Market Jitters Cause Ratchet Impact

The financial markets appear to be operating a ratchet system regarding good news and bad news. If bad news is received it is immediately translated into lower prices. If good news is received it merely stabilises matters.

An example of good news is yesterday's story regarding December house price rises. The Halifax, Britain's largest mortgage lender issued a report that said prices had risen 1.3%. The market screened out the good news and carried on with the doom and gloom.

Examples of bad news include airline Easyjet and retailer Marks and Spencer. Both companies reported December like for like turnover figures approximately 2% down on 2006. The market responded by marking both shares down by around 15%. Now forgive me if I'm wrong, but hasn't the market already factored this level of doom and gloom? In addition within the bad news M&S reported online sales up 78%. This was largely brushed over.

If things carry on in this direction, then opportunities to acquire assets of all kinds will present themselves.

BT Broadband gets worse

My BT Broadband service is getting even worse. I'm now down to 0.1 meg, 87.4 kpbs to be precise. It would be a laugh but for the fact that its making online activity unbearable.

BT Broadband - speed still slow

Despite some pretty heavy complaints my BT Broadband still isn't much use. Today it went down twice before 10:00 am. At one point it was still down after 15 minutes, so I gave up.

This afternoon I ran another speed test. Despite my complaints it's still running at 0.2 meg, 173 kpbs to be precise.

When I complained to the BT Broadband "Customer options" team in Doncaster I was told it was tough as I was contracted to them until April 2008. According to Richard - he refused to give his surname - BT up to 8 meg doesn't they have to deliver 8 meg. And in his opinion 0.2 meg mean't they had delivered their side of the deal. I shall be taken up a complaint with trading standards.

BT Total Broadband

What is the purpose of BT - British Telecom? In April I signed up for BT's new 8 megabyte service. What a farce. The speed of the line is shown above - 0.2 meg.

Stealth tax traps 5 million drivers

A report in the Daily Telegraph reveals that 5 million drivers are increasingly hit be a new stealth tax. The tax is as a result of the UK Government's failure to index mileage allowances paid to people who legitimately use their cars on business purposes. The Inland Revenue allows employees and the self-employed to claim 40p for each mile driven on business. According to the AA (Automobile Association) the true cost of driving now averages 44p per mile, leaving most employees 4p out of pocket. Many employees work for employers - some of them voluntary bodies - where the rate paid is even lower than the Government maximum. Anybody being paid more than the 40p minimum would have the balance taxed as income!!!! The current 40p per mile limit was set in 2002. Since then petrol, insurance and road taxes have all risen faster than the general rate of inflation.

Top Investor Leaves the Dollar

Jim Rogers is a top investor who lives in Asia. He famous for predicting financial trends and is followed by thousands of American investors. Mr. Rogers has declared that the U.S. is now in recession and is dumping his Dollars for Asian currencies such as the Chinese Yuan.

Whether Mr. Rogers is able to forecast currency trends may be in dispute. Nevertheless, the market sentiment is certainly leading to recessionary thinking. Many headlines and the recent weakness in the Dow Jones Index are all pointing in a negative direction.

New Stealth Tax

According to a report in The Daily Telegraph the Chancellor of the Exchequer made a crucial omission in his recent pre-budget report. Sly Alistair Darling forgot to mention that he is raising the threshold limit for 11% national insurance contributions (NIC). From April 2008 the current limit of £34,840 will rise to £40,040. The increase means a rise in contributions of £10 per week.

To read the Telegraph article click on the post title.

Sterling too high

I read on Telegraph.co.uk that Sterling has reached $2.05. How amazing!!! Great value for the UK consumer. But the problem is, it's an unsustainable level. By no stretch of the imagination is Sterling worth anything like $2. The purchasing power parity suggests something more like $1.30 - taxes included.

My advice is to enjoy it while it lasts. The Dollar is weak. The pound isn't strong. And eventually the markets will correct the valuation.

Base rate rises to 5.25%

The Bank of England shocked the financial community by raising the base lending rate to 5.25%. This is the third quarter point rise in 5 months.

It appears that the Bank's Monetary Policy Committee have been spooked by the recent rise in inflation. In my opinion, it is this - the inflation rate - rather than the resultant base rate rise which is the real problem.

Sloppy government finances, public sector productivity and the long term problem of the public sector pensions debt are the real problems.

IVAs double in 2006

According to the Daily Telegraph, 2006 saw the number IVAs (individual voluntary arrangements) double to 45,000. In the process a total of £1.4 billion in debt was written off.

IVAs are a mechanism for individuals to regain control of their indebtedness without going through the process of personal bankruptcy. With debts, loans and credit card borrowing at all time highs, the IVA has become a significant feature on the lending landscape.

To read more, click on the post title.

Mergers and Acquisition Boom

According to a report in today's Daily Telegraph, 2006 M&A activity will exceed the levels reaches in the 1999/2000 dotcom boom. The total value of takeovers has reached $3,611bn (£1,836bn).

The largest UK transaction was the takeover of British Airports Authority (BAA) by Ferrovial of Spain worth $30.2 billion. The largest global deal was valued at $89 billion. This was the takeover of Bellsouth by AT&T.

To read the full story, click on the post title.

UK High Street in Christmas Slump

Retail sales are falling on the UK high street. That's not exactly news. The problem is that many retailers were hoping that Christmas shopping would signal a reversal of the decline.

Obviously traditional retailers are being hit by the growth of the Internet based competitors. But large retailers from ASDA to John Lewis are reported to be concerned. Most blame two factors; the recent quarter point rise in interest rates and the debt overhang suffered by many British families.

To read the full story, click on the post title.

US Dollar nudging towards $2 to £1

The US Dollar continued to slide yesterday. At one point sterling was worth $1.967. The US is reeling from a series of bad news shocks. Confidence is falling and there is a growing belief that interest rates may have to be cut. The problem is that the US is running a current account deficit equivalent to 6.5% of GDP.

To read the Daily Telegraph's version, click on the post title.

2 Dollar Pound Approaching

Yesterday sterling hit $1.95 as the US economy appears to be faltering. A number of indicators show that the US economy is under pressure. These include house prices down 3.5%, industrial orders down 8.5% and a fall in the Consumer Confidence Index. US interest rates have been on a steady rise over the past two years. However, it appears that they are now pressuring the economy into a serious risk of deflation. To read a full report of the figures, click on the post title.

Farepak - From an economist's point of view

Leading economist John Kay, who writes a regular column in the Financial Times, has criticised the management of Farepak for blaming the banks for its demise.

The collapse of Farepak has deprived thousands of lower income families of their Christmas savings. Without naming names - parent company Chairman Sir Clive Thompson being the most famous - Kay has suggested that it was poor strategy rather than the banks which were to blame.


To read John Kay's article, click on the post title.

Debts - Individual Voluntary Arrangements

This is a follow-up to the earlier post on debt.

One way out of debt is to sign up to an Individual Voluntary Arrangement (IVA) which acts as a legally binding agreement between you and your creditors.

There are a number of benefits of to an IVA:

1. The interest rate spiral is brought to a halt

2. The unpaid balance of your debts is effectively written down

3. This could be as much as 75%

4. You replace this with one monthly payment

5. If you stick to the revised payments you are protected from further legal action

6. You avoid bankruptcy and therefore no need for embarrassing notices in the press

2 million people in debt

According to a report in the Daily Mail (20th November 2006) as many as 2 million people are so far in debt that they have no hope of repaying. For some people the debt mountain is now so large that interest payment absorb all their spare income. A boom in consumer spending aided by credit card and other loan facilities has seen many UK households overload with debt. The recent rise in interest rates, coupled with rising costs for energy will place many people at risk of bankruptcy.

The UK is now the debt capital of the world. And you only have to watch daytime TV to witness the growth of a burgeoning debt management industry. Providing management solutions is the latest growth area for financial advice.

To read the Daily Mail article, click on the post title.

First SIPP sales reported

French ski property Hotel des Deux Domaines has reported its first S.I.P.P. (Self Invested Personal Pension) sales. Property investments are only eligible if they are for commercial properties. Hotel des Deux Domaines is a ski hotel located in La Plagne.

UK Interest Rates rise

On Thursday 9th November the Bank of England Monetary Policy Committee raised interest rates to 5%. The increase was widely signalled. The increase has been brought about by fears regarding the level of domestic inflation, now in the region of 3%.

Inflation is very much a mixed bag. Factory gate prices are steady, energy costs are falling from their winter 2006 highs and oil is much lower following the reduced tension in the Middle East.

However, much of the UK domestic index is dominated by public sector items. Council Tax, which has almost doubled since 1997, and the introduction of higher levels of University Tuition Fees are driving up average household bills.

One area where costs are not only under control but falling is the electrical goods sector. This is impacting on everything from ipods, to flat screen TVs, to mobile phones. Technology is benefitting from the experience curve economies enunciated in Moore's Law, whereby the costs fall by 50% every 18 months. Apart from the manufacturing aspects there are also the benefits of a more competitive retail market. This is principally led by a move away from the high street to online retail. Online specialist retailers such as 121 Electricals can offer a leading model of flat screen TV at prices sometimes 10-20% below their high street equivalents. Prior to the rise of the Internet, the high street had become almost a duopoly of Dixons and Comet. Now online competition is providing both choice and lower prices.

Housing market to plunge

The Motley Fool has an article that claims to show why the next house price recession will be much worse than the last. The 1990s recession saw prices fall by around 11% over a 6 year period. A period when general inflation averaged 3 to 4% per annum. The article is written by Chris D'Arcy. D'Arcy sold his house last year and now lives in rented accommodation.

D'Arcy list 10 reasons for his views.

1. Consumers are overspending without care. On average 10% more than they're earning.
2. Household bills are soaring. Gas, electiricty, council tax etc are rising by 7%.
3. Mortgage debt has risen by an average of 8.5% per year over the last 9 years.
4. Non-mortgage debt has exploded. Rising by 11% per annum over the same period.
5. Mortgage equity withdrawal has soared.
6. Wage inflation has average just 4.2% over them same period. An average house now costs 6 times the average salary.
7. Meanwhile the savings rate has plunged.
8. Interest rates remain historically low and can only go up. Another 0.25% rise is probably due very soon.
9. The social security net for home owners has disappeared.
10. Private insurance to cover mortgage debt is, in his words, pants.

I would also add two more factors.

1. Much of the early part of the house price boom was fueled by the buy to let market. As soon as novice landlords realise they're onto a loser they will bail out in droves.
2. Speculation versus panic. Sentiment is very important in markets. For many years people have talked up the market and the market responded. Now people are talking the market down.