The Short View

James Mackintosh

As the market rally falters (perhaps), John Authers and I have a new home on FT Alphaville.

This blog will no longer be updated, but our occasional thoughts and more frequent output will appear at Bookmark it and check back! Read more

James Mackintosh

The Bank of England has finally snapped. It is fed up with being constantly criticised for messing up its forward guidance on interest rates, and this week began what looks like a co-ordinated campaign to hit back.

Three of its policymakers have made speeches so far defending the policy, and their key points are simple. Here’s what they said, then some charts. Read more

John Authers

Lehman has, at last, been bankrupt for five years. I posted the last of the five-video series we put together for the anniversary here. This post is for those hardy few who have still not had enough of Lehman memorabilia. If you have the time and inclination, try looking through some of these videos, which I made at the time (when I was based in New York and still covered the Short View).

First, this video, which we produced for what we then considered to be the first anniversary of the crisis, in August 2008 a few weeks before Lehman, bears re-watching. The key message to be derived from it is that claims that nobody saw the Lehman bankruptcy coming, or the crisis that surrounded it, do not hold water. It features today’s interviewee, the former Olympic fencer James Melcher, and his comments are particularly prescient: Read more

James Mackintosh

Americans have been wondering if the housing market is in a double bubble for a little while, since Professor Robert Shiller, co-creator of the Case-Shiller house price indices, raised the danger.

The real action has been in housebuilders, though. Their valuations, based on price to estimated book value, peaked in May above where they stood at the height of the property bubble in 2005/6. Prices look very much like the rebound bubble in the Nasdaq, in the Dow Jones Industrials in the late 1930s and in the Nikkei 225 (although it wasn’t quite so big). This chart shows the Nasdaq and Nikkei time-shifted so the peaks overlap with the 2005 peak in housebuilding shares:

Housebuilders, Nasdaq and Nikkei

I’ve circled the point where the rebound went wrong again: seven to eight years later for both Nasdaq and, less spectacularly, the Nikkei (the Dow’s second depression-era boom-bust came in 1937, also eight years after the original bubble).

More fab charts, including one must-see on why US housing isn’t as affordable as everyone thinks, after the break. Read more

James Mackintosh

Spandau Ballet’s 1983 anthem Gold could be the national anthem for the world’s inflationistas.

Always believe in your soul
You’ve got the power to know
You’re indestructible
Always believe in, because you are
Gold! GOLD

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Stephen Foley, the FT’s markets correspondent, says a number of forces have combined to sour the outlook for the precious metal, and none of them seem likely to abate any time soon.

A suggestion by Dutch finance minister Jeroen Dijsselbloem that the Cyprus deal could mean depositors at troubled banks elsewhere in the eurozone also suffering has pushed banks back into bear territory. James Mackintosh, investment editor, warns of the risk of a vicious downward spiral unless Europe and the European Central Bank can reflate peripheral economies.

The S&P 500 is gnawing at an all-time high. Bond proxy stocks are driving the rally and James Mackintosh, investment editor, warns that as companies opt for share buy-backs rather than reinvesting, future profits and investors will be the poorer.

James Mackintosh

Among phrases you don’t hear any much any more are:

  • Safe as houses
  • As sound as a pound
  • As safe as the Bank of England.

It shouldn’t be a surprise that all three are out of fashion, after the US housing bubble that brought down the world economy, the collapse of sterling and the Bank of England’s failure to control inflation over either the past 50 years or the more recent past, when it was aiming for 2 per cent (the blue line on the chart).

UK CPI inflation and the target

Yesterday’s UK Budget avoided the extra inflationary pressure that would have come from fiddling with the target, which should give some support for the pound. But don’t get too positive: outgoing governor Sir Mervyn King voted for a second time for more monetary easing, and while he was outvoted again, Mark Carney is widely expected to be both more dovish and more convincing. I discuss this in today’s Short View column and video, and in greater detail below:

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The European Central Bank – like the Bank of England – has decided against an immediate further loosening of monetary policy, but Mario Draghi, president, says some ECB policymakers favour cutting interest rates. Ralph Atkins, the FT’s capital markets editor, argues that with small businesses in the eurozone’s south facing a severe credit crunch and the stronger euro hitting eurozone exports, further action from the ECB may soon prove inevitable.

An investor appeared to make sensible decisions with her family’s savings – avoiding her home country of Greece, picking a safe haven and bonds rather than equities. But as FT Alphaville reporter Lisa Pollack explains, the Dutch bank that issued the bonds she chose was nationalised and all was lost – a consequence of new legislation on bank resolutions.

Uncertainty over the outcome of Italy’s election has strengthened sterling as its safe haven status appeals, in spite of Moody’s downgrade of the UK. James Mackintosh, investment editor, examines the prospects for more of a bounce in sterling.

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There are two things that matter in investing: what the fundamentals, such as earnings and the economy, are doing, and where they are expected to go. Investment editor James Mackintosh says when sentiment is extreme, investors will react much more strongly to any sign of bad news.

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The pound fell after it emerged that governor Sir Mervyn King voted for more quantitative easing a fortnight ago. James Mackintosh, investment editor, explains how investors are viewing the prospect of further easing and a weaker pound, after the FTSE 100 rose above 5,400 for the first time in five years.

Germany’s ZEW survey was credited for a good day in the markets after showing investors were more positive about the economy than expected. James Mackintosh, investment editor, wonders about the circularity of the argument, and examines if the ZEW is a reliable indicator.

Michael MacKenzie, the FT’s US markets editor, talks about the recent decline in gold prices and the revival of the carry trade and whether the momentum behind these trades can last

After Warren Buffett’s Berkshire Hathaway agreed, with a partner, to buy Heinz for $28bn, the hunt is on for the Sage of Omaha’s next target. James Mackintosh, investment editor, says Buffett prefers safety to a bargain, but notes that Berkshire has underperformed the market – and Heinz – over the past decade.

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James Mackintosh

If you want to invest like Warren Buffett, there are quite literally hundreds of authors out there ready to help. In the past year alone, two dozen books have been published on the Sage of Omaha, covering everything from his travels to the women he employs.

After Thursday’s acquisition of HJ Heinz for $28bn, I thought it was worth pulling up a list of similar stocks for those who missed Heinz (and its 20% share price pop). Read more

James Mackintosh

Brits wanting a holiday in the sun have to stump up a lot more since the pound’s crash during the financial crisis. Even after a partial recovery, the pound remains down almost a fifth in real terms against its trading partners.

On the plus side, exports should be booming. Sadly, they aren’t. There are plenty of excuses explanations, but one stands out: British exporters have too much focus on slow-growing European economies and not enough on the whizzy emerging markets. The killer statistic is that the UK exports more to tiny troubled Ireland than to all the Brics put together. Read more

The G7 by committing to not doing something has of course got folk worried about that very thing, in this case targeting exchange rates and in particular the falling yen. James Mackintosh, investment editor, says some serious disappointment will be needed to halt the weakening yen.