1. The stock market crash is not over yet.

We are currently in a very large rally.  Bears, like me on this occasion, generally get nervous the longer such a rally carries on – have I missed the bottom?!  It’s a kind of anxiety caused by not following what other people are doing.  What if they are right and I am wrong?  But looking at it from a logical point of view I still believe we’re on the way down.

Unemployment in the UK is already up by 244,000 this year.  Personal insolvencies and repossessions will continue to rise for many many months yet.  According to the Council of Mortgage Lenders, lenders repossessed 12,800 homes during the first quarter, up from 10,400 in the fourth quarter of 2008 and almost 50% up on the 8,500 reported a year ago.

Corporate insolvencies will increase and we will see investors returning to defensive stocks.  Right now investors are favouring high yielding volatile stocks as they seek out both income and capital appreciation.  The defensive stocks have been far from the best performers in this rally so far.

2. House prices will keep falling for a few years yet.

Nationwide has house prices down 15% from April 2008 to April 2009.  Halifax has it down 17.7% and down 22.55% since it’s peak.  The most entertaining statistic is from Rightmove.  They have property down 6.21% since it’s peak.  Well I know whose figures I trust and it certainly isn’t theirs!  Nationwide have an interesting graph:

What’s particularly interesting about this graph is that right now prices are clearly still heading south as they cross the long term price trend.  This is a feature of markets – return to the mean.

In other words, prices tend to overshoot and undershoot the mean as they oscillate around it.  You can see from the last crash that prices went well below the trend and that is where we are headed now.

You can see from the start of the graph that in the 80s prices only just dipped below the long term trend but this time I think we will be well below it.

I expect unemployment, difficulties in getting mortgage finance and general economic bad times to force house prices down to £100,000.

Another interesting feature to remember is that last time it took about 6 years to reach the bottom of the market.  America crashed before us this time and they are still going down now.  If you are waiting to get on the ladder don’t worry too much about being left behind as I expect the market still has a long way to go before it hits the bottom.

3. Gold will rise again and may even reach $1,500 this time.

Gold tends to go up in times of uncertainty and fear.  Despite the fact that it pays you no income the attractions of gold are important in times like these.  There is no credit risk and a highly liquid market.

I know it’s been up around $1,000 already in recent times and retreated but I think that retreat is merely down to the same denial that has brought us this stock market rally.  When this stage is over I expect gold to rise again.  Timing is merely a guess but I expect movement upwards towards the end of this year.

That’s it for my predictions.  I’ll revisit this post later in the year and see if my guesses (and predictions can never be any more than a guess) are near the mark!

1. The market needs to find it’s new balance and putting in a ‘false’ supply of money will only deepen the trouble we’re in

2. If we had propped the banks up to a small extent then we should consider it a lost investment and walk away but now, with so much at stake we are probably committed to the bitter end

3. If bankers are not punished for their behaviour then they will do it again, safe in the knowledge that their actions have no repercussions for them

4. The preservation of these part nationalised banks is now a political imperative so they already know they are safe

Bankers must be grinning ear to ear.

I’ve written before about my distrust of comparison sites (to various different degrees depending on the site) and despite the obvious bias BIBA is bound to have I can’t help but agree with them.

In January 2008, BIBA published market research which showed that:

* Over half of insurance buyers interviewed believe that customers do not fully understand the differences between each insurance policy offered via comparison websites
* 94% of insurance comparison website users do not believe that the details of what the policy covers and does not cover are explained fully
* 84% of insurance buyers said that the details of insurance policies offered via price comparison websites can be confusing
* 93% of consumers believe that insurance comparison websites should be regulated in the same way as insurance intermediaries
* 63% of buyers are nervous about purchasing from comparison websites
* 59% of insurance comparison website users believe that it was not very obvious or not obvious at all who the policy was underwritten by.

Essentially, it could be argued that comparison sites are selling complex financial products and customers need more protection from poor practices that could result in the sale of inappropriate products.

The benefits would be fantastic:

1. Immediately there would be increased trust in those banks and we would all have a safe place to put our savings.

2. Increased deposits at our banks makes them stronger and that’s good because we own them.

3. We could all tell the bankers to shove their bonuses up their overpaid bottoms whilst handing them their P45s. We should do this anyway since they are pretty much bankrupt entities and whoever heard of an insolvent company paying millions in bonuses?

4. Other banks who had been reckless (i.e. most of them) should be left to go to the wall if they cannot cope.  More business for our newly nationalised banks!

OK, it’s not really nationalisation but it’s what I’d like to see anyway.  It’s our money and we should have more control and the ability to sell our shares to other people who might like to invest in the future of those banks.  I’m sure there would be a market for them.

I heard on the news last night that Lloyds were to pay a bonus package of £120m. They said the average bonus is just £1,000. Averages are a nice way of hiding big numbers. If there were 10,000 staff and the bonus pot was £10,000,000 then the average bonus would be £1,000 even if it all went to the one man at the top if the tree. Do they think we are stupid?

Hold on… a bit more detail from the Guardian here.

Apparently the boss of Lloyds feels that if staff have met targets then they should get their bonus.  Sorry, just run that past me again.  Your bank is effectively saved from failure by massive injection of public money yet staff get a bonus.  Is he trying to come across as some sort of hero of the people?  Other industries are shedding jobs, in fact other banks are shedding jobs, and you want to pay bonuses?  I have nothing against the junior workers but at least they still have jobs because of taxpayer cash.  Surely that’s enough.

And what of the latest idiocy to come from Government – blaming everything on bankers when it was they who put in place the state of affairs that led/allowed the banking behaviour to develop. Despite their greed I do have a little sympathy with the bankers when they say what they did wrong was fail to anticipate the scale of the collapse. They worked within the framework that existed in order to maximise profits. That’s what shareholders expect.

The fact is that government policy (low interest rates for far too long), regulatory conditions (lax rules and not enough policing) and the (entirely natural) greed of bankers led virtually everybody in the banking industry to participate in practices that ultimately led to our current situation. The fact that they didn’t understand many of the financial instruments they were using is the part for which they cannot be excused. They didn’t understand the risks but proceeded with the gamble anyway.  Or worse, they understood the risks and thought they could escape with the cash before being rumbled.  Who could have predicted they would be rumbled yet still escape with the cash?!

Those at the top walk away with their millions from years of gambling excess while the rest suffer job losses and eroded savings. As usual the blame and the money goes right to the top.

UPDATE: an interesting take on the american solution

However, those kind bankers have seen fit to pass those rate cuts onto savers. Yes, those who have been prudent enough to save some money are now being penalised heavily. Pensioners who put their life savings into savings accounts in order to live off the interest are now truly struggling. Savings interest rates are falling rapidly towards zero.

Rate cuts are not the answer to our problems. I’m afraid a rather long and painful period of contraction is going to happen regardless and all we are doing now is making it worse.

Now Britain has wildcat strikes over the issue of foreign workers. The BNP were quick to take advantage of this new attitude. There is a real danger that they will see many more recruits to the BNP’s fascist agenda. Did anybody else see the ‘striker’ (BNP activist?) on the news last night refer to the Italians as “eye-ties”?

We should all try to keep things in perspective and think of the bigger picture. If there is no foreign demand for the UK’s exports then we all suffer. We can no longer operate without the rest of the world. Just look at the total collapse in exports currently being suffered by Japan. It’s worse than the collapse in the US in the 1930s. Look at factories closing in China as a result of falling demand.

It’s just so obvious that individual nations cannot take the beggar thy neighbour attitude without serious consequences. The trouble is that if all nations co-operated we would have a smoother ride but as soon as somebody doesn’t play the game and behaves selfishly they get an advantage. A nation’s leaders cannot be seen by the electorate to cede this advantage therefore we must all go for the less effective action – selfish protectionism from the outset.
At the very least Britain should remain a fully active member of the European Union. Let’s not let the fascist idiots drag us down the least productive and frankly rather disturbing path they promote.