks into liquidation?

For those who don’t agree or haven’t grasped my arguments for letting the banks go I want to have another try!

Let’s take RBS as an example. The bank has a £2.2 trillion balance sheet. A very small fraction of that relates to UK retail and corporate lending – circa £350bn.

My question is simple, in order to protect the core banking activity  – i.e. managing deposits, allowing payment and withdrawal of cash and lending to consumers and corporates, why shore-up £2.2 trillion when this activity only relates to 15% of this amount? Read on……… Read the rest of this entry »

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Iran is strategic – the neocons had one way of dealing with it, Obama needs to adopt another!

Iran has developed over the last 4000 years and is the oldest civilisation in the world. 30 years of sanctions have inhibited its development economically but it remains a highly educated and modern society with a great cultural history.

For those that may be interested in the case for Iran, start with the following article:

http://www.dissidentvoice.org/2009/01/us-must-back-down-on-iranian-uranium-enrichment/

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Be a bear until the summer

One of the most amusing investment strategies that I hear today is to buy incrementally. The logic is that you won’t be able to call the bottom so invest gradually and you will at least average down if the market falls further and be in the market when the bounce happens. This investment strategy assumes firstly that the market is within 10% to 20% of its bottom and that when the bottom comes there will be a bounce of at least 20% that anyone not in the market will miss.

Anyone following this strategy should be take into account the following:

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Bankers still think they are due bonuses for their creativity and for making markets efficient!

On Radio 4 last night we had the pleasure of hearing from Chris Nicholson – http://www.linkedin.com/in/oraca . Chris is an equity analyst focusing on telecoms and media. His view is that banks should pay bonuses to encourage continued creativity and to ensure market efficiency. This is an extraordinary claim in light of recent events, here’s why.

Efficient markets are important. How efficient they have to be is open to debate. Banks have been spending a fortune on IT and on motivating staff over the last couple of decades and the result has been that the best can win more. The result has not been a better allocation of capital as Chris suggests.

Creativity is important. Motivating people to so creative that they package up junk mortgages and resell tranches as triple A rated securities to pension funds is certainly creative. unfortunately this has also been the cause of the demise of the finanical sector.

Chris also mentions the allocation of capital to risky enterprises. Well, Chris, you are very out of touch. There are almost no venture capital firms or VCTs investing in anything approaching early-stage and this has been the case for many years. 3i, the stalwart of early-stage investment did so well out of its leveraged late-stage deals (notably Go) that it leveraged its balance sheet and focused almost exclusively on leveraged deals!

Explain to me Chris how the creativity and efficiency of the markets has helped finance entrepreneurs in the UK over the last 20 years?

I have managed three companies over the last 10 years and in my last company I had to cut costs – we were losing money and I was brought in to turn-around the business. I refocused the business, changed the product offering and let 60% of the people go.One thing that I know is that if the leadership articulate the issues and the vision for resolving them then freezing salaries is not nearly as painful to the business as those insiders think.

High street banks must focus on their main tasks, UK consumer and corporate banking and if they won’t do it then find someone that will!

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